SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                            ------------------------
                                    FORM 10-K
             [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended November 29, 1997
                   -------------------------------------------

                                       OR

           [ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                         Commission file number 1-12757
                          GENERAL CIGAR HOLDINGS, INC.
             (Exact name of registrant as specified in its charter)

         DELAWARE                                           13-3922128
         --------                                           ----------
(State or other jurisdiction of                          (I.R.S. Employer
incorporation or organization)                           Identification No.)

387 Park Avenue South, New York, New York                   10016-8899
-----------------------------------------                   ----------
(Address of principal executive offices)                    (Zip Code)

(Registrant's Telephone Number, Including Area Code)      (212) 448-3800
                                                          --------------

Securities registered pursuant to Section 
12(b) of the Act:
                                                        Name of each exchange
Title of each class                                      on which registered
-------------------                                      -------------------
Class A Common Stock, $0.01 par value              New York Stock Exchange, Inc.

Securities registered pursuant to Section 12(g) of the Act:
                 None

      Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

      State the aggregate market value of the voting stock held by
non-affiliates of the registrant. The aggregate market value shall be computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to the
date of filing: $262,000,000 approximately, based on the closing sales price on
the New York Stock Exchange on February 25, 1998.

      Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: As of February 25,
1998 Class A Common Stock: 12,290,060 shares; Class B Common Stock: 15,293,898
shares.

      The following documents, or portions thereof as indicated in the following
report, are incorporated by reference in the Parts of Form 10-K indicated:

Part                          Document
----                          --------

  I  Annual Report to Shareholders for the fiscal year ended November 29, 1997 
 II  Annual Report to Shareholders for the fiscal year ended November 29, 1997
III  Proxy Statement in connection with the 1998 Annual Meeting of Shareholders
 IV  Annual Report to Shareholders for the fiscal year ended November 29, 1997 
     (such Annual Report is referred to hereinafter as the "Annual Report")

--------------------------------------------------------------------------------
<PAGE>

FORM 10-K                                           GENERAL CIGAR HOLDINGS, INC.


                                     Part I

ITEM 1. - BUSINESS

General

      General Cigar Holdings, Inc. (which prior to February 1997 was a
wholly-owned subsidiary of Culbro Corporation) and its principal operating
subsidiary, General Cigar Co., Inc. (collectively, "General Cigar" or the
"Company") is the largest manufacturer and marketer in the U.S. in both units
and dollar sales of brand name premium cigars (imported, hand-made or
hand-rolled cigars made with long filler and all natural tobacco leaf). General
Cigar believes its Macanudo brand is the top selling premium cigar brand sold in
the U.S. and that three of its other brands are in the top ten.

      General Cigar markets its cigars under a number of well-known brand names.
General Cigar's premium cigars include the Macanudo, Partagas, Punch, Hoyo de
Monterrey, El Rey Del Mundo, Temple Hall, Cohiba, Canaria d'Oro, Cifuentes and
Ramon Allones brands. General Cigar's mass market large cigars include Garcia y
Vega, White Owl, Robt. Burns and Wm. Penn. General Cigar's mass market small
cigars include the Tiparillo and Tijuana Smalls brands, as well as smaller sizes
of its other mass market brands. General Cigar does not participate in the
market for little cigars, which are cigars that resemble cigarettes. General
Cigar also is the exclusive U.S. distributor of French made Djeep disposable
lighters, and it operates Club Macanudo, a cigar bar located in New York City. A
second Club Macanudo is scheduled to open in Chicago in April 1998.

      General Cigar is a grower and supplier of Connecticut Shade tobacco grown
on its own farms and used in making Macanudo, Temple Hall, Garcia y Vega and
other cigars. The Connecticut Shade tobacco used for wrapper on General Cigar's
cigars is sent to the Dominican Republic from Connecticut for curing and
fermentation, after which it is shipped back to the U.S. for aging. After aging
for one year, the bales of Connecticut Shade are returned to the Dominican
Republic for an additional period of fermentation, and are then sent back to the
U.S. a second time for additional aging before being shipped to General Cigar's
cigar manufacturing facilities in the Dominican Republic and Jamaica.
Approximately 33% of General Cigar's Connecticut Shade tobacco is sold to third
parties.

Sales and Marketing

      General Cigar sells its cigar products throughout the U.S. to over 1,300
customers, consisting of wholesale distributors, direct buying chains (including
food, drug, mass merchant, buying clubs and convenience store chains),
tobacconists, specialty retailers (such as Neiman Marcus and Orvis) and consumer
catalogue retailers. In 1997 one customer, J.R. Tobacco Company, accounted for
approximately 11.5% of General Cigar's total sales.

      General Cigar has a full-time, in-house sales analysis group, which
reviews cigar industry consumption reports prepared by national sales audit
firms, as well as sales information provided by retailers with respect to which
General Cigar acts as category manager. General Cigar also employs a direct
sales force to develop and service its sales to wholesalers, distributors,
direct buying chains and tobacconists. General Cigar's sales force is composed
of two groups, one group responsible for the sale of all General Cigar's
products and a separate group of "premium specialists" focusing on the sale and
promotion of premium cigars with tobacconists, cigar clubs, restaurants, premium
cigar distributors and other specialty retailers. General Cigar's sales force
operates nationally with account coverage structured geographically to provide
for close relationships with local customers.


                                       2
<PAGE>

FORM 10-K                                           GENERAL CIGAR HOLDINGS, INC.


      General Cigar actively pursues innovative outlets for marketing its
premium cigars to the luxury goods consumer, such as golf pro shops and upscale
wine shops. General Cigar also has developed a program through which it markets
cigars and cigar menus directly to restaurants. With respect to its mass market
brands, General Cigar has adopted a program to promote its brands with certain
retailers, such as CVS and Walmart/McLane, by acting as tobacco Acategory
manager". General Cigar also provides a wide variety of cigar merchandising
fixtures and point-of-sales support to its retailers. These fixtures help to
maintain an attractive in-store product presentation and to improve shelf space
and positioning of General Cigar's brands.

      General Cigar advertises its premium cigar products in cigar specialty
magazines, such as Cigar Aficionado and Smoke, as well as general magazines
targeted to an upscale adult audience such as Fortune, Forbes and Golf Digest.
General Cigar advertises its mass market cigar products primarily through
newspapers, sports magazines and similar publications, as well as its website,
"cigarworld.com." General Cigar has substantially increased its marketing and
advertising expenditures in order to continue to build the brand recognition of
its premium cigar brands, as well as to support new product introductions. Since
1993, General Cigar has brought to market a broad array of new products and
brand extensions primarily in connection with its brand-oriented cigar
marketing, including limited edition cigars under the Partagas 150 and
multi-year Macanudo Vintage offerings and Macanudo, Cohiba, Cifuentes and
Partagas branded logo apparel.

      Sales of General Cigar's cigar products outside of the U.S. currently are
not material, although General Cigar plans to increase its international
presence, particularly with respect to the Macanudo brand. General Cigar will
focus its efforts in the United Kingdom, Germany, France, Spain, China, Russia
and certain countries in South America, as well as duty free markets worldwide.
General Cigar recently became the only U.S. cigar maker to receive approval from
the government of China to market and sell its products in that country. General
Cigar already has begun distributing premium and mass market cigars in China.

      On October 2, 1997, the Company acquired DB International Marketing, Ltd.,
("DBI") a U.K. based cigar distribution company, which previously was a customer
of the Company. DBI was subsequently renamed General Cigar International
("GCI"). The purchase price has been estimated at $7.0 million of which $2.0
million was paid at closing. The final purchase price will be determined based
on a percentage of sales for each of the succeeding fiscal years through the
year 2000. The excess of the estimated purchase price over the net tangible
assets acquired was approximately $6.7 million, and is being amortized over 15
years. DBI sales and operating profit for the period in fiscal 1997 prior to the
acquisition were $6.3 million and $0.9 million, respectively.

Trademarks

      General Cigar's success and ability to compete are dependent to a
significant degree on its trademarks. General Cigar generally owns the
trademarks under which its products are sold. General Cigar has registered its
trademarks in the U.S. and many other countries and will continue to do so as
new trademarks are developed or acquired. General Cigar holds the right to use
the Macanudo trademark and brand name for cigars in many countries worldwide.
General Cigar does not, however, hold or own the right to use certain of its
well-known trademarks and brand names, including Partagas and Cohiba, in most
foreign markets. General Cigar's ability to expand into such markets by
capitalizing on the strength of its brand names in the U.S. may be limited by
its inability to use or acquire such brand names in those foreign markets.
General Cigar pays royalties to the prior owners of certain of its trademarks.
Such payments are not material. General Cigar owns the following U.S.
trademarks:


                                       3
<PAGE>

FORM 10-K                                           GENERAL CIGAR HOLDINGS, INC.


Premium Cigar Brands                            Mass Market Cigar Brands
--------------------                            ------------------------
 Macanudo                                       Garcia y Vega
 Partagas                                       White Owl
 Punch                                          Tiparillo
 Hoyo de Monterrey                              Robt. Burns
 Cohiba                                         Tijuana Smalls
 Cifuentes                                      Wm. Penn
 Excalibur                                      Lord Beaconsfield
 Ramon Allones                                  Villa De Cuba
 Temple Hall                                    Pedro Iglesias
 El Rey Del Mundo                               Top Stone
 Canaria d'Oro                                  Villazon Deluxe
 Bolivar
 Belinda
 Bances

      General Cigar vigorously defends its trademarks from their improper use by
others, including the manufacturers and distributors of infringing and
counterfeit cigars. In December 1997 General Cigar was issued a preliminary
injunction by a U.S. District Court against Global Direct Marketing, a New York
company distributing cigars which infringed General Cigar's Cohiba brand. See
also "Legal Proceedings - Other Litigation" for a discussion of other
proceedings related to General Cigar's Cohiba brand.

Raw Materials

      General Cigar has strong relationships with tobacco suppliers and is
expanding its commercial and technical ties with local growers to secure a
variety of sources for raw materials, ensure the quality of its raw materials
and maximize cost savings.

      The most important material in the manufacture of cigars is properly aged
tobacco. Arrangements for the procurement of tobacco typically are made at the
time the tobacco is planted, approximately three to four years before the
tobacco will be manufactured into cigars. General Cigar buys tobacco directly
from a large number of suppliers worldwide and does not believe that it is
dependent on any single source for tobacco. During 1996, General Cigar
discontinued shipping Macanudo cigars for a two month period as excessive demand
led to a shortage of properly aged and blended tobacco. General Cigar has
experienced shortages in Cameroon-grown natural wrapper tobacco, which is used
in making Partagas and Cohiba cigars, due to the increase in demand for high
quality natural wrapped cigars. Because General Cigar is a leading grower and
supplier of Connecticut Shade tobacco, which is used in making Macanudo, Temple
Hall and Garcia y Vega cigars, General Cigar has not experienced similar
shortages with respect to Connecticut Shade. The increase in demand has caused
the price of natural wrapper and premium cigar tobaccos to increase. General
Cigar has an extensive seed development program to improve the wrapper tobacco
characteristics. General Cigar lost certain seed samples and records in a fire
in 1994. It is currently litigating its claim for the value of its lost seeds
with its property insurance carrier.


                                       4
<PAGE>

FORM 10-K                                           GENERAL CIGAR HOLDINGS, INC.


Competition

      General Cigar is the largest manufacturer and marketer in the U.S. in both
units and dollar sales of brand name premium cigars. General Cigar's main
competitors in the branded and private label premium markets include Davidoff,
Fuente, Consolidated Cigar Holdings Inc. and Matasa. In addition, the increased
demand for cigars and the relatively low barriers to entry have led to many new
entrants in the premium cigar manufacturing business. General Cigar's main
competitors in the mass market cigar market are Swisher International Group
Inc., Consolidated Cigar Holdings, Inc., and Havatampa/Phillies Cigar
Corporation, which was recently acquired by multi-national Tabacalera, S.A., the
former Spanish tobacco monopoly. It has been reported that Tabacalera, S.A. will
also become a competitor in the premium market.

The Tobacco Industry

      Regulation

      Cigar manufacturers, like other producers of tobacco products, are subject
to regulation at the federal, state and local levels. Federal law has recently
required states, in order to receive full funding for federal substance abuse
block grants, to establish a minimum age of 18 years for the purchase of tobacco
products, together with an appropriate enforcement program. The recent trend is
toward increasing regulation of the tobacco industry, and the recent increase in
popularity and visibility of cigars could lead to an increase in the regulation
of cigars. A variety of bills relating to tobacco issues have been introduced in
recent sessions of the U.S. Congress, including bills that would have (i)
prohibited the advertising and promotion of all tobacco products or restricted
or eliminated the deductibility of such advertising expenses, (ii) increased
labeling requirements on tobacco products to include, among other things,
addiction warnings and lists of additives and toxins, (iii) shifted regulatory
control of tobacco products and advertisements, (iv) substantially increased
tobacco excise taxes and (v) required tobacco companies to pay for health care
costs incurred by the federal government in connection with tobacco related
diseases.

      Recently various legislative initiatives have been proposed in connection
with the highly publicized proposed settlement of the various State Attorneys
General medicare actions and the class action and private lawsuits involving the
major cigarette manufacturers and the largest smokeless tobacco company. While
cigar manufacturers were neither defendants in such actions not participants in
the settlement, various of the legislative initiatives proposed to implement
aspects of the settlement have applied to all tobacco products, including
cigars. Moreover, respected members of the public health community and others
have called for Food and Drug Administration ("FDA") jurisdiction over all
tobacco products which contain nicotine. While no reliable standard testing
procedure has been established for cigars because of their many types, sizes and
shapes, and manner of use, it is undisputed cigars contain nicotine and some
will call for FDA regulation of cigars for that reason. The settlement, if
enacted into law as negotiated and applied to cigars, would impose severe
restrictions upon the way General Cigar manufactures, advertises and promotes
its cigars and in the manner which many retailers could display and sell them.


                                       5
<PAGE>

FORM 10-K                                           GENERAL CIGAR HOLDINGS, INC.


      In August 1996, the FDA published a final rule on tobacco in the Federal
Register. Specifically, the rule prohibits a variety of activities relating to
the sale of cigarettes and smokeless tobacco, including the distribution of
non-tobacco items, such as hats and tee shirts, that carry cigarette logos.
These regulations are not currently applicable to cigars; however, there can be
no assurance that these regulations will not be extended to include cigars in
the future. A significant portion of General Cigar's Djeep lighter sales is to
cigarette manufacturers who sell or give away such lighters with their
cigarettes. These regulations would have a material adverse effect on General
Cigar's Djeep lighter business. A federal court recently ordered the FDA not to
implement the advertising and promotional restrictions which would have affected
the Djeep lighter business. The court, however, upheld FDA jurisdiction over
cigarettes and smokeless tobacco. The decision has been appealed by both the FDA
and the tobacco companies and a decision from the appellate court is expected
soon.

      The FDA considered asserting jurisdiction over little cigars in 1995. It
declined to do so in the final rule issued in August 1996 principally because
the FDA concluded that little cigars were not used significantly by teenagers.
In May 1997 the Center for Disease Control ("CDC") issued a widely publicized
report that has come most often to be cited for the claim that "more than a
quarter of the nation's teenagers have smoked a cigar in the past year." While
General Cigar does not produce little cigars and believes the incidence of youth
usage of cigars has been exaggerated, the CDC report is being cited as
justification for extending the legislation implementing the proposed settlement
to all cigars, and for FDA jurisdiction of all cigars.

      In addition, the majority of states restrict or prohibit smoking in
certain public places and restrict the sale of tobacco products to minors. Local
legislative and regulatory bodies also have increasingly moved to curtail
smoking by prohibiting smoking in certain buildings or areas or by requiring
designated "smoking" areas. Further restrictions of a similar nature could have
an adverse effect on the sales or operations of General Cigar. Numerous
proposals also have been considered at the state and local level restricting
smoking in certain public areas, regulating point of sale placement and
promotions and requiring warning labels. In California, an important state for
General Cigar's sales, the exemption from no-smoking regulations accorded
taverns, bars and cigar bars expired January 1, 1998.

      California requires "clear and reasonable" warnings to consumers who are
exposed to chemicals determined by the state to cause cancer or reproductive
toxicity, including tobacco smoke and several of its constituent chemicals. As a
result, all of General Cigar's cigar packaging has, since 1989, contained the
following: "WARNING: This Product Contains/Produces Chemicals Known to the State
of California to Cause Cancer, and Birth Defects or Other Reproductive Harm".
Legislation recently introduced in Massachusetts would, if enacted, also require
warning labels on cigar packaging. Texas, Minnesota and Utah have recently
passed ingredient, additive and/or nicotine disclosure laws applicable to
cigars. Although federal law has required health warnings on cigarettes since
1965 and on smokeless tobacco since 1986, there is no federal law requiring that
cigars carry such warnings. There can be no assurance that such legislation
introduced in other states will not be passed in the future or that other states
will not enact similar legislation. Consideration at both the federal and state
level also has been given to consequences of tobacco smoke on non-smokers (so
called "second-hand" smoke). The expressed concern of the California legislators
who supported the expiration of the no-smoking exemption for taverns, bars and
cigar bars was the effect of second-hand smoke on the employees of such
establishments. There can be no assurance that regulations relating to
second-hand smoke will not be adopted or that such regulations or related
litigation would not have a material adverse effect on General Cigar's financial
condition.


                                       6
<PAGE>

FORM 10-K                                           GENERAL CIGAR HOLDINGS, INC.


      The U.S. Environmental Protection Agency (the "EPA") published a report in
1993 with respect to the respiratory health effects of second-hand smoke, which
concluded that widespread exposure to environmental tobacco smoke presents a
serious and substantial public health concern. Issuance of the report, which is
based primarily on studies of passive cigarette smokers, may lead to further
legislation designed to protect non-smokers. Also, a study published in the
journal Science reported that a chemical found in cigarette smoke has been found
to cause genetic damage in lung cells that is identical to damage observed in
many malignant tumors of the lung and, thereby, directly links lung cancer to
smoking.

      The National Cancer Institute is expected to issue in the very near future
a comprehensive report describing research into cigars and health. The report is
expected to be generally adverse and widely publicized and could affect pending
and future tobacco regulation and litigation. See "Litigation."

      In February 1998, the Federal Trade Commission ("FTC") issued orders to
five of the largest cigar companies, including General Cigar, requiring them to
file "special reports" on their sales and advertising expenditures. The FTC
orders require the cigar manufacturers to report the total number of cigars
sold, the total dollar volume of cigar sales, and the total dollar amounts
expended on cigar advertising, merchandising and promotion in 1996 and 1997. The
orders also require a breakdown of different categories of advertising and
marketing expenses for each cigar brand marketed, including any payments for
placement of cigar products in movies and on television. These categories of
information are similar to the categories of information that the cigarette and
smokeless tobacco manufacturers are required to report to the FTC, and which is
reported on an aggregate basis by the FTC to Congress. General Cigar voluntarily
provided advertising materials to the FTC staff in 1996 and intends to comply
with the orders and cooperate with the FTC investigation, which could lead to
regulations and/or legislation respecting cigar advertising and promotion,
including health warning labels.

      Increased cigar consumption and the publicity such increase has received
may increase the risk of additional regulation. There can be no assurance as to
the ultimate content, timing or effect of any additional regulation of tobacco
products by any federal, state, local or regulatory body, and there can be no
assurance that any such legislation or regulation would not have a material
adverse effect on General Cigar's business.

      Litigation

      Historically, the cigar industry has experienced less health-related
litigation than the cigarette and smokeless tobacco industries have experienced.

      Litigation against the cigarette industry historically has been brought by
individual cigarette smokers. In 1992, the United States Supreme Court in
Cipollone v. Liggett Group, Inc. ruled that federal legislation relating to
cigarette labeling requirements preempts claims based on failure to warn
consumers about the health hazards of cigarette smoking, but does not preempt
claims based on express warranty, misrepresentation, fraud or conspiracy. To
date, individual cigarette smokers' claims against the cigarette industry
generally have been unsuccessful. A jury in Florida, however, determined that a
cigarette manufacturer was negligent in the production and sale of its
cigarettes and sold a product that was unreasonably dangerous and defective,
awarding the plaintiffs a total of $750,000 in damages.


                                       7
<PAGE>

FORM 10-K                                           GENERAL CIGAR HOLDINGS, INC.


      Current tobacco litigation generally falls within one of three categories:
class actions, individual actions and actions brought by individual states or
other entities that provide payments for medical services generally to recover
medical costs allegedly attributable to tobacco-related illnesses. The pending
actions allege a broad range of injuries resulting from the use of tobacco
products or exposure to tobacco smoke and seek various remedies, including
compensatory and, in some cases, punitive damages together with certain types of
equitable relief such as the establishment of medical monitoring funds and
restitution. The major tobacco companies are defending certain of these actions
(such as in Minnesota where a trial is in progress) and have settled others,
reportedly for tens of billions of dollars to be paid over many years.

      In 1996 the Fifth Circuit Court of Appeals in Castano v. American Tobacco,
et al. reversed a Louisiana district court's certification of a nationwide class
consisting essentially of nicotine dependent cigarette smokers. Notwithstanding
the dismissal, new class actions asserting claims similar to those in Castano
recently have been filed in certain states. To date, two pending class actions
against major cigarette manufacturers have been certified. The first case is
limited to Florida citizens allegedly injured by their addiction to cigarettes;
the other is limited to flight attendants allegedly injured through exposure to
secondhand smoke. The flight attendants' action reportedly has been settled by
some or all of the defendant cigarette manufacturers for over $300 million.

See "ITEM 3. - Legal Proceedings."

Excise Taxes

      Cigars long have been subject to federal, state and local excise taxes,
and such taxes frequently have been increased or proposed to be increased, in
some cases significantly, to fund various legislative initiatives. The federal
excise tax rate on large cigars (weighing more than three pounds per thousand
cigars) is 12.75% of the manufacturer's selling price, net of the federal excise
tax and certain other exclusions, capped at $30.00 per thousand cigars.

      In 1993 the Clinton Administration proposed a significant increase in
excise taxes on cigars, pipe tobacco, cigarettes and other tobacco products to
fund the Clinton Administration's health care reform program. General Cigar
believes that the volume of cigars sold would have been dramatically reduced if
excise taxes were enacted as originally proposed. In 1998 various legislative
initiatives relating to the proposed cigarette settlement have been proposed
which, if enacted, could raise the federal cigarette excise tax significantly.
Several of these proposed bills would apply to other tobacco products, including
cigars, and raise their excise tax proportionately. Enactment of these
initiatives could have a material adverse effect on the business of General
Cigar. General Cigar is unable to predict the likelihood of the passage or the
enactment of future increases in tobacco excise taxes as they relate to cigars.

      Tobacco products also are subject to certain state and local taxes.
Childrens' health concerns at the state level exert pressure to increase tobacco
taxes. The number of states that impose excise taxes on cigars is over 40. State
cigar excise taxes are not subject to caps similar to the federal cigar excise
tax. From time to time, the imposition of state and local taxes has had some
impact on sales regionally. The enactment of new state excise taxes and the
increase in existing state excise taxes are likely to have an adverse effect on
regional sales as cigar consumption generally declines.


                                       8
<PAGE>

FORM 10-K                                           GENERAL CIGAR HOLDINGS, INC.


Employees

      General Cigar employs approximately 6,000 persons, plus an additional
1,000 seasonal employees. At present, employees at General Cigar's Kingston,
Jamaica location are represented by two unions, the Trade Union Congress
("TUC"), which represents production and maintenance workers, and the Bustamante
International Trade Union ("BITU"), which represents supervisors and office and
clerical employees. General Cigar's contract with TUC expires in March 1999, and
its contract with BITU expired in December 1997 but is mutually extended while
the parties are renegotiating the terms. On occasion, work stoppages have
occurred during the negotiation of new union contracts in Jamaica, and there can
be no assurance that such a stoppage will not occur in connection with the
negotiation of any new contract.

      In addition, employees at General Cigar's Villazon & Company facility in
Tampa, Florida are represented by the Cigar Makers' Union Local 533 of the
Retail, Wholesale and Department Store Union AFL-CIO-CLC. General Cigar is in a
dispute with the Union Trustees as to contributions required to be made by it
and the sellers of the Villazon & Company business to the Union's multi-employer
pension fund. No other employees of General Cigar are represented by unions.
General Cigar believes that its relations with its employees are satisfactory.
Recently, the increased demand for cigars has led to increased demand for cigar
rollers, and a number of these employees have taken advantage of employment
opportunities with competitors and new market entrants.

ITEM 2. - Properties

      Land Holdings

      General Cigar owns approximately 1,100 acres of land in the Connecticut
River Valley used in its tobacco growing operations. In addition, General Cigar
is leasing for a ten-year period approximately 500 acres of arable land in
Connecticut from its former affiliate Griffin Land & Nurseries, Inc.
("Griffin"). Griffin at its option may terminate the lease as to 100 acres
annually.


                                       9
<PAGE>

FORM 10-K                                           GENERAL CIGAR HOLDINGS, INC.


      Principal Properties

      As of February 25, 1998, the principal properties owned or leased (most
leases are subject to renewal) by General Cigar for use in its business
included:

<TABLE>
<CAPTION>
                           Owned         Lease
Location                   or            Expiration    Nature of Operations       Approximate
--------                   Leased        Date          --------------------       Floor Space (1)
                           ------        ----                                     ---------------

<S>                        <C>           <C>           <C>                        <C>    
New York, New York         Owned(2)      N/A           Executive Offices-New      210,000
                                                       York Headquarters
New York, New York         Leased        8/31/05       Club Macanudo-Cigar Bar    5,000
Kingston, Jamaica, W.I.    Owned         N/A           Cigar Manufacturing        119,000
Dothan, Alabama            Leased (3)    11/1/01       Cigar Manufacturing &      165,000
                                                       Warehousing
Hatfield, Massachusetts    Owned         N/A           Tobacco Warehouse          81,000
Santiago, Dominican        Leased (4)    10/31/01      Tobacco Processing, Cigar  384,243
Republic                                               Manufacturing & Storage
Dominican Republic         Leased        9/15/01       Tobacco Growing            80 acres
Bloomfield, Connecticut    Leased        8/30/06       General Cigar Co., Inc.    11,137
                                                       Executive Offices
Bloomfield, Connecticut    Leased        10/17/06      General Cigar Co., Inc.    12,500
                                                       Bloomfield Headquarters
Bloomfield, Connecticut    Owned         N/A           Warehouse                  30,000

Ellington, Connecticut     Owned         N/A           Tobacco Growing            202 acres
Granby, Connecticut        Owned         N/A           Tobacco Growing            449.3 acres
Suffield, Connecticut      Owned         N/A           Tobacco Growing            204.8 acres
Woking, England            Leased        12/9/2018     Office                     1,352 square feet
San Pedro Sula, Honduras   Owned         N/A           Manufacturing &            6.9 acres (entire
                                                       Distribution               site)

San Pedro Sula, Honduras   Leased        3/31/99       Offices                    421 square meters
Danli, Honduras            Owned         N/A           Manufacturing &            5,500 square meters
                                                       Distribution
Tampa, Florida             Owned         N/A           Executive Offices,         57,500
                                                       Manufacturing & 
                                                       Distribution
Upper Saddle River, New    Leased        12/31/00      Sales & Distribution       21,500
Jersey
Chicago, Illinois          Leased        9/31/01       Club Macanudo-Cigar Bar    11,000
</TABLE>
--------------
(1) In square feet, except where indicated.

(2) General Cigar uses approximately 25,000 square feet. The balance is leased
or available for lease.

(3) Industrial Revenue Bond financing lease. General Cigar owns a 52,000 square
foot warehouse in Dothan, Alabama that is leased to a third party.

(4) General Cigar leases property in Santiago, Dominican Republic for its cigar
manufacturing, tobacco processing and tobacco warehousing operations. These
operations are conducted in several different facilities which are subject to 11
different leases. The leases have expiration dates ranging from 1998 to 2001 and
each is subject to a renewal option. General Cigar subleases 70,000 square feet
of these facilities to Shade Leaf Processors.


                                       10
<PAGE>

FORM 10-K                                           GENERAL CIGAR HOLDINGS, INC.


      General Cigar believes that its existing manufacturing facilities and
distribution centers are adequate for the current level of General Cigar's
operations. General Cigar is, however, in the process of expanding its
operations to meet increasing demand. General Cigar recently completed the
expansion of its manufacturing space in Jamaica, through a combination of new
construction and reconfiguration of existing space at those facilities to
increase the overall square footage devoted to the manufacturing process. A
similar expansion in the Dominican Republic is nearing completion.

      Capital expenditures in 1998 are projected at approximately $20 million,
principally to complete current manufacturing capacity expansion projects, and
install a new computer system. General Cigar has commenced installation of a new
computer information system which will provide significantly enhanced systems
capability, as well as "Year 2000" readiness. The cost of the entire project is
estimated at $7 million, and the funds will be expended principally in 1998.

      General Cigar believes that its facilities are well maintained and in
substantial compliance with environmental laws and regulations.

ITEM 3. - Legal Proceedings

      Tobacco Litigation

      General Cigar is a party to lawsuits incidental to its business. General
Cigar has been named in a lawsuit brought in federal court in Tampa, Florida by
a prisoner seeking damages for personal injury allegedly caused by smoking
cigars manufactured by General Cigar. General Cigar has moved to dismiss the
case and the motion to dismiss is pending. General Cigar, together with a
variety of other tobacco product manufacturers and retailers, has been named in
eight suits in Florida since 1995; however, it has been served in only five of
these lawsuits and in four such cases was voluntarily dismissed as a defendant
(without prejudice in each such dismissed case). One of the suits in which
General Cigar has been named but not served is a putative class action, filed on
or about August 30, 1996, brought against General Cigar and 13 other defendants
on behalf of Florida residents alleged to be addicted to nicotine and injured as
a result of smoking cigarettes. In addition, General Cigar and 13 others were
named as defendants in two "form" complaints that identified no plaintiffs,
filed in August 1996, apparently in contemplation of filing additional
complaints on behalf of individual plaintiffs. General Cigar has not been served
with complaints in any such cases. General Cigar believes that the outcome of
such legal proceedings as are pending will not in the aggregate have a material
adverse effect on General Cigar's consolidated financial position. General Cigar
carries general liability insurance but has no health hazard policy, which, to
the best of General Cigar's knowledge, is consistent with industry practice.
There can be no assurance, however, that there will not be an increase in
health-related litigation against cigar manufacturers. The costs to General
Cigar of defending prolonged litigation and any settlement or successful
prosecution of any material health-related litigation against manufacturers of
cigars, cigarettes or smokeless tobacco or suppliers to the tobacco industry
could have a material adverse effect on General Cigar's business. The recent
increase in the consumption of cigars and the publicity such increase has
received may have the effect of increasing the probability of legal claims
against cigars.


                                       11
<PAGE>

FORM 10-K                                           GENERAL CIGAR HOLDINGS, INC.


      Other Litigation

      In the spring of 1995, General Cigar discovered and immediately notified
U.S. Customs officials that packages of marijuana were passing through its
Dothan, Alabama plant, apparently secreted by persons still unknown in cigar
shipping cartons originating from General Cigar's Kingston, Jamaica plant.
General Cigar has since fully cooperated with U.S. Customs and other federal and
state officials throughout their investigation of this alleged drug trafficking.

      As a result of investigating the drug shipments, General Cigar uncovered
information which led to the conviction of one of its senior managers on 25
counts of mail fraud, who was sentenced to 44 months in a federal prison. The
employee brought suit (which was withdrawn in January 1998) for wrongful
termination and alleged a number of illegal activities by General Cigar,
including election campaign contribution violations. The alleged improper
campaign contributions, aggregating $11,000, have been refunded by such
campaigns. General Cigar entered into a conciliation agreement with the Federal
Election Commission pursuant to which it paid in 1997 a penalty of $80,000 in
connection with these contributions. General Cigar denied any intent to violate
the election law.

      In May 1995, the SEC began an informal investigation into trading in the
common stock of Culbro Corporation, the then parent company of General Cigar
("Culbro"), in the period prior to Culbro's announcement of an agreement in
principle to sell a 51% interest in General Cigar. The SEC staff was provided
with numerous documents they requested and they interviewed several officers of
Culbro and General Cigar. General Cigar does not know the status of the
investigation, but it received no communication from the SEC in 1997.

      Empressa Cubana Del Tabaco ("Cubatabaco") filed a petition on January 15,
1997 in the United States Patent and Trademark Office ("USPTO") to cancel
General Cigar's two United States trademark registrations of the name Cohiba for
use in connection with cigars. Cubatabaco's petition was filed in response to
the USPTO's anticipated rejection of its attempt to register its Cohiba
trademark in the United States. Subsequently, Cubatabaco filed suit against
General Cigar in U.S. District Court to preliminarily and permanently enjoin
General Cigar's sales of Cohiba cigars and for monetary damages. General Cigar
believes its Cohiba registrations were properly issued by the USPTO and are
valid and that it owns the exclusive right to use the Cohiba mark in the United
States. General Cigar will vigorously defend its rights and registrations in
these proceedings. Both proceedings have been suspended by agreement of the
parties as the parties negotiate a possible settlement of the dispute. General
Cigar's sales of Cohiba cigars represent a small, but growing, percentage of its
premium cigar sales.

      General Cigar believes that the outcome of such pending legal proceedings
in the aggregate will not have a material adverse effect on General Cigar's
consolidated financial position. There can be no assurance, however, that
General Cigar will not experience material health-related litigation in the
future. For a discussion of litigation affecting the tobacco industry in
general, see "ITEM 1 - Business - The Tobacco Industry - Litigation".


                                       12
<PAGE>

FORM 10-K                                           GENERAL CIGAR HOLDINGS, INC.


--------------------------------------------------------------------------------
FORWARD LOOKING STATEMENTS: Certain matters discussed within this Form 10-K may
constitute forward-looking statements within the meaning of the federal
securities laws. Such statements include, without limitations, the Company's
beliefs about trends in the cigar industry and its views about the long-term
future of the industry and the Company. The following factors, among others,
could cause the Company's financial performance to differ materially from that
expressed in such statements (i) changes in consumer preferences resulting in a
decline in the demand for and consumption of cigars; (ii) an inability on the
part of the Company to increase production of cigars, particularly premium
cigars, to meet demand as a result of, among other things, a shortage of raw
materials, trained labor or production capacity, (iii) an increase in the price
of raw materials, (iv) additional governmental regulation of tobacco or further
tobacco litigation, (v) enactment of new, or significant increases in existing,
excise or other taxes or fees or (vi) political and/or economic instability in
foreign countries where the Company has operations.
--------------------------------------------------------------------------------

                                     PART II

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      None

ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK
      AND RELATED SECURITY HOLDER MATTERS

      On February 24, 1998 the approximate number of record holders of Common
Stock (of Class A and Class B shares) of General Cigar (including Culbro holders
who have not yet tendered their Culbro shares for exchange) was approximately
850 which does not include beneficial owners whose shares are held of record in
the names of brokers or nominees. The closing market price of the Class A Common
Stock as quoted on the New York Stock Exchange on such date was $15.25 per
share. The information appearing (i) under Quarterly Data on Common Shares in
the Annual Report, (ii) in Note 9 to the Consolidated Financial Statements and
(iii) in Note 14 to the Consolidated Financial Statements are hereby
incorporated by reference.

ITEM 6 - SELECTED FINANCIAL DATA

      The Consolidated Statement of Operations and the Selected Financial Data
appearing in the Annual Report are hereby incorporated by reference.

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
      FINANCIAL CONDITION AND RESULTS OF OPERATIONS

      The Management's Discussion and Analysis in the Annual Report is hereby
incorporated by reference.


                                       13
<PAGE>

FORM 10-K                                           GENERAL CIGAR HOLDINGS, INC.


ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The Consolidated Financial Statements together with the Report of
Independent Accountants are hereby incorporated by reference.

ITEM 9 - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

      Not applicable.

                                    PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

      In accordance with General Instruction G-3 to Form 10-K, the information
called for in this Item 10 with respect to directors is not presented here since
such information is included in the definitive proxy statement which involves
the election of directors which will be filed pursuant to Regulation 14A not
later than 120 days after the close of the fiscal year, and such information is
hereby incorporated by reference from such proxy statement.

      The following table sets forth the information called for in this Item 10
with respect to executive officers and other key employees of General Cigar.
Unless otherwise specified, all references prior to 1997 are to Culbro.

Name of executive               Other present    Year          Other positions
officer and                     positions and    service       or other business
present principal               offices          as executive  experience during
position                        (beginning       officer       past five
(beginning year)          Age   year)            began         years (years)
----------------          ---   -------------    -----         -------------

Edgar M. Cullman          80    Director         1963          None
Chairman of the Board           (1961)
(1975)

Edgar M. Cullman, Jr.     51    Director         1983          Chief Operating 
President (1984)                (1982)                         Officer
                                Chief Executive                (1992-1996)
                                Officer (1996)

Edward B. Polite          53    Chief Operating  1998          President, CMS 
Executive Vice President        Officer (1998)                 Gilbreth 
(1997)                                                         Packaging Systems
                                                               (1992-1996)

Jay M. Green              50    Treasurer        1988          None
Executive Vice                  (1988)
President and Chief
Financial Officer (1988)


                                       14
<PAGE>

FORM 10-K                                           GENERAL CIGAR HOLDINGS, INC.


Name of executive               Other present    Year          Other positions
officer and                     positions and    service       or other business
present principal               offices          as executive  experience during
position                        (beginning       officer       past five
(beginning year)          Age   year)            began         years (years)
----------------          ---   -------------    -----         -------------

A. Ross Wollen            54    Senior Vice      1977          None
General Counsel                 President 
(1980)                          (1983)
                                Secretary 
                                (1987)

Joseph C. Aird            53    None             1987          None
Senior Vice President-
Controller (1987)

David M. Danziger         32    Senior Vice      1996          Director of 
Vice President                  President-                     Operational 
Corporate Development           Villazon &                     Projects - The 
(1996)                          Company (a                     Eli Witt Company 
                                subsidiary of                  (7/95-1/96);
                                General Cigar)                 Harvard Business 
                                (1998)                         School (MBA) 
                                                               (9/92-6/94)

Austin T. McNamara        43    President of     1994          Senior Vice 
Executive Vice President        General  Cigar                 President of 
(1996)                          Co., Inc.                      Sales & Marketing
                                (1994)                         (1993-1994)

Janet A. Krajewski        43    None             1993          None
Vice President-Taxes
(1993)

      All of the Company's executive officers are subject to annual reelection.
There were and are no understandings or arrangements between any of the
Company's executive officers and any other person (except directors and officers
acting solely in their capacities as such) pursuant to which any executive
officer was selected as an officer. Messrs. Wollen and Green have employment
agreements terminating in 1999 and 2000, respectively. Positions not otherwise
identified are with the Company.

                                     PART IV

ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

      (a)(1) Financial Statements (annexed hereto): There are filed as part of
this Report on Form 10-K: the Consent and Report of Independent Accountants; and
the Consolidated Financial Statements (including Notes) of the Company. See
Index To Financial Statements and Additional Financial Data.

      (a)(2) Schedules (annexed hereto): Financial Statement Schedules required
by Item 8 of Form 10-K for the fiscal years ended 1997, 1996 and 1995. See Index
To Financial Statements and Additional Financial Data.


                                       15
<PAGE>

FORM 10-K                                           GENERAL CIGAR HOLDINGS, INC.


      (a)(3) Exhibits. Certain exhibits are incorporated herein by reference to
the Registration Statement of the Company on Form S-1 filed December 24, 1996
(No. 333-18791) of which the Prospectus is a part (the "Registration
Statement"). (Enumeration corresponds to the Exhibit Table, Item 601, Regulation
S-K. Items not enumerated are not applicable).

      (2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession.

      (A) Form of Distribution Agreement among Culbro Corporation, Culbro Land
Resources, Inc. and General Cigar Holdings, Inc. (Incorporated by reference to
Exhibit 2.1 of the Registration Statement).

      (B) Form of Merger Agreement between Culbro Corporation and General Cigar
Holdings, Inc. (Incorporated by reference to Exhibit 2.2 of the Registration
Statement).

      (3) The Certificate of Incorporation and By-Laws of the Company.

      (A) The Certificate of Incorporation, as amended to date (Incorporated by
reference to Exhibit 3.1 of the Registration Statement).

      (B) The By-Laws, as amended to date (Incorporated by reference to Exhibits
3.2 of the Registration Statement).

      (4) Instruments Defining the Rights of Security Holders, Including
Indentures.

      (A) Credit Agreement dated as of January 21, 1997 among General Cigar Co.,
Inc. as Borrower; General Cigar Holdings, Inc., 387 PAS Corp., Club Macanudo,
Inc., GCH Transportation, Inc. and Villazon & Company, Inc., as Guarantors; the
Lenders from time to time parties thereto; and Chase Securities as arranger,
with the Chase Manhattan Bank as Administrative Agent (Incorporated by reference
to Exhibit 10.17 of the Registration Statement), as amended to date.

      Certain other documents evidencing indebtedness of the Company are not
filed herewith in reliance upon the exemption provided by Item
601(b)(4)(iii)(A); the Registrant hereby undertakes to furnish a copy of such
documents to the Commission upon request.

      (10) Material Contracts; Executive Compensation Plans and Arrangements.

      (A) 1992 Stock Plan of Culbro Corporation, dated December 10, 1993
(Incorporated by reference to the definitive proxy statement of Culbro
Corporation, dated March 3, 1993, for its Annual Meeting of Shareholders held on
April 8, 1993).

      (B) Stock Option Plan for Non-employee Directors of Culbro Corporation,
dated December 10, 1993 (Incorporated by reference to the definitive proxy
statement of Culbro Corporation, dated March 3, 1993, for its Annual Meeting of
Shareholders held on April 8, 1993).


                                       16
<PAGE>

FORM 10-K                                           GENERAL CIGAR HOLDINGS, INC.


      (C) 1991 Employees Incentive Stock Option Plan of Culbro Corporation
(Incorporated by reference to the definitive proxy statement of Culbro
Corporation, dated April 9, 1991, for its 1991 Annual Meeting of Shareholders
held on May 9, 1991).

      (D) 1983 Employees Incentive Stock Option Plan of Culbro Corporation, as
amended (Incorporated by reference to the definitive proxy statement of Culbro
Corporation, dated April 6, 1983, for its Annual Meeting of Shareholders held on
May 12, 1983 and to the Appendix filed pursuant to Rule 424(C) under the
Securities Act of 1933, as amended, dated March 3, 1987).

      (E) Employment Contract between Culbro Corporation and Jay M. Green
(Incorporated by reference to the definitive proxy statement of Culbro
Corporation, dated March 14, 1994, for its Annual Meeting of Shareholders held
April 7, 1994) and amendment dated January 11, 1997 (Incorporated by reference
to Exhibit 10.7 of the Registration Statement).

      (F) Employment Agreement, dated June 6, 1997, between Culbro Corporation,
General Cigar Holdings, Inc. and A. Ross Wollen.

      (G) Stock Option Plan for Non-employee Directors of Culbro Corporation,
dated March 7, 1996 (Incorporated by reference to the definitive proxy statement
of Culbro Corporation, dated March 15, 1996, for its Annual Meeting of
Shareholders held on April 11, 1996).

      (H) General Cigar Holdings, Inc. 1997 Stock Plan.

      (I) 1996 Stock Plan of Culbro Corporation, dated as of March 15, 1996
(Incorporated by reference to the definitive proxy statement of Culbro
Corporation, dated March 15, 1996, for its Annual Meeting of Shareholders held
on April 11, 1996).

      (10) Material Contracts; Other

      (J) Asset Purchase Agreement, dated as of December 20, 1996, among General
Cigar Co., Inc., Villazon & Company, Inc. and the Stockholders (as defined
therein) (Incorporated by reference to Exhibit 10.1 of the Registration
Statement).

      (K) Stock Purchase Agreement, dated as of December 23, 1996, among General
Cigar Co., Inc., Honduras American Tabaco, S.A. de C.V., and the Sellers (as
defined therein) (Incorporated by reference to Exhibit 10.2 of the Registration
Statement).

      (L) Form of Tax Sharing Agreement among Culbro Corporation, Culbro Land
Resources, Inc. and General Cigar Holdings, Inc.(Incorporated by reference to
Exhibit 10.3 of the Registration Statement).

      (M) Form of Benefits and Employment Matters Allocation Agreement among
Culbro Corporation, Culbro Land Resources, Inc. and General Cigar Holdings,
Inc.(Incorporated by reference to Exhibit 10.4 of the Registration Statement).

      (N) Form of Services Agreement among Culbro Corporation, Culbro Land
Resources, Inc. and General Cigar Holdings, Inc.(Incorporated by reference to
Exhibit 10.5 of the Registration Statement).


                                       17
<PAGE>

FORM 10-K                                           GENERAL CIGAR HOLDINGS, INC.


      (O) Form of Agricultural Lease between Culbro Land Resources, Inc. and
General Cigar Holdings, Inc.(Incorporated by reference to Exhibit 10.6 of the
Registration Statement).

      (13) Annual Report to Security Holders.

            The Company's Annual Report to Shareholders for 1997 (portions of
      which are annexed hereto). Such Annual Report, except for those portions
      which are expressly incorporated by reference, is furnished for the
      information of the Securities and Exchange Commission and is not to be
      deemed "filed" or incorporated by reference as part of this Form 10-K.

      (21) Subsidiaries.

            List of Subsidiaries.

      (28) Undertaking.

      For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference to registrant's Prospectus on Form S-8 (Incorporated
by reference to the Form S-8 (File Number 333-30659) of the Company filed July
2, 1997) and subsequent Form S-8's:

      Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

      (b) The Company filed no reports on Form 8-K.

      (c) See (a)(3) above.

      (d) See Index to Financial Statements and Additional Financial Data.


                                       18
<PAGE>

FORM 10-K                                           GENERAL CIGAR HOLDINGS, INC.


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                         GENERAL CIGAR HOLDINGS, INC.


                                     By  /s/ JAY M. GREEN
                                         ----------------
                                         Jay M. Green
                                         Executive Vice President-Finance and 
                                         Administration

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
annual report has been signed by the following persons on behalf of the Company
and in the capacities indicated as of February 19, 1998.

         Signatures                                   Title
         ----------                                   -----


/s/  BRUCE A BARNET                                  Director
----------------------------
(Bruce A. Barnet)


/s/  JOHN L. BERNBACH                                Director
----------------------------
(John L. Bernbach)


/s/  EDGAR M. CULLMAN                         Chairman of the Board
----------------------------                       and Director
(Edgar M. Cullman)                                 


/s/  EDGAR M. CULLMAN, JR.                   President, Director and
----------------------------                 Chief Executive Officer
(Edgar M. Cullman, Jr.)                      


/s/  SUSAN R. CULLMAN                                Director
----------------------------
(Susan R. Cullman)


/s/  JOHN L. ERNST                                   Director
----------------------------
(John L. Ernst)


/s/  JAY M. GREEN                          Executive Vice President and
----------------------------               Principal Financial Officer
(Jay M. Green)                             


/s/  THOMAS C. ISRAEL                                Director
----------------------------
(Thomas C. Israel)


/s/  DAN W. LUFKIN                                   Director
----------------------------
(Dan W. Lufkin)


/s/  GRAHAM V. SHERREN                               Director
----------------------------
(Graham V. Sherren)


/s/  PETER J. SOLOMON                                Director
----------------------------
(Peter J. Solomon)


/s/  FRANCIS T. VINCENT, JR.                         Director
----------------------------
(Francis T. Vincent, Jr.)


/s/  JOSEPH C. AIRD                       Senior Vice President and Controller
----------------------------
(Joseph C. Aird)


                                       19
<PAGE>

Quarterly Data on Common Shares

      The following are the high and low closing prices of the Class A common
      shares of the Company in 1997 as traded on the New York Stock Exchange
      from the February 28, 1997 date of commencement of public trading
      (NYSE:MPP) through the Company's fiscal year end on November 29, 1997.

<TABLE>
<CAPTION>
                    1st Quarter            2nd Quarter             3rd Quarter            4th Quarter
                  High       Low          High       Low         High       Low         High        Low
       ----------------------------------------------------------------------------------------------------
        <S>          <C>    <C>           <C>        <C>         <C>        <C>         <C>         <C>       
        1997         23     22 1/8        29 5/8     20 3/8      31 3/4     21 3/8      33 1/4      20 1/4
   
</TABLE>
      No cash dividends have been declared.
   
  
Selected Financial Data

<TABLE>
<CAPTION>
(dollars in thousands except per share data)      1997        1996        1995        1994         1993
------------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>         <C>         <C>         <C>         <C>      
Net sales and other revenue                     $262,833    $154,676    $124,033    $ 89,538    $  76,825
Operating profit                                  59,959      20,243      17,624       8,043        2,378
Income before cumulative effect of
   accounting change (SFAS 106 in 1993)           36,064      12,407      11,324       4,550        1,307
Pro forma income per common share
   before cumulative effect of
   accounting change                                1.26        0.44        0.40        0.16         0.05
Net income (loss)                                 36,064      12,407      11,324       4,550       (3,049)
Pro forma net income (loss) per common share        1.26        0.44        0.40        0.16        (0.11)
Working capital                                  133,129      65,121      43,632      41,176       45,001
Property and equipment, net                       67,489      52,507      46,492      47,125       48,597
Total assets                                     320,205     145,042     113,655     100,974      104,551
Long-term debt                                    47,540      11,079      11,352       6,998        2,901
</TABLE>


                                       20
<PAGE>

Management's Discussion and Analysis

Liquidity and Capital Resources

In 1997, net cash flow of $0.7 million was provided by operating activities
compared to net cash of $4.9 million used in operating activities in 1996. Both
years reflected principally higher tobacco inventories, accounts receivable, and
accounts payable and accrued liabilities. The Company continued to increase its
inventories of tobacco in 1997 to ensure supplies for future cigar production.
The increase in accounts payable reflects the higher tobacco purchases. The
increase in accounts receivable reflects the increase in sales. Investing
activities in 1997 reflected the acquisition cost of Villazon, excluding the
portion financed with seller notes, capital expenditures principally to increase
cigar manufacturing capacity, and the acquisition in October of GCI, a UK cigar
marketing and distribution company.

   The financing activities reflected the proceeds of approximately $111.5
million from the initial public offering (the "Offering"), which was completed
on February 28, 1997. The proceeds were used principally to repay bank
borrowings under a Bank Credit Agreement (the "Credit Agreement") that had been
used to finance the Villazon Acquisition and repay debt assumed from Culbro. The
Credit Agreement, which the Company entered into on January 21, 1997, currently
provides a $50 million three-year revolving credit facility. On April 16, 1997,
the Company repaid a $5 million mortgage on its New York City headquarters
office building with borrowings under the revolving credit facility.

   Prior to the Offering, the Company's retained earnings and historical capital
accounts were included in the accompanying financial statements as Culbro
Investment. Subsequent to the Offering, the Company's capital structure reflects
the proceeds from the issuance of the Class A shares in the Offering, the Class
B shares previously owned by Culbro, and retained earnings for the ensuing
periods.

   Management believes that cash flow from operations and current borrowing
capacity are sufficient to fund the Company's operations and its anticipated
capital expenditures. Capital expenditures in 1998 are projected at
approximately $20 million, principally to complete current manufacturing
capacity expansion projects, and install a new computer system. The Company has
commenced installation of a new computer information system which will provide
significantly enhanced systems capability, as well as "Year 2000" readiness. The
cost of the entire project is estimated at $7 million, and the funds will be
expended principally in 1998.

Results of Operations

Fiscal 1997 Compared to Fiscal 1996

Net sales increased 70%, or $108.1 million, to $262.8 million in 1997 from
$154.7 million in 1996. This increase reflected higher unit sales of cigars,
higher prices in all cigar categories, and sales of the newly acquired Villazon
business as of January 1997. Unit sales of premium cigars were led by the
premier brands, Macanudo and Partagas. Higher unit sales of mass market cigars
were due to strong performance by the Company's mass market Garcia y Vega brand.

   Gross profit for the year increased 87.1%, or $59.6 million, to $128.0
million from $68.4 million in 1996. Gross margin increased to 48.7% in 1997 from
44.2% in 1996. The increase in gross margin reflected higher unit selling prices
and the benefit of relatively higher unit sales of premium cigars.

   Selling, general and administrative expenses increased 52.6%, or $23.4
million, to $68.0 million in 1997 from $44.6 million in 1996. The increase
reflected principally higher marketing and selling expenses, and the general and
administrative expenses of Villazon including amortization of the acquired
trademark costs and goodwill. As a percentage of net sales, selling, general and
administrative expenses were 25.9% in 1997 compared to 28.8% in 1996. The
decrease in selling, general and administrative expenses as a percentage of net
sales in 1997 was due to the lower rate of increase in these expenses compared
to the rate of the sales increase. Operating profit in 1997 was approximately
three times the operating profit in 1996. As a result of the higher gross margin
and lower expense to sales ratio, operating margin was 22.8% in 1997 compared to
13.1% in 1996.


                                       21
<PAGE>

   The higher interest expense in 1997 reflects principally borrowings on the
revolving credit facility for working capital and capital expenditures. The
proceeds from the Offering were used primarily to repay the borrowings incurred
to finance the Villazon Acquisition and the debt assumed from Culbro. The lower
effective tax rate of 37.5% compared to 38.4% in 1996 reflects a change in the
geographical composition of earnings. The Company anticipates that its effective
tax rate will be lower in 1998 than in 1997 as this trend continues.

Fiscal 1996 Compared to Fiscal 1995

Net sales increased 24.7%, or $30.6 million, to $154.7 million in fiscal 1996
compared to $124.0 million in fiscal 1995. This increase in net sales reflected
principally higher unit sales of premium cigars, and higher prices in all cigar
categories. Continued strong sales and prices of premium cigars, and higher
prices in the mass market cigar category more than offset slightly lower unit
volume in certain brands of mass market cigars. Nearly all of such increase
resulted from increased sales to existing customers. In response to a shortage
of properly aged and blended tobacco caused by excessive demand, the Company
elected to stop shipping Macanudo cigars for two months in fiscal 1996 rather
than risk compromising its quality standards. Management believes that volume in
mass market cigars was adversely affected by repositioning and renaming certain
brand names in this category.

   Gross profit increased 25.9%, or $14.1 million, to $68.4 million in fiscal
1996 compared to $54.4 million in fiscal 1995. Gross margin increased to 44.2%
in fiscal 1996 from 43.8% in fiscal 1995. The increase in gross margin reflected
higher prices, benefits from mix due to relatively higher sales of premium
cigars, and lower fixed costs per unit due to higher volume and improved
manufacturing efficiencies.

   Selling, general and administrative expenses increased 21.4%, or $7.9
million, to $44.6 million in fiscal 1996 from $36.7 million for fiscal 1995.
Selling, general and administrative expenses in fiscal 1996 included
approximately $1.9 million of legal expenses incurred in connection with certain
legal proceedings. As a percentage of net sales, selling, general and
administrative expenses decreased to 28.8% in fiscal 1996, from 29.6% in fiscal
1995. The decrease in selling, general and administrative expenses as a
percentage of net sales in fiscal 1996 was due principally to these expenses
increasing at a lower rate than the increase in sales.

   Other nonrecurring expense of $3.6 million in fiscal 1996 included the
allocation to the Company of charges recorded by Culbro in connection with the
termination of a management long-term incentive compensation plan which was
based on Culbro's stock price, and the acceleration of the vesting of benefits
under the plan in anticipation of the Offering. Additionally, the other
nonrecurring expense item included accruals for severance and related expenses
in connection with a headcount reduction at the Culbro corporate office. The
Company's allocable share of these expenses was determined substantially on the
same basis as the allocation of Culbro's general and administrative expenses and
is considered to be reasonable.

   Operating profit increased 14.9%, or $2.6 million, to $20.2 million for
fiscal 1996 from $17.6 million for fiscal 1995. Including the effect of the
other nonrecurring expense referred to above, operating margin decreased to
13.1% in fiscal 1996 from 14.2% in fiscal 1995.

   Net income increased 9.6%, or $1.1 million, to $12.4 million in fiscal 1996
from $11.3 million in fiscal 1995. Income in fiscal 1995 included $2.6 million
of pre-tax gain from an insurance settlement.

                                       22
<PAGE>

Consolidated Statement of Operations

<TABLE>
<CAPTION>
(dollars in thousands except per share data)           1997           1996            1995
------------------------------------------------------------------------------------------
<S>                                             <C>            <C>            <C>         
Net sales                                       $   262,833    $   154,676    $    124,033
Cost of goods sold                                  134,837         86,240          69,683
                                                ------------------------------------------
Gross profit                                        127,996         68,436          54,350
Selling, general and administrative expenses         68,037         44,593          36,726
Other nonrecurring expense                               --          3,600              --
                                                ------------------------------------------
Operating profit                                     59,959         20,243          17,624
Gain on insurance settlement                             --             --           2,586
Other nonoperating income (expense)                     760            853            (597)
Interest expense                                      3,050            951           1,049
                                                ------------------------------------------
Income before income taxes                           57,669         20,145          18,564
Income tax provision                                 21,605          7,738           7,240
                                                ------------------------------------------
Net income                                      $    36,064    $    12,407    $     11,324
                                                ==========================================
Pro forma net income per common share           $      1.26    $      0.44    $       0.40
                                                ==========================================
Pro forma weighted average common shares
   and equivalents outstanding                   28,590,000     28,200,000      28,200,000
                                                ==========================================
</TABLE>

                                 See Notes to Consolidated Financial Statements.


                                       23
<PAGE>

Consolidated Balance Sheet

<TABLE>
<CAPTION>
(dollars in thousands except per share data)                                 Nov. 29, 1997     Nov. 30, 1996
------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>               <C>     
ASSETS
Current Assets
Cash and cash equivalents                                                      $  8,976          $    409
Receivables, less allowance of $1,331 (1996--$482)                               50,963            31,295
Inventories                                                                     107,358            53,702
Other current assets                                                              8,779             3,673
                                                                               --------------------------
Total current assets                                                            176,076            89,079

Property and equipment, net                                                      67,489            52,507
Intangible assets, net, principally trademarks and goodwill                      73,740                --
Other assets                                                                      2,900             3,456
                                                                               --------------------------
Total assets                                                                   $320,205          $145,042
                                                                               ==========================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities                                       $ 40,397          $ 22,827
Long-term debt due within one year                                                1,224             1,131
Income taxes                                                                      1,326                --
                                                                               --------------------------
Total current liabilities                                                        42,947            23,958

Long-term debt                                                                   47,540            11,079
Accrued retirement benefits                                                      15,923            12,525
Deferred income taxes                                                             5,317             1,057
Other noncurrent liabilities                                                     10,974             2,704
                                                                               --------------------------
Total liabilities                                                               122,701            51,323
                                                                               --------------------------
Commitments and Contingencies (Note 15)

Stockholders' Equity
Culbro Investment                                                                    --            93,719
Preferred stock, par value $0.01--authorized: 20,000,000 shares;
   Issued: none                                                                      --                --
Class B common stock, par value $0.01--authorized: 25,000,000 shares;
   Issued: 15,707,226 shares                                                        157                --
Class A common stock, par value $0.01--authorized: 50,000,000 shares;
   Issued: 11,876,729 shares                                                        119                --
Additional paid-in capital                                                      165,441                --
Retained earnings                                                                31,787                --
                                                                               --------------------------
Total stockholders' equity                                                      197,504            93,719
                                                                               --------------------------
Total liabilities and stockholders' equity                                     $320,205          $145,042
                                                                               ==========================

</TABLE>

                                 See Notes to Consolidated Financial Statements.


                                       24
<PAGE>

Consolidated Statement of Changes in Stockholders' Equity

<TABLE>
<CAPTION>
                                                           Class B   Class A   Additional                     Total
                                                 Culbro     Common    Common      Paid-in    Retained  Stockholders'
(dollars in thousands)                       Investment      Stock     Stock      Capital    Earnings        Equity
-------------------------------------------------------------------------------------------------------------------
<S>                                            <C>           <C>        <C>      <C>          <C>         <C>      
Balance at November 30, 1996                   $ 93,719      $  --      $ --     $     --     $    --     $  93,719
Net income through the Offering date              4,277         --        --           --          --         4,277
Liability assumption                            (46,937)        --        --           --          --       (46,937)
Transactions with Culbro                         (2,393)        --        --           --          --        (2,393)
Reclassification of Culbro Investment
   at Offering date                             (48,666)       200        --       48,466          --            --
Exercise of stock options                            --          7        --        1,828          --         1,835
Tax benefit from exercise of stock options           --         --        --        3,732          --         3,732
Net proceeds from Offering                           --         --        69      111,415          --       111,484
Net income subsequent to Offering                    --         --        --           --      31,787        31,787
Exchange of shares                                   --        (50)       50           --          --            --
                                               --------------------------------------------------------------------
Balance at November 29, 1997                   $     --      $ 157      $119     $165,441     $31,787     $ 197,504
                                               ====================================================================
</TABLE>

                                 See Notes to Consolidated Financial Statements.


                                       25
<PAGE>

Consolidated Statement of Cash Flows

<TABLE>
<CAPTION>
(dollars in thousands)                                                                1997          1996          1995
----------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>            <C>           <C>     
Operating Activities
Net income                                                                       $  36,064      $ 12,407      $ 11,324
Adjustments to reconcile net income to net cash provided
   by (used in) operating activities:
Depreciation and amortization                                                        7,159         3,813         3,550
Gain on insurance settlement                                                            --            --        (2,586)
Changes in assets and liabilities, net of Villazon Acquisition and Liability
   Assumption in 1997 (Note 5):
Increase in accounts receivable                                                    (13,706)       (7,492)      (10,600)
Increase in inventories                                                            (47,121)      (15,859)         (733)
Increase in accounts payable and accrued liabilities                                14,257         2,087         9,834
Decrease in income taxes payable                                                    (1,070)           --            --
Increase (decrease) in deferred income taxes                                         4,555        (1,064)         (236)
Other, net                                                                             540         1,189        (1,017)
                                                                                 -------------------------------------
Net cash provided by (used in) operating activities                                    678        (4,919)        9,536
                                                                                 -------------------------------------
Investing Activities
Acquisition of Villazon, net of cash acquired (Note 12)                            (71,198)           --            --
Additions to property and equipment                                                (15,155)       (9,701)       (2,841)
Acquisition of General Cigar International                                          (2,000)           --            --
Proceeds from insurance settlement                                                      --            --         2,225
                                                                                 -------------------------------------
Net cash used in investing activities                                              (88,353)       (9,701)         (616)
                                                                                 -------------------------------------
Financing Activities
Net proceeds from Offering                                                         111,484            --            --
Proceeds from exercise of stock options                                              1,835            --            --
Tax benefit from exercise of stock options                                           3,732            --            --
Increase in debt (Note 12)                                                              --           476         5,000
Payments of debt                                                                   (17,416)         (563)         (673)
Net transactions with Culbro, excluding Liability Assumption                        (2,393)       15,217       (13,389)
Other, net                                                                          (1,000)         (423)           --
                                                                                 -------------------------------------
Net cash provided by (used in) financing activities                                 96,242        14,707        (9,062)
                                                                                 -------------------------------------
Net increase (decrease) in cash and cash equivalents                                 8,567            87          (142)
Cash and cash equivalents at beginning of period                                       409           322           464
                                                                                 -------------------------------------
Cash and cash equivalents at end of period                                       $   8,976      $    409      $    322
                                                                                 =====================================
</TABLE>

                                 See Notes to Consolidated Financial Statements.


                                       26
<PAGE>

Notes to Consolidated Financial Statements
(dollars in thousands except per share data)

NOTE 1:
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES

Basis of Presentation

General Cigar Holdings, Inc. (the "Company") was formed on December 12, 1996.
Until the Company's initial public offering (the "Offering"-- Note 2) on
February 28, 1997, the Company was a wholly-owned subsidiary of Culbro
Corporation ("Culbro"). The consolidated financial statements of the Company
include the accounts of the Company and its subsidiaries General Cigar Co., Inc.
("General Cigar"), Club Macanudo, Inc. ("Club Macanudo"), and 387 PAS Corp.
("387 PAS"). These businesses and certain net assets of Culbro were transferred
to the Company by Culbro under the terms of a Distribution and Merger Agreement
(see below). The accompanying financial statements reflect the results of
operations of these businesses and assets for all of the periods presented. Club
Macanudo, which operates a cigar bar, and 387 PAS which owns and operates the
Company's headquarters building, were not material to the Company's results of
operations in any of the periods presented.

   Certain other liabilities, including Culbro's general corporate debt, accrued
retirement and other obligations (see Liability Assumption in Note 5) were also
transferred to the Company by Culbro. These liabilities have been reflected in
the accompanying financial statements as of February 27, 1997, the date of the
Distribution and Merger Agreement (the "Agreement") among the Company, Culbro,
and Culbro's former wholly-owned subsidiary, Griffin Land & Nurseries, Inc.
("Griffin"). Pursuant to the Agreement, Griffin was spun off by Culbro to
Culbro's shareholders on July 3, 1997, and on August 29, 1997, Culbro was merged
into the Company. At the time of the merger, Culbro's principal asset was the
Class B shares of the Company and the merger was accounted for at historical
cost. Consequently, the transaction had no effect on the financial condition or
results of operations of the Company.

Fiscal Year

The Company's fiscal year ends on the Saturday nearest November 30. Fiscal 1997,
1996 and 1995 ended on November 29, 1997, November 30, 1996 and December 2,
1995, respectively and each year contained 52 weeks. 

Reclassification 

Certain amounts in the prior years' financial statements have been reclassified
to conform to the current year's presentation.

Inventories

The Company's inventories are stated at the lower of cost or market using the
average cost method. Raw materials include tobacco in the process of aging, a
substantial amount of which will not be used or sold within one year. It is
industry practice to include such inventories in current assets. Raw materials
also include tobacco in bond which is subject to customs duties payable upon
withdrawal from bond. Following industry practice, the Company does not include
such duties in inventories until paid.

Property and Equipment

Property and equipment are carried at cost. Depreciation is determined on a
straight-line basis over the estimated useful asset lives for financial
reporting purposes and principally on accelerated methods for tax purposes.

Revenue Recognition

Sales and the related cost of sales are recognized upon shipment of products.
The Company generally accepts returns of cigars that are stale or damaged in
transit. Sales revenue is recorded net of anticipated returns based on
historical experience. Sales returns are not material.

Advertising and Promotion Expense

Advertising and promotion costs are expensed when incurred. Production costs of
future media advertising are deferred until the advertising first occurs.

Fair Value of Financial Instruments

The amounts included in the financial statements for accounts receivable,
accounts payable and accrued liabilities reflect their fair values because of
the short-term maturity of these instruments. The fair values of the Company's
other financial instruments are discussed in Note 7.


                                       27
<PAGE>

Cash and Cash Equivalents

Cash and cash equivalents include cash on deposit and bank commercial paper
which matures within 90 days of purchase.

Intangible Assets

Intangible assets include principally the excess of the costs of businesses
acquired over the fair value of their net tangible assets. Such costs,
representing trademarks and goodwill, are amortized on a straight-line basis
over periods ranging from 20 to 30 years.

Earnings Per Share

For the 1997 period through the Offering and for all of the prior years
presented the Company was a wholly-owned subsidiary of Culbro. Accordingly,
earnings per share for all periods included herein are presented on a pro forma
basis. The weighted average number of common shares used to compute pro forma
net income per common share in 1997 was determined by assuming that the
Company's Class B common shares plus related stock options, and the 6,900,000
Class A common shares, outstanding at the Offering date were all outstanding at
the beginning of the year. This computation also reflected the actual options
exercised throughout the year. Pro forma net income of all prior years included
the weighted average number of common shares assuming that the Class B shares
plus the related options, and the Class A shares which were outstanding on the
Offering date were outstanding throughout each year.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
revenue and expenses during the period reported. Actual results could differ
from those estimates. Estimates are used when accounting for allowance for
uncollectible accounts receivable, depreciation and amortization, employee
benefit plans, taxes, and contingencies, among others.

NOTE 2:
STOCK OFFERING

   On February 28, 1997, the Company sold 6.9 million shares of its Class A
Common Stock in an initial public offering, reflecting approximately 26% of its
common equity ownership. The net proceeds from the Offering, after underwriters'
discounts and commissions and other expenses, were approximately $111.5 million.
The proceeds were used to reduce debt, a substantial portion of which was
incurred in connection with the Villazon Acquisition (Notes 3 and 4). Each share
of Class A Common Stock entitles its holder to one vote. The remaining equity
ownership of the Company in the form of Class B Common Stock, which entitles its
holder to ten votes for each share, was owned by Culbro at the date of the
Offering. Following the August 29, 1997 merger of Culbro into the Company, each
Culbro shareholder received 4.44557 shares of the Company's Class B stock in
exchange for each share of Culbro stock. Generally, subsequent to the merger,
Class B shares that are sold or otherwise exchanged become Class A shares.

   The increase in additional paid-in capital reflects principally the Offering
proceeds in excess of the par value of the Class A Common Stock and the excess
of the Culbro Investment over the par value of the Class B Common Stock. The
Culbro Investment was reclassified to Class B Common Stock and additional
paid-in capital upon completion of the Offering. The retained earnings of the
Company reflect net income subsequent to the Offering.

NOTE 3:
ACQUISITIONS

On January 21, 1997, the Company completed its acquisition of two affiliated
companies, Villazon and Company, Inc., a U.S. corporation, and Honduras American
Tabaco, S.A., a Honduran corporation (collectively "Villazon"), for
approximately $81.2 million consisting of $91.1 million of purchase price and
direct acquisition costs, less $9.9 million of cash acquired. At closing, $64.3
million of cash was paid and $24.4 million aggregate principal amount of seller
notes were issued (the "Villazon Acquisition"). Both companies are engaged in
the cigar business. The Villazon Acquisition was accounted for using the
purchase method of accounting. Acquisition costs in excess of the


                                       28
<PAGE>

fair value of net tangible assets are approximately $69 million, representing
principally trademarks and goodwill. This amount is being amortized over 30
years.

   The Company entered into a Bank Credit Agreement (the "Credit Agreement") to
finance the acquisition. Proceeds from the Offering were used to reduce the
amount outstanding under the Credit Agreement and to repay $14.4 million of the
seller notes. The remaining $10 million of the seller notes bear interest at
prime plus 2% and are due January 2002 (See Notes 4 and 7).

   On October 2, 1997, the Company acquired DB International Marketing , Ltd.,
("DBI") a U.K. based cigar distribution company, which previously was a customer
of the Company. DBI was subsequently renamed General Cigar International
("GCI"). The purchase price has been estimated at $7.0 million of which $2.0
million was paid at closing and $5.0 million is included in other noncurrent
liabilities in the consolidated balance sheet. The final purchase price will be
determined based on a percentage of sales for each of the succeeding fiscal
years through the year 2000. The acquisition was accounted for using the
purchase method of accounting. The excess of the estimated purchase price over
the net tangible assets acquired was approximately $6.7 million, and is being
amortized over 20 years. DBI sales and operating profit for the period in fiscal
1997 prior to the acquisition were $6.3 million and $0.9 million, respectively.


NOTE 4:
CONSOLIDATED CONDENSED PRO FORMA 
FINANCIAL INFORMATION (UNAUDITED)

The following condensed unaudited pro forma statements reflect the results of
operations of the Company as if the Liability Assumption (See Note 5) and the
Villazon Acquisition had been consummated at the beginning of 1997 and 1996.
Substantially all of DBI sales were from products sold to DBI by the Company.
Consequently, the incremental sales and profit of DBI would not be material to
the pro forma results of operations or financial position of the Company and are
not included in the pro forma presentation. The unaudited pro forma financial
information presented herein may not necessarily reflect the results of
operations and financial position of the Company had these items discussed above
actually taken place on these dates.

Consolidated Condensed Pro Forma Statements
of Operations (Unaudited)

                                                          1997              1996
--------------------------------------------------------------------------------
Net sales                                             $268,425          $196,694
                                                      --------------------------
Operating profit                                        61,078            32,324
Other nonoperating income, net                             760             1,532
Interest expense                                         2,282            11,669
                                                      --------------------------
Income before income taxes                              59,556            22,187
Income taxes                                            22,341             8,535
                                                      --------------------------
Net income                                            $ 37,215          $ 13,652
                                                      ==========================
Pro forma net income
  per common share                                    $   1.30          $   0.48
                                                      ==========================

NOTE 5:
RELATED PARTY TRANSACTIONS

Culbro Investment

Prior to the date of the Offering, the Company's retained earnings, capital
stock and intercompany accounts with Culbro were presented as Culbro Investment
under stockholders' equity in the Company's consolidated balance sheet. The
changes in the Culbro Investment account are summarized as follows:

                                             1997           1996           1995
--------------------------------------------------------------------------------
Balance beginning of year                $ 93,719        $66,095       $ 68,160
Net income (through the
   Offering date, in 1997)                  4,277         12,407         11,324
Liability assumption                      (46,937)            --             --
Transactions with Culbro                   (2,393)        15,217        (13,389)
Reclassification of
   remaining balance
   in Culbro Investment
   to Class B common
   stock and additional
   paid-in capital                        (48,666)            --             --
                                         --------------------------------------
Balance end of year                      $     --        $93,719       $ 66,095
                                         ======================================


                                       29
<PAGE>

Intercompany Activities

Through the date of the Offering, the Company's treasury activities remained
integrated into Culbro's cash management system. The Company's cash receipts
were transferred daily into Culbro's cash account and the Company's cash
disbursement accounts were reimbursed by Culbro on a daily basis. The difference
between cash transferred by the Company to Culbro and reimbursements by Culbro
to the Company's disbursement accounts was reflected in Culbro Investment in the
consolidated balance sheet.

   The accompanying financial statements include all direct charges relating to
the Company's participation in certain Culbro employee benefit and risk
insurance plans. These charges were based on the specific insurance data related
to the Company. In addition to these direct charges, the consolidated statement
of operations reflects general and administrative expenses of approximately $1.8
million in 1997 through the date of the Offering, and $7.2 million and $8.8
million for fiscal 1996 and 1995, respectively, that were allocated to the
Company by Culbro. These charges were based principally on the Company's
proportionate share of expenses relating to Culbro corporate activities
associated with the Company's operations and are considered by management to be
reasonable.

   On February 27, 1997, pursuant to the Agreement the Company completed the
Liability Assumption in which the Company assumed Culbro's liabilities of
approximately $47 million, including principally Culbro's general corporate
debt, accrued retirement obligations, and certain accounts payable and accrued
liabilities.

Other Related Party Transactions

During 1997, the Company entered into transactions in the ordinary course of
business, with entities with which certain stockholders and board of directors
members of General Cigar are associated. In 1997, the aggregate cost of such
services from these firms was approximately $2.8 million and was settled on
terms similar to those with unrelated parties.

NOTE 6:
INCOME TAXES

All current tax liabilities relating to the period prior to the Offering were
paid by Culbro and accordingly the Company's current tax liabilities through
that date were reflected in the Culbro Investment account.

   Prior to the completion of the Distribution and Merger, the results of
operations of the Company were included in Culbro's consolidated U.S. federal
income tax returns. The income tax provisions and deferred tax liabilities have
been calculated in accordance with SFAS No. 109 "Accounting for Income Taxes" as
if the Company had filed separate tax returns during this period.

   The domestic and foreign pretax income is as follows:

                                           1997            1996            1995
--------------------------------------------------------------------------------
Domestic                               $ 46,839        $ 15,815        $ 15,103
Foreign                                  10,830           4,330           3,461
                                       -----------------------------------------
                                       $ 57,669        $ 20,145        $ 18,564
                                       =========================================

   The provision for income taxes is summarized as follows:

                                           1997            1996            1995
--------------------------------------------------------------------------------
Current federal                        $ 14,889        $  7,647        $  6,435
Current state and local                   3,037           1,155           1,041
Deferred, principally
   federal                                3,679          (1,064)           (236)
                                       -----------------------------------------
                                       $ 21,605        $  7,738        $  7,240
                                       =========================================

   The reasons for the difference between the United States statutory income tax
rate and the effective rates are shown in the following table:

                                           1997            1996            1995
--------------------------------------------------------------------------------
Tax expense at
   statutory rates                     $ 20,184        $  7,051        $  6,497
State and local                           1,974             751             677
Other                                      (553)            (64)             66
                                       -----------------------------------------
                                       $ 21,605        $  7,738        $  7,240
                                       =========================================


                                       30
<PAGE>

The significant components of net deferred tax liabilities are as follows:

                                                          1997             1996
--------------------------------------------------------------------------------
Depreciation and amortization                         $ 10,419          $ 7,015
Unremitted earnings of foreign
   subsidiaries                                          3,056              157
Postretirement benefit liabilities                      (2,828)          (2,367)
Pension liabilities                                     (2,545)          (1,901)
Inventories                                             (1,035)            (676)
Other                                                   (1,750)          (1,171)
                                                      -------------------------
                                                      $  5,317          $ 1,057
                                                      =========================

   The Company has accrued domestic taxes for income of foreign subsidiaries
that is expected to be remitted to the parent company. Income taxes are not
accrued for unremitted earnings of foreign subsidiaries that have been, or are
intended to be, reinvested indefinitely. Foreign income which is substantially
exempt from foreign taxes, primarily consists of earnings from the Company's
Dominican Republic, Jamaican and Honduran cigar manufacturing operations.

   During 1997, the exercise of certain stock options which had been granted
previously under various Culbro stock option plans and the sale of stock issued
under such plans gave rise to compensation which is includable in the taxable
income of the applicable employees and deductible by the Company for federal and
state income tax purposes. Such compensation resulted from increases in the fair
market value of the Company's Common Stock subsequent to the date of grant of
the applicable exercised stock options. In accordance with Accounting Principles
Board Opinion No. 25, the tax benefit related to the deductions is not
recognized as a reduction of income tax expense for financial accounting
purposes and is recorded directly in additional paid-in capital. In 1997, $3,732
of such benefit was realized and included in additional paid-in capital.

   The Company entered into a Tax Sharing Agreement which provides, among other
things, for the allocation between Griffin and the Company of federal, state,
local and foreign tax liabilities for all periods through the Distribution and
Merger. With respect to the consolidated tax returns filed by Culbro, the Tax
Sharing Agreement provides that the Company will be liable only for amounts that
it would have been required to pay for any deficiencies assessed, generally as
if it had filed separate tax returns.

NOTE 7:
LONG-TERM DEBT

Long-term debt includes:
                                                          1997              1996
--------------------------------------------------------------------------------
Credit Agreement                                       $32,000           $    --
Villazon seller notes, due
   January 2002                                         10,000                --
Building mortgage                                           --             5,000
Equipment loan, due
   December 2003                                         3,892             4,218
Capital leases                                           2,872             2,992
                                                       -------------------------
Total                                                   48,764            12,210
Less: due within one year                                1,224             1,131
                                                       -------------------------
Total long-term debt                                   $47,540           $11,079
                                                       =========================

   On January 21, 1997, the Company entered into a Credit Agreement with certain
banks which provided financing of $120 million principally for the Villazon
Acquisition and repayment of Culbro's general corporate debt. The Credit
Agreement, which expires in January 2000, initially included a $60 million term
loan and a revolving credit facility of $60 million. In the 1997 second quarter,
net proceeds of $111.5 million were received from the Offering and used to repay
the term loan and reduce amounts outstanding under the revolving credit
facility. Currently, the commitment under the revolving credit facility is $50
million. In accordance with the terms of the Credit Agreement, borrowings under
the revolving credit facility bear interest, at the Company's option, of either
(1) the ABR (2) the Eurodollar rate plus 0.75% or (3) a combination thereof. The
Company pays a commitment fee of 1/4 of 1% on the unused portion of the
revolving credit facility. The Credit Agreement includes limitations on
indebtedness, investments and other significant transactions, as defined.


                                       31
<PAGE>

   On April 16, 1997, the Company repaid the $5 million mortgage on its New York
City headquarters office building with borrowings under its revolving credit
facility. The mortgage carried an interest rate of the Eurodollar rate plus 2%.

   As of November 29, 1997, the annual principal payment requirements under the
terms of the equipment loan were $0.4 million for the years 1998 through 2001
and $0.5 million for the year 2002. The equipment loan which was entered into in
January 1994, bears interest at 7.25% per annum and has a term of ten years,
with a balloon payment of $1.2 million due at maturity. The equipment had a net
book value of $2.7 million at November 29, 1997.

   Management believes that because the interest rates under the Credit
Agreement adjust to current market rates, this debt approximates its fair value.
Management also believes that the fixed rate debt included in the balance sheet
reflects its current market value based on market interest rates for comparable
risks, maturities and collateral.

NOTE 8:
RETIREMENT BENEFITS

Pension Plan

The Company's employees participate in a noncontributory defined benefit pension
plan, which covers substantially all of the Company's domestic employees. This
plan was previously sponsored by Culbro and was assumed by the Company under the
terms of the Agreement. The Company is directly responsible for all of the
pension obligations of the plan, including those relating to its former
employees, as well as all vested employees of Culbro and its former subsidiaries
under the plan. In connection with the Distribution and Merger, the Company and
Griffin entered into an Employee Benefits Administration Agreement which defined
the responsibilities for the administration of the plan. The plan's benefits are
based on employees' years of service and compensation. Contributions to the plan
are made in accordance with the provisions of the Employee Retirement Income
Security Act. Pension expense for the fiscal years 1997, 1996 and 1995 was
computed as follows:

                                             1997           1996           1995
--------------------------------------------------------------------------------
Service costs-benefits
   earned during the year                $    894       $  1,153       $    962
Interest on projected
   benefit obligations                      4,126          4,053          4,086
                                         ---------------------------------------
Total benefit expense                       5,020          5,206          5,048
                                         ---------------------------------------
Actual return on pension
   plan assets                            (16,158)       (10,935)       (12,886)
Difference from expected
   long-term return                        11,251          6,516          8,439
                                         ---------------------------------------
Net expected return                        (4,907)        (4,419)        (4,447)
                                         ---------------------------------------
Special termination
   benefits expense                            --            279             --
Curtailment gain                               --           (452)            --
Amortization of net pension
   obligation at adoption
   of SFAS No. 87                              48             51             51
Other                                        (130)            39             21
                                         ---------------------------------------
Net pension expense                      $     31       $    704       $    673
                                         =======================================


                                       32
<PAGE>

   The status of the pension plan as determined by the plan's actuaries at
November 29, 1997 and November 30, 1996 was as follows:

                                                             1997          1996
--------------------------------------------------------------------------------
Present value of benefits earned by
   participants including vested benefits of
   $54,268 and $52,095 at November 29, 1997 and
   November 30, 1996, respectively                       $ 54,739      $ 52,668
                                                         =======================
Plan assets at fair value, primarily
   equities                                                81,896        70,711
Present value of projected benefit
   obligations                                             57,028        54,759
                                                         -----------------------
Plan assets in excess of projected
   benefit obligations                                     24,868        15,952
Amount included on balance sheet                            6,728         6,697
                                                         -----------------------
Unrecognized net asset                                   $ 31,596      $ 22,649
                                                         =======================

Unrecognized net asset includes:
Net gain from experience differences
   and assumption changes                                $ 31,964      $ 23,101
Less: changes due to plan
   amendments                                                (284)         (321)
Net pension obligation at adoption
   of SFAS No. 87                                             (84)         (131)
                                                         -----------------------
Unrecognized net asset                                   $ 31,596      $ 22,649
                                                         =======================

   Discount rates of 7.5% and 7.75% were used to compute the present value of
pension benefits at November 29, 1997 and November 30, 1996, respectively. A 5%
rate of increase in future compensation levels was used to estimate the
projected pension obligations at both November 29, 1997 and November 30, 1996.
The expected rate of return on pension plan assets in 1997, 1996 and 1995 was
estimated at 9% representing the average long-term rate expected from the
investment of plan assets.

Other Postretirement Benefits

Prior to the date of the Offering, the Company's employees participated in
Culbro's postretirement benefits program, which provided principally health and
life insurance benefits to certain of its retired employees. The cost of such
benefits attributed to the Company's employees under this program was $0.4
million and $0.5 million in 1996 and 1995, respectively. The Company continues
to provide its employees with substantially the same level of retiree medical
benefits as those provided under the Culbro program. The cost of such benefits
was $0.6 million in fiscal year 1997 and consisted of the following:

--------------------------------------------------------------------------------
Service cost-benefits earned
   during the year                          $ 79
Interest on accumulated post-
   retirement benefit obligation             516
                                            ----
Total expense                               $595
                                            ====
--------------------------------------------------------------------------------

   The present value of the liabilities for accumulated postretirement benefits,
as determined by the plan's actuaries, is shown below. None of these liabilities
have been funded at November 29, 1997 and November 30, 1996.

                                               1997      1996
-------------------------------------------------------------

Retirees                                     $4,170    $3,434
Fully eligible active participants            1,764     1,530
Other active participants                       446       361
Unrecognized net gain from
   experience differences and
   assumption changes                           798       907
                                             ----------------
Accrued other postretirement
   benefits                                  $7,178    $6,232
                                             ================

   The balance at November 29, 1997 includes approximately $1.0 million of
retiree medical benefits related to former Culbro employees which the Company
assumed under the Merger and Distribution Agreement. Discount rates of 7.5% and
7.75% were used to compute the accumulated postretirement benefit obligations at
November 29, 1997 and November 30, 1996, respectively. Because the Company's
obligation for retiree medical benefits is fixed, any increase in the medical
cost trend would have no effect on the accumulated postretirement benefit
obligation, service cost or interest cost.

NOTE 9:
STOCK OPTION PLANS

Employees Stock Options

On February 27, 1997 the Company adopted a new stock option plan ("the 1997
Stock Option Plan"). The plan 


                                       33
<PAGE>

authorized 3,300,000 shares of Class A Common Stock of the Company to be made
available for issuance as either incentive stock options or nonqualified
options. An initial grant of 626,600 shares under the new plan was made on
February 27, 1997 at an exercise price of $18.00 per share. These options are
exercisable rateably over a three year period beginning with the third
anniversary from the date of grant. The terms of the plan impose certain
restrictions on the sale of the shares received upon exercise of the option.

   Upon consummation of the Distribution and Merger, the Company assumed all
employee stock options outstanding under Culbro's stock option plans. These
options were converted into options to purchase shares of common stock of the
Company under the new plan. The number of outstanding options and the exercise
prices were adjusted to preserve the value of the options. A total of 291,600 of
such options at exercise prices ranging from $12.25 to $80.00 was adjusted to
1,299,058 of General Cigar options at prices ranging from $2.45 to $16.08.
Consistent with the prior terms of the Culbro options, a portion of the options
outstanding under these plans may be exercised as incentive stock options, which
under current tax laws do not provide any tax deductions to the Company. These
options are not exercisable until three years from the date of original grant
and may be exercised over a period ending not later than ten years from the date
of grant. None of these options may be exercised as stock appreciation rights.

   Transactions in all of the above options for the fiscal year ended November
29, 1997 are summarized as follows:


--------------------------------------------------------------------------------
Culbro options outstanding at Nov. 30, 1996                             342,514
Exercised prior to merger and distribution                              (50,914)
                                                                     ----------
Outstanding at merger and distribution date                             291,600
                                                                     ==========
Conversion to General Cigar options                                   1,299,058
Exercised after merger                                                 (361,083)
General Cigar options granted during 1997                               626,600
                                                                     ----------
Options outstanding at Nov. 29, 1997                                  1,564,575
                                                                     ==========
Option prices range between:                                   $2.45 and $18.00
Options exercisable at Nov. 29, 1997                                    178,766
Number of option holders at Nov. 29, 1997                                    42


Nonemployee Directors Stock Options

Options previously granted to nonemployee directors under a Culbro nonemployee
directors plan also were assumed by the Company and converted, after adjustment
to preserve their value, into options to purchase common shares of the Company.
Transactions in these options for the fiscal year ended November 29, 1997 are as
follows:

--------------------------------------------------------------------------------
Culbro Options outstanding at Nov. 30, 1996                              43,000
Exercised prior to merger and distribution                               (2,000)
                                                                       --------
Outstanding at merger and distribution date                              41,000
                                                                       ========
Conversion to General Cigar options                                     182,268
Exercised after merger                                                  (17,782)
General Cigar options granted during 1997                                35,000
                                                                       --------
Options outstanding at Nov. 29, 1997                                    199,486
                                                                       ========
Option prices range between                                    $2.89 and $18.00
Options exercisable at Nov. 29, 1997                                     71,128
Number of option holders at Nov. 29, 1997                                     7


Employment Agreement

In addition to the options described above, options issuable under an employ
ment agreement entered into in May 1994 between Culbro and an officer of Culbro
became an obligation of the Company. The agreement provided for the issuance of
125,000 Culbro stock options, exercisable at the rate of 25,000 per year from
1995 through 1999 at an exercise price of $4.00 per share. Through November 30,
1996, 15,000 of these options had been exercised. The remaining options were
converted into options to purchase shares of the Company, and the number of
outstanding options and the exercise price were adjusted to preserve the value
of the options. After the adjustment, 444,557 of these options remained
outstanding at November 29, 1997 at an exercise price of approximately $0.80 per
share of which 222,278 were exercisable. During 1997, 44,456 of these options
were exercised. The annual compensation expense for this agreement is $267
through April 1999 reflecting the amortization of the difference between the
option price and the market price at the date of grant.


                                       34
<PAGE>

   The following table summarizes information relating to all currently
outstanding and exercisable stock options:

                                      Weighted  Weighted                Weighted
                                       Average   Average                 Average
       Range of       Number         Remaining  Exercise        Number  Exercise
Exercise Prices  Outstanding  Contractual Life     Price   Exercisable     Price
--------------------------------------------------------------------------------
$10 and under      1,006,620         6.5 years    $ 2.37       472,172     $2.07
Over $10           1,201,998         8.8 years    $16.18            --        --
                   ---------                                   -------
                   2,208,618                                   472,172
                   =========                                   =======

Stock-Based Compensation

The Company has adopted the disclosure provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation" which require disclosing the pro forma effect on
earnings and earnings per share of the fair value method of accounting for
stock-based compensation. The Company's net income and net income per common
share would have been the following pro forma amounts under the method
prescribed by SFAS No. 123.

--------------------------------------------------------------------------------
Net income, as reported                                $36,064
Net income, pro forma                                  $33,808
Net income per common share, as reported               $  1.26
Net income per common share, pro forma                 $  1.18

   The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions for grants in 1997: expected volatility of approximately 40%, risk
free interest rate of 6.43%; expected option term of 6 years and no dividend
yield for all options issued. The expected option term was developed based on
historical grant and exercise information.

NOTE 10:
LEASES

The Company has the following noncancellable leases relating principally to a
manufacturing facility and vehicles.

Capital Leases

Future minimum lease payments under capital
leases and the present value of such payments as of November 29, 1997 were:

--------------------------------------------------------------------------------
1998                                                                      $1,066
1999                                                                         963
2000                                                                         724
2001                                                                         478
                                                                          ------
Total minimum lease payments                                               3,231
Less: Amounts representing interest                                          359
                                                                          ------
Present value of minimum lease payments(a)                                $2,872
                                                                          ======


(a) Includes current portion of $0.9 million on November 29, 1997.

At November 29, 1997 and November 30, 1996, buildings, machinery and equipment
included capital leases amounting to $4.1 million and $4.2 million,
respectively, which is net of accumulated depreciation of $3.7 million and $3.4
million, respectively. Depreciation expense relating to capital leases was $0.8
million in 1997, and $0.7 million in each of fiscal years 1996 and 1995.


                                       35
<PAGE>

Operating Leases

Future minimum rental payments under noncancellable leases as of November 29,
1997 covering principally buildings were:

--------------------------------------------------------------------------------
1998                                                                      $1,821
1999                                                                       1,750
2000                                                                       1,656
2001                                                                       1,377
2002                                                                       1,104
Later years                                                                3,674
                                                                         -------
Total minimum lease payments                                             $11,382
                                                                         =======

   Total rental expense for all operating leases in 1997, 1996 and 1995 was $1.5
million, $0.6 million and $0.1 million, respectively.

NOTE 11:
EARNINGS PER SHARE

In February 1997, the FASB issued Statement No. 128, "Earnings Per Share" ("SFAS
No. 128"). This statement requires companies to present basic earnings per share
and, if applicable, diluted earnings per share instead of primary and fully
diluted earnings per share. Under SFAS No. 128, basic earnings per share
includes the weighted average number of common shares outstanding during the
period, excluding common stock equivalents, and diluted earnings per share
includes the weighted average number of common shares outstanding and common
stock equivalents.

   For fiscal year 1997 there was no difference between primary earnings per
share as reported and diluted earnings per share as computed under SFAS 128 
which the Company will adopt in fiscal 1998. Basic earnings per share computed
under SFAS 128 for fiscal year 1997 would have been $1.33.

NOTE 12:
SUPPLEMENTAL FINANCIAL STATEMENT 
INFORMATION

Net Sales

Excise taxes paid on cigar sales were $9.2 million, $7.9 million and $7.0
million for 1997, 1996 and 1995, respectively, and are included in net sales and
cost of goods sold.


Selling, General and Administrative Expenses

Included in selling, general and administrative expenses were advertising
expenses of $6.9 million, $4.4 million and $2.8 million for 1997, 1996 and 1995,
respectively.

Other Nonrecurring Expense

Other nonrecurring expense in 1996 reflects the allocation to the Company of
charges recorded by Culbro in connection with the termination of a management
long-term incentive compensation plan which was based on Culbro's stock price,
and the acceleration of the vesting of benefits under the plan, in anticipation
of the Offering. Additionally, the other nonrecurring expense item included
accruals for severance and related expenses in connection with a headcount
reduction at the Culbro corporate office. The Company's allocable share of these
expenses was determined substantially on the same basis as the allocation of
Culbro's general and administrative expenses referred to in Note 5 and is
considered by management to be reasonable.

Gain on Insurance Settlement

The gain on insurance settlement in the 1995 statement of operations was
realized from the settlement of a property insurance claim related to a 1994
fire that destroyed an administration and warehouse facility owned and operated
by General Cigar. The gain reflected total proceeds of $2.7 million less the
book value of the destroyed building.

Other Nonoperating Income (Expense)

Other nonoperating income (expense) included principally the net results of
leasing activity in the 387 PAS office building. In 1995, the net expense
included a breakup fee paid and certain other expenses incurred by General Cigar
to terminate a proposed agreement to sell approximately fifty percent of its
business.


                                       36
<PAGE>

Inventories

Inventories consist of:
                                                      Nov. 29,          Nov. 30,
                                                          1997              1996
--------------------------------------------------------------------------------
Raw materials and supplies                             $83,884           $43,704
Work-in-process                                          9,202             4,529
Finished goods                                          14,272             5,469
                                                      --------------------------
                                                      $107,358           $53,702
                                                      ==========================

Property and Equipment

Property and equipment consist of:
                                         Estimated    Nov. 29,         Nov. 30,
                                      Useful Lives        1997             1996
--------------------------------------------------------------------------------
Land                                                    $3,041           $2,534
Buildings                           10 to 40 years      68,700           58,225
Machinery
   and equipment                      3 to 7 years      41,300           33,470
                                                      --------------------------
                                                       113,041           94,229
Accumulated
   depreciation                                        (45,552)         (41,722)
                                                      --------------------------
                                                       $67,489          $52,507
                                                      ==========================

   Land and buildings include the Company's New York City headquarters building,
at a cost of $39.7 million and accumulated depreciation of $10.9 million at
November 29, 1997.

   Total depreciation expense for the Company was $4.3 million, $3.7 million and
$3.5 million for 1997, 1996, and 1995, respectively.

Accounts Payable and Accrued Expenses

Accounts payable and accrued liabilities include trade payables of $19.6 million
and $11.5 million for 1997 and 1996, respectively, accrued salaries, wages and
other compensation of $11.9 million and $6.8 million for 1997 and 1996,
respectively, and other accrued liabilities of $8.9 million and $4.5 million for
1997 and 1996, respectively, primarily for accrued workers compensation and
general liability insurance.

Supplemental Cash Flow Information

Prior to the Offering, General Cigar had been included in Culbro's consolidated
federal income tax returns (see Note 6). Accordingly, tax payments made by
Culbro in the period prior to the Offering are reflected in net transactions
with Culbro in the consolidated statement of cash flows. In the period
subsequent to the Offering, taxes paid by the Company were $16.7 million.

   Interest paid by the Company was $3.0 million, $1.0 million and $1.0 million
for 1997, 1996 and 1995, respectively.

   The cash and noncash activities related to the Villazon Acquisition are
summarized as follows:

--------------------------------------------------------------------------------
Estimated fair values of net assets acquired                           $ 91,105
Notes issued to sellers                                                 (24,370)
Payment of short-term seller notes                                       14,370
                                                                       --------
Payments in connection with the acquisition                              81,105
Cash acquired                                                            (9,907)
                                                                       --------
Payments in connection with acquisition,
   net of cash acquired                                                $ 71,198
                                                                       ========



Changes In Debt Not Affecting Cash

Certain noncash transactions totaling $53,970 which 
increased debt are summarized as follows:


--------------------------------------------------------------------------------
Total debt-- Nov. 30, 1996                                             $ 12,210
                                                                       --------
Assumed Culbro general corporate debt                                    43,200
Villazon seller notes                                                    10,000
Other                                                                       770
                                                                       --------
Total increase in debt not affecting cash                                53,970
Payments of debt                                                        (17,416)
                                                                       --------
Total debt-- Nov. 29, 1997                                             $ 48,764
                                                                       ========

NOTE 13:
BUSINESS SEGMENT INFORMATION

The Company's operations are conducted within one business segment comprising
the manufacturing and marketing of cigars, sold primarily in the United States,
and related activities including the distribution of lighters, and the operation
of a cigar bar. The Company's export sales are not material.

   In 1997, sales to one customer were approximately $30.3 million or 11.5% Of
the Company's total net sales.


                                       37
<PAGE>

NOTE 14:
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)


<TABLE>
<CAPTION>
1997 Quarters                                                   1st             2nd             3rd             4th            Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>             <C>             <C>             <C>             <C>     
Net sales                                                   $49,798         $58,908         $70,660         $83,467         $262,833
Gross profit                                                 22,283          26,473          35,267          43,973          127,996
Net income                                                    4,277           6,390          11,369          14,028           36,064
Pro forma net income per common share                          0.15            0.22            0.39            0.49             1.26
                                                            ========================================================================

1996 Quarters                                                   1st             2nd             3rd             4th            Total
------------------------------------------------------------------------------------------------------------------------------------
Net sales                                                   $28,832         $34,851         $38,611         $52,382         $154,676
Gross profit                                                 12,590          15,243          18,162          22,441           68,436
Net income                                                    2,395           2,650           4,142           3,220           12,407
Pro forma net income per common share                          0.08            0.09            0.15            0.11             0.44
                                                            ========================================================================
</TABLE>

NOTE 15:
COMMITMENTS AND CONTINGENCIES

A portion of the insurance claims related to the loss of an administration and
warehouse facility owned and operated by General Cigar was settled in 1995 (see
Note 12) and the remaining claims are being litigated.

   As of November 29, 1997 the Company had firm commitments for capital 
expenditures of approximately $12.1 million for the implementation of a new
computer system, the expansion of manufacturing and distribution facilities and
the addition of machinery and equipment.

   The Company believes that the outcome of currently pending legal proceedings
will not, in the aggregate, have a material adverse effect on the Company's
financial position.


                                       38
<PAGE>

Report of Management

   Management is responsible for the accompanying consolidated financial
statements, which are prepared in accordance with generally accepted accounting
principles. In management's opinion, the consolidated financial statements
present fairly the Company's financial position, results of operations and cash
flows.

   The Company maintains a system of internal accounting procedures and controls
intended to provide reasonable assurance, at appropriate cost, that transactions
are executed in accordance with proper authorization, are properly recorded and
reported in the financial statements, and that assets are adequately
safeguarded. The Company's internal audit department continually evaluates the
adequacy and effectiveness of this system of controls.

   The Audit Committee of the Board of Directors is comprised solely of outside
directors and is responsible for overseeing and monitoring the quality of the
Company's accounting and auditing practices. The Audit Committee meets regularly
with management, the internal audit department and independent accountants to
discuss audit activities, internal controls and financial reporting matters. The
internal audit department and the independent accountants have full and free
access to the Audit Committee.

   To foster the conduct of its business in accordance with the highest ethical
standards, the Corporation annually disseminates ethical guidelines, the
Company's compliance with which is monitored by senior management and the Audit
Committee.

   The appointment of Price Waterhouse LLP as the Company's independent
accountants was recommended and approved by the Audit Committee and the Board of
Directors, and was approved by the shareholders. Price Waterhouse's Report is
based on an examination conducted in accordance with generally accepted auditing
standards, including a review of internal accounting controls and tests of
accounting procedures and records.



                           /s/ EDGAR M. CULLMAN

                           EDGAR M. CULLMAN
                           Chairman
                 
                 
                 
                           /s/ JAY M. GREEN

                           JAY M. GREEN
                           Executive Vice President-Chief
                           FINANCIAL OFFICER AND TREASURER
        

Report of Independent Accountants

To the Board of Directors and Stockholders of
General Cigar Holdings, Inc.

   In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of cash flows, and of changes in
stockholders' equity present fairly, in all material respects, the consolidated
financial position of General Cigar Holdings, Inc. and its subsidiaries at
November 29, 1997 and November 30, 1996 and the results of their operations and
their cash flows for the fiscal years ended November 29, 1997, November 30, 1996
and December 2, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.


/s/ Price Waterhouse LLP
New York, New York    January 21, 1998


                                       39
<PAGE>

Corporate Directors and Officers

DIRECTORS

Bruce Barnet (2),(3),(7)
President and Chief Executive Officer
Cahners Publishing Company

John L. Bernbach (2),(6),(7)
Chairman and Chief Executive Officer of
The Bernbach Group, Inc. - consulting

Edgar M. Cullman (1),(4),(5)
Chairman of the Board

Edgar M. Cullman Jr. (1),(4),(6),(7)
President and Chief Executive Officer

Susan R. Cullman (1),(6),(7)
President of Republican Coalition
for Choice. Chairman of
the Public Policy Committee

John L. Ernst (1),(3),(5)
Chairman of the Board of President of
Bloomingdale Properties, Inc., investments
real estate. Chairman of the Compensation and
Nominating Committees

Thomas C. Israel (2),(7)
A Director and Chairman of A.C. Israel 
Enterprises, Inc., investments. Chairman of 
the Audit Committee

Dan W. Lufkin (1),(2),(3),(4),(5)
Private investor. Co-Chairman of the Finance
Committee

Graham V. Sherren (7)
Chairman and Chief Executive Officer of
Centaur Communications Limited, publisher
of business magazines in Great Britain

Peter J. Solomon (3),(4)
Chairman of Peter J. Solomon Company Limited,
investment bankers and Chairman of Peter J.
Solomon Securities Company Limited.
Co-Chairman of the Finance Committee.

Francis T. Vincent, Jr. (2),(3),(7)
Vincent Enterprises-Private Investor


OFFICERS

Edgar M. Cullman
Chairman of the Board

Edgar M. Cullman, Jr.
President and Chief Executive Officer

Jay M. Green
Executive Vice President-Chief Financial
Officer and Treasurer

Edward B. Polite
Executive Vice President-Chief Operating Officer

Austin T. McNamara
Executive Vice President

Ross Wollen
Senior Vice President,
General Counsel and Secretary

Joseph C. Aird
Senior Vice President-Controller

Janet A. Krajewski
Vice President-Taxes

David M. Danziger
Vice President-Corporate Development


(1) Executive Committee
(2) Audit Committee
(3) Compensation Committee
(4) Finance Committee
(5) Nominating Committee
(6) Public Policy Committee
(7) Strategic Planning Committee


                                       40
<PAGE>

Corporate Directory

Executive Offices
General Cigar Holdings, Inc.
387 Park Avenue South
New York, NY 10016-8899
Tel: (212) 448-3800

Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036

Stock Listing
Class A Common Stock
New York Stock Exchange
Symbol MPP

Special Counsel
Latham & Watkins
885 Third Avenue (Suite 1000)
New York, NY 10022

Registrar and Transfer Agent
ChaseMellon Shareholders Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, N.J 07660

If you have any questions about your stockholdings please call or E-mail 
ChaseMellon as follows: (1-800-273-8044) (www.chasemellon.com)

Annual meeting

The Annual Meeting of shareholders of General Cigar Holdings, Inc. will be held
on April 16, 1998 at 10:00 a.m. on the 11th floor of the Corporate Headquarters
of Chase, 270 Park Avenue, New York, N.Y. 

Shareholders' Information 

The Corporation's Annual Report filed with the Securities and Exchange
Commission on Form 10-K is available through EDGAR system of the Securities &
Exchange Commission and other services and (while supplies last) upon written
request to:

General Cigar Holdings, Inc.
387 Park Avenue South
New York, NY 10016-8899
Attn: Corporate Secretary



Note: The brand names of products mentioned in this Report are trademarks owned
by General Cigar Holdings, Inc. and its subsidiaries. All rights thereto are
reserved.
<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549


                              ---------------------

                                    FORM 10-K

                              ---------------------


                     FOR FISCAL YEAR ENDED NOVEMBER 29, 1997


                 ITEMS 8 and 14 - INDEX TO FINANCIAL STATEMENTS
                          AND ADDITIONAL FINANCIAL DATA


                              ---------------------

                          GENERAL CIGAR HOLDINGS, INC.

                        --------------------------------
<PAGE>

                          GENERAL CIGAR HOLDINGS, INC.

           INDEX TO FINANCIAL STATEMENTS AND ADDITIONAL FINANCIAL DATA


      The financial statements together with the report thereon of Price
Waterhouse LLP dated January 21, 1998, appearing in the accompanying 1997 Annual
Report to Shareholders, are incorporated by reference in this Form 10-K Annual
Report. With the exception of the aforementioned information and such other
information specifically incorporated by reference herein, the 1997 Annual
Report to Shareholders is not to be deemed filed or incorporated by reference as
part of this report.

      The following exhibits and additional financial date should be read in
conjunction with the financial statements in such 1997 Annual Report to
Shareholders. Schedules not included with this additional financial data have
been omitted because they are not applicable or the required information is
shown in the financial statements or notes thereto.


                  Report of Independent Accountants on Financial
                    Statement Schedule and Consent of Independent
                    Accountants......................................  C-1

Schedule VIII     Valuation and Qualifying Accounts and
                    Reserves.........................................  S-1

     Exhibit 11 - Statement Re: Computation of Earnings Per Share....  E-1

<PAGE>

To the Board of Directors of General Cigar Holdings, Inc.

Our audits of the consolidated financial statements referred to in our report
dated January 21, 1998 appearing in the 1997 Annual Report to Shareholders of
General Cigar Holdings. Inc, (which report and consolidated financial statements
are incorporated by reference in this Annual Report on Form 10-K) also included
an audit of the Financial Statement Schedule listed in Item 14(a) of this Form
10-K. In our opinion, this Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.


/s/ Price Waterhouse LLP

New York, New York
January 21, 1998


                       CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (333-30659) of General Cigar Holdings, Inc. of our report
dated January 21, 1998 appearing in the 1997 Annual Report to Shareholders which
is incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report on the Financial Statement Schedule
which appears above.


/s/ Price Waterhouse LLP

New York, New York
February 26, 1998


                                       C-1
<PAGE>

                          GENERAL CIGAR HOLDINGS, INC.

          SCHEDULE VIII-VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

                             (Dollars in Thousands)


<TABLE>
<CAPTION>
                                    Balance at  Charged to    Charged to   Deductions   Balance at
                                    Beginning    Costs and      Other         From          End
Description                          of Year     Expenses      Accounts     Reserves      of Year
-----------                         ----------  ----------    ----------   ----------   ----------
<S>                                   <C>          <C>            <C>         <C>         <C>   
                     For fiscal year ended November 29, 1997
                     ---------------------------------------

Reserves:
Uncollectible accounts - trade........$482         1,372          413         936(1)      $1,331
                                      ====         =====          ===         =====       ======

                     For fiscal year ended November 30, 1996                              
                     ---------------------------------------                              

Reserves:                                                                                 
Uncollectible accounts - trade .......$465           420            -         403(1)        $482
                                      ====         =====          ===         =====       ======

                     For fiscal year ended December 2, 1995                               
                     --------------------------------------                               

Reserves:                                                                                 
Uncollectible accounts - trade........$725           132            -         392(1)        $465
                                      ====         =====          ===         =====       ======
</TABLE>

----------

Notes:

(1)   Accounts receivable written-off.


                                       S-1