UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K

(MARK ONE)

[X]        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
           EXCHANGE ACT OF 1934

           FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

                                       OR

[ ]        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
           EXCHANGE ACT OF 1934


       FOR THE TRANSITION PERIOD FROM _______________ TO _______________.

                        COMMISSION FILE NUMBER 333-31931


                      NORTH ATLANTIC TRADING COMPANY, INC.
                      ------------------------------------
             (Exact name of registrant as specified in its charter)


            DELAWARE                                            13-3961898
            --------                                            ----------
(State or other jurisdiction of                              (I.R.S. Employer
 incorporation or organization)                             Identification No.)


              257 PARK AVENUE SOUTH, NEW YORK, NEW YORK 10010-7304
              ----------------------------------------------------
               (Address of principal executive offices) (Zip Code)


Registrant's telephone number, including area code:  (212) 253-8185


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

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]     No  [ ].

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 materials or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes  [ ]     No  [X].

As of March 29, 2004, the only class of voting or non-voting common equity
issued and outstanding was the Registrant's Voting Common Stock, par value $.01
per share, 100% of which was owned by North Atlantic Holding Company, Inc. There
is no trading market for the Voting Common Stock.

As of March 29, 2004, 10 shares of the Registrant's Voting Common Stock, par
value $.01 per share were outstanding.

<PAGE>
                      North Atlantic Trading Company, Inc.
                          2003 Form 10-K Annual Report

<TABLE>
<CAPTION>
                                TABLE OF CONTENTS

                                                                                                                    Page
                                     PART I
<S>                                                                                                                <C>
Item 1.      Business.................................................................................................1

Item 2.      Properties..............................................................................................21

Item 3.      Legal Proceedings.......................................................................................21

Item 4.      Submission of Matters to a Vote of Security Holders.....................................................26



                                     PART II

Item 5.      Market for Registrant's Common Stock, Related Stockholder Matters and Issuer Purchases
              of Equity Securities...................................................................................26

Item 6.      Selected Financial Data.................................................................................28

Item 7.      Management's Discussion and Analysis of Financial Condition and Results of Operations...................29

Item 7A.     Quantitative and Qualitative Disclosures About Market Risk..............................................42

Item 8.      Financial Statements and Supplementary Data.............................................................43

Item 9.      Changes in and Disagreements With Accountants on Accounting and Financial Disclosure....................43

Item 9A.     Controls and Procedures.................................................................................43


                                    PART III

Item 10.     Directors and Executive Officers of the Registrant......................................................43

Item 11.     Executive Compensation..................................................................................47

Item 12.     Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters..........58

Item 13.     Certain Relationships and Related Transactions..........................................................60

Item 14.     Principal Accountant Fees and Services..................................................................62


                                     PART IV

Item 15.     Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................................64

SIGNATURES...........................................................................................................77

</TABLE>

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                                     PART I

ITEM 1. BUSINESS

OVERVIEW

           North Atlantic Trading Company, Inc. (the "Company") is a holding
company which owns National Tobacco Company, L.P. ("NTC"), North Atlantic
Operating Company, Inc. ("NAOC"), North Atlantic Cigarette Company, Inc.
("NACC"), National Tobacco Finance Corporation and its recently acquired
subsidiaries, Fred Stoker & Sons, Inc., RBJ Sales, Inc. and Stoker, Inc.
(collectively, "Stoker"). NTC is the third largest manufacturer and marketer of
loose leaf chewing tobacco in the United States, selling its products under the
BEECH-NUT(R), TROPHY(R), HAVANA BLOSSOM(R) and DURANGO(R) brand names. NAOC is
the largest importer and distributor in the United States of premium cigarette
papers and related products, which are sold under the ZIG-ZAG(R) brand name
pursuant to an exclusive long-term distribution agreement with Bollore, S.A.
NAOC also manufactures and distributes Make-Your-Own ("MYO") cigarette tobaccos
under the ZIG-ZAG brand name, pursuant to its trademarks. NACC was created to
market and distribute ZIG-ZAG Premium Cigarettes. Stoker is the fifth largest
manufacturer and distributor of loose leaf chewing tobacco which is sold under
STOKER(TM), OUR PRIDE(TM) and other brand names. Stoker also manufactures and
distributes MYO cigarette tobaccos under the STOKER NO. 2(TM), OLD HILLSIDE(TM)
and other brand names.

EVOLUTION OF THE COMPANY

           In 1988, Thomas F. Helms, Jr., Chairman and Chief Executive Officer
of the Company, and an investor group led by Lehman Brothers, formed NTC to
acquire the smokeless tobacco division of Lorillard Tobacco Company
("Lorillard"). Lorillard had manufactured and sold the popular BEECH-NUT brand
of loose leaf chewing tobacco since 1897.

           In 1997, the Company was formed to facilitate a corporate
reorganization undertaken in connection with the acquisition (the "1997
Acquisition") of NATC Holdings USA, Inc., which owned the exclusive rights to
market and distribute ZIG-ZAG premium cigarette papers in the United States,
Canada and certain other international markets. The ZIG-ZAG brand was originally
introduced in France in 1879 by Bollore S.A., a major French industrial concern.
Upon consummation of the 1997 Acquisition and the related reorganization, the
Company became the holding company of NTC, which operates the Company's
smokeless tobacco business, and NAOC, which operates the Company's premium
cigarette paper and MYO cigarette business.

           On November 17, 2003, the Company consummated the acquisition of
Stoker. Through the acquisition, the Company acquired the Stoker family of
brands and the related business operations, including the equipment used to
manufacture and package the Stoker products. The Stoker family consists of 18
loose leaf chewing tobacco products and five brands of MYO tobacco and related
products, as well as a number of moist snuff and pipe tobacco brands. The
Company also acquired the Stoker catalog business which principally sells
tobacco products.

           The Company's principal executive offices are located at 257 Park
Avenue South, 7th Floor, New York, New York 10010, and its telephone number is
(212) 253-8185.

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<PAGE>
RECENT EVENTS

           Effective as of February 9, 2004, the Company consummated a holding
company reorganization, whereby North Atlantic Holding Company, Inc., a Delaware
corporation ("Parent"), became the parent company of the Company. The holding
company reorganization was consummated in part to allow Parent to issue senior
discount notes in connection with the Company's refinancing of its existing debt
and preferred stock, as more fully discussed below.

           The holding company reorganization was effected pursuant to an
Agreement and Plan of Merger (the "Merger Agreement), dated as of February 9,
2004, among the Company, Parent and NATC Merger Sub, Inc., a Delaware
corporation and direct wholly-owned subsidiary of Parent ("Merger Sub"). The
Merger Agreement provided for, among other things, the merger of Merger Sub with
and into the Company, with the Company being the surviving corporation (the
"Merger"). In accordance with Section 228(a) of the Delaware General Corporation
Law, the Company received the required written approval of the Merger by the
holders of a majority of the outstanding shares of the Company's voting common
stock.

           As a result of the Merger, (i) the Company became a direct,
wholly-owned subsidiary of Parent; (ii) each issued and outstanding share of
Company Stock, was converted into the right to receive one share of common stock
of Parent, par value $0.01 per share ("Parent Common Stock"); (iii) each issued
and outstanding share of common stock of Merger Sub was converted into one
issued and outstanding share of common stock of the Company and Merger Sub
ceased to exist; and (iv) all of the issued and outstanding shares of Parent
Common Stock held by the Company were cancelled.

           In connection with the Merger, Parent assumed all of the Company's
obligations under the Company's outstanding warrants and stock options which
were converted into rights to purchase an identical number of shares of Parent
Common Stock. The subsidiaries of the Company were unaffected by the
reorganization.

           On February 17, 2004, the Company consummated the refinancing of its
existing debt and preferred stock, as well as a general corporate
reorganization. The refinancing consisted principally of (1) the offering and
sale of $200.0 million principal amount of senior notes by the Company, (2) the
entering into an amended and restated loan agreement that provides a $50.0
million senior secured revolving credit facility by the Company and (3) the
concurrent offering and sale of $97.0 million aggregate principal amount at
maturity of senior discount notes of Parent. Both the senior notes and the
senior discount notes were offered pursuant to Rule 144A and Regulation S under
the Securities Act of 1933, as amended.

           Concurrently with the closing of the refinancing, the Company also
called for redemption all of its outstanding 11% senior notes due 2004, in
accordance with the terms of the indenture governing such notes, at the
applicable redemption price of 100.0% of the principal amount thereof, plus
interest accrued to the redemption date of April 2, 2004.

           On March 18, 2004, the Company redeemed all outstanding shares of its
12% senior exchange payment-in-kind preferred stock, at the applicable
redemption price equal to the liquidation preference of the preferred stock
($22.00 per share), plus an amount in cash equal to all accumulated and unpaid
dividends.

BUSINESS STRATEGY

           The Company's business strategy is to grow, both internally and
through acquisitions, by responsibly marketing its products to adult consumers
and by complying with all applicable laws, regulations and statutes. The Company


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intends to (i) capitalize on the strong brand identities of its products with a
focus on product linkages and extensions; and (ii) improve the sales, marketing
and operating efficiencies of its subsidiaries. The Stoker acquisition and the
Company's recently launched ZIG-ZAG Premium Cigarette significantly enhance its
product offerings to distributors, retailers and consumers. Through the
elimination of certain administrative costs, the achievement of certain
manufacturing synergies and through growth in distribution, the Company expects
to meaningfully increase its sales and cash flows. In addition, the Company has
tailored strategies for each of its product groups that are designed to maximize
their profitability.

           Expand the Company's leadership position in the premium cigarette
papers business. Building upon its exclusive long-term distribution and license
agreement with Bollore in the United States and Canada, the Company expects to
expand its market-leading ZIG-ZAG premium cigarette papers brand. The Company
believes that it can manage its premium cigarette papers business for maximum
profitability by focusing on its existing product lines and by increasing the
distribution of its premium cigarette papers products into the large chain
convenience store channel.

           Enhance the profit contribution of the Company's loose leaf chewing
tobacco segment. Historically, the Company has maintained the profit
contribution of its loose leaf chewing tobacco segment by offsetting volume
declines with price increases and by controlling costs. With the addition of the
Stoker products, which target the growing value-oriented category of the loose
leaf chewing tobacco market, the Company expects to be able to slow its
historical trend of volume declines. In addition, the Company believes it can
expand sales of Stoker's value-oriented products by offering them through the
Company's current distribution network. The Company also expects to further
improve profitability through manufacturing cost synergies by consolidating
operations.

           Continue to benefit from the growth in the MYO tobacco and related
products market. MYO tobacco and related products currently enjoy a significant
price advantage over manufactured cigarettes, primarily due to a lower level of
taxation and the higher level of Master Settlement Agreement ("MSA") compliance
costs associated with manufactured cigarettes. Other countries, such as the
United Kingdom and Canada, indicate a strong correlation between rising
manufactured cigarette prices and increasing consumption of MYO tobacco and
related products. In 1999, the Company launched the industry's first
fully-integrated MYO line of products, comprised of smoking tobaccos, tubes,
injectors and starter kits under the ZIG-ZAG brand. The Company recently
expanded its portfolio of MYO tobacco and related products by acquiring the
Stoker brands. The Company believes its existing portfolio of ZIG-ZAG premium
MYO tobacco and related products, supplemented by the recently acquired Stoker
portfolio of value-oriented MYO tobacco and related products, will allow it to
continue to benefit from the strong growth trend in this market. Furthermore,
the Company expects growth in sales of MYO tobacco and related products to
continue for the near future, and accordingly, it intends to focus on expanding
distribution of its MYO tobacco and related products into the large chain
convenience store channel. In addition, the Company has developed and placed
innovative, highly visible point-of-purchase displays to better merchandize its
MYO products for both the retailer and the consumer.

           Grow sales of the Company's new ZIG-ZAG Premium Cigarette. During
September 2003, the Company began a highly focused launch of its new premium
manufactured cigarette under the ZIG-ZAG Premium Cigarette brand in Dallas, Los
Angeles, Miami and Seattle. By leveraging its well-developed brand equity, the
Company believes it can successfully market and increase the sales of this new
premium product in the largest and most profitable segment of the cigarette
industry.

           Maintain lean, low cost culture. The Company's most significant cost
of goods sold, other than federal excise taxes, are tobacco and packaging. The
Company rigorously monitors these costs and have relationships with multiple


                                       3
<PAGE>
suppliers to maintain competitive pricing. The Company operates an efficient
manufacturing operation that requires a modest level of capital expenditures.
The Company maintains a lean corporate staff and an operating company culture
that seeks to minimize the overhead costs associated with its vertically
integrated tobacco operations. The Company believes that the application of its
efficient management and manufacturing processes to the recently acquired Stoker
operations will generate significant short-term and ongoing cost savings.

INDUSTRY AND MARKETS

           The Company currently competes in three distinct markets within the
overall tobacco industry: (1) the smokeless tobacco market, which includes loose
leaf chewing tobacco; (2) the MYO products market, which is comprised of premium
cigarette papers and MYO tobaccos and related products; and (3) the premium
cigarette category of the manufactured cigarette market. The Company believes
that the tobacco industry is characterized by non-cyclical demand, relative
brand loyalty, meaningful barriers to entry, defined channels of distribution,
modest capital expenditure requirements, relatively high profit margins,
generally stable wholesale prices and the ability to generate significant and
consistent free cash flows.

Smokeless Tobacco

           Smokeless tobacco products, including loose leaf chewing tobacco,
have a long, established tradition of use in the United States. An estimated 7.8
million Americans are regular users of smokeless tobacco products, according to
the U.S. Department of Health and Human Services. The smokeless tobacco market
is composed of the five product categories listed below:

          o    Moist Snuff: Moist snuff made from dark, air-cured tobacco that
               is aged, flavored, finely ground and packaged in round fiber or
               plastic cans.

          o    Loose Leaf Chewing Tobacco: Loose leaf chewing tobacco is
               typically made from air-cured leaf tobacco, using both domestic
               and imported tobaccos, that is aged, flavored and packed in foil
               pouches.

          o    Plug Chewing Tobacco: Plug chewing tobacco is made from air-cured
               leaf tobacco, which is heavily flavored and pressed into small
               bricks or blocks.

          o    Twist Chewing Tobacco: Twist chewing tobacco is made of dark,
               air-cured tobacco, which is twisted into strands that are dried
               and packaged like a dry, pliable rope.

          o    Dry Snuff: Dry snuff is a very finely ground, powdered tobacco
               product, which is sometimes flavored and is packaged in a variety
               of containers.

           The Company believes that many consumers of smokeless tobacco
regularly use products in more than one of the aforementioned categories.
Further, many of its competitors in the smokeless tobacco market offer products
in more than a single smokeless tobacco category. In addition to the Company,
other major manufacturers and marketers of smokeless tobacco include US
Smokeless Tobacco Co., Swedish Match North America, Inc., Conwood Corporation
and Swisher International, Inc.

           According to information provided by the Smokeless Tobacco Council,
manufacturers' sales for the smokeless tobacco market increased to $2.2 billion
in 2002 from $1.7 billion in 1995, representing a 7-year compound annual growth
rate of 4%. The increase in sales is primarily related to an increase in


                                       4
<PAGE>
manufacturers' sales of moist snuff, which grew to $1.8 billion in 2002 from
$1.3 billion in 1995, representing a compound annual growth rate of 5%. In
contrast to the growth of moist snuff sales, there has been a decline in
manufacturers' sales of chewing tobacco products, including loose leaf chewing
tobacco, which have decreased to $325.0 million in 2002 from $365.0 million in
1995, representing a compound annual decline rate of 2%.

           Loose leaf chewing tobacco, although a mature product category,
remains popular in the Southeast, Southwest and rural Northeast and North
Central regions of the United States. Consistent with a general trend in the
tobacco industry, however, unit volumes of loose leaf chewing tobacco products
have been declining and decreased at a compound annual decline rate of 4% from
1995 to 2002. Manufacturers and marketers of loose leaf chewing tobacco products
have partially offset the impact of this decline with increases in the prices of
loose leaf chewing tobacco products. While there has been an overall decline in
volume, the Company estimates that the volume of sales of the large-sized,
value-oriented category of loose leaf chewing tobacco products has grown.
Large-sized, value-oriented loose leaf chewing tobacco products are packaged in
8 oz. or 16 oz. bag sizes (as compared to the 3 oz. bag size in which other
loose leaf chewing tobacco products are usually sold) and are generally sold at
a lower price per ounce of product than other loose leaf chewing tobacco
products.

           The Company's share of the market for loose leaf chewing tobacco
products was 15% in 2002. After taking into account the Stoker acquisition, the
Company estimates it has a share of approximately 18% of the market. The other
three principal competitors in the loose leaf chewing tobacco product category,
together with the Company, represented nearly all of the loose leaf chewing
tobacco category in the United States in 2002. The Company's market share and
those of its principal competitors in the loose leaf chewing tobacco products
market have remained relatively consistent over the past five years, with
Swedish Match North America, Inc. holding an approximate 43% market share;
Conwood Corporation, an approximate 33% market share; and Swisher International,
Inc., an approximate 6% market share.

           Loose leaf chewing tobacco products are typically sold through mass
merchandisers, chain and independent convenience stores, tobacco outlets, food
stores and chain and independent drug stores. Tobacco outlets are becoming an
increasingly important distribution channel for all tobacco products, including
loose leaf chewing tobacco. Some retailers purchase loose leaf chewing tobacco
direct from manufacturers although most purchase through wholesale distributors.

MYO Products

           The MYO products market consists of several different product
categories, with each product designed to work with the others to allow the
consumer to make their own cigarettes. Among the products are premium cigarette
papers, MYO tobacco, which is cigarette smoking tobacco in loose form, packaged
typically in canisters, pouches or bags, and products relating to MYO tobacco,
which include cigarette tubes (papers with a filter fashioned into an "empty"
cigarette), cigarette rolling machines, used to roll cigarette papers and
tobacco into a cigarette, and cigarette injector machines, used to insert the
smoking tobacco into the empty cigarette tubes.

           Premium Cigarette Papers. The production and sale of premium
cigarette papers long preceded the invention of machine-made mass manufactured
filtered cigarettes. Overall market sales of premium cigarette papers have been
historically stable and during the past six years have benefited to a slight
degree from the increasing growth of MYO tobacco and related products.


                                       5
<PAGE>
           There are two principal paper categories: premium, interleaved paper
and discount "flat" or non-interleaved paper. Premium cigarette papers are made
primarily from rice, flax or combinations of other natural fibers.
Characteristics used to distinguish various papers include size, stability and
cut, all of which affect the ease of making your own cigarettes, and variations
of material and flavor, which impact taste. Premium cigarette papers are sold in
booklets in various sizes and are also segmented by price and quality.

           The Company's principal competitors in the premium cigarette paper
market are Republic Tobacco L.P., which markets JOB(R); Robert Burton
Associates, Inc., a wholly-owned subsidiary of Imperial Tobacco Group plc, which
markets EZ Wider(R); and VCT B.V., which markets the Bambu(R) brand. While
market information is not officially compiled, the Company estimates that it,
together with these three companies, collectively have a market share in excess
of 95% of the premium cigarette papers market.

           Premium cigarette papers are typically sold through the following
retail distribution channels: convenience stores, chain and independent drug
stores, mass merchandisers, food stores and tobacco outlets. Retailers purchase
premium cigarette papers primarily from wholesale distributors.

           MYO tobacco and related products. If viewed as a part of a total
cigarette market, which includes both manufactured cigarettes and MYO tobacco
and related products, the Company believes that on a cigarette-equivalent basis,
aggregate MYO tobacco and related products sales would have represented an
estimated U.S. market share of 0.7% in 1998 and 1.5% in 2002, doubling its share
of the market. Based on MSA calculations, this would equate to an estimated 3.5
billion cigarette equivalents sold in 1998, increasing to an estimated 6.0
billion cigarette equivalents sold in 2002 in the United States.

           The MYO tobacco and related products market has been one of the
fastest growing markets in the tobacco industry over the past five years. The
Company believes this growth has been driven primarily by the increasing
differential between the cost of a consumer making cigarettes using MYO products
and the prices of manufactured cigarettes. Manufactured cigarette prices have
risen during this period primarily as a result of increased state excise and
sales taxes and the pass through by cigarette manufacturers of the cost of
complying with the MSA. U.S. growth in sales of MYO tobacco and related products
is consistent with sales trends that have occurred for these products in Canada
and Europe. For example, in the United Kingdom, following significant increases
in excise and sales taxes on manufactured cigarettes, sales of MYO products on a
cigarette-equivalent basis grew from representing 5% of the cigarette market in
1993 to 13% of the market in 2002.

           The other principal U.S. competitors in the MYO tobacco and related
products market are Republic Tobacco, L.P., and its TOP Tobacco, L.P.
subsidiary, which markets the Top(R) brand; and Lane Limited, an affiliate of
Brown & Williamson Tobacco Corporation, which markets the Bugler(R) and Kite(R)
brands. Many other companies also compete in this market, such as, Peter
Stokkebye International A/S, which markets the Bali Shag(R) brand.

           MYO tobacco and related products are typically sold through mass
merchandisers, chain and independent convenience stores, tobacco outlets, food
stores and chain and independent drug stores. Some retailers purchase MYO
tobacco and related products direct from manufacturers although most purchase
through wholesale distributors.


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<PAGE>
Manufactured Cigarettes

           The U.S. tobacco industry has faced substantial challenges in recent
years, including large price increases to pay for litigation, increased state
excise taxes, large-scale media campaigns run by anti-smoking groups, increased
restrictions on cigarette marketing and a decrease in the number and types of
locations where smoking is permitted. Despite these challenges, U.S. cigarette
consumption has only declined modestly in recent years. Further, overall
industry sales have grown due to strong price increases and the ability to pass
excise taxes through to consumers.

           For a number of years, major U.S. cigarette manufacturers have been
faced with lawsuits by private plaintiffs and governmental entities. In response
to the growing number of lawsuits, the major cigarette manufacturers settled
several claims with the state attorneys general. On November 23, 1998, the major
U.S. cigarette manufacturers entered into the MSA with attorneys general
representing 46 states, the District of Columbia, Puerto Rico, Guam, the Virgin
Islands, American Samoa and the Northern Mariana Islands (the "Settling States")
to settle the asserted and unasserted health care cost recovery and certain
other claims of those states and territories. Separately, the major cigarette
manufacturers settled similar claims on an individual basis that were brought by
Florida, Texas, Minnesota and Mississippi (the "Non-MSA States").

           Under the MSA and the settlement agreements with the Non-MSA States,
the manufacturers that participated in the settlement are obligated to make
annual payments to the states. In addition, pursuant to the terms of the MSA,
industry participants agreed to various restrictions and limitations regarding
the advertising, promotion and marketing of tobacco products in the United
States. For a more detailed description of the business restrictions and annual
payments due under the MSA, see "--State Attorney General Settlement
Agreements."

           The original major manufacturers that negotiated and initially signed
the MSA are called the Original Participating Manufacturers ("OPMs"). Some
smaller manufacturers who subsequently elected to participate in the MSA are
called Subsequent Participating Manufacturers ("SPMs"). OPMs and SPMs are
required to make annual MSA payments to the 46 signatory states based on their
national sales volumes, regardless of the state in which cigarettes are sold.
Manufacturers who elected to comply with the MSA through escrow deposits are
referred to as Non-Participating Manufacturers ("NPMs"). NPMs are required to
make escrow deposits to each of the 46 states separately based upon units sold
to a particular state and are not required to deposit escrow amounts related to
sales in the Non-MSA states. For a more detailed description of signatory
payment requirements of OPMs and SPMs and the escrow deposit requirements of
NPMs, see "--State Attorney General Settlement Agreements."

           In order to fund their payment obligations under the MSA, major
cigarette manufacturers have instituted a series of price increases from 1997
through 2002. The average wholesale list price charged for a carton of premium
cigarettes has increased at a 16% compound annual growth rate from 1997 to 2002.

           There are four primary categories of manufactured cigarettes in the
United States, commonly referred to as "Tiers," that are generally determined
based upon average price per carton: Premium (Tier 1); Branded Savings (Tier 2);
Generic (Tier 3); and Deep-Discount (Tier 4).

           In general, premium brands contain higher-quality raw materials and
packaging and are sold at a higher price point than the generally less
established brands in the other tiers. Most of the premium brands are sold by
four major cigarette manufacturers, which include Philip Morris USA, Inc., R.J.
Reynolds Tobacco Company, Brown & Williamson Tobacco Corporation and Lorillard
Tobacco Company. These brands historically had considerable funds spent in their


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support through marketing and advertising, as well as through discounts, coupons
and buy-downs. In September 2003, the Company launched its ZIG-ZAG Premium
Cigarette to compete in the premium segment. The Company believes current brand
switching trends among adult consumers highlight the opportunity for additional
well-known premium entrants.

           The discount categories are defined primarily by price. Tier 2
cigarettes are generally less well-recognized brands, sold nationally by major
cigarette manufacturers, marketed at lower retail prices. Tier 3 cigarettes are
sold at even lower retail prices, have less distribution, in general, than Tier
2 brands and are generally manufactured by SPMs. Tier 4 cigarettes are sold by
smaller companies, many of whom are NPMs, and are sold at the lowest retail
prices. Manufacturers of Tier 4 cigarettes are fragmented geographically and
consist of over one hundred different companies.

           The premium category continues to make up the largest share of
overall U.S. cigarette sales volumes, with a 72% market share in 2002. Of that
amount, over 95% are related to sales of the top four major cigarette
manufacturers. The discount category (Tiers 2 - 4) had an approximate 28% market
share.

           Overall industry volumes have decreased at a compound annual rate of
2% from 1995 to 2002. Competition is primarily based on brand recognition,
consumer loyalty, distribution, retail display and promotion, quality and price.
Meaningful market share shifts among the major manufacturers require significant
discounting and other marketing expenses, however, the MSA contains provisions
limiting the ability of OPMs and SPMs to market and advertise cigarettes.

           In response to increased competition, large manufacturers have
increased promotions and discounts in order to maintain, or at least slow their
decline in, market share, particularly in the premium category. Further, these
premium manufacturers have realigned their strategy by focusing marketing
expenditures on their core premium brands. Despite the decline in overall
cigarette volumes and the shift toward discount brands, the Company believes
that the size of the premium cigarette market still offers meaningful
opportunities for a new premium cigarette product with a well-recognized brand
name due to consumer behavior and attitudes toward brand switching.

PRODUCTS

           Currently, the Company manufactures, markets and distributes loose
leaf chewing tobacco for the smokeless tobacco market and MYO smoking tobaccos
and related products for the MYO cigarette market, which also includes the
marketing and distribution of cigarette papers and related products. The Company
is also a marketer and distributor of premium manufactured cigarettes.

Loose Leaf Chewing Tobacco

           Loose leaf chewing tobacco is made from aged, air-cured tobacco,
which is processed and flavored and then packaged in foil pouches. Loose leaf
chewing tobacco products can be broadly characterized as either full-flavored or
mild. According to A.C. Nielsen, in 2002 full-flavored products accounted for
approximately 75% of the loose leaf volume and mild flavored products comprised
an estimated 25%. The Company sells its loose leaf chewing tobacco products
under the BEECH-NUT, TROPHY, HAVANA BLOSSOM and DURANGO brand names. The
BEECH-NUT brands are available in two flavors: Regular and Wintergreen.
BEECH-NUT REGULAR is a full-flavored product, which the Company believes is
ranked third in market share in both the full-flavored loose leaf chewing
tobacco category, and in the overall loose leaf chewing tobacco market.
BEECH-NUT WINTERGREEN was introduced in 1979 and has the largest market share of


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any premium flavored loose leaf brand. The Company introduced its TROPHY brand
into the mild product category in 1992. The Company's HAVANA BLOSSOM brand is a
regional brand, sold primarily in West Virginia, Pennsylvania and Ohio. Its
DURANGO brand, which was introduced in March 1998, is a nationally distributed
value brand.

           The Company acquired additional brands (with a total of 18 distinct
styles and flavors) of loose leaf chewing tobacco as a result of the Stoker
acquisition. These brands include TENNESSEE CHEW, OUR PRIDE and FRED'S CHOICE.
The Stoker brands appeal to value-conscious consumers. The Company believes the
Stoker brands are the market leaders in the value-oriented category of the loose
leaf chewing tobacco market. The Stoker brands are principally sold in 8 oz. and
16 oz. value-oriented packages as opposed to the industry standard of 3 oz.
packages.

MYO Products

           The Company's MYO products include ZIG-ZAG premium cigarette papers,
MYO tobacco and related products, such as cigarette tubes, cigarette rolling and
injector machines and MYO starter kits.

           The Company sells its premium cigarette papers under the ZIG-ZAG
brand. Although premium cigarette papers are sold in a variety of different
widths and styles, the Company's primary styles are its standard width ZIG-ZAG
White and ZIG-ZAG 1 1/4 sized French Orange premium cigarette papers. Other
premium paper products sold under the ZIG-ZAG name are Kutcorners, which are
designed for easier hand-rolling; -- 1 1/2 sized; king-sized; and double-wide.

           The Company's MYO tobacco products include its ZIG-ZAG Classic
American Blend and its recently acquired STOKER'S NUMBER 2 and OLD HILLSIDE
brands of value-oriented MYO tobaccos, both of which appeal to the
price-conscious consumer. STOKER'S NUMBER 2 was the first brand of MYO tobacco
to be sold in 16 oz. bags, thus contributing to the growth of the value-oriented
category.

Premium Cigarettes

           During September 2003, the Company introduced a new, premium
manufactured cigarette under the ZIG-ZAG brand in Dallas, Los Angeles, Miami and
Seattle. The Company currently offers both king-size full flavor and light
versions of ZIG-ZAG Premium Cigarettes.

Other Products

           In connection with the Stoker acquisition, the Company acquired the
Stoker catalog business, which principally sells tobacco and tobacco related
products.

SALES AND MARKETING

           The Company has a nationwide sales organization of approximately 100
people, which is divided into a national accounts group, a field sales
organization and a sales administration staff. The field sales organization
focuses on the Company's loose leaf chewing tobacco and MYO products and was
re-organized in 2002-2003, primarily to allow the Company to more effectively
provide sales coverage and to penetrate the distribution channel of the chain
convenience stores, where tobacco product sales are significant. The national
accounts group focuses on large national convenience store headquarters and
district offices as well as other major accounts, such as, Wal-Mart, Sam's Club,
Costco, K-Mart, Walgreens and others. The Company is also utilizing a marketing


                                       9
<PAGE>
and sales promotional firm with respect to the sales and marketing surrounding
the launch of its ZIG-ZAG Premium Cigarettes.

           The Company has focused and will continue to focus its sales efforts
for both its loose leaf chewing tobacco and MYO products on both wholesale
distributors and retail merchants in the independent and chain convenience
store, drug store and mass merchandising channels as well as the food store and
tobacco outlet channels. Since the 1997 Acquisition, the Company has expanded
and intends to continue to expand the sales of its loose leaf chewing tobacco
and MYO products into geographic markets and retail channels that had previously
been underdeveloped. The Company has established relationships with
approximately 1,000 wholesale customers and its products are sold in
approximately 100,000 retail locations through the United States. The Company
intends to capitalize on its existing distribution channels for loose leaf
chewing tobacco and MYO products by selling its ZIG-ZAG Premium Cigarettes
through those channels in selected markets. The Company also expects to sell its
ZIG-ZAG Premium Cigarettes through alternative distribution channels in those
markets, such as, upscale hotels, bars and tobacconists.

           At the retail level, the Company's loose leaf chewing tobacco
products are promoted through volume and price-discount programs and the use of
innovative, high visibility point-of-purchase floor and shelf displays, banners
and posters. The Company has neither relied upon nor conducted any advertising
in the consumer media for its loose leaf chewing tobacco products.

           The majority of ZIG-ZAG premium cigarette papers promotional activity
is at the wholesale distributor level and consists of distributor promotions,
trade shows and trade advertising. The MYO smoking tobaccos and related
products' promotional activity is more focused at the retail level with spending
on point-of-sale displays and at the consumer level with price-off promotions,
primarily through the use of coupons.

           The Company provides to its distributor customers, for redistribution
to retailers, point-of-sale materials, such as, posters, pole signs, display
racks and counter top and floor displays. The Company also produces marketing
materials for use by distributors and their direct sales force to promote the
sale of its products to their retail customers. The Company responsibly focuses
its marketing efforts on adult consumers, and is committed to full legal
compliance in the sale and marketing of its products.

           The Company's largest customers, COD Company and the McLane Company,
accounted for approximately 21.7% and 8.3%, respectively, of its net sales in
2003. The loss of either of these customers could have a material adverse effect
on the results of operations, financial position and cash flows of the Company.
The Company does not believe that the loss of any other customer would have a
material effect on the results of operations, financial position or cash flows
of the Company either in the intermediate or long term.

DISTRIBUTION AGREEMENTS

           NAOC is party to two long-term distribution and licensing agreements
with Bollore with respect to sales of premium cigarette papers, cigarette tubes
and cigarette injector machines (collectively the "Products") in the United
States and Canada (collectively, the "Distribution Agreements"). Under the
Distribution Agreements, Bollore granted NAOC the exclusive right to purchase
the Products bearing the ZIG-ZAG brand name from Bollore for resale in the
United States and Canada. NAOC has the sole right to determine the price and
other terms upon which NAOC may resell any products purchased from Bollore,
including the right to determine the distributors of such products within these
countries.

                                       10
<PAGE>
           The Distribution Agreements establish the purchase pricing mechanism
for premium cigarette papers through 2004, which allows certain adjustments to
reflect increases in the U.S. and Canadian Consumer Price Indices and to account
for material currency fluctuations. The Distribution Agreements provide that, in
order to assure each of the parties commercially reasonable profits in light of
inflationary trends and currency translation factors, prior to December 31, 2004
and each fifth-year anniversary from such date thereafter, the parties would
enter into good faith negotiations to agree on an index and currency adjustment
formula to replace the index and formula currently in effect. If the parties are
unable to agree, the dispute is to be submitted to binding arbitration.

           Pursuant to the Distribution Agreements, export duties, insurance and
shipping costs are the responsibility of Bollore and import duties and excise
taxes are the responsibility of NAOC. Bollore's terms of sale are 45 days from
the bill of lading date and its invoices are payable in Euros. The Distribution
Agreements reduce catastrophic foreign exchange risk by providing that Bollore
will bear certain exchange rate risks at levels fixed through 2004. It is
intended that the catastrophic foreign exchange risk allocations set forth in
the Distribution Agreements will be renegotiated in 2004 in a similar manner as
set forth above in relation to general pricing.

           According to the Distribution Agreements, NAOC must purchase the
Products from Bollore, subject to Bollore fulfilling its obligations under these
agreements. Bollore is required by the agreements to provide NAOC with the
quantities and quality of the products that it desires. The Distribution
Agreements provide NAOC with certain safeguards to help ensure that NAOC will be
able to secure a steady supply of product. Such safeguards include (i) granting
NAOC the right to seek third party suppliers with continued use of the ZIG-ZAG
trademark if Bollore is unable to perform its obligations or ceases its
cigarette paper manufacturing operation, in each case as set forth in the
Distribution Agreements, and (ii) maintaining a two month supply of safety stock
inventory of the premium papers, tubes and injector machines in the United
States at Bollore's expense. During the past year, Bollore has had difficulty
satisfying demand for tubes due to the rapidly expanding growth of that product.

           Under the Distribution Agreements, NAOC has also agreed for a period
of five years after the termination of such Distribution Agreements not to
engage, directly or indirectly, in the manufacturing, selling, distributing,
marketing or otherwise promoting in the United States and Canada, of premium
cigarette paper or premium cigarette paper booklets of a competitor without
Bollore's consent, except for certain de minimis acquisitions of debt or equity
securities of such a competitor and certain activities with respect to an
alternative supplier used by NAOC as permitted under the Distribution
Agreements.

           Each of the Distribution Agreements was entered into on November 30,
1992. Each of the U.S. Distribution Agreement and the Canada Distribution
Agreement was for an initial twenty year term commencing on the date of such
agreement and will be renewed automatically for successive twenty year terms
unless terminated in accordance with the provisions of such agreement. Each of
the Distribution Agreements permits Bollore to terminate such agreement (i) if
certain minimum purchases (which, in the case of the U.S. Distribution Agreement
and the Canada Distribution Agreement were significantly exceeded in 2003) of
premium cigarette paper booklets have not been made by the Company for resale in
the jurisdiction covered by such agreement within a calendar year; (ii) if the
Company assigns such agreement without the consent of Bollore (other than
certain permissible assignments to wholly owned subsidiaries of the Company);
(iii) upon a change of control of NAOC or any parent of NAOC without the consent
of Bollore; (iv) upon certain acquisitions of equity securities of NAOC or any
parent of NAOC by a competitor of NAOC or certain investments by significant
stockholders of the Company in a competitor of NAOC; and (v) certain material
breaches, including NAOC's agreement not to promote, directly or indirectly,


                                       11
<PAGE>
premium cigarette paper or premium cigarette paper booklets of a competitor.
Additionally, the Canada Distribution Agreement is terminable by either NAOC or
Bollore upon the termination of the U.S. Distribution Agreement.

PATENTS, TRADEMARKS AND TRADE SECRETS

           The Company has numerous registered trademarks relating to its loose
leaf chewing tobacco and MYO tobacco products, including the trademarks for its
BEECH-NUT, TROPHY, HAVANA BLOSSOM, DURANGO and TENNESSEE CHEW products. The
Company is applying for registration of its FRED'S CHOICE, OLD HILLSIDE, OUR
PRIDE and STOKER'S NUMBER 2 trademarks. The registered trademarks, which are
significant to the Company's business, expire periodically and are renewable for
additional 20-year terms upon expiration. Flavor and blend formulae trade
secrets relating to NTC's and NAOC's tobacco products, which are key assets of
their businesses, are maintained under strict secrecy. The ZIG-ZAG trade name
and trademark for premium cigarette papers and related products are owned by
Bollore and have been exclusively licensed to NAOC in the United States and
Canada. NAOC owns the ZIG-ZAG trademark with respect to tobacco products. The
Company's catalog business is operated under the Fred Stoker & Sons, Inc. name.

RAW MATERIALS, PRODUCT SUPPLY AND INVENTORY MANAGEMENT

Loose Leaf Chewing Tobacco

           NTC's loose leaf chewing tobacco is produced from air-cured leaf
tobacco. Each of the Company's brands has its own unique tobacco blend. NTC
utilizes tobaccos grown domestically in Pennsylvania and Wisconsin as well as
those imported from other countries, such as Argentina, Brazil, Columbia,
Germany, Indonesia, Italy, Mexico, and the Philippines. Management does not
believe that it is dependent on any single country source for tobacco. Pursuant
to agreements with NTC, Lancaster Leaf Tobacco Company of Pennsylvania, a wholly
owned subsidiary of Universal Corporation ("Lancaster"), and pursuant to
agreements with Stoker, Hail & Cotton, Inc. (i) purchase and process tobacco on
an exclusive basis, (ii) store tobacco inventory purchased on behalf of NTC and
Stoker and (iii) generally maintain a 12- to 24-month supply of NTC's various
tobacco types at their facilities. NTC generally maintains a one- to two-month
operating supply of tobacco at its manufacturing facilities in Louisville,
Kentucky and Stoker generally maintains a three-week supply of tobacco at its
manufacturing facility in Dresden, Tennessee.

           In addition to raw tobacco, NTC's and Stoker's loose leaf chewing
tobacco products include food grade flavorings, all of which have been approved
by the Food and Drug Administration and/or other federal agencies. Neither NTC
nor Stoker is dependent upon any single supplier for those raw materials or for
the supply of its products' packaging materials.

           NTC and Stoker generally maintain a one- to two-month supply of
finished loose leaf chewing tobacco. This supply is maintained at the Louisville
and Dresden facilities and in four regional bonded public warehouses to
facilitate distribution.

MYO Products

           Pursuant to NAOC's Distribution Agreements with Bollore, NAOC must
purchase its premium cigarette papers, cigarette tubes and cigarette injecting
machines from Bollore, subject to Bollore fulfilling its obligations under these
agreements. If Bollore is unable or unwilling to perform its obligations or
ceases its cigarette paper manufacturing operation, in each case as set forth in
the Distribution Agreements, NAOC may seek third-party suppliers and continue
the use of the ZIG-ZAG trademark. To ensure that NAOC has a steady supply of


                                       12
<PAGE>
premium cigarette paper products as well as each style of cigarette tubes and
injectors, Bollore is required to maintain, at its expense, a two-month supply
of inventory in a public warehouse in the United States. See "--Distribution
Agreements."

           To facilitate general distribution, in addition to the inventory
maintained by Bollore, NAOC also maintains a supply of its products at the
Louisville and Dresden facilities and in four regional bonded public warehouses.

           NAOC and Stoker obtain their MYO smoking tobaccos primarily from
international sources and are not dependent on any one type of tobacco for their
blends. NAOC purchases this smoking tobacco principally through multiple
purchasing agents. The MYO related products are purchased in finished form from
various suppliers at Bollore's direction.

           Bollore has from time to time been unable to produce and supply the
Company with sufficient quantities of cigarette tubes and injectors due, in
part, to the rapid growth in NAOC's sales of those products. Bollore has not
experienced any problems supplying the Company with sufficient quantities of its
premium cigarette paper products. Management currently believes that the
Company's other sources for its supplies are adequate for its projected needs.

Premium Cigarettes

           The Company outsources the manufacture of its ZIG-ZAG Premium
Cigarettes. The Company purchases all of the raw materials used in the
manufacture of its ZIG-ZAG Premium Cigarettes, including the tobacco, papers,
filters and packaging, and arranges for the raw materials to be delivered to the
contract manufacturer who then assembles the finished product under the
Company's supervision. Similar to the Company's arrangement with Lancaster Leaf
Tobacco Company of Pennsylvania for its loose leaf chewing tobacco products,
Blending Services International, Inc., a wholly-owned subsidiary of Universal
Corporation, is the exclusive purchaser of the tobacco used in its ZIG-ZAG
Premium Cigarettes. Kentucky Cut Rag, LLC processes the tobacco, and the Company
stores the processed tobacco in its Louisville, Kentucky facility. The Company
generally maintains a one-year supply of tobacco at its Louisville facility. The
Company obtains the other raw materials for its ZIG-ZAG Premium Cigarettes from
various other sources. The Company is not dependent on one single source for any
of its other raw materials.

           The manufacturing agreement for the Company's ZIG-ZAG Premium
Cigarettes provides that the contract manufacturer will manufacture the
Company's requirements for the product on an "as-needed" basis. The contract is
terminable by the Company upon 90 days written notice. The Company maintains
quality control personnel at the contract manufacturer's facility to oversee the
manufacturing process and to test the finished product. Once the manufacturing
is completed, the contract manufacturer ships the finished goods to bonded
public warehouses to facilitate distribution.

MANUFACTURING

           The Company's subsidiaries manufacture their loose leaf chewing
tobacco products at their manufacturing facilities in Louisville, Kentucky and
Dresden, Tennessee. They also contract for the manufacture of their premium
cigarette papers, cigarette tubes, rolling and injector machines, MYO smoking
tobaccos and ZIG-ZAG Premium Cigarettes. In the case of its MYO smoking tobacco
products, the subsidiaries finish the processing of and package these products
at their manufacturing facilities in Louisville and Dresden. The Company intends
to consolidate its manufacturing operations into a single manufacturing facility
in the future. The Company believes that its production capabilities, quality


                                       13
<PAGE>
control procedures, research and development activities and overall facilities
and equipment are adequate for its projected operations.

Production and Quality Control

           The Company uses proprietary production processes and techniques,
including strict quality controls. During the course of each day, NTC's quality
control group periodically tests the quality of the tobacco; flavorings;
application of flavorings; premium cigarette papers, tubes and injectors; and
packaging materials. The Company utilizes sophisticated quality control and
pilot plant production equipment to test and closely monitor the quality of its
products. The quality of the Company's products is largely the result of using
high grade tobacco leaf, food-grade flavorings and an ongoing analysis of
tobacco cut, flavorings and moisture content.

           Given the importance of contract manufacturing to the Company, the
Company's quality control group ensures that established written procedures and
standards are strictly adhered to by each of its contract manufacturers.

Research and Development

           The Company has a Research and Development Department that
reformulates existing loose leaf and MYO tobacco products in an effort to
maintain a high level of product consistency and to facilitate the use of less
costly raw materials without sacrificing product quality. The Company believes
that for all of its tobacco products, including MYO, it has been and will
continue to be able to develop cost effective blends of tobacco and flavorings
that will maintain or reduce overall costs without compromising high product
quality. The Research and Development Department is also responsible for new
product development, which included the development and testing of the new
ZIG-ZAG Premium Cigarette.

           The Company spent approximately $487,000, $539,000 and $577,000 on
its research and development and quality control efforts for the years 2001,
2002 and 2003, respectively.

Facilities

           NTC's Louisville facility was formerly owned and used by Lorillard
for the manufacture of cigarettes, little cigars and chewing tobacco. This
approximately 600,000 square foot facility occupies a 26 acre urban site near
downtown Louisville. The facility's structures occupy approximately one-half of
the total acreage. The facilities are in good condition and have received
regular maintenance and capital improvements. The facility provides ample space
to accommodate an expansion of the Company.

           The Company believes its production capabilities, quality control
procedures, research and development and overall facilities and equipment are
adequate for its projected operations.

COMPETITION

           The Company, through NTC and Stoker, is the third largest
manufacturer and marketer of loose leaf chewing tobacco in the United States.
The other three principal competitors in the loose leaf chewing tobacco segment,
which, together with the Company, generate approximately 97% of this segment's
sales, are Swedish Match North America, Inc., Conwood Corporation and Swisher
International Group Inc. Management believes that moist snuff products are used
interchangeably with loose leaf products by many consumers and, as a result, US
Smokeless Tobacco Company, the largest manufacturer of moist snuff (and of all


                                       14
<PAGE>
smokeless tobacco products when taken as a whole) is also a significant
competitor. As indicated above under "Industry and Markets," sales of moist
snuff have grown over the past decade while sales of loose leaf have declined
during that same period. In addition, the Company's three principal competitors
in the loose leaf chewing tobacco segment also manufacture and market moist
snuff.

           NAOC is the largest importer and distributor in North America of
premium cigarette papers. NAOC's three major competitors for premium cigarette
paper sales are Republic Tobacco, L.P., Robert Burton Associates, Inc., a
wholly-owned subsidiary of Imperial Tobacco Group plc and VCT B.V. Although
there is no source for comprehensive industry data, the Company believes that
it, together with these three companies, collectively have a market share in
excess of 95% of the premium cigarette papers market.

           The Company's principal competitors in the MYO segment are Republic
Tobacco, L.P., in conjunction with its TOP Tobacco, L.P. subsidiary, and Lane
Ltd, an affiliate of Brown & Williamson Tobacco Corporation, the third largest
cigarette company in the United States. Many other companies also compete in
this segment, including Peter Stokebye International A/S.

           The Company's primary competitors in the manufactured cigarette
market are the four "majors": Philip Morris USA, Inc., the brands of which
accounted for approximately 50% of all cigarette sales in the United States in
2003; R.J. Reynolds Tobacco Company; Brown & Williamson Tobacco Corporation; and
Lorillard Tobacco Company, as well as Vector Group Ltd. (the parent company of
Liggett Group Inc.).

           Many of the Company's competitors are better capitalized than the
Company and have greater financial and other resources than those available to
the Company. The Company believes that its ability to effectively compete and
its strong market positions in its principal product lines are due to its high
brand recognition and the perceived quality of each of its products, its
manufacturing and operating efficiencies, and its sales, marketing and
distribution efforts.

EMPLOYEES

           As of March 15, 2004, the Company employed a total of 292 full-time
employees. With the exception of 89 manufacturing employees, none of the
Company's employees are represented by unions. The unionized employees are
covered by three collective bargaining agreements. One of these agreements,
covering 84 employees, will expire in December 2004. The other two agreements,
covering 5 employees, will expire in 2005.

REGULATION

           The tobacco industry, in particular, cigarette manufacturers has been
under public scrutiny for over forty years. Industry critics include special
interest groups, the U.S. Surgeon General and many legislators at the state and
federal levels. Although smokeless tobacco companies have recently come under
some scrutiny, the principal focus has been directed at the manufactured
cigarette market due to its large size relative to the smokeless tobacco market
and the MYO segment of the cigarette market.

           Producers of tobacco products are subject to regulation in the United
States at federal, state and local levels. Together with changing public
attitudes towards tobacco consumption, the constant expansion of regulations,
including increases in various taxes, requirements that tobacco products be
displayed "behind-the-counter" and smoking restrictions, has been a major cause
of the overall decline in the consumption of tobacco products since the early


                                       15
<PAGE>
1970's. Moreover, the future trend is toward increasing regulation of the
tobacco industry.

           In 1996, the U.S. Food and Drug Administration (the "FDA")
promulgated regulations asserting jurisdiction over tobacco products. These
regulations, among other things, included severe restrictions on the
manufacture, distribution and sale of tobacco products and required compliance
with a wide range of labeling, reporting, record keeping, manufacturing and
other requirements, among other things. On March 21, 2000, the U.S. Supreme
Court ruled that the FDA does not have the authority to regulate tobacco
products without more explicit direction from Congress and that the FDA
regulations were unconstitutional. The Company remains, however, subject to
regulation by numerous other federal agencies, including the Federal Trade
Commission ("FTC"). If Congress were to enact legislation granting the FDA
specific authority over tobacco products, the FDA's exercise of jurisdiction
could lead to more expansive FDA-imposed restrictions on tobacco operations than
those set forth in the current regulations.

           In recent years, a variety of bills relating to tobacco issues have
been introduced in the U.S. Congress, including bills that would (i) prohibit
the advertising and promotion of all tobacco products and/or restrict or
eliminate the tax deductibility of such advertising expenses; (ii) increase
labeling requirements on tobacco products to include, among other things,
additional warnings and lists of additives and toxins; (iii) modify federal
preemption of state laws to allow state courts to hold tobacco manufacturers
liable under common law or state statutes; (iv) shift regulatory control of
tobacco products and advertisements from the Federal Trade Commission to the
Food and Drug Administration; (v) increase tobacco excise taxes; and (vi)
require tobacco companies to pay for health care costs incurred by the federal
government in connection with tobacco related diseases. Hearings have been held
on certain of these proposals; however, to date, none of such proposals have
been enacted by Congress. Future enactment of such proposals or similar bills,
depending upon their content, could have a material adverse effect on the
results of operations or financial condition of the Company.

           While there are no current regulations that materially and adversely
affect the sale of premium cigarette papers, there can be no assurance that
federal, state or local regulations will not be enacted which will seek to
regulate premium cigarette papers. In the event such regulations are enacted,
depending upon their parameters, they could have a material adverse effect on
the results of operations, financial position and cash flows of NAOC and the
Company.

           The Company's catalog business is also subject to various federal,
state and local regulations, which, among other things, prohibit the sale of
tobacco products to minors. Further regulations could have an adverse impact on
the Company's catalog business.

STATE ATTORNEY GENERAL SETTLEMENT AGREEMENTS

           On November 23, 1998, the major U.S. cigarette manufacturers, Philip
Morris USA, Inc., Brown & Williamson Tobacco Corporation, Lorillard Tobacco
Company and R.J. Reynolds Tobacco Company, entered into the MSA with attorneys
general representing the Settling States. The MSA settled all the asserted and
unasserted health-care cost recovery actions brought by, or on behalf of, the
settling jurisdictions.

           In the Settling States, the MSA released all signing parties from all
claims of the Settling States and their respective political subdivisions and
other recipients of state health-care funds, (i) relating to past conduct
arising out of the use, sale, distribution, manufacture, development,
advertising, marketing or health effects of, the exposure to, or research,
statements or warnings about, tobacco products and (ii) relating to future


                                       16
<PAGE>
conduct arising out of the use of, or exposure to, tobacco products that have
been manufactured in the ordinary course of business.

           The MSA also contains provisions restricting signatory companies in
their advertising, promotion and marketing of cigarettes in the U.S. Among these
are restrictions or prohibitions on the use of cartoon characters, brand name
sponsorships, targeting of youth, outdoor advertising, event sponsorship (such
as concerts and sporting events), payments for product placement, providing free
samples, and branded apparel and merchandise.

Required Payments

           The MSA required the four OPMs to make a series of initial payments
over five years totaling $13.2 billion. The last of these five payments was paid
on January 10, 2003. The MSA also requires annual industry payments, which are
now $6.5 billion, but will increase to $8.0 billion in 2004, and further to $9.0
billion in 2018 and thereafter in perpetuity. Ten additional payments of $861
million are due annually beginning in April 2008. All payments are to be
allocated among the OPMs on the basis of relative national market share and most
are subject to adjustments, including but not limited to, adjustments for
inflation, volume, operating income, and payments to the four Non-MSA States.

National Public Education Fund

           In addition, the MSA calls for the creation of a national foundation
that would establish public education and other programs, and conduct or sponsor
research, to reduce youth smoking, and to understand and educate the public
about diseases associated with tobacco product use. OPMs agreed to fund the
foundation with (i) ten annual payments of $25 million due by March 31 of each
year until 2008 and (ii) five additional payments totaling $1.45 billion due by
March 31 of each year that increased from $250 million in the first year to $300
million in each of the subsequent four years. The last of these five payments
was paid on March 31, 2003. In addition, if for any calendar year beginning with
2003, the OPMs have an aggregate market share of 99%, the OPMs are obligated to
pay $300 million to the Fund by April 15th of the following year. Each of these
payments is to be allocated among the OPMs on the basis of relative market
share. Other than the $25 million annual payments and the $250 million payment
made on March 31, 1999, the payments for the foundation are subject to
adjustments for changes in sales volume units, inflation and other factors.

MSA Fees and Litigation Costs

           The OPMs also agreed to pay the litigation costs, including
government attorneys' fees, of the offices of the Attorneys General relating to
the settled cases and, subject to certain quarterly and annual payment caps, the
costs and fees of outside counsel to the jurisdictions.

Inflation Adjustment

           The inflation adjustment applied to annual and strategic contribution
payments and to payments for the benefit of the national public education fund
established by the foundation. It increases payments on a compound annual basis
by the greater of 3% or the actual total percentage change in the consumer price
index for the preceding year. The inflation adjustment is measured starting with
inflation for 1999.

                                       17
<PAGE>
Volume Adjustment

           The volume adjustment applies to initial payments, annual and
strategic contribution payments and payments for the benefit of the national
public education fund established by the foundation. It increases or decreases
payments for OPMs based on the increase or decrease in the total number of
cigarettes shipped in or to the 50 states, the District of Columbia and Puerto
Rico by the OPMs during the preceding year, as compared to the 1997 base number
of cigarettes shipped by the OPMs. When volume has increased, the volume
adjustment increases payments by the same percentage as the number of cigarettes
exceeds the 1997 base number. When volume has decreased, the volume adjustment
decreases payments by a percentage equal to 98% of the percentage reduction in
volume. There are also limits to the extent to which OPMs can benefit by volume
decreases in years where OPMs achieve certain increases in aggregate operating
income.

Subsequent Participating Manufacturers

           Under the MSA each SPM is required to make payments in any year that
equal, on a per-cigarette basis, the sum of the annual and strategic
contribution payments and payments for the benefit of the national public
education fund by the OPMs in that year, provided that SPMs who signed the MSA
within 90 days of its effective date are required to make such payments only on
unit volumes that represent the increase in its market share in such year over
the greater of the SPM's 1998 market share or 125% of its 1997 market share.

Non-Participating Manufacturers

           Each of the states which are parties to the MSA, except for a few
territories, has enacted a statute as provided for in the MSA to address
manufacturers that do not participate in the MSA. The statutes require that any
cigarette manufacturer that is not a signatory to the MSA make payments into an
escrow fund to cover possible future liabilities to the relevant Settling State.
The payment required by an NPM under the state statutes is calculated on a per
cigarette or cigarette equivalent basis. Some smaller manufacturers who were not
a party to the state litigation against the OPMs have chosen to remain outside
the MSA and operate as escrow compliant NPMs.

           The Company was not a party to the state litigation against the OPMs.
The Company has chosen to participate as an escrow compliant NPM.

           Under the escrow statutes, NPMs pay the lesser of the rates stated in
the statutes or the amount that the NPM would have paid had it been a
hypothetical SPM under the MSA. Since the payment calculations (to a state as an
SPM or to an escrow account as an NPM) are different, the payment to escrow can
be smaller on a unit basis than the payment to the MSA would be, depending on
the state in which the NPM markets its cigarettes.

           The NPM escrow deposits are required to be held for 25 years and
remain the property of such NPM. During the holding period, the NPMs have the
right to receive the earnings on such deposits. On the 25th anniversary of each
annual deposit, the principal amount of escrow remaining for that year will be
returned to the NPM.

           As a condition of maintaining annual OPM and SPM payments, the state
Attorneys General have an obligation to enforce the state obligations provisions
of the MSA and the State Statute, and have been taking increased action to
ensure compliance by all NPMs. As a result, the Company expects that there may
be consolidation among smaller Tier 4 manufacturers, who lack efficient
manufacturing operations, wide distribution, or the resources to meet state
escrow obligations.

                                       18
<PAGE>
Growers Trust

           As part of the MSA, the OPMs agreed to work with U.S. tobacco growers
to address the possible adverse economic impact of the MSA on growers. As a
result, the OPMs agreed to participate in funding a $5.2 billion trust fund to
be administered by a trustee, in conjunction with a certification entity from
each of the tobacco growing communities in 14 states. The trust agreement
provides for a schedule of aggregate annual payments, subject to various
adjustments, that are payable in quarterly installments each year from 1999
through 2010. The aggregate annual payment by OPMs is adjusted each year for
inflation and any change in the total domestic cigarette volume of all
participating manufacturers. In general, the annual payment by OPMs is based on
each manufacturer's relative market share of total domestic cigarette shipments
during the preceding calendar year.

Payment Obligations in Non-MSA States

           In June 1994, the Mississippi attorney general brought an action,
Moore v. American Tobacco Co., against various US tobacco companies. This case
was brought on behalf of the state to recover state funds paid for health care
and medical and other assistance to state citizens suffering from diseases and
conditions allegedly related to tobacco use. The large cigarette manufacturer
defendants settled the Mississippi case in 1998, and also, at later dates,
similar cases in Texas, Florida and Minnesota. Future payments under the
settlement agreements with these Non-MSA States will be allocated among the OPMs
on the basis of relative unit volume of domestic cigarette shipments, and will
be subject to adjustment for inflation and for changes in the volume of domestic
cigarette shipments on terms substantially similar to those in the MSA states.
There are no requirements imposed on NPMs in the Non-MSA States as a result of
these settlements. The MSA required the OPMs to make a series of initial
payments to the Non-MSA States over five years totaling $6.9 billion, the last
of which was paid in 2003. On December 31, 2001, and on each December 31
thereafter, the OPMs were required to pay 17% of $6.5 billion in 2001 and 2002
and will be required to pay 17% of $8.0 billion in 2003 and thereafter to the
Non-MSA States.

Recent Developments

           The MSA has been challenged as unconstitutional in several legal
actions. The grounds asserted have varied from case-to-case but have included
challenges based on the Commerce Clause, the Interstate Compact Clause, the Due
Process and Equal Protection Clauses and the Preemption Doctrine. The preemption
argument has asserted that the MSA and the associated state escrow legislation
constitute an illegal output cartel under Section 1 of the Sherman Act, and are,
therefore, preempted by virtue of the Supremacy Clause of the U.S. Constitution.
The Supremacy Clause provides that federal law, in this case the Sherman Act,
takes priority over inconsistent state laws, here the escrow statutes.

           Until recently, courts have rejected those claims. In two cases
arising in the United States Court of Appeals for the Third Circuit, A.D. Bedell
Wholesale Co. v. Philip Morris Inc., 263 F.3d 239 (3d Cir. 2001) and Mariana v.
Fisher, 338 F.3d 189 (3d Cir. 2003), the Court held that the MSA constituted an
output cartel that would ordinarily be illegal per se under the Sherman Act, but
that it was protected under the Noerr-Pennington doctrine, and therefore immune
from liability. The Noerr-Pennington doctrine generally provides that the act of
petitioning the government (e.g., legislative lobbying or litigating) is
protected under the First Amendment and immune from liability.

           On January 6, 2004, the United States Court of Appeals for the Second
Circuit issued an opinion in which it concluded, under the allegations in that
case, that the MSA and associated escrow legislation could be construed as an
output cartel and that it would not be protected under the Noerr-Pennington


                                       19
<PAGE>
doctrine. The case was remanded to the district court for further proceedings.
Freedom Holdings Inc. v. Spitzer, No. 02-7492 (2d Cir. January 6, 2004).

           If the Second Circuit's analysis prevails over the Third Circuit's,
and the facts as alleged in the Spitzer Complaint are proven, those provisions
of the MSA that give rise to the output cartel would be declared illegal. Due to
other provisions of the MSA, the major manufacturers would be required to enter
into a new settlement with the states. Management believes, although no
assurance can be given, the Company and its subsidiaries would benefit since (i)
it would have maintained its favorable business development options, (ii) it
would likely receive a refund of its escrow funds, and (iii) it would not likely
have to escrow funds going forward. However, should the Third Circuit's analysis
prevail over the Second Circuit, the Company will not be adversely affected
since the Third Circuit's analysis merely maintains the status quo.

EXCISE TAXES

           Tobacco products and premium cigarette papers have long been subject
to federal, state and local excise taxes, and such taxes have frequently been
increased or proposed to be increased, in some cases significantly, to fund
various legislative initiatives. Since 1986, smokeless tobacco (including dry
and moist snuff and chewing tobacco) has been subject to federal excise tax.
Smokeless tobacco is taxed by weight (in pounds or fractional parts thereof)
manufactured or imported. Effective January 1, 2002, the federal excise tax on
loose leaf chewing tobacco was increased to $0.195 per pound from $0.17 per
pound. Effective January 1, 2002, the federal excise tax on premium cigarette
paper was increased to $0.0122 from $0.0106 per fifty papers, the federal excise
tax on cigarette tubes was increased to $0.0244 from $0.0213 per fifty tubes,
and the federal excise tax on MYO tobacco was increased to $1.0969 from $0.9567
per pound. Although these more recent increases in the rate of federal excise
taxes are not expected to have an adverse effect on the Company's business,
future enactment of increases in federal excise taxes on the Company's products
could have a material adverse effect on the results of operations or financial
condition of the Company. The Company is unable to predict the likelihood of
passage of future increases in federal excise taxes.

           Tobacco products and premium cigarette papers are also subject to
certain state and local taxes. The imposition of state and local taxes in a
jurisdiction could have a detrimental impact on sales in that jurisdiction. Any
enactment of new state or local excise taxes or an increase in existing excise
taxes on the Company's products is likely to have an adverse effect on sales.

           Cigarettes are also subject to substantial and increasing excise
taxes. On January 1, 2002, the federal excise tax included in the price of
cigarettes increased by $2.50 to $19.50 per thousand cigarettes (or $0.39 per
pack of 20 cigarettes). Additional excise taxes, which are levied upon and paid
by the distributors, are also in effect in the 50 states, the District of
Columbia and many municipalities. Various states have proposed, and certain
states have recently passed, increases in their state tobacco excise taxes. The
state taxes generally range from $.025 to $2.05 per package of 20 cigarettes.
Future enactment of increases in federal excise taxes on the Company's ZIG-ZAG
Premium Cigarettes could adversely affect demand for them and have a material
adverse effect on the Company's results of operations, financial position and
cash flows. In addition, further increases in state and local excise taxes could
affect demand for the Company's cigarettes. The Company is unable to predict the
likelihood of passage or magnitude of future increases in excise taxes.


                                       20
<PAGE>
ENVIRONMENTAL REGULATIONS

           The Company believes that it is currently in substantial compliance
with all material environmental regulations and pollution control laws.

OTHER

           Additional information in response to Item 1 can be found in Note 21
(Segment Information) to the Consolidated Financial Statements.

ITEM 2.    PROPERTIES

           As of December 31, 2003, the Company operated manufacturing,
distribution, office and warehouse space in the United States with a total floor
area of approximately 751,351 square feet. Of this footage, approximately
600,000 square feet are owned and 151,351 square feet are leased.

           To provide a cost-efficient supply of products to its customers, the
Company maintains centralized management of manufacturing and nationwide
distribution facilities. The Company's two manufacturing and distribution
facilities are located in Louisville, Kentucky and Dresden, Tennessee.

           The following table describes the principal properties of the Company
as of December 31, 2003:

<TABLE>
<CAPTION>
        LOCATION                    PRINCIPAL USE                     SQUARE FEET                     OWNED OR LEASED
-------------------------    ----------------------------     -----------------------------     ----------------------------
<S>                          <C>                              <C>                               <C>
New York, NY                 Corporate headquarters                       10,351                           Leased

Louisville, KY               Manufacturing, R&D,
                             warehousing, distribution
                             and administration                          600,000                            Owned

Dresden, TN                  Manufacturing, R&D,
                             warehousing, distribution
                             and administration                           65,000                           Leased

Dresden, TN                  Catalog distribution facility                76,000                           Leased

</TABLE>

ITEM 3.    LEGAL PROCEEDINGS

LITIGATION WITH REPUBLIC TOBACCO

           Kentucky and Illinois Complaints. On July 15, 1998, NAOC and NTC
filed a complaint (the "Kentucky Complaint") against Republic Tobacco, Inc. and
its affiliates ("Republic Tobacco") in Federal District Court for the Western
District of Kentucky. Republic Tobacco imports and sells Roll-Your-Own ("RYO")
premium cigarette papers under the brand names JOB and TOP as well as other
brand names. The Kentucky Complaint alleges, inter alia, that Republic Tobacco's
use of exclusivity agreements, rebates, incentive programs, buy-backs and other
activities related to the sale of premium cigarette papers in the southeastern
United States violate federal and state antitrust and unfair competition laws
and that Republic Tobacco defaced and directed others to deface NAOC's point of
purchase vendor displays for premium cigarette papers by covering up the ZIG-ZAG


                                       21
<PAGE>
brand name and advertising material with advertisements for Republic Tobacco's
RYO cigarette paper brands. The Kentucky Complaint alleges that these activities
constitute unfair competition under federal and state laws.

           On June 30, 1998, Republic Tobacco filed a complaint against the
Company, NAOC and NTC in the U.S. District Court of the Northern District of
Illinois (the "Illinois Complaint") and served it on the Company after the
institution of the Kentucky action. In the Illinois Complaint, Republic Tobacco
seeks declaratory relief with respect to the Company's claims. In addition, the
Illinois Complaint alleges that certain actions taken by the Company to inform
its customers of its claims against Republic Tobacco constitute tortuous
interference with customer relationships, false advertising, violations of
Uniform Deceptive Trade Practices and Consumer Fraud Acts, defamation and unfair
competition. In addition, although not included in its original complaint but in
its amended complaint, Republic Tobacco alleged that the Company has unlawfully
monopolized and attempted to monopolize the market on a national and regional
basis for premium cigarette papers. Republic sought unspecified compensatory
damages, injunctive relief and attorneys fees and costs.

           On October 20, 2000, Republic Tobacco filed a motion to dismiss,
stay, or transfer the Kentucky Complaint to the Illinois Court. On December 19,
2000, the Court denied Republic Tobacco's motion, holding that it was premature.
The Court noted also that it had communicated with the Court in Illinois and
that it had concluded that Republic Tobacco may not be entitled to any
preference on forum selection, which would ordinarily be given because it was
first to file. The Kentucky complaint is still on file.

           Prior to the completion of discovery, the Court dismissed Republic
Tobacco's antitrust claims against the Company. After discovery was completed in
2001, both parties moved for summary judgment on the others claims. In April
2002, the District Court for the Northern District of Illinois decided the
summary judgment motions by dismissing all claims of both the Company and
Republic Tobacco and its affiliates, except for Republic Tobacco's claim of
defamation per se against the Company, on which it granted summary judgment on
liability in favor of Republic Tobacco, and a Lanham Act false advertising
claim, based on the same facts as the defamation claim, for equitable relief. In
February 2003, the District Court granted Republic's motion for summary judgment
on the Company's counterclaim that Republic tortiously interfered with the
Company's business relationships and economic advantage. The only claim that
remained to be tried was Republic's Lanham Act claim and damages on the
defamation claim on which the Court previously ruled that Republic could only
obtain equitable relief if successful.

           On July 8, following a four day trial, an Illinois jury returned a
verdict in favor of Republic on the defamation claims of $8.4 million in general
damages and $10.2 million in punitive damages, for a total damage award of $18.6
million. The Company filed post-trial motions for a new trial and, in the
alternative, for a reduction of the awards. On August 1, 2003, the Company
posted a judgment bond in the amount of $18.8 million with the U.S. District
Court. This was accomplished by obtaining a $19.0 million senior secured term
loan pursuant to a July 31, 2003 amendment to the Company's existing credit
facility. On November 20, 2003, the court ruled that the awards were excessive
and reduced the awards by approximately 60%, with the award of compensatory
damages being reduced to $3.36 million and the award of punitive damages being
reduced to $4.08 million, for a total of $7.44 million. On December 18, 2003,
Republic accepted these reduced awards.

           On January 8, 2004, the Company appealed from the final judgment,
including the finding of liability in this case as well as the amount of the
award. There can be no assurance, however, that the Company will prevail on
appeal. On January 22, 2004, Republic filed a general notice of cross appeal,
but did not specify the issues or claims for which it is seeking appellate
review. On March 7, 2004, the Company filed its opening brief with the Court of


                                       22
<PAGE>
Appeals. Republic's brief is scheduled to be filed April 7, 2004. The Company
and Republic each may file reply briefs thereafter.

LITIGATION RELATED TO ALLEGED PERSONAL INJURY

           West Virginia Complaints. Trial of the West Virginia complaints
against the smokeless tobacco defendants has been postponed indefinitely, as
described below. On October 6, 1998 NTC was served with a summons and complaint
on behalf of 65 individual plaintiffs in an action in the Circuit Court of
Kanawha County, West Virginia, entitled Kelly Allen, et al. v. Philip Morris
Incorporated, et al. (Civil Action Nos. 98-C-2401). On November 13, 1998, NTC
was served with a second summons and complaint on behalf of 18 plaintiffs in an
action in the Circuit Court of Kanawha County, West Virginia, entitled Billie J.
Akers, et al. v. Philip Morris Incorporated et al. (Civil Action Nos. 98-C-2696
to 98-C-2713). The complaints are identical in most material respects. In the
Allen case, the plaintiffs have specified the defendant companies for each of
the 65 cases. NTC is named in only one action. One Akers plaintiff alleged use
of an NTC product, alleging lung cancer.

           On September 14, 2000, NTC was served with a summons and complaint on
behalf of 539 separate plaintiffs filed in Circuit Court of Ohio County, West
Virginia, entitled Linda Adams, et al. v. Philip Morris Inc., et al. (Civil
Action Nos. 00-C-373 to 00-C-911). Only one of these plaintiffs alleged use of a
product currently manufactured by NTC. The time period during which this
plaintiff allegedly used the product has not yet been specified. Thus, it is not
yet known whether NTC is a proper defendant in this case.

           On September 19, 2000, NTC was served with a second summons and
complaint on behalf of 561 separate plaintiffs filed in Circuit Court of Ohio
County, West Virginia, entitled Ronald Accord, et al. v. Philip Morris Inc., et
al. (Civil Action Nos. 00-C-923 to 00-C-1483). A total of five of these
plaintiffs alleged use of a product currently manufactured by NTC. One of these
plaintiffs does not specify the time period during which the product was
allegedly used. Another alleges use that covers, in part, a period when NTC did
not manufacture the product. On motion by cigarette company defendants, this
claim was dismissed on February 11, 2004, for failure to follow the case
management order. Of the remaining three, one alleges consumption of a
competitor's chewing tobacco from 1966 to 2000 and NTC's BEECH-NUT chewing
tobacco from 1998 to 2000; another alleges a twenty-four year smoking history
ending in 1995 and consumption of BEECH-NUT chewing tobacco from 1990 to 1995;
and the last alleges a thirty-five year smoking history ending in 2000, and
consumption of NTC's DURANGO ICE chewing tobacco from 1990 to 2000 (although
DURANGO ICE did not come onto the market until 1999).

           In November 2001, NTC was served with an additional four separate
summons and complaints in actions filed in the Circuit Court of Ohio County,
West Virginia. The actions are entitled Donald Nice v. Philip Morris
Incorporated, et al., (Civil Action No. 01-C-479), Korene S. Lantz v. Philip
Morris Incorporated, et al., (Civil Action No. 01-C-480), Ralph A. Prochaska, et
al. v. Philip Morris, Inc., et al., (Civil Action No. 01-C-481), and Franklin
Scott, et al. v. Philip Morris, Inc., et al., (Civil Action No. 01-C-482).

           All of the West Virginia smokeless tobacco actions have been
consolidated before the West Virginia Mass Litigation Panel for discovery and
trial of certain issues. Trial of these matters was planned in two phases. In
the initial phase, a trial was to be held to determine whether tobacco products,
including all forms of smokeless tobacco, cigarettes, cigars and pipe and
roll-your-own tobacco, can cause certain specified diseases or conditions. In
the second phase, individual plaintiffs would attempt to prove that they were in
fact injured by tobacco products. Fact and expert discovery in these cases has
closed, however, in the cigarette cases the Court has allowed additional
discovery.

                                       23
<PAGE>
           The claims against the Company in the various consolidated West
Virginia actions include negligence, strict liability, fraud in differing forms,
conspiracy, breach of warranty and violations of the West Virginia consumer
protection and antitrust acts. The complaints in the West Virginia cases request
unspecified compensatory and punitive damages.

           The manufacturers of smokeless tobacco products (as well as the
manufacturers of cigarettes) moved to sever the claims against the smokeless
tobacco manufacturer defendants from the claims against the cigarette
manufacturer defendants. That motion was granted and the trial date on the
smokeless tobacco claims has now been postponed indefinitely.

           Minnesota Complaint. On September 24, 1999, NTC was served with a
complaint in a case entitled Tuttle v. Lorillard Tobacco Company, et al. (Case
No. C2-99-7105), brought in Minnesota. The other manufacturing defendants are
Lorillard and The Pinkerton Tobacco Company. The Complaint alleges that
plaintiff's decedent was injured as a result of using NTC's (and, prior to the
formation of NTC, Lorillard's) BEECH-NUT brand and Pinkerton's RED MAN brand of
loose-leaf chewing tobacco. Plaintiff asserts theories of liability, breach of
warranty, fraud, and variations on fraud and misrepresentation. Plaintiff
specifically requests in its complaint an amount of damages in excess of fifty
thousand dollars ($50,000) along with costs, disbursements and attorneys' fees,
and ". . . an order prohibiting defendants from disseminating in Minnesota
further misleading advertising and making further untrue, deceptive
and/misleading statements about the health effects and/or addictive nature of
smokeless tobacco products. . . ." After discovery, summary judgment motions
were filed on behalf of all defendants. On March 3, 2003, the Court granted
defendants' motions, dismissing all claims against all defendants and the Court
has since denied the plaintiff's motion for reconsideration. Plaintiff has
appealed the dismissal. Briefing has been completed. Oral argument before the
Court of Appeals was held on February 11, 2004, and the decision is pending.

           Although the Company believes that it has good defenses to the above
actions in West Virginia and Minnesota and it intends to vigorously defend each
such action, no assurances can be given that it will prevail. If any of the
plaintiffs were to prevail, the results could have a material adverse effect on
the results of operations, financial position and cash flows of the Company.

LITIGATION RELATED TO COUNTERFEITING

           Texas Infringing Products Litigation. In Bollore, S.A. v. Import
Warehouse, Inc., Civ. No. 3-99-CV-1196-R (N.D. Texas), Bollore, the Company's
Licensor of ZIG-ZAG brand premium cigarette papers, obtained a sealed order
allowing it to conduct a seizure of infringing and counterfeit ZIG-ZAG products
in the United States. On June 7, 1999, seizures of products occurred in Michigan
and Texas. Subsequently, all named defendants have been enjoined from buying and
selling such infringing or counterfeit goods. Bollore and the Company have
negotiated settlements with all defendants. These defendants included Import
Warehouse, Ravi Bhatia, Tarek Makki and Adham Makki. Those settlements included
a consent injunction against distribution of infringing or counterfeit goods.

           On May 18, 2001, the Company, in conjunction with Bollore, conducted
raids on the businesses and homes of certain defendants previously enjoined
(including Tarek Makki and Adham Makki) from selling infringing or counterfeit
ZIG-ZAG brand products in the Bollore S.A. v. Import Warehouse litigation.
Evidence was uncovered that showed that these defendants and certain other
individuals were key participants in importing and distributing counterfeit
ZIG-ZAG premium cigarette papers. After a two day hearing in the U.S. District
Court for the Northern District of Texas, on May 30, 2001, the Court held the
previously enjoined defendants in contempt of court, and enjoined the additional


                                       24
<PAGE>
new defendants, including Ali Makki, from selling infringing or counterfeit
ZIG-ZAG premium cigarette papers.

           The Company entered into a settlement with the defendants, the
principal terms of which included a cash payment, an agreed permanent
injunction, the withdrawal of the defendants' appeal of the civil contempt
order, an agreed judgment of $11 million from the civil contempt order and an
agreement to forbear from enforcing that $11 million money judgment until such
time in the future that the defendants violate the terms of the permanent
injunction. Two of the defendants, Tarek Makki and Adham Makki, also agreed to
provide complete information concerning the counterfeiting conspiracy as well as
information on other parties engaged in the purchase and distribution of
infringing ZIG-ZAG premium cigarette papers.

           On February 17, 2004, the Company and Bollore filed a motion in the
U.S. District Court for the Northern District of Texas, which had issued the
original injunctions against the infringing defendants, seeking, with respect to
respondents Adham Makki, Tarek Makki and Ali Makki, to have the $11 million
judgment released from the forbearance agreement described above, and to have
the named respondents held in contempt of court. The motion alleged that the
three respondents had trafficked in counterfeit ZIG-ZAG cigarette papers after
the execution of the settlement, citing evidence that all three had been charged
in the United States District Court for the Eastern District of Michigan with
criminal violations of the United States counterfeiting laws by trafficking in
counterfeit ZIG-ZAG cigarette papers, which trafficking occurred after the
settlement agreement. A hearing was held on March 3, 2004, and it will resume on
April 7, 2004.

           Pursuant to the U.S. Distribution Agreement and a related agreement
between Bollore and the Company, any collections on the judgments issued in the
Bollore v. Import Warehouse case are to be divided evenly between Bollore and
the Company after the payment of all expenses.

           On February 7, 2002, Bollore, NAOC and the Company filed a motion
with the District Court in the Texas action seeking to hold Ravi Bhatia and
Import Warehouse Inc. in contempt of court for violating the terms of the
consent order and injunction entered against those defendants. The Company
alleges that Mr. Bhatia and Import Warehouse sold counterfeit goods to at least
three different companies over an extended period of time. On June 27, 2003, the
Court found Import Warehouse and Mr. Bhatia in contempt of court for violating
an existing injunction barring those parties from distributing infringing
ZIG-ZAG cigarette paper products. The Court requested that the Company and
Bollore (the Company's co-plaintiff in the case) file a submission detailing the
damages incurred. The Company and Bollore filed their submission on July 25,
2003 which reported and requested damages of $2.4 million. Briefing has been
completed and the parties are awaiting the decision of the Court.

           California Infringing Products Litigation. On March 23, 2001, the
Company participated as co-plaintiff with NAOC and Bollore in an action entitled
Bollore, S.A. v. A&A Smart Shopping (Case No. CV 01-02766 FMC (MANx)), filed in
the U.S. District Court for the Central District of California. The plaintiffs
alleged that nine distributors in California were selling counterfeit ZIG-ZAG
brand premium cigarette papers. In an effort to better manage this case for
trial, the plaintiffs settled against certain defendants, obtained judgments for
damage against most of the defendants and obtained permanent injunctions against
all of the settling defendants.

           A trial of the plaintiffs' claims against the remaining defendants,
in the A&A Smart Shopping case, Downey Wholesale and Fadel El-Shahawi, Downey's
principal, began October 1, 2002. On October 15, 2002, after a two week jury
trial, the jury found for the plaintiffs on all counts. The plaintiffs were
awarded a total of $2,000,000 in damages, and the jury found that defendant
Downey and the defendant Fadel El-Shahawi acted willfully and with fraud,


                                       25
<PAGE>
oppression or malice. As a result, plaintiffs were entitled to and did request
the Court to award them their reasonable attorney fees and expenses, which
awarded plaintiffs $751,000. The verdict also allowed the Court, in its
discretion, to apply a multiple of up to three times the verdict amount in order
to adequately compensate plaintiffs and also, to award punitive damages. The
parties settled the punitive damages and multiplier portions of the case for
$500,000, of which half was paid on November 15, 2002 and the remainder will be
paid in equal monthly installments over the next two year period, commencing on
December 1, 2002. All recoveries from this litigation will be shared equally by
NAOC and Bollore. Defendants filed a new trial motion which the Court has
denied. However, the Court reduced the plaintiff's damages award to
approximately $1.7 million. On March 13, 2003, the Court denied the defendants'
motions. The defendants filed a notice of appeal and the Court postponed the
briefing schedule relating thereto pending Court-sponsored mediation which was
held on October 30, 2003. During the course of the mediation, the parties agreed
to settle the case for the sum of $1.5 million, to be divided equally by the
plaintiffs, and a permanent injunction against the sale of infringing ZIG-ZAG
premium cigarette paper products by defendants.

           In addition to the above described legal proceedings, the Company is
subject to other litigation in the ordinary course of its business. The Company
does not believe that any of these other proceedings will have a material
adverse effect on the results of operations, financial position or cash flows of
the Company. For a description of regulatory matters and related industry
litigation to which the Company is a party, see Part I, Item 1.
"Business--Regulation."

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

           None.

                                     PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON STOCK, RELATED STOCKHOLDER MATTERS
           AND ISSUER PURCHASES OF EQUITY SECURITIES

           There is no established public trading market for the Company's
Voting Common Stock, par value $.01 per share, 100% of which is owned by Parent.

           No dividends have been declared or paid on the Voting Common Stock.
Except as described below, the policy of the Company's Board of Directors is to
retain any future earnings to provide funds for the operation and expansion of
the Company's business. The Board of Directors reserves the right, however, to
review the dividend policy periodically to determine whether the declaration of
dividends is appropriate.

           In connection with the refinancing of the Company's existing debt and
preferred stock on February 17, 2004 (as described under Part I, Item 1,
"Business-Recent Events" above and in Part I, Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" below), Parent
offered and sold $97.0 million aggregate principal amount at maturity (March 1,
2014) of senior discount notes. Interest on these notes will become payable
semiannually in cash, at the rate of 12-1/4% per annum, commencing March 1,
2008. As Parent is a holding company with no operations or material assets other
than the capital stock of the Company, its ability to make payments on such
notes is dependent on the distribution of funds (through loans, dividends or
otherwise) from the Company. It is currently contemplated that the Company will
declare and pay dividends to fund Parent's interest payment obligations under
its notes.

                                       26
<PAGE>
           The payment of dividends by the Company is subject to restrictions
contained in (i) the Company's new senior revolving credit facility and (ii) the
indenture governing the Company's new senior notes.

























                                       27
<PAGE>
ITEM 6.   SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                                Year Ended December 31,
                                                     --------------------------------------------------------------------------
                                                        2003          2002            2001            2000           1999
                                                     ----------- --------------- ---------------- -------------- --------------
                                                                 (amounts in thousands, except per share amounts)
<S>                                                  <C>         <C>             <C>              <C>            <C>
STATEMENT OF OPERATIONS DATA:
  Net sales(1), (4) .........................          $101,593        $94,425           $89,622        $90,365        $92,061
  Net income (loss)(2), (3), (4).............           (6,241)          5,485           (1,364)        (3,200)          1,595
  Net income (loss) applicable to common
      shares(2), (3).........................          (13,516)          3,904           (8,109)        (9,205)        (3,766)
  Basic earnings per common share:
     Income (loss)...........................          $(25.59)          $7.39          $(15.35)       $(16.96)        $(7.13)
     Cumulative effect of change in accounting
         principle...........................                --             --                --         (0.47)             --

     Net income (loss) applicable to
         common shares.......................          $(25.59)         $ 7.39         $ (15.35)      $ (17.43)       $ (7.13)

  Diluted earnings per common share:
     Income (loss)...........................          $(25.59)         $ 5.87          $(15.35)       $(16.96)        $(7.13)
     Cumulative effect of change in accounting
         principle...........................                --             --                --         (0.47)             --

     Net income (loss) applicable to
         common shares.......................          $(25.59)          $5.87          ($15.35)       ($17.43)       ($ 7.13)

BALANCE SHEET DATA (AT END OF PERIOD):
  Total assets................................         $243,694       $213,594          $216,663       $227,757       $243,603
  Total debt, including current maturities...           191,986        160,500           167,500        180,000        195,864
  Mandatorily redeemable preferred stock.....            65,080         57,805            57,443         50,698         44,693

</TABLE>

(1)   During 2002, the Company adopted EITF No. 00-14, "Accounting for Certain
      Sales Incentives" and EITF 00-25, "Vendor Income Statement
      Characterization of Consideration Paid to a Reseller of the Vendor's
      Products". As a result of this adoption, certain expenses have been
      reclassified from selling, general and administrative to net sales for the
      years ended 2001, 2000, and 1999. Net sales for 2001, 2000, and 1999 have
      been reduced by $4,126, $2,859 and $2,399, respectively, from previously
      reported amounts. The adoption of EITF 00-14 and EITF 00-25 had no impact
      on the Company's net income for any of these periods.

(2)   Net income (loss) and net income (loss) attributable to common shares for
      the year ended December 31, 2000 includes a loss of $850 (net of income
      tax benefit of $521) related to the write-off of deferred financing costs
      upon the refinancing of the Company's term loan and a cumulative effect of
      change in accounting principle of $251 (net of income tax benefit of $153)
      as a result of the adoption of Staff Accounting Bulletin No. 101, "Revenue
      Recognition in Financial Statements". Pursuant to the adoption of
      Statement of Financial Accounting Standards No. 145, "Rescission of FASB
      Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
      Technical Corrections," the Company reclassified the write-off of $1.4
      million of deferred financing costs incurred upon refinancing the
      Company's term loan on December 29, 2000 to other expense from
      extraordinary loss.

(3)   Net income (loss) and net income applicable to common shares for the year
      ended December 31, 2003, includes $7.4 million relating to the Republic
      judgment and $3.3 million relating to the terminated Star asset purchase
      agreement.

(4)   Includes federal excise taxes of $1,899, $1,684, $1,241, $1,310 and $993
      for the years ended December 31, 2003, 2002, 2001, 2000 and 1999,
      respectively.


                                       28
<PAGE>
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS

GENERAL

           The Company is the third largest manufacturer, marketer and
distributor of loose leaf chewing tobacco in the United States and the largest
marketer and distributor in the United States and Canada of premium cigarette
papers. The Company is also a leading manufacturer, marketer and distributor of
MYO smoking tobaccos and related products. In addition, in September 2003, the
Company began marketing and distributing premium manufactured cigarettes under
the ZIG-ZAG Premium Cigarettes brand name.

           The Company generates revenues from the sale of its products
primarily to wholesale distributors who in turn resell them to retail
operations. The Company's net sales, which include federal exercise taxes,
consist of gross sales, net of cash discounts, returns, and selling and
marketing allowances.

           The Company's principal operating expenses include the cost of raw
materials used to manufacture its products; the cost of finished products, which
are purchased goods; direct labor; federal excise taxes; manufacturing overhead;
and selling, general and administrative expenses, which includes sales and
marketing related expenses, legal expenses and compensation expenses, including
benefits costs of salaried personnel. In 2002, the Company ceased the
amortization of goodwill in accordance with FASB Statement 142, Goodwill and
Other Intangible Assets ("Statement 142") and consequently, beginning in 2002,
amortization of goodwill no longer constitutes one of the Company's principal
operating expenses. The Company's other principal expenses include interest
expense and amortization of deferred financing costs and other expenses, the
last of which has arisen during the last several years and has during 2001 and
2002 primarily represented the legal, investigative and related costs associated
with the Texas and California Infringing Products Litigations instituted by the
Company against alleged counterfeiters of ZIG-ZAG premium cigarette papers and
during 2003 primarily represented the Republic litigation.

           The following factors have affected the Company's results during the
period of 1999 to 2003:

                  o     The existence of counterfeit cigarette papers bearing
                        the ZIG-ZAG trademark. From 1999-2002, management
                        believes the Company lost in excess of $10 million of
                        net sales and incurred approximately $7 million in
                        expenses relating to the litigation and investigation of
                        counterfeiting claims and to brand promotions intended
                        to offset damage done to the legitimate distribution
                        channels. Management believes that the inflow and sale
                        of counterfeit products has been substantially reduced
                        as a result of the actions taken by the Company during
                        this period.

                  o     The impact of increased manufactured cigarette prices.
                        Management believes such price increases have resulted
                        in higher MYO cigarette sales. During the period of 2001
                        to 2003, a number of states increased their excise taxes
                        on cigarettes. Management expects this trend to continue
                        as more states seek additional sources of revenue to
                        combat significant budget deficits.

                  o     The continuing downward trend of loose leaf chewing
                        tobacco consumption. This is a result of an aging
                        consumer base coupled with an increasing trend of


                                       29
<PAGE>
                        consumers switching to moist snuff due to changing
                        demographics. Management believes that the switch to
                        moist snuff has been caused, in part, by the recent
                        availability of discount moist snuff products being
                        priced at the same levels or lower than loose leaf
                        products. However, management believes that the current
                        rate of switching has slowed significantly as those
                        consumers who found the moist snuff product more
                        attractive have already switched, leaving a loyal base
                        of higher use consumers in the loose leaf category.
                        Historically, increased prices for loose leaf products
                        have largely offset this downward trend in consumption.
                        Management expects this pricing trend to continue and,
                        as a result, the Company expects that this segment's
                        contribution to the Company's earnings will remain
                        relatively constant and stable for the foreseeable
                        future.

                  o     The impact of currency fluctuations. Currency movements
                        and suppliers' price increases relating to premium
                        cigarette papers, cigarette tubes and cigarette injector
                        machines are the primary factors affecting cost of
                        sales. Those products are purchased from Bollore on
                        terms of net 45 days and are payable in Euros. Thus, the
                        Company bears certain foreign exchange risks for its
                        inventory purchases. To minimize this risk, the Company
                        has in the past and may in the future choose to utilize
                        short-term forward currency contracts, through which the
                        Company secures Euros in order to provide payment for
                        its monthly purchases of inventory. In 2003, as the Euro
                        continued to increase in value in comparison to the U.S.
                        dollar, the Company experienced an increase in cost of
                        goods sold.

                  o     The impact of marketing and promotional initiatives.
                        Historically, based upon the timing of the Company's
                        marketing and promotional initiatives, the Company has
                        experienced significant variability in its
                        month-to-month results. Promotional activity
                        significantly increases net sales in the month in which
                        it is initiated, while net sales are adversely impacted
                        in the month after a promotion. For example, the
                        Company's fourth quarter of 2002 was particularly strong
                        since that quarter included what was then advertised as
                        its last "promotion" for its premium cigarettes papers
                        business before it moved to an "every-day-low-price"
                        strategy. This change in promotional strategy adversely
                        impacted the first quarter of 2003 results. Thus,
                        promotional program variability and timing issues are to
                        be anticipated in the future due to the importance of
                        marketing and promotional initiatives in the Company's
                        business.

In addition, the following factors affected the Company's results in 2003:

                  o     The Republic litigation. On July 8, 2003, following a
                        four day trial, an Illinois jury returned a verdict in
                        favor of Republic Tobacco, L.P. on defamation claims of
                        $8.4 million in general damages and $10.2 million in
                        punitive damages, for a total damage award of $18.6
                        million. The Company filed post-trial motions for a new
                        trial and, in the alternative, for a reduction of the
                        awards. On August 1, 2003, the Company posted a judgment
                        bond in the amount of $18.8 million with the U.S.
                        District Court. This was accomplished by obtaining a
                        $19.0 million senior secured term loan pursuant to a
                        July 31, 2003 amendment to the Company's existing credit
                        facility. On November 20, 2003, the court ruled that the
                        awards were excessive and reduced the awards by
                        approximately 60%, with the award of compensatory
                        damages being reduced to $3.36 million and the award of


                                       30
<PAGE>
                        punitive damages being reduced to $4.08 million, for a
                        total of $7.44 million. On December 18, 2003, Republic
                        accepted these reduced awards. On January 8, 2004, the
                        Company appealed this judgment, including the finding of
                        liability in this case as well as the amount of the
                        award. There can be no assurance, however, that the
                        Company will prevail on appeal. On January 22, 2004,
                        Republic filed a general notice of cross appeal, but did
                        not specify the issues or claims for which it is seeking
                        appellate review. On March 7, 2004, the Company filed
                        its opening brief with the Court of Appeals. Republic's
                        brief is scheduled to be filed April 7, 2004. The
                        Company and Republic each may file reply briefs
                        thereafter.

                  o     Termination of Star acquisition. On July 15, 2003, the
                        Company, Star Scientific, Inc. ("Star") and Star's
                        wholly-owned subsidiary Star Tobacco, Inc. ("Star
                        Tobacco") mutually agreed to terminate an asset purchase
                        agreement entered into by the parties on February 18,
                        2003 under which the Company was to purchase the
                        cigarette business of Star Tobacco. Pursuant to the
                        termination agreement, Star retained a $2 million
                        earnest money deposit that had been placed in escrow by
                        the Company and the parties executed mutual releases of
                        any liabilities arising out of the asset purchase
                        agreement. The Company incurred approximately $3.3
                        million of direct costs, including the earnest money
                        deposit, in connection with the Star transaction.

                  o     Stoker acquisition. On November 17, 2003, the Company
                        consummated the acquisition of Stoker, Inc. Through the
                        acquisition, the Company acquired the Stoker family of
                        brands and the related business operations, including
                        the equipment used to manufacture and package Stoker
                        products. The purchase price for the Stoker acquisition
                        was $22.5 million in cash and was financed with
                        borrowings under the Tranche B term loan in the
                        Company's existing senior credit facility. As a result
                        of the Stoker acquisition, the Company's net sales, cost
                        of goods sold and other operating results are expected
                        to increase significantly. It is the Company's intention
                        to consolidate all production and packaging of its and
                        Stoker's smokeless tobacco and MYO products into a
                        single location. This consolidation is expected to be
                        completed during 2004 and to result in significant
                        tangible synergies as excess production capacity will be
                        utilized with modest incremental costs and as personnel
                        redundancies will be eliminated. The consolidation of
                        the two facilities along with the elimination of other
                        redundant general and administrative expenses is
                        expected to yield an annualized savings of approximately
                        $3.9 million.

                  o     Launch of ZIG-ZAG Premium Cigarettes. During 2003, the
                        Company incurred approximately $2.9 million of expenses
                        associated with the start-up of the ZIG-ZAG Premium
                        Cigarette business. No meaningful revenues from these
                        products were generated during this period and these
                        expenses are considered non-recurring as they are deemed
                        by management to be start-up costs.

                  o     Benefit restructuring. On December 31, 2003, the Company
                        froze its salaried pension plan. The Company expects the
                        freezing of the pension plan to yield approximately $1.3
                        million of savings over several years.


                                       31
<PAGE>
RESULTS OF OPERATIONS


           For financial reporting purposes, the Company has three reporting
segments: smokeless tobacco, which principally includes the sale of loose leaf
chewing tobacco; MYO, which includes sales of premium cigarette papers and MYO
tobacco and related products; and premium manufactured cigarettes. The Company
launched its premium manufactured cigarette business late in the third quarter
of 2003. To date, this business is in a developmental phase and its results have
not been significant. As a result of the Stoker acquisition, the Company also
operates a catalog business which sells tobacco and non-tobacco products. The
Stoker acquisition was completed on November 17, 2003.

SUMMARY

           The table and discussion set forth below relates to the consolidated
results of operations and financial condition of the Company for the years ended
December 31, 2003, 2002 and 2001.


<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                             ------------------------------------------------------------------------------------
                                                        2003                          2002                          2001
                                             -------------------------      -----------------------       -----------------------
                                                                             (amounts in thousands)
<S>                                          <C>             <C>            <C>           <C>             <C>           <C>
Net sales...............................      $101,593          100.0%        $94,425        100.0%         $89,622        100.0%
Cost of sales...........................        48,616            47.9         40,973          43.4          37,697          42.1
                                             ---------       ---------      ---------     ---------       ---------     ---------
Gross profit............................        52,977            52.1         53,452          56.6          51,925          57.9
Selling, general and
   administrative expenses..............        32,589            32.1         24,065          25.5          23,372          26.1
Amortization expense....................            67              --             --            --           5,490           6.1
                                             ---------       ---------      ---------     ---------       ---------     ---------
Operating income........................        20,321            20.0         29,387          31.1          23,063          25.7
Interest expense, net, and deferred
   financing costs......................        19,122            18.8         18,744          19.8          19,742          22.0
Other expense...........................        11,129            10.9          1,944           2.1           2,642           2.9
                                             ---------       ---------      ---------     ---------       ---------     ---------
Income (loss) from continuing operations
   before income tax expense............       (9,930)           (9.7)          8,699           9.2             679           0.8

Income tax expense (benefit)............       (3,689)           (3.6)          3,214           3.4           2,043           2.3
                                             ---------       ---------      ---------     ---------       ---------     ---------
Income (loss) before extraordinary loss
   and cumulative effect of change in
   accounting principle.................       (6,241)           (6.1)          5,485           5.8         (1,364)         (1.5)
Extraordinary loss......................            --              --             --            --              --            --
Cumulative effect of change in
   accounting principle.................            --              --             --            --              --            --
                                             ---------       ---------      ---------     ---------       ---------     ---------
Net income (loss).......................     $ (6,241)          (6.1%)        $ 5,485          5.8%        $(1,364)        (1.5%)
                                             =========       =========      =========     =========       =========     =========
</TABLE>



                                       32
<PAGE>
COMPARISON OF YEAR ENDED DECEMBER 31, 2003 TO YEAR ENDED DECEMBER 31, 2002

           Net Sales. For 2003, net sales were $101.6 million, an increase of
$7.2 million or 7.6% from the prior year. Net sales of the smokeless tobacco
segment increased from $35.7 million to $36.7 million or 2.8% from the prior
year reflecting the acquisition of Stoker and an approximate 5% price increase
during 2003, which was partially offset by an overall volume decline of 5.9%.
Net sales continue to be adversely impacted by competitive pressures, including
increased discounting from other loose leaf competitors, growth of the moist
snuff value brands and increased discounting activity by moist snuff
manufacturers.

           Net sales of the MYO segment increased from $58.7 million to $64.7
million or 10.2% from the prior year. This was due to an increase of $2.6
million in sales of the expanded MYO smoking tobacco and related products line,
including sales by Stoker which, in management's opinion, resulted from
increases in prices and taxes of manufactured cigarettes; an increase of $2.6
million in sales of premium cigarette papers, due to the continuing recovery
from the counterfeiting activity; and an increase of $0.8 million in premium
cigarette paper sales to Canada. All of these positive factors were partially
offset by an increase in customer incentives, both to expand the distribution in
the MYO area and to enhance recovery from counterfeiting activity. The Company
attributes its continuing recovery from counterfeiting activity to the
litigation instituted by the Company against alleged counterfeiters as discussed
under Part I, Item 3, "Legal Proceedings" above.

           Gross Profits. For 2003, gross profit decreased 0.9% to $53.0 million
from $53.5 million for the prior year while the gross margin decreased to 52.1%
from 56.6%.

           Gross profit of the smokeless tobacco segment increased to $17.1
million in 2003 from $16.5 million for the prior year, or 3.6%, due to sales by
Stoker, which was acquired on November 17, 2003. Gross margin of this segment
increased to 46.5% of net sales in 2003 from 46.1% of net sales for the prior
year. This increase is attributed primarily to price increases instituted in
September 2003.

           Gross profit of the MYO segment decreased 3.2% to $35.8 million from
$37.0 million in 2002 due to higher cost of goods with respect to MYO premium
cigarette papers resulting from a stronger Euro in comparison to the U.S.
dollar. The gross margin decreased from 63.0% of net sales in 2002 to 55.3% due
to the impact of the stronger Euro in comparison to the U.S. dollar and to
changes in product mix (greater growth in lower margin products).

           Currency. Currency movements and suppliers' price increases relating
to premium cigarette papers, cigarette tubes and cigarette injector machines are
the primary factors affecting cost of sales. Those products are purchased from
Bollore on terms of net 45 days and are payable in Euros. Thus, NAOC bears
certain foreign exchange risks for its inventory purchases. To minimize this
risk, NAOC may choose to utilize short-term forward currency contracts, through
which NAOC secures Euros in order to provide payment for its monthly purchases
of inventory. For 2004, the Company projects that the strong Euro against the
U.S. dollar will again result in an increase in cost of goods sold. No forward
contracts were utilized in 2003.

           Selling, General and Administrative Expenses. Selling, general and
administrative expenses for 2003 increased 35.3% to $32.6 million from the prior
year's $24.1 million. This increase was due primarily to the start up expenses
of NACC's premium cigarette business of $2.9 million, increased compensation and
related expenses of $3.3 million (including increased pension expense of $0.2


                                       33
<PAGE>
million), increased legal/litigation expenses of $0.7 million, increased
travel/entertainment expenses of $0.5 million, increased Sales/Marketing
expenses of $0.6 million and Stoker expenses of $0.5 million.

           Amortization Expense. Amortization of goodwill was eliminated
effective January 1, 2002. Amortization expense totaling $0.07 million for the
year ending December 31, 2003 related to the intangible assets acquired from
Stoker.

           Net Interest Expense and Amortization of Deferred Financing Costs.
Interest expense and amortization of deferred financing costs increased to $19.1
million in 2003 from $18.7 million for the prior year. This increase was the
result of additional borrowings relating to the acquisition of Stoker and the
funding of a bond in the Republic litigation.

           Other Expense. Other expense increased to $11.1 million in 2003 from
$1.9 million for the prior year. Other expense consisted primarily of $7.4
million associated with the judgment rendered against the Company in connection
with the litigation with Republic Tobacco, Inc. and $3.3 million associated with
the termination of the Star Cigarette Asset Purchase Agreement.

           Income Tax Expense (Benefit). Income tax benefit was $3.7 million for
2003, reflecting the net loss of the Company. Income tax expense was $3.2
million in 2002.

           Net Income (Loss). Due to the factors described above, the Company
incurred a net loss of $6.2 million for 2003 compared to net income of $5.5 for
2002.

 COMPARISON OF YEAR ENDED DECEMBER 31, 2002 TO YEAR ENDED DECEMBER 31, 2001

           Net Sales. For 2002, net sales were $94.4 million, an increase of
$4.8 million or 5.4% from the prior year. Net sales of the smokeless tobacco
segment decreased from $38.6 million to $35.7 million or 7.5% from the prior
year reflecting, in part, a 9.4% volume decrease. This was partially offset by
an approximate 5.0% price increase during 2002. Net sales continued to be
adversely impacted by competitive pressures, including increased discounting
from other loose leaf competitors, growth of the moist snuff value brands and
increased discounting activity by moist snuff manufacturers.

           Net sales of the MYO segment increased from $51.0 million to $58.7
million or 15.1% from the prior year. This was due to increases of $5.7 million
in sales of the expanded MYO smoking tobacco and related products line, which in
management's opinion resulted from increases in prices and taxes of manufactured
cigarettes; an increase of $3.1 million in premium cigarette papers, due to a
continuing recovery from the counterfeiting activity; and an increase of $0.9
million in sales to Canada, due to increased sales of premium cigarette papers.
All of these positive factors were partially offset by an increase in customer
incentives, both to expand the distribution in the MYO area and to enhance
recovery from counterfeiting activity. The Company attributes its continuing
recovery from counterfeiting activity to the litigation instituted by the
Company against alleged counterfeiters as discussed under Part I, Item 3, "Legal
Proceedings" above.

           Gross Profits. For 2002, gross profit increased 3.1% to $53.5 million
from $51.9 million for the prior year while the gross margin decreased to 56.6%
from 57.9%.

           Gross profit of the smokeless tobacco segment decreased to $16.5
million in 2002 from $17.1 million for the prior year, or 3.4%, due to the net
sales reduction; however, the gross margin increased to 46.1% in 2002 from 44.3%
for the prior year. The primary reason for this was the reduction of the
non-cash LIFO inventory adjustment to $2.1 million in 2002 from $2.9 million for


                                       34
<PAGE>
the prior year. Disregarding this adjustment, the gross margin still increased
by 0.5% to 52.1% in 2002 from 51.6% for the prior year.

           Gross profit of the MYO segment increased 6.0% to $37.0 million in
2002 from $34.9 million due to the continued growth in the smoking tobacco and
related products area of this segment as a result of the net sales increase
described above. The gross margin decreased from 68.4% in 2002 of net sales to
63.0% due primarily to changes in product mix (greater growth in lower margin
products) and to the increase in the non-cash LIFO inventory adjustment of $2.0
million. Disregarding this adjustment, the gross margin decreased to 66.4% in
2002 from 68.4% for the prior year, again, as the MYO smoking tobacco and
related products margin is less than that of premium cigarette papers.

           Currency. Currency movements and suppliers' price increases relating
to premium cigarette papers, cigarette tubes and cigarette injector machines are
the primary factors affecting cost of sales. Those products are purchased from
Bollore on terms of net 45 days and are payable in Euros. Thus, NAOC bears
certain foreign exchange risks for its inventory purchases. To minimize this
risk, NAOC may choose to utilize short-term forward currency contracts, through
which NAOC secures Euros in order to provide payment for its monthly purchases
of inventory. For 2002, though currency rates were generally not favorable to
the U.S. dollar in comparison to the Euro, the Company's inventory position
benefited economically by utilizing prior short-term forward currency contracts
in 2001. For 2002, as the Euro has remained strong against the U.S. dollar, the
Company projects that its currency strategy will result in an increase in cost
of goods sold; however, this increase will be exceeded by a reduction in
promotional spending associated with the new everyday low price program. No
contracts are outstanding.

           Selling, General and Administrative Expenses. Selling, general and
administrative expenses for 2002 increased 3.0% to $24.1 million from the prior
year's $23.4 million. This increase was due primarily to compensation expenses
related to hiring additional staff in connection with the re-organization of the
Company's sales force.

           Amortization of Goodwill. Amortization of goodwill was eliminated for
2002 compared to an expense of $5.5 million for the corresponding period of the
prior year. Effective January 1, 2002, the Company ceased amortizing goodwill in
accordance with FASB Statement 142.

           Net Interest Expense and Deferred Financing Costs. Interest expense
and deferred financing costs decreased to $18.7 million in 2002 from $19.7
million for the prior year. This decrease was the result of a lower average term
loan balance coupled with a low average interest rate environment.

           Other Expense. Other expense decreased to $1.9 million in 2002 from
$2.6 million for the prior year. Other expense consists primarily of legal,
investigative and related expenses with respect to the Texas and California
Infringing Products Litigations involving ZIG-ZAG premium cigarette papers which
are described above under "Legal Proceedings."

           Income Tax Expense. Income tax expense increased to $3.2 million in
2002 from $2.0 million for the prior year as a result of the increase in taxable
income from the prior year.

           Net Income (Loss). Due to the factors described above, the Company
earned net income of $5.5 million for 2002 compared to the prior year's net loss
of $1.4 million.

                                       35
<PAGE>
LIQUIDITY AND CAPITAL REQUIREMENTS

           The Company's principal uses for cash are working capital, debt
service, its annual MSA escrow account deposit and capital expenditures. In
2003, the Company also had significant cash expenditures in connection with
acquisitions and the Republic litigation. The Company's principal sources of
cash are from operating cash flows and from borrowings under its senior secured
credit facility. As described below, the Company consummated the refinancing of
its existing debt and preferred stock on February 17, 2004.

           Working capital was $34.4 million at December 31, 2003 compared to
$32.3 million at December 31, 2002. This increase was primarily the result of
increased inventories of $1.4 million, increased accounts receivable of $2.7
million and a reduction of net income tax related liabilities of $3.9 million,
which were offset by an increase in accounts payable and accrued expenses of
$4.8 million and an increase in the revolving credit facility of $0.8 million.
The Company contributed $1.4 million to its defined benefit plans in 2003. As of
December 31, 2003, the Company had an undrawn availability of $8.7 million under
the revolving credit portion of its senior secured credit facility.

           During 2003, the Company had $1.6 million in capital expenditures.
The Company believes that its capital expenditure requirements for 2004 will be
approximately $6.0 million due to the consolidation of its manufacturing
locations. Management believes that it will be able to fund its capital
expenditure requirements from operating cash flows and, if needed, borrowings
under its senior secured credit facility.

           On June 25, 1997, the Company issued $155.0 million of 11% Senior
Notes due 2004 (the "Notes") which were called for redemption on April 2, 2004.
The Notes are unsecured senior obligations of the Company which were scheduled
to mature on June 15, 2004. The Notes bear interest at 11% per annum, payable
semiannually on June 15 and December 15, to holders of record at the close of
business on the June 1 or December 1 immediately preceding the interest payment
date.

           At December 31, 2003, the Company was operating under a Loan
Agreement (the "Loan Agreement"), dated December 31, 2000, with Bank One,
Kentucky, N.A. as Agent (the "Agent"), and the banks named therein, which
provided for a $25.0 million term loan and a $10.0 million revolving credit
facility. The Term Loan was payable in eight (8) quarterly installments of
$3.125 million each plus accrued interest, which commenced on March 31, 2001.
Both the term loan and the revolving credit facility matured on December 31,
2002, at which time the term loan was paid in full. On December 31, 2002, the
Company entered into an Amended Loan Agreement (the "Amended Loan Agreement")
with Bank One in which the revolving credit facility was increased to $20
million and extended to December 31, 2003. During 2003, the Amended Loan
Agreement was amended to reduce the revolving credit facility to $15.0 million
and to extend the maturity to March 31, 2004. The unused portion of revolving
credit facility at December 31, 2003 was $8.7 million. All terms of the original
Loan Agreement remained in place except for the replacement of a Fixed Charge
Coverage Covenant with an Interest Coverage Covenant. The Company's obligations
under the Loan Agreement were guaranteed by National Tobacco, NAOC and NTFC. In
addition, the Company's obligations were collateralized by all of the Company's
assets and the Company's equity in its subsidiaries. The interest rate on
borrowings under the Amended Loan Agreement was based, at the Company's option,
on either LIBOR or the prime rate as announced by the Agent from time to time.
At December 31, 2003, the Notes Payable outstanding under the Tranche B term
loan portion consisted of $7.7 million incurred to finance the posting of a $7.7
million judgment bond (including accrued interest and fees) in connection with
the litigation with Republic Tobacco (See Note 19, Contingencies) and $23.0
million to finance the acquisition of Stoker (See Note 3, Acquisition of


                                       36
<PAGE>
Business). As of December 31, 2003, the interest rate on borrowings under the
Amended Loan Agreement was 5.15%.

           The Loan Agreement and the Senior Notes included cross default
provisions and limited the incurrence of additional indebtedness, dividends,
transactions with affiliates, asset sales, acquisitions, mergers, prepayments of
indebtedness, liens and encumbrances, and other matters. At December 31, 2003,
the Company was in compliance with all provisions of the Amended Loan Agreement
and Senior Notes.

           On December 31, 2003, the Senior Notes and Notes Payable, as
described above, were reclassified as noncurrent liabilities in the Consolidated
Balance Sheet, reflecting the Company's intention and ability to refinance the
Amended Loan Agreement and Senior Notes as described below.

           On February 17, 2004, the Company consummated the refinancing of its
existing debt and preferred stock. The refinancing consisted principally of (1)
the offering and sale of $200.0 million principal amount of the Senior Notes
(the "New Senior Notes") by the Company, (2) the entering into of an amended and
restated loan agreement that provides a $50.0 million senior secured revolving
credit facility to the Company and (3) the concurrent sale of $97.0 million
aggregate principal amount at maturity of senior discount notes of Parent.

           The New Senior Notes are senior unsecured obligations of the Company
and will mature on March 1, 2012. The New Senior Notes bear interest at the rate
of 9 1/4% per annum from the date of issuance, or from the most recent date to
which interest has been paid or provided for , and interest is payable
semiannually on March 1 and September 1 of each year, commencing on September 1,
2004. The Company will not be required to make mandatory redemptions or sinking
fund payments prior to the maturity of the Notes.

           On and after March 1, 2008, the Notes will be redeemable, at the
Company's option, in whole at any time or in part from time to time, upon not
less than 30 nor more than 60 days prior notice at the following redemption
prices (expressed in percentages of principal amount), if redeemed during the
12-month period commencing March 1 of the years set forth below, plus accrued
and unpaid interest to the redemption date (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date):

               Year                                Redemption Price
               ----                                ----------------

               2008                                    104.625%
               2009                                    102.313%
               2010 and thereafter                     100.000%


           In addition, prior to March 1, 2008, the Company may redeem the
Notes, at its option, in whole at any time or in part from time to time, upon
not less than 30 nor more than 60 days prior notice at a redemption price equal
to 100% of the principal amount of the Notes redeemed plus a "make-whole"
premium based on U.S. Treasury rates as of, and accrued and unpaid interest to,
the applicable redemption date.

           In addition, at any time prior to March 1, 2007, the Company may, at
its option, redeem up to 35% of the aggregate principal amount of the Notes with
the Net Cash Proceeds of one or more Equity Offerings by Parent or the Company
so long as there is a Public Market at the time of such redemption, at a


                                       37
<PAGE>
redemption price equal to 109.250% of the principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the date of redemption.

           In connection with the refinancing, the Company also amended and
restated the existing credit facility, resulting in a new $50.0 million
(reducing to $40.0 million in August 2005) senior revolving credit facility with
Bank One, N.A. as agent (the "Agent Bank") and La Salle Bank, National
Association. The new credit agreement (the "New Credit Agreement") governing the
new senior revolving credit facility includes a letter of credit sublimit of
$25.0 million and terminates three years from the closing date. The Company will
use the new senior revolving credit facility for working capital and general
corporate purposes.

           Indebtness under the New Credit Agreement is guaranteed by each of
the Company's current and future direct and indirect subsidiaries, and is
secured by a first perfected lien on substantially all of the Company's and the
Company's direct and indirect subsidiaries' current and future assets and
property. The collateral includes a pledge by the Parent of its equity interest
in the Company and a first priority lien on all equity interest and intercompany
notes held by the Company and its subsidiaries.

           Each advance under the New Credit Agreement will bear interest at
variable rates based, at the Company's option, on either the prime rate plus 1%
or LIBOR plus 3%. The New Credit Agreement provides for voluntary prepayment,
subject to certain exceptions, of loans. In addition, without the prior written
consent of the Agent Bank, the Company will not allow a Change in Control (as
defined in the New Credit Agreement), the sale of any material part of its
assets and the assets of its subsidiaries on a consolidated basis or, subject to
certain exceptions, the issuance of equity or debt.

           Under the new senior revolving credit facility, the Company is
required to pay the lenders under the New Credit Agreement an annual commitment
fee in variable amounts ranging from 0.50% to 0.65% of the difference between
the commitment amount and the average usage of the facility, payable on a
quarterly basis, on the undrawn and unused portion of the credit facility. The
Company is also required to pay to the lenders letter of credit fees equal to
3.00% per annum multiplied by the maximum amount available from time to time to
be drawn under such letter of credit issued under the New Credit Agreement and
to the lender issuing a letter of credit a fronting fee of 0.125% per annum
multiplied by the aggregate face amount of letters of credit outstanding during
a fiscal quarter plus other customary administrative, amendment, payment and
negotiation charges in connection with such letters of credit.

           The New Credit Agreement requires the Company and its subsidiaries to
meet certain financial tests, including a minimum fixed charge coverage ratio,
and a minimum consolidated adjusted earnings before interest, taxes, dividends
and amortization ("EBITDA"). The New Credit Agreement also contains covenants,
which among other things, limit the incurrence of additional indebtedness,
dividends, transactions with affiliates, asset sales, acquisitions, mergers,
prepayments of other indebtedness, liens and encumbrances and other matters
customarily restricted in such agreements. In addition, the New Credit Agreement
requires that certain members of Executive Management remain active in the
day-to-day operation and management of the Company and its subsidiaries during
the term of the facility.

           The New Credit Agreement contains customary events of default,
including payment defaults, breach of representations and warranties, covenant
defaults, cross-acceleration, cross-defaults to certain other indebtedness,
certain events of bankruptcy and insolvency, the occurrence of a Change in
Control and judgment defaults.

           Concurrently with the offering of the New Senior Notes, Parent issued
$97.0 million aggregate principal amount at maturity ($60.0 million in gross
proceeds) of its senior unsecured discount notes due 2014 (the "Parent Notes").


                                       38
<PAGE>
The Parent Notes are Parent's senior obligations and are unsecured, ranking
equally in right of payment to all of Parent's future unsubordinated obligations
and senior in right of payment to any obligations that are by their terms
subordinated to the Parent Notes, and will be effectively subordinated to any
secured obligations of Parent to the extent of the assets securing those
obligations. The Parent Notes are not guaranteed by the Company or any of its
subsidiaries and are structurally subordinated to all of the Company and its
subsidiaries' obligations, including the New Senior Notes.

           Pursuant to the U.S. Distribution Agreement (one of the Distribution
Agreements, as more fully discussed in Item 1. Business), the Company is
committed to purchase a minimum number of booklets of premium cigarette papers
annually to avoid the termination of that agreement. This level of purchases has
been significantly exceeded since the 1997 Acquisition and management believes
that the Company will be able to significantly exceed this requirement for the
foreseeable future. The agreement has also established the purchase price for
ZIG-ZAG premium cigarette papers through 2004, subject to certain adjustments to
reflect increases in the U.S. consumer price index and to account for material
currency fluctuations. The Distribution Agreements provide that, in order to
assure each of the parties commercially reasonable profits in light of
inflationary trends and currency translation factors, prior to December 31, 2004
and each fifth-year anniversary of such date, the parties will enter into good
faith negotiations to agree on an index and currency adjustment formula to
replace the index and formula currently in effect. If the parties are unable to
agree, the dispute is to be submitted to binding arbitration.


           As discussed in "Item. 1 Business - State Attorney General Settlement
Agreements," in order to be in compliance with the MSA and subsequent states'
statutes, the Company is required to fund an escrow account with each of the
settling states based on the number of cigarettes or cigarette equivalents(i.e.,
the pounds of MYO smoking tobacco) sold in such state. Funding of the escrow
deposit by the Company in 2003 was $3.3 million in respect of sales of MYO
smoking products in 2002. The Company estimates the total payments will be $3.4
million in 2004 due to an increase of sales of MYO smoking products in 2003.

           The following table summarizes the Company's contractual cash
obligations, excluding interest expenses, as of December 31, 2003 (in
thousands):

<TABLE>
<CAPTION>
CONTRACTUAL CASH OBLIGATIONS            TOTAL         LESS THAN 1 YEAR       1-3 YEARS       4-5 YEARS      AFTER 5 YEARS
----------------------------------- --------------- --------------------- ---------------- -------------- ------------------
<S>                                 <C>             <C>                   <C>              <C>            <C>
Senior notes                              $155,000              $155,000       $      --        $    --         $       --

Notes payable                               30,686                30,686              --             --                 --

Revolving credit facility                    6,300                 6,300              --             --                 --

Operating leases                             4,084                   726            1,271            600              1,487
                                    --------------- --------------------- ---------------- -------------- ------------------
                                          $196,070              $192,712          $ 1,271          $ 600          $ 201,487
                                    =============== ===================== ================ ============== ==================
</TABLE>

                                       39
<PAGE>
           The following table summarizes the Company's contractual cash
obligations, excluding interest expenses, at February 17, 2004 after giving
effect to the refinancing of the Company's existing debt and preferred stock (in
thousands):

<TABLE>
<CAPTION>
CONTRACTUAL CASH OBLIGATIONS                 TOTAL        LESS THAN 1 YEAR       1-3 YEARS       4-5 YEARS      AFTER 5 YEARS
---------------------------------------- -------------- --------------------- ---------------- -------------- ------------------
<S>                                      <C>            <C>                   <C>              <C>            <C>
Senior notes                                  $200,000                  $--            $  --            $--            $200,000

New senior revolving credit facility            10,760                   --            10,760            --                 --

Operating leases                                 4,084                   726            1,271            600              1,487
                                         -------------- --------------------- ---------------- -------------- ------------------
                                              $214,844                  $726          $12,031           $600           $201,487
                                         ============== ===================== ================ ============== ==================
</TABLE>

           After giving effect to the February 17, 2004 refinancing
transactions, the Company believes that its operating cash flows, together with
its revolving credit facility, should be adequate to satisfy its reasonably
foreseeable operating capital requirements.


INFLATION

           The Company believes that any effect of inflation at current levels
will be minimal. Historically, the Company has been able to increase prices at a
rate equal to or greater than that of inflation and believes that it will
continue to be able to do so for the foreseeable future. In addition, the
Company has been able to maintain a relatively stable variable cost structure
for its products due, in part, to its successful procurement and reformulation
activities with regard to its tobacco products and, in part, to its existing
contractual agreement for the purchase of its premium cigarette papers.

CRITICAL ACCOUNTING POLICIES

           The Company believes the accounting policies below represent its
critical accounting policies due to the estimation process involved in each. See
Note 2, in the Consolidated Financial Statements, for a detailed discussion of
the Company's accounting policies.

           Revenue Recognition - The Company recognizes revenues and the related
costs upon the transfer of title and risk of loss to the customer.

           Goodwill - Effective January 1, 2002, the Company adopted Statement
of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" (SFAS No. 142"). The Statement addresses financial accounting and
reporting for acquired goodwill and other intangible assets and supersedes
Accounting Principles Board Opinion No. 17, "Intangible Assets" and amends
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("SFAS No. 121"), to exclude from its scope goodwill and intangible assets that
are not amortized. SFAS No. 121 was subsequently superseded by Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets ("SFAS No. 144").


                                       40
<PAGE>
           SFAS No. 142 addresses how goodwill and other intangible assets
should be accounted for after they have been initially recognized in the
financial statements. Under SFAS No. 142, goodwill is no longer to be amortized
but reviewed for impairment annually or more frequently if certain indicators
arise, using a two-step approach. SFAS No. 142 was effective January 1, 2002 and
the Company was required to complete step one of a transitional impairment test
by June 30, 2002 and to complete step two of the transitional impairment test,
if step one indicated that the reporting unit's carrying value exceeds its fair
value by December 31, 2002. Any impairment loss resulting from the transitional
impairment test was required to be recorded as a cumulative effect of a change
in accounting principle in the quarter ended March 31, 2002. Any subsequent
impairment losses will be reflected in operating income in the consolidated
statement of operations. The net goodwill balances attributable to each of the
Company's reporting units were tested for impairment by comparing the fair value
of each reporting unit to its carrying value as of December 31, 2003. Fair value
was determined by using the valuation technique of calculating the present value
of estimated expected future cash flows (using a discount rate commensurate with
the risks involved). The Company has reported that no impairment of goodwill has
been incurred as of December 31, 2003.

           Taxes - The Company has not provided a valuation allowance to reduce
its net deferred income tax assets since it is "more likely than not" to be able
to realize these benefits before they expire. If the Company should determine
that it would not be able to realize all or part of its net deferred income tax
assets in the future, an adjustment to the deferred income tax assets would be
charged to earnings in the period such determination was made.

           Contingencies - Note 19 of the Consolidated Financial Statements
discusses various litigation matters that impact the Company. No loss or gain
contingencies have been recorded for these matters because Management believes
that it is not probable that a loss has been incurred or an asset realized.
Future events may result in different conclusions, which could have a material
impact, either positively or negatively, on the results of operations or
financial condition of the Company.

           Inventory/LIFO Adjustment - Inventories are stated at the lower of
cost or market. Cost is determined on the last-in, first-out (LIFO) method. Leaf
tobacco is presented in current assets in accordance with standard industry
practice, notwithstanding the fact that such tobaccos are carried longer than
one year for the purpose of curing.

           Stock Options - The Company measures stock compensation costs related
to stock options on the fair value method which is the preferred method under
the provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation". The fair value based method requires
compensation cost for stock options to be recognized based on the fair value of
stock options granted.

           Pension and Postretirement Benefits Obligations - Pension and
postretirement benefits obligations accounting is intended to reflect the
recognition of future benefit costs over covered employees' approximate service
periods based on the terms of the plans and the investment and funding decisions
made by the Company. The Company is required to make assumptions regarding such
variables as the expected long-term rate of return on plan assets and the
discount rate applied to determine service costs and interest cost to arrive at
pension income or expense for the year. As of December 31, 2003 and 2002, the
Company used expected long-term rates of return on pension plan assets of 8.5%.
The postretirement plan has no assets. The Company analyzed the rates of returns
on assets used and determined that this rate is reasonable based upon the plans'
historical performance relative to the overall markets and mix of assets. The
Company will continue to assess the expected long-term rate of return on plan
assets assumptions for each plan based on relevant market conditions and will
make adjustments to the assumptions as appropriate. As of December 31, 2003, the


                                       41
<PAGE>
Company used discount rates of 5.5% and 6.25% for the pension and postretirement
plans, respectively. As of December 31, 2002, the Company used 6.75% for both
the pension and postretirement plans. The decrease in the discount rate used in
the current year correlates with a decline in interest rates on noncallable,
high quality bonds over the past year. The Company bases its discount rate used
for postretirement benefits on Moody's Aa bond index plus an adjustment upward
to the next quarter percentage point. See Note 12 to the Consolidated Financial
Statements for the full list of assumptions for the pension and postretirement
plans.

FORWARD-LOOKING STATEMENTS

           The Company cautions the reader that certain statements contained in
the Management's Discussion and Analysis of Financial Condition and Results of
Operations section as well as elsewhere in this Form 10-K are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements are not guarantees of future performance.
They involve risks, uncertainties and other important factors, including the
risks discussed below. The Company's actual future results, performance or
achievement of results may differ materially from any such results, performance
or achievement implied by these statements. Among the factors that could affect
the Company's actual results and could cause results to differ from those
anticipated in the forward-looking statements contained herein is the Company's
ability to implement its business strategy successfully, which may be dependent
on business, financial, and other factors beyond the Company's control,
including, among others, federal, state and/or local regulations and taxes,
competitive pressures, prevailing changes in consumer preferences, consumer
acceptance of new product introductions and other marketing initiatives, market
acceptance of the Company's current distribution program for ZIG-ZAG premium
cigarette papers, access to sufficient quantities of raw material or inventory
to meet any sudden increase in demand, disruption to historical wholesale
ordering patterns, product liability litigation and any disruption in access to
capital necessary to achieve the Company's business strategy.

The Company cautions the reader not to put undue reliance on any forward-looking
statements. In addition, the Company does not have any intention or obligation
to update the forward-looking statements in this document. The Company claims
the protection of the safe harbor for forward-looking statements contained in
Section 21E of the Securities Exchange Act of 1934.

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

           Interest Rate Sensitivity. The Company has exposure to interest rate
volatility primarily relating to interest rate changes applicable to revolving
loans under its senior secured credit facility. The Company's credit facility
bears interest at rates which vary with changes in (i) LIBOR or (ii) a rate of
interest announced from time to time by the lender under the senior secured
credit facility. As of December 31, 2003, $37.0 million of the Company's debt
bore interest at variable rates. The Company believes that the effect, if any,
of reasonably possible near-term changes in interest rates on the Company's
consolidated financial position, results of operations or cash flows would not
be significant.

           Foreign Currency Sensitivity. NAOC purchases inventory from Bollore
on terms of net 45 days which are payable in Euros. Accordingly, exposure exists
to potentially adverse movement in foreign currency rates (Euros). NAOC may
choose to use short-term forward currency contracts to minimize the risk in
foreign currency exchange rates. In addition, Bollore provides a contractual
hedge against catastrophic currency fluctuation in its agreement with NAOC. NAOC
does not use derivative financial instruments for speculative trading purposes,
nor does NAOC hedge its foreign currency exposure in a manner that offsets the
effects of changes in foreign exchange rates.


                                       42
<PAGE>
           NAOC regularly reviews its foreign currency risk and its hedging
programs and may as part of that review determine at any time to change its
hedging policy. As of December 31, 2003, NAOC had no outstanding forward
currency contracts.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

           The Company's Consolidated Financial Statements and Notes to
Consolidated Financial Statements, and the report of PricewaterhouseCoopers LLP,
independent auditors, with respect thereto, referred to in the Index to
Financial Statements of the Company contained in Item 15(a), appear on pages F-1
through F-38 of this Form 10-K and are incorporated herein by reference thereto.
Information required by schedules called for under Regulation S-X is either not
applicable or is included in the Consolidated Financial Statements or Notes
thereto.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
           FINANCIAL DISCLOSURE

           None.

ITEM 9A.   CONTROLS AND PROCEDURES

           The Company's management evaluated, with the participation of the
Company's principal executive and principal financial officers, the
effectiveness of the Company's disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) as of December 31, 2003. Based on their
evaluation, the Company's principal executive and principal financial officers
concluded that the Company's disclosure controls and procedures were effective
as of December 31, 2003.

           There has been no change in the Company's internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) that occurred during the Company's fiscal quarter ended December
31, 2003, that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.

                                    PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

BOARD OF DIRECTORS AND EXECUTIVE OFFICERS

           The following table sets forth the name, position with the Company
and age of each member of the Board of Directors and each executive officer of
the Company as of the date of this filing. See "Election of Directors."


                                       43
<PAGE>
Name                                  Age        Position
----                                  ---        --------

Thomas F. Helms, Jr.............      63         Chief Executive Officer and
                                                  Chairman of the Board
David I. Brunson................      53         President, Chief Financial
                                                  Officer, Treasurer and
                                                  Director
Jack Africk*....................      75         Director
Marc S. Cooper*.................      43         Director
Geoffrey J. F. Gorman* .........      47         Director
James W. Dobbins................      44         Senior Vice President--General
                                                  Counsel and Secretary
Robert A. Milliken, Jr..........      47         President and Chief Operating
                                                  Officer - National Tobacco
                                                  Company, L.P.
James M. Murray.................      43         Senior Vice President--Sales
                                                  & Marketing - National Tobacco
                                                  Company, L.P.
Lawrence S. Wexler..............      51         President and Chief Operating
                                                  Officer - North Atlantic
                                                  Cigarette Company, Inc.

* Audit committee members.


           Thomas F. Helms, Jr. Thomas F. Helms, Jr. has been Chief Executive
Officer and Chairman of the Board since June 1997. He is also the Chairman of
the Board of Directors and Chief Executive Officer and a Director of Parent, the
President and a Director of NTC, the President and a Director of NACC, the
President of National Tobacco Finance Corporation, the Chairman of the Board of
Directors, President and Chief Executive Officer and a Director of NAOC, the
Chairman and President and a Director of Stoker, the Chairman and President and
a Director of Fred Stoker & Sons, Inc. and the Chairman and President and a
Director of RBJ Sales, Inc. In 1988, Mr. Helms formed National Tobacco Company,
L.P., which acquired certain loose leaf chewing tobacco assets of Lorillard,
Inc. Mr. Helms also served as President and Chief Executive Officer of Culbro
Corporation's smokeless tobacco division from 1983 until shortly prior to its
sale to American Maize-Products Company in March 1986. From 1979 to 1982, Mr.
Helms was General Manager of the Etherea Cosmetics and Designer Fragrances
Division of Revlon, Inc. From 1964 to 1979, Mr. Helms was employed in marketing
and sales positions in various divisions of Revlon, Inc.

           David I. Brunson. David I. Brunson has been President of the Company
since April 2002and Chief Financial Officer and a Director of the Company since
June 1997. Mr. Brunson is also the President, Chief Financial Officer and a
Director of Parent, the Chief Financial Officer and a Director of NTC, the
Treasurer and Assistant Secretary and a Director of NACC, the Chief Financial
Officer of National Tobacco Finance Corporation, the Executive Vice
President-Finance and Administration, Chief Financial Officer, Treasurer and
Assistant Secretary and a Director of NAOC, the Executive Vice President and
Chief Financial Officer of Stoker, the Executive Vice President and Chief
Financial Officer of Fred Stoker & Sons, Inc. and the Executive Vice President
and Chief Financial Officer of RBJ Sales, Inc. From April 1997 to April 2002, he
served as the Executive Vice President--Finance and Administration. In December
1998, Mr. Brunson was also appointed to the offices of Treasurer and Secretary
of the Company. Mr. Brunson relinquished his position as Secretary of the
Company in April 2002. Prior to joining the Company, from November 1992 until
April 1997, he was employed as a Managing Director at Societe Generale, an
investment bank, where he established and was President of Societe Generale
Investment Corporation. From July 1979 until November 1992, he was employed at
The First National Bank of Chicago, lastly as a Managing Director in the
Investment Banking Division.

           Jack Africk. Jack Africk has been a Director of the Company since
October 1997 and has been serving as a consultant to it since January 1999. From
January through December 1998 he served as President and Chief Operating Officer
of the Company. From 1996 to June 1997, he was Chief Executive Officer of NATC
Holdings USA, Inc. Prior to that time, from 1993 to 1996, Mr. Africk was a
consultant and Director of NATC Holdings USA, Inc. Mr. Africk is a former Vice


                                       44
<PAGE>
Chairman of UST Inc. ("UST"). From 1979 until 1993, Mr. Africk held various
positions with UST, including Vice Chairman and Executive Vice President, as
well as positions with subsidiary organizations including President of an
international division, and President and Chief Executive Officer of United
States Tobacco Company. Mr. Africk also currently serves as a Director of Tanger
Factory Outlets, a NYSE real estate investment trust that owns and operates
factory outlet centers, and Crown Central Petroleum, an operator of refineries,
gasoline stations and convenience stores.

           Marc S. Cooper. Marc S. Cooper has served as a Director of the
Company since May 2001. Since May 1999, he has served as a Managing Director of
Peter J. Solomon Company in its Mergers and Acquisitions Department. From March
1992 until May 1999, Mr. Cooper served as Vice Chairman of Barington Capital
Group, an investment bank of which he was a founding member. Prior to his tenure
with Barington Capital Group, Mr. Cooper spent three years as a partner of
Scharf Brothers, a private merchant banking firm. Currently, Mr. Cooper serves
as a director of Steve Madden, Inc. and Maxcor Financial.

           Geoffrey J. F. Gorman. Geoffrey Gorman has served as a Director of
the Company since April 2002. He is the Managing Partner of Private Equity
Partners, LLC. Since 1985, he has organized and led leveraged acquisitions and
private equity investments. Mr. Gorman has served as a Chairman of the Board of
Directors of Protein Genetics, Inc., Southern Dental Corporation, Waterbury
Companies, Inc. and Compass Plastics & Technologies, Inc. Mr. Gorman has also
served as a member of the board of directors of Swanson Manufacturers, Inc.,
Golden State Vintners, Inc., The Company Store, Inc., Avanti Petroleum, Inc. and
Koala Springs International Corporation. Mr. Gorman currently serves as Chairman
of the Board of Advisors of Santa Maria Foods Corporation and as a member of the
board of directors of Winnfield Funeral Homes and Life Insurance Company. Prior
to 1996, Mr. Gorman was a partner at Ardshiel, Inc., an investment bank.

           James W. Dobbins. James W. Dobbins has been Senior Vice President and
General Counsel of the Company since June 1999. He has also held the position of
Secretary since April 2002. Mr. Dobbins is also the Senior Vice President,
General Counsel and Secretary of Parent, the Secretary of NACC, the Senior Vice
President, General Counsel and Secretary of NAOC, the Senior Vice President,
General Counsel and Secretary of Stoker, the Senior Vice President, General
Counsel and Secretary of Fred Stoker & Sons, Inc. and the Senior Vice President,
General Counsel and Secretary of RBJ Sales, Inc. Prior to joining the Company,
Mr. Dobbins was in private practice in North Carolina and held various positions
in the legal department of Liggett Group Inc., a major cigarette manufacturer,
including, at the time he left that company, Vice President, General Counsel and
Secretary. Mr. Dobbins had been an outside litigation attorney with Webster &
Sheffield, a New York law firm, representing a variety of clients including
Liggett Group Inc. Prior to joining Webster & Sheffield, he served as a law
clerk to the Honorable J. Daniel Mahoney, United States Circuit Judge for the
Second Circuit Court of Appeals.

           Robert A. Milliken, Jr. Robert A. Milliken, Jr. has been the
President and Chief Operating Officer of NTC since April, 2002. From May, 1979
to June, 1995 he held numerous senior management positions with increasing
responsibility with Arco Products Company and AMPM Mini Markets; from June 1995
to April 2001 he held positions of Vice President, Marketing for Sunoco which
included their A Plus retail convenience stores; Vice President, Retail Business
Unit for Amoco where he operated more than five hundred Amoco owned convenience
stores, then, subsequent to the BP Amoco merger, he became Vice President,
Convenience Retailing for BP Amoco responsible for all convenience store
activity in North America; and Vice President and General Manager of Irving Oil
and their branded Mainway retail convenience stores. During this period, Mr.
Milliken leveraged his significant tobacco category experience working with the
major tobacco manufacturers and wholesalers strategizing how to sustain and


                                       45
<PAGE>
optimize the tobacco category as the most significant contributor of convenience
store sales and profitability. Immediately prior to joining the Company, he was
Senior Vice President of Willard Bishop Consulting (WBC) in Illinois, a major
firm in providing leadership primarily to large national convenience store
chains. During his tenure at WBC, Mr. Milliken provided business consulting
services to candy and tobacco wholesalers as well as major chain retailers
within the convenience store, supermarket and drug store industries from April
2001 until March 2002.

           James M. Murray. James M. Murray has been the Senior Vice
President--Sales & Marketing for NTC since November 2001. Prior to that time, he
was the Vice President--Marketing for NTC. Before joining NTC, from 1995 to
1999, Mr. Murray was employed by Brachs Confections in a variety of senior sales
and marketing positions, including Director of Trade Marketing and Vice
President of Marketing--Fresh Candy Shoppe. From 1985 until 1994, Mr. Murray
held numerous sales and marketing positions with increasing responsibility with
The American Tobacco Company, including Product Manager, Strategic Sales
Operations Director, Business Unit Director and Vice President--Premium Brands
where he was responsible for the profitable development of the Carlton, Pall
Mall and Lucky Strike brands. Prior to joining American Tobacco, Mr. Murray was
employed by A.C. Nielsen Marketing Research.

           Lawrence S. Wexler. Lawrence S. Wexler has been the President and
Chief Operating Officer of NACC since December 2003. Prior to joining NACC, from
1998 to 2003 he was a consultant to a number of emerging marketing,
communication and financial companies, advising them on financial, marketing,
and strategic matters, at times in an operating role. From 1977 to 1998, he was
employed by Philip Morris, USA in various positions in the Sales, Marketing and
Finance Departments. As Group Director, Discount Brands his group introduced the
Basic and Alpine brands. He served as Senior Vice President of Marketing from
1992-93 and Senior Vice President Finance, Planning and Information Services
from 1993 to 1998, when he left that company.

           No family relationships exist between any director and executive
officer of the Company.

ELECTION OF DIRECTORS

           Pursuant to the terms of an Amended and Restated Exchange and
Stockholders' Agreement, dated as of February 9, 2004, among the Company, Parent
and certain of the stockholders of Parent (the "Stockholders' Agreement"), Mr.
Helms has the right to vote a number of shares of common stock in respect of the
election of directors sufficient to elect all of the directors of Parent. Each
director is to serve until the next annual meeting of shareholders (or written
consent in lieu thereof) and until his successor is elected and duly qualified.
Parent, in turn, votes all of the Common Stock of the Company and, accordingly,
has the right to elect all of its directors.

AUDIT COMMITTEE FINANCIAL EXPERT

           The Board of Directors has determined that Geoffrey J.F. Gorman
qualifies as an "audit committee financial expert" as such term is defined in
recently adopted rules of the Securities and Exchange Commission implementing
requirements of the Sarbanes-Oxley Act of 2002. The Board of Directors has
further determined that Mr. Gorman is "independent" as such term is defined in
the Exchange Act.

                                       46
<PAGE>
CODE OF BUSINESS CONDUCT AND ETHICS

           The Company's Code of Business Conduct and Ethics has been approved
by its Board of Directors and will apply to all of its executive officers and
directors, including its principal executive officer, principal financial
officer and principal accounting officer. The Company's Code of Business Conduct
and Ethics covers all areas of professional conduct including, but not limited
to, conflicts of interest, disclosure obligations, insider trading, confidential
information, as well as compliance with all laws, rules and regulations
applicable to its business.

           The Company undertakes to provide without charge to any person, upon
request, a copy of its Code of Business Conduct and Ethics. Requests should be
directed in writing to North Atlantic Trading Company, Inc., Attention: General
Counsel, 257 Park Avenue South, New York, New York, 10010-7304.

ITEM 11.   EXECUTIVE COMPENSATION

           The following table summarizes the compensation paid by the Company
as well as certain other compensation paid or accrued, to the executives listed
below for the fiscal years ended December 31, 2001, 2002 and 2003 (each person
appearing in the table is referred to as a "Named Executive"):










                                       47
<PAGE>
                           SUMMARY COMPENSATION TABLE


<TABLE>
<CAPTION>
                                                          Annual                            Long-Term
                                                       Compensation                        Compensation
                                               -----------------------------    ---------------------------------
                                                                                       Awards            Payouts
                                                                                       ------            -------
                                                                     Other
                                                                     Annual     Restricted  Securities
                                                                     Compen-      Stock     Underlying     LTIP
                                                Salary      Bonus    sation      Awards(s)   Options/     Payouts
Name and Principal Position            Year      ($)         ($)       ($)         ($)       SARs (#)       ($)     Compensation ($)
---------------------------            ----      ---         ---       ---         ---       --------       ---     ----------------
<S>                                   <C>     <C>        <C>         <C>        <C>         <C>           <C>       <C>
Thomas F. Helms, Jr. .............     2003   $725,000    $   -         -           -            -           -       $ 130,499 (1)
      Chairman of the Board and        2002    725,000        -         -           -            -           -         106,705 (2)
      Chief Executive Officer          2001    525,000     400,000      -           -            -           -         106,797 (3)

David I. Brunson..................     2003    600,000        -         -           -            -           -          85,621 (4)
      President, Chief Financial       2002    600,000        -         -           -            -           -          94,005 (5)
      Officer and Treasurer            2001    425,000     300,000      -           -            -           -          78,712 (6)

Robert A. Milliken, Jr............     2003    350,000        -         -           -            -           -          25,462 (7)
      President and Chief              2002    262,500        -         -           -            -           -         108,096 (8)
      Operating Officer -              2001         -         -         -           -            -           -               -
      National Tobacco
       Company, L.P.

James W. Dobbins..................     2003    220,000      40,000      -           -            -           -          11,722 (9)
      Senior Vice President--          2002    211,538        -         -           -            -           -          10,985 (10)
      General Counsel                  2001    197,596      25,000      -           -            -           -           9,242 (11)

James M. Murray...................     2003    216,489        -         -           -            -           -          16,731 (12)
      Senior Vice President--          2002    205,000        -         -           -            -           -          15,731 (13)
      Sales & Marketing -              2001    183,481      35,000      -           -            -           -          10,745 (14)
      National Tobacco
       Company, L.P.

</TABLE>

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

(1)   Includes insurance premiums of $63,711 paid by the Company with respect to
      term life and disability insurance, contributions by the Company of
      $14,000 to a defined contribution plan, $50,000 as compensation for estate
      and tax planning activities and $2,788 for miscellaneous payments.

(2)   Includes insurance premiums of $41,917 paid by the Company with respect to
      term life and disability insurance, contributions by the Company of
      $12,000 to a defined contribution plan, $50,000 as compensation for estate
      and tax planning activities and $2,788 for miscellaneous payments.

(3)   Includes insurance premiums of $41,917 paid by the Company with respect to
      term life and disability insurance, contributions by the Company of $6,803
      to a defined contribution plan, $50,000 as compensation for estate and tax
      planning activities and $8,077 for miscellaneous payments.

(4)   Includes insurance premiums of $12,390 paid by the Company with respect to
      term life and disability insurance, contributions by the Company of
      $14,000 to a defined contribution plan, $35,000 as compensation for estate
      and tax planning activities and $24,231 for miscellaneous payments.

(5)   Includes insurance premiums of $12,390 paid by the Company with respect to
      term life and disability insurance, contributions by the Company of
      $12,000 to a defined contribution plan, $35,000 as compensation for estate
      and tax planning activities and $34,615 for miscellaneous payments.

(6)   Includes insurance premiums of $12,390 paid by the Company with respect to
      term life and disability insurance, contributions by the Company of $6,803
      to a defined contribution plan, $35,000 as compensation for estate and tax
      planning activities and $24,519 for miscellaneous payments.

(7)   Includes contributions by the Company of $12,000 to a defined contribution
      plan and $13,462 for miscellaneous payments.

(8)   Includes signing bonus of $87,500, contributions by the Company of $10,500
      to a defined contribution plan and $10,096 for miscellaneous payments.

(9)   Includes contributions by the Company of $7,914 to a defined contribution
      plan and $3,808 for miscellaneous payments.


                                       48
<PAGE>
(10)  Includes contributions by the Company of $7,177 to a defined contribution
      plan and $3,808 for miscellaneous payments.

(11)  Includes contributions by the Company of $6,550 to a defined contribution
      plan and $2,692 for miscellaneous payments.

(12)  Includes contributions by the Company of $12,000 to a defined contribution
      plan and $4,731 for miscellaneous payments.

(13)  Includes contributions by the Company of $11,000 to a defined contribution
      plan and $4,731 for miscellaneous payments.

(14)  Includes contributions by the Company of $6,803 to a defined contribution
      plan and $3,942 for miscellaneous payments.



                      OPTION/SAR GRANTS IN LAST FISCAL YEAR

           There were no stock options granted in 2003 to any of the named
executive officers.










                                       49
<PAGE>
             AGGREGATED OPTION/SAR EXERCISES DURING LAST FISCAL YEAR
                      AND FISCAL YEAR-END OPTION/SAR VALUES

                    The following table sets forth certain information with
respect to the exercise of options to purchase the Company's common stock during
2003, and the unexercised options held and the value thereof at that date, for
each of the named executive officers.

<TABLE>
<CAPTION>
                             SHARES                               NUMBER OF SECURITIES                 VALUE OF UNEXERCISED
                           ACQUIRED ON         VALUE         UNDERLYING UNEXERCISED OPTIONS             IN-THE-MONEY OPTION
         NAME             EXERCISE (#)     REALIZED ($)            AT FISCAL YEAR END                   AT FISCAL YEAR END
         ----             ------------     ------------            ------------------                   ------------------
                                                             EXERCISABLE      UNEXERCISABLE        EXERCISABLE      UNEXERCISABLE
                                                             -----------      -------------        -----------      -------------
<S>                      <C>               <C>              <C>              <C>                  <C>              <C>
David I. Brunson               --               --               37,024            4,000            $2,371,453            -
Robert A. Milliken, Jr.        --               --                1,979            5,936                    -             -
James W. Dobbins               --               --                2,500            1,500               143,620            -
James M. Murray                --               --                2,500            1,500               143,620            -

</TABLE>

                            LONG TERM INCENTIVE PLAN

           The Company has no current Long Term Incentive Plan in place.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

           In March 2002, a Compensation Committee, consisting of Jack Africk
and Marc S. Cooper, was established by the Board of Directors to consider
matters relating to the compensation of the Company's executive officers and to
administer the Option Plan. For information concerning related-party
transactions involving Mr. Helms or the members of the Compensation Committee,
see Item 13, "Certain Relationship Transactions."

COMPENSATION OF DIRECTORS

           Generally, directors who do not receive compensation as officers or
employees of the Company or any of its affiliates will be paid an annual
retainer fee of $25,000, plus reasonable out-of-pocket expenses, for their
services on the Board and its committees. Geoffrey Gorman will receive an
additional $25,000 for serving as Chairman of the Audit Committee and an
additional $25,000 annually for serving as Chairman of the Finance Committee.




                                       50
<PAGE>
EMPLOYMENT AGREEMENTS

THOMAS F. HELMS JR.

           Thomas F. Helms, Jr., Chief Executive Officer of the Company, is
party to an employment agreement with the Company, dated May 17, 1996 (the
"Helms Employment Agreement"). Pursuant to the Helms Employment Agreement, Mr.
Helms was to receive an annual base salary of $300,000, which is reviewed
annually, plus a bonus in accordance with the Company's 1999 Executive Plan. In
2003, Mr. Helms' salary was $725,000. The Helms Employment Agreement provides
for a three-year term, renewable annually, and is terminable at will except with
respect to severance. In addition, Mr. Helms receives various other benefits,
including life insurance and health, hospitalization, use of a company car,
disability and pension benefits and other perquisites. The Helms Employment
Agreement includes a non-compete provision for a minimum of twelve months
following the termination of Mr. Helms's employment as well as for any period
during which severance is paid to Mr. Helms. Mr. Helms is entitled to twelve
months' severance and a continuation of benefits following a termination of his
employment by the Company without cause, provided in such event that the bonus
received shall be only for the year in which the termination occurred and shall
be prorated.

DAVID I. BRUNSON

           David I. Brunson, President, Chief Financial Officer and Treasurer of
the Company, entered into an amended and restated employment agreement with the
Company on April 30, 1998 which was subsequently amended on November 21, 2002
(as so amended, the "Brunson Employment Agreement"). Pursuant to the Brunson
Employment Agreement, Mr. Brunson receives an annual base salary of $600,000,
which is reviewed annually, plus a bonus in accordance with the Company's 1999
Executive Plan. The Brunson Employment Agreement provides for a rolling two-year
term such that in the event Mr. Brunson resigns for good reason or is terminated
without cause, he is entitled to receive a severance payment in the amount of
$425,000 per year, and a pro rated bonus (based on the highest earned bonus paid
to Mr. Brunson during the preceding two years) for the remainder of the term of
employment. Any options or shares of restricted stock granted to Mr. Brunson
vest in full as of the date of such termination. In addition, Mr. Brunson would
also have the option to require the Company to repurchase at fair market value
all or a portion of his shares of the Company's common stock. In the event of
his termination within twelve months following the occurrence of a change of
control of the Company, Mr. Brunson will receive a lump sum cash payment equal
to three times the sum of (a) his current annual base salary and (b) the highest
bonus paid to Mr. Brunson pursuant to the 1999 Executive Plan during the
preceding two years. If Mr. Brunson's employment is terminated for any other
reason, he will receive his accrued and unpaid salary and bonus to the date of
termination.

           Mr. Brunson received signing and stay bonuses, each in the amount of
$300,000, upon the execution of the Brunson Employment Agreement and on February
28, 1999, respectively. In addition, Mr. Brunson receives various other
benefits, including life insurance and medical, disability, pension benefits,
club memberships, use of a company car, stock options and reimbursements of
certain expenses. The Brunson Employment Agreement includes a non-compete
provision for a minimum of twelve months following the termination of Mr.
Brunson's employment and for any subsequent period during which severance is
paid to Mr. Brunson.

           Pursuant to a non-qualified stock option agreement, Mr. Brunson was
granted options to purchase 30,928 shares of Common Stock of the Company.
One-third of these options vested as of the closing of the 1997 Acquisition and
one-third of these options vested on each of April 23, 1998 and April 23, 1999.
In connection with the exercise of such options and subject to certain
limitations, including a requirement that Mr. Brunson shall not leave, resign or


                                       51
<PAGE>
be terminated for cause, the Company has agreed to pay Mr. Brunson an amount
equal to the sum of (i) the difference between ordinary income and long-term
capital gain tax liability for reportable income resulting from any exercise of
the options, plus (ii) a "gross-up" to compensate for the additional ordinary
income tax liability resulting from the payment of such amount.

           In addition, the Board of Directors of the Company has approved an
incentive compensation arrangement for Mr. Brunson relating to the integration
of Stoker. Under this arrangement, Mr. Brunson is eligible to receive up to
$725,000 in the event that in excess of $4.0 million of synergies are achieved
following the integration of Stoker, as determined by the Board of Directors.

ROBERT A. MILLIKEN, JR.

           Robert A. Milliken, Jr., President and Chief Operating Officer of
NTC, is party to an employment agreement with the Company dated March 28, 2002
(the "Milliken Employment Agreement") pursuant to which Mr. Milliken receives a
base annual salary of $350,000, plus a bonus in accordance with the Company's
Management Bonus Plan (as defined). The Milliken Employment Agreement provides
for a rolling twelve month term, such that in the event of termination of Mr.
Milliken's employment by the Company without cause, Mr. Milliken is entitled to
receive his then current annual salary, plus an amount equal to his bonus in the
prior year. The Milliken Employment Agreement also provides for club membership
dues and disability insurance, use of a company car, as well as a stock option
to purchase 7,915 shares of the common stock of Parent at an exercise price of
$90.00 per share.

JAMES W. DOBBINS

           James W. Dobbins, the Senior Vice President, General Counsel and
Secretary of the Company, has an employment agreement with the Company, dated
November 21, 2002 (the "Dobbins Agreement"), pursuant to which Mr. Dobbins is
paid $227,500, subject to annual review by the Board of Directors, is included
in the Management Bonus Plan, and is granted additional benefits such as life
insurance, stock options and reimbursement for a club membership as well as
stock options to purchase 2,000 shares of the common stock of Parent at an
exercise price of $18.19 per share and 2,000 shares at an exercise price of
$90.00 per share. The Dobbins Agreement provides for a rolling twelve month
term, such that in the event of termination of Mr. Dobbins' employment by the
Company without cause, Mr. Dobbins is entitled to receive his then current
annual salary plus an amount equal to his bonus in the prior year.

JAMES M. MURRAY

           James M. Murray, the Senior Vice President--Sales and Marketing of
NTC, has an employment agreement, dated December 1, 2003 (the "Murray
Agreement"), with NTC pursuant to which he receives a base annual salary of
$215,300, plus a bonus in accordance with the Company's Management Bonus Plan.
The agreement also provides for a rolling twelve month term, such that in the
event of termination of Mr. Murray by the Company without cause, Mr. Murray is
entitled to receive his then current annual salary. The Murray Agreement also
provides for certain benefits in the event that Mr. Murray is relocated to the
Louisville, Kentucky facility, such as, use of a company vehicle and a club
membership, as well as stock options to purchase 2,000 shares of Parent's common
stock at an exercise price of $18.19 per share and 2,000 shares at an exercise
price of $90.00 per share.

                                       52
<PAGE>
LAWRENCE S. WEXLER

           Lawrence S. Wexler, the President and Chief Operating Officer of
NACC, has an employment agreement, dated December 1, 2003 (the "Wexler
Agreement") with NACC, pursuant to which he receives a base annual salary of
$350,000, plus a bonus in accordance with the Company's Management Bonus Plan.
The agreement also provides for severance benefits of one year's salary, and
certain bonuses. In addition, the agreement provides for certain other benefits
during his employment, such as options to purchase 10,000 shares of Parent's
common stock at an exercise price of $90.00 per share, use of a company car,
reimbursement for some club membership dues, and reimbursement for life and
disability insurance.

RETIREMENT PLAN

           Effective December 31, 2003, the Company froze its defined benefit
retirement plan for its salaried employees.

           The table below illustrates the approximate amounts of annual normal
retirement benefits, subject to the above action.

<TABLE>
<CAPTION>
                                                  Annual Benefits at Retirement with
                                                     Years of Credited Service(1)
    Average
  Compensation            10                15                20                25                30                35
  ------------       ------------      ------------     ------------      ------------       ------------      ------------
<S>                  <C>               <C>              <C>               <C>                <C>               <C>
    $125,000          $ 15,000          $ 22,500          $ 30,000          $ 37,500           $ 45,000          $ 52,500
     150,000            18,000            27,000            36,000            45,000             54,000            63,000
     175,000            21,000            31,500            42,000            52,500             63,000            73,500
     200,000            24,000            36,000            48,000            60,000             72,000            84,000
     225,000            27,000            40,500            54,000            67,500             81,000            94,500
     250,000            30,000            45,000            60,000            75,000             90,000           105,000
     300,000            36,000            54,000            72,000            90,000            108,000           126,000
     400,000            48,000            72,000            96,000           120,000            144,000           168,000
     450,000            54,000            81,000           108,000           135,000            162,000           189,000
     500,000            60,000            90,000           120,000           150,000            180,000           210,000

</TABLE>

------------------------
(1)   Actual amounts paid under the Retirement Plan may be less than the amounts
      set forth on the table due to IRC limitations.


           The Company has a noncontributory, defined benefit retirement plan
(the "Retirement Plan"), which covers all full-time employees, including
officers, upon completing one year of service.

           A participant in the Retirement Plan becomes fully vested prior to
normal retirement at age 65 upon the completion of five years of service.
Benefits are also provided under the Retirement Plan in the event of early
retirement at or after age 55 and the completion of at least ten years of
service (or special early retirement after completion of 30 years of service)
and in the event of retirement for disability after completion of five years of
service. The amount of the contribution, payment, or accrual with respect to a
specified person is not and cannot readily be separately or individually
calculated by the actuaries for the Retirement Plan. Benefits under the
Retirement Plan are based upon application of a formula to the specified average
compensation and years of credited service at normal retirement age.
Compensation covered by the Retirement Plan consists of the average annual
salary during any five consecutive calendar years in the last ten years of an
employee's service, which affords the highest salary, or, if employed for less


                                       53
<PAGE>
than five years, the average annual salary for the years employed. The benefits
are not subject to any deduction for social security payments. Estimated
credited years of service under the Retirement Plan for the Named Executives are
as follows: Thomas F. Helms, Jr., 16 years; David I. Brunson, 7 years; Robert A.
Milliken, Jr., 1 year; James W. Dobbins, 4 years; and James M. Murray, 4 years.

BONUS PLANS

           In March 1999, the Compensation Committee of the Company's Board of
Directors adopted the 1999 Executive Incentive Plan (the "1999 Executive Plan"),
the 1999 Management Bonus Plan (the "Management Plan") and the 1999
Discretionary Bonus Plan (the "Discretionary Plan"). The 1999 Executive Plan
provides executive members of the Company with the opportunity to receive bonus
pay based on the Company's annual performance, as measured by earnings before
interest, taxes, depreciation and amortization, as adjusted for certain non-cash
add-backs, subject to approval of the Board of Directors. In addition, the Board
of Directors can make discretionary bonus payments to one or more participants
in the 1999 Executive Plan. The Management Plan provides certain members of
senior management of the Operating Companies with the opportunity to receive
bonus pay based on the Company's annual performance as well as the individual
performance of participants, subject to approval of Executive Management. If the
Company's annual performance is not achieved, Executive Management, subject to
approval of the Board of Directors, can make discretionary bonus payments. Under
the Discretionary Plan, Executive Management, subject to approval of the Board
of Directors, may provide discretionary bonus payments to employees who are not
participants in any other bonus plan established by the Company based on
individual levels of performance. In addition, the Board of Directors may, from
time to time, pay discretionary bonuses outside of the above mentioned plans.

1997 SHARE INCENTIVE PLAN

           The Board of Directors of the Company has adopted, and the Company's
stockholders have approved, the North Atlantic Trading Company, Inc. 1997 Share
Incentive Plan (the "1997 Incentive Plan").

           The 1997 Incentive Plan is intended to provide incentives, which will
attract and retain highly competent persons as key employees of the Company and
its subsidiaries by providing them opportunities to acquire shares of stock or
to receive monetary payments based on the value of such shares pursuant to the
Benefits (as defined).

Shares Available

           The 1997 Incentive Plan makes available for Benefits an aggregate
amount of 61,856 shares of Common Stock (all of which have been granted),
subject to certain adjustments. Any shares of Common Stock subject to a stock
option or stock appreciation right which for any reason is cancelled or
terminated without having been exercised, and subject to limited exceptions, any
shares subject to stock awards, performance awards or stock units which are
forfeited, any shares subject to performance awards settled in cash or any
shares delivered to the Company as part of full payment for the exercise of a
stock option or stock appreciation right shall again be available for Benefits
under the 1997 Incentive Plan.

Administration

           The 1997 Incentive Plan provides for administration by a committee
(the "Administration Committee") appointed by the Board of Directors from among
its members. Currently, the sole member of the Administration Committee is


                                       54
<PAGE>
Thomas F. Helms, Jr. The Administration Committee is authorized, subject to the
provisions of the 1997 Incentive Plan, to establish such rules and regulations
as it deems necessary for the proper administration of the 1997 Incentive Plan
and to make such determinations and interpretations and to take such action in
connection with the 1997 Incentive Plan and any Benefits granted as it deems
necessary or advisable. Thus, among the Administration Committee's powers are
the authority to select officers and other key employees of the Company and its
subsidiaries to receive Benefits, and determine the form, amount and other terms
and conditions of Benefits. The Administration Committee also has the power to
modify or waive restrictions on Benefits, to amend Benefits and to grant
extensions and accelerations of Benefits.

Eligibility for Participation

           Key employees of the Company or any of its subsidiaries are eligible
to participate in the 1997 Incentive Plan. The selection of participants from
eligible key employees is within the discretion of the Administration Committee.
All employees are currently eligible to participate in the Incentive Plan. The
1997 Incentive Plan provides for the grant of any or all of the following types
of benefits: (1) stock options, including incentive stock options and
non-qualified stock options; (2) stock appreciation rights; (3) stock awards,
including restricted stock; (4) performance awards; and (5) stock units
(collectively, the "Benefits"). Benefits may be granted singly, in combination,
or in tandem as determined by the Administration Committee. Stock awards,
performance awards and stock units may, as determined by the Administration
Committee in its discretion, constitute Performance-Based Awards, as described
below.

Stock Options

           Under the 1997 Incentive Plan, the Administration Committee may grant
awards in the form of options to purchase shares of Common Stock. Options may be
either incentive stock options, qualifying for special tax treatment, or
non-qualified stock options. The exercise price may be paid in cash or, in the
discretion of the Administration Committee, by the delivery of shares of Common
Stock of the Company then owned by the participant, by the withholding of shares
of Common Stock for which a stock option is exercisable, or by a combination of
these methods. In the discretion of the Administration Committee, payment may
also be made by delivering a properly executed exercise notice to the Company
together with a copy of irrevocable instructions to a broker to deliver promptly
to the Company the amount of sale or loan proceeds to pay the exercise price.
The Administration Committee may prescribe any other method of paying the
exercise price that it determines to be consistent with applicable law and the
purpose of the 1997 Incentive Plan. In determining which methods a participant
may utilize to pay the exercise price, the Administration Committee may consider
such factors as it determines are appropriate.

Stock Appreciation Rights (SARs)

           The 1997 Incentive Plan authorizes the Administration Committee to
grant a SAR either in tandem with a stock option or independent of a stock
option. An SAR is a right to receive a payment, in cash, Common Stock or a
combination thereof, equal to the excess of (x) the fair market value, or other
specified valuation (which shall not be greater than the fair market value), of
a specified number of shares of Common Stock on the date the right is exercised
over (y) the fair market value, or other specified valuation (which shall not be
less than fair market value), of such shares of Common Stock on the date the
right is granted, all as determined by the Administration Committee. Each SAR
shall be subject to such terms and conditions, as the Administration Committee
shall impose from time to time.

                                       55
<PAGE>
Stock Awards

           The 1997 Incentive Plan authorizes the Administration Committee to
grant awards in the form of restricted or unrestricted shares of Common Stock
("Stock Awards"), which includes mandatory stock bonus incentive compensation
and which may constitute Performance-Based Awards. Such awards will be subject
to such terms, conditions, restrictions, and/or limitations, if any, as the
Administration Committee deems appropriate including, but not by way of
limitation, restrictions on transferability, continued employment and
performance goals established by the Administration Committee over a designated
period of time.

Performance Awards

           The 1997 Incentive Plan allows for the grant of performance awards,
which may take the form of shares of Common Stock or stock units, or any
combination thereof and which may constitute Performance-Based Awards. Such
awards will be contingent upon the attainment over a period to be determined by
the Administration Committee of certain performance goals. The length of the
performance period, the performance goals to be achieved and the measure of
whether and to what degree such goals have been achieved will be determined by
the Administration Committee. Payment of earned performance awards will be made
in accordance with terms and conditions prescribed or authorized by the
Administration Committee. The participant may elect to defer, or the
Administration Committee may require the deferral of, the receipt of performance
awards upon such terms, as the Administration Committee deems appropriate.

Stock Units

           The Administration Committee may, in its discretion, grant Stock
Units to participants, which may constitute Performance-Based Awards. A "Stock
Unit" means a notational account representing one share of Common Stock. The
Administration Committee determines the criteria for the vesting of Stock Units
and whether a participant granted a Stock Unit should be entitled to Dividend
Equivalent rights (as defined in the 1997 Incentive Plan). Upon vesting of a
Stock Unit, unless the Administration Committee has determined to defer payment
with respect to such unit or a participant has elected to defer payment, shares
of Common Stock representing the Stock Units will be distributed to the
participant unless the Administration Committee, with the consent of the
participant, provides for the payment of the Stock Units in cash, or partly in
cash and partly in shares of Common Stock, equal to the value of the shares of
Common Stock which would otherwise be distributed to the participant.

Other Terms of Benefits

           The 1997 Incentive Plan provides that Benefits shall not be
transferable other than by will or the laws of descent and distribution. The
Administration Committee shall determine the treatment to be afforded to a
participant in the event of termination of employment for any reason including
death, disability, or retirement. Notwithstanding the foregoing, other than with
respect to incentive stock options, the Administration Committee may permit the
transferability of an award by a participant to members of the participant's
immediate family or trusts for the benefit of such person or family
partnerships. Upon the grant of any Benefit under the 1997 Incentive Plan, the
Administration Committee may, by way of an agreement with the participant,
establish such other terms, conditions, restrictions and/or limitations covering
the grant of the Benefit as are not inconsistent with the 1997 Incentive Plan.
No Benefit shall be granted under the 1997 Incentive Plan after June 25, 2007.
The Board of Directors reserves the right to amend, suspend or terminate the
1997 Incentive Plan at any time, subject to the rights of participants with
respect to any outstanding Benefits.


                                       56
<PAGE>
           The 1997 Incentive Plan contains provisions for equitable adjustment
of Benefits in the event of a merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, reverse stock split, split up,
spin-off, combination of shares, exchange of shares, dividend in kind or other
like change in capital structure or distribution (other than normal cash
dividends) to stockholders of the Company.

2002 SHARE INCENTIVE PLAN

           In November 2002, the Board of Directors of the Company adopted the
North Atlantic Trading Company, Inc. 2002 Share Incentive Plan (the "2002
Plan"). The 2002 Plan has terms that are substantially identical to the terms of
the 1997 Share Incentive Plan. The Company has reserved 50,000 shares of Common
Stock for benefits under the 2002 Plan. A nearly identical plan that had been
approved by the Board of Directors in 2001 (the North Atlantic Trading Company,
Inc. 2001 Share Incentive Plan) and under which no awards had been granted, was
terminated by the Board of Directors in connection with the adoption of the 2002
Share Incentive Plan.














                                       57
<PAGE>
ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
           RELATED STOCKHOLDER MATTERS

           The Company is a wholly owned subsidiary of Parent. The table below
sets forth certain information regarding the beneficial ownership of common
stock of Parent as of March 15, 2004, by (i) each person or entity who
beneficially owns five percent or more of the common stock, (ii) each of the
Company's and Parent's directors and named executive officers and (iii) all of
the Company's and Parent's directors and executive officers as a group. Unless
otherwise indicated, each beneficial owner's address is c/o North Atlantic
Trading Company, Inc., 257 Park Avenue South, 7th Floor, New York, New York
10010-7304.

<TABLE>
<CAPTION>
                                                                               PERCENT OWNED(A)
                                                                               ----------------
                                                         NUMBER OF     BEFORE EXERCISE   AFTER EXERCISE
BENEFICIAL OWNER                                          SHARES         OF WARRANTS      OF WARRANTS
----------------                                          ------         -----------      -----------
<S>                                                    <C>            <C>                <C>
Thomas F. Helms, Jr.(b)                                   492,251           91.2%            79.3%
    Helms Management Corp.
David I. Brunson(c)                                       264,610           45.9             40.2
Herbert Morris(d)                                          37,990            7.0              6.1
    Flowing Velvet Products, Inc.
    3 Points of View
    Warwick, New York 10990
 Maurice R. Langston(d)                                    37,038            6.9              6.0
    Langston Enterprises, Inc.
Alan R. Minsterketter(d)                                   27,613            5.1              4.4
    Alan M. Inc.
Jack Africk(e)                                             21,212            3.8              3.3
 Marc S. Cooper(f)                                           --                *                *
    Peter J. Solomon Company Limited
Geoffrey J.F. Gorman                                         --                *                *
James W. Dobbins(g)                                         2,500              *                *
Robert A. Milliken, Jr.(h)                                  1,979              *                *
James M. Murray(i)                                          2,500              *                *
Directors and Executive Officers as a Group               493,861           91.2%            79.3%
    (8 persons)

</TABLE>

--------------------
* Less than 1%.

(a)    The percentages assume, in the column entitled "Before Exercise of
       Warrants," that none of the outstanding warrants (i) to purchase an
       aggregate of 63,490 shares of Parent's common stock at an exercise price
       of $.01 per share issued in connection with the Company's
       recapitalization in 1997, (ii) to purchase an aggregate of 3,000 shares
       of Parent's common stock at an exercise price of $40.00 per share, issued
       in 2003 to Peter J. Solomon Company Limited, and (iii) to purchase an
       aggregate of 14,721 shares of Parent's common stock at an exercise price
       of $90.00 per share, issued to Guggenheim Investment Management, LLC, are
       exercised. The percentages assume, in the column entitled "After Exercise
       of Warrants," that all of such warrants are exercised.

(b)   Helms Management Corp., all of the voting capital stock of which is owned
      by Mr. Helms, who serves as its President and all of the non-voting
      capital stock of which is owned by a trust established by Mr. Helms for
      the benefit of his children, owns 259,264 shares of Parent's common stock,
      which represents approximately 42.5% of the outstanding shares, including
      currently exercisable options and assuming that none of the outstanding
      warrants are exercised, or 37.5% of the outstanding shares, including
      currently exercisable options and assuming that all such warrants are
      exercised. Of the 259,264 shares owned by Helms Management Corp., 218,800
      shares are subject to a voting trust agreement pursuant to which Mr. Helms
      and David I. Brunson exercise certain voting powers and which may result
      in each of them being deemed a beneficial owner of such shares. See


                                       58
<PAGE>
      "--Voting Trust Agreements." Because of Mr. Helms' ability to vote an
      additional 157,882 shares of Parent's common stock held by members of the
      Parent's management in respect of the election of its directors pursuant
      to the Stockholders' Agreement, he may be deemed to be the beneficial
      owner of such additional shares. See "--Stockholders' Agreement." In
      connection with the transfer of 32,115 shares of the Company's common
      stock held by certain stockholders, the transferees of such shares granted
      Mr. Helms the right to vote such shares with respect to any and all
      matters submitted to a vote of Parent's stockholders and, consequently,
      Mr. Helms may be deemed to be the beneficial owner of such shares. In
      addition, Mr. Helms may be deemed the beneficial owner of 37,990 shares
      that are subject to a voting agreement between Helms Management Corp. and
      Flowing Velvet Products, Inc., and an additional 5,000 shares held by an
      outside investor that are subject to the voting agreement. See "--Voting
      Agreements."

(c)    Includes (i) 2,250 shares of Parent's common stock owned by Mr. Brunson,
       (ii) 37,024 shares subject to currently exercisable stock options held by
       Mr. Brunson and (iii) 218,800 shares owned by Helms Management Corp. that
       are subject to a voting trust agreement pursuant to which Mr. Brunson
       exercises certain voting powers and which may result in his being deemed
       a beneficial owner of such additional shares. See "--Voting Trust
       Agreement." In addition, Mr. Brunson has the right to acquire 6,536
       shares currently owned by Helms Management Corp.

(d)    Reflects shares held by the corporation listed below the name of such
       natural person. Such natural person owns all of the issued and
       outstanding shares of capital stock of the corporation listed below the
       name of such natural person.

(e)    Includes 6,250 shares of Parent's common stock held by the Africk Family
       Foundation, Inc., of which Mr. Africk is the trustee and which may result
       in his being deemed a beneficial owner of such shares. In addition,
       14,962 shares are subject to currently exercisable stock options.

(f)   Reflects a warrant issued to the corporation listed below the name of such
      natural person currently exercisable for 3,000 shares of Parent's common
      stock. Such person is a Managing Director of the corporation.

(g)    Mr. Dobbins holds 2,500 shares subject to currently exercisable stock
       options.

(h)    Mr. Milliken, Jr. holds 1,979 shares subject to currently exercisable
       stock options.

(i)    Mr. Murray holds 2,500 shares subject to currently exercisable stock
       options.

<TABLE>
<CAPTION>
                                                            EQUITY COMPENSATION PLAN INFORMATION

                                                                                                      NUMBER OF SECURITIES
                                                                                                    REMAINING AVAILABLE FOR
                                 NUMBER OF SECURITIES TO BE                                          FUTURE ISSUANCE UNDER
                                  ISSUED UPON EXERCISE OF         WEIGHTED-AVERAGE EXERCISE        EQUITY COMPENSATION PLANS
                                    OUTSTANDING OPTIONS,        PRICE OF OUTSTANDING OPTIONS,        (EXCLUDING SECURITIES
PLAN CATEGORY                       WARRANTS AND RIGHTS              WARRANTS AND RIGHTS            REFLECTED IN COLUMN (A))
-------------                       -------------------              -------------------            ------------------------
                                            (a)                               (b)                              (c)
<S>                              <C>                           <C>                                 <C>
Equity compensation plans
approved by security holders
(1)                                          95,371                       $   43.33                             8,585
Equity compensation plans
not approved by security
holders                                          --                            --
                                    -------------------              -------------------            ------------------------
TOTAL                                        95,371                       $   43.33                             8,585
                                    ===================              ===================            ========================
</TABLE>

-----------------
(1) Relates to the Company's 1997 Share Incentive Plan and 2002 Share Incentive
Plan. See the "2002 Share Incentive Plan" above for a description of the plan.


STOCKHOLDERS' AGREEMENT

           The Company, Parent and certain stockholders of Parent are parties to
the Stockholders' Agreement, setting forth among other things, the manner in
which directors of Parent are to be selected. See "Directors and Executive
Officers of the Registrant--Election of Directors." Pursuant to the
Stockholder's Agreement, Mr. Helms has the right to vote a number of shares of
common stock in respect of the election of directors sufficient to elect all
Parent's directors. The Stockholders' Agreement also sets forth certain
restrictions on the transfer of shares of Parent's common stock by existing
stockholders and on the acquisition by existing stockholders of investments in
competitors of Bollore. In addition, the Stockholders' Agreement provides the


                                       59
<PAGE>
existing stockholders with certain "tag-along" rights to participate ratably in
sales of Parent's common stock to third parties and requires existing
stockholders to participate ratably in certain sales of Parent's common stock to
third parties. Subject to the terms of all applicable debt agreements of Parent
and its subsidiaries, the Stockholders' Agreement provides that Parent may
maintain insurance on the lives of the members of its management officers and,
in the event of the death of any such person, for the mandatory repurchase by
Parent of all of such person's common stock at the fair market value thereof
(which will be determined by an independent investment banking firm if the
parties cannot otherwise agree upon such value) to the extent of available
insurance proceeds, and the optional repurchase of additional shares of such
person's common stock at such fair market value to the extent of available cash.
Subject to the terms of all applicable debt agreements of Parent and its
subsidiaries, Parent also has the right to repurchase the shares of its common
stock held by members of management if their employment terminates, in the event
of certain bankruptcy proceedings relating to such persons or upon an
involuntary transfer of their shares by court order or otherwise in each case at
the fair market value of such shares. Parent became a party to the Stockholders'
Agreement concurrently with the closing of the offering of the notes.

           In addition, in connection with the transfer of 20,057 shares of
Common Stock pursuant to the Stockholders' Agreement, the transferees of such
shares granted Mr. Helms the right to vote such shares with respect to any and
all matters submitted to a vote of the stockholders of Parent.

VOTING TRUST AGREEMENTS

           Thomas F. Helms, Jr. and David I. Brunson are voting trustees under a
Voting Trust Agreement with Helms Management Corp. Helms Management Corp. owns
259,264 shares of Parent's Common Stock, 218,800 of which are subject to the
Voting Trust Agreement. Pursuant to the Voting Trust Agreement, and subject to
certain limitations, the voting trustees have the power to vote the shares
subject to the Voting Trust Agreement in connection with the election of
directors and any other matters. The voting trustees may be removed at any time
by the holders of the voting trust certificate and replaced with a successor. As
voting trustees under the Voting Trust Agreement, Messrs. Helms and Brunson are
entitled to three votes and one vote, respectively. Unless terminated by the
certificate holder, the Voting Trust Agreement will terminate on December 17,
2012.

VOTING AGREEMENTS

           Helms Management Corp. and Flowing Velvet Products, Inc. ("Flowing
Velvet") are parties to a voting agreement, setting forth among other things the
agreement by Flowing Velvet to vote in all matters submitted to a vote of
Stockholders in such manner as Flowing Velvet may be directed by Thomas F.
Helms, Jr., the President of Helms Management Corp. In addition, in connection
with the transfer of 32,115 shares of common stock pursuant to the Stockholders'
Agreement, the transferees of such shares granted Mr. Helms the right to vote
such shares with respect to any and all matters submitted to a vote of Parent's
stockholders.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

           On March 24, 1998, David I. Brunson, President, Chief Financial
Officer and Treasurer of the Company, purchased 2,250 shares of Common Stock
from the Company at a price of $40 per share. As part of the purchase price, Mr.
Brunson issued a note to the Company in the aggregate principal amount of
$60,000. On March 31, 2002, Mr. Brunson issued a new note to the Company in the
amount of $60,000 replacing the previous note. The note bears interest at 5.0%
per annum and has a final maturity on March 31, 2008.


                                       60
<PAGE>
           On April 26, 1988 and on December 15, 1988, Mr. Thomas F. Helms, Jr.,
Chief Executive Officer of the Company, borrowed $75,000 and $45,000,
respectively, in connection with the purchase of a portion of his partnership
interest in NTC and executed two separate notes, payable to the Company. On
April 14, 1998, Helms Management Corp., a corporation in which Mr. Helms owns
all of the voting capital stock and a trust established by Mr. Helms for the
benefit of his children which owns all of the non-voting capital stock, issued a
promissory note to the Company in the aggregate principal amount of $886,686.30,
representing the principal on the notes discussed above, plus an additional loan
by the Company in the amount of $766,686.30 to cover certain income tax
liabilities of Helms Management Corp. resulting from the Company's conversion
from a limited liability company to a "C" corporation in connection with the
Acquisition. Upon execution of the $886,686.30 note, the prior notes issued by
Mr. Helms were cancelled. On March 31, 2002, Helms Management Corp. issued a
promissory note to the Company in the amount of $958,499.02 and the prior note
was cancelled. The current note bears interest at the rate of 5.0% per annum and
has a final maturity on March 31, 2008. On January 4, 1999, Mr. Helms issued a
promissory note to the Company, in the principal amount of $150,000, for an
additional loan by the Company to cover certain tax liabilities of Helms
Management Corp. resulting from the above-mentioned LLC conversion. On April 20,
2001 and on November 12, 2001, additional loans, each in the amount of $150,000,
were made to Mr. Helms on the same terms as the existing loans. On March 31,
2002, Mr. Helms issued a promissory note to the Company in the principal amount
of $475,071.30 representing the principal amounts on the notes discussed above,
plus accrued interest of $25,071.30 and the prior notes were cancelled. The
current note bears interest at the rate of 5.0% per annum and has a final
maturity on March 31, 2008.

           Kent Helms and Thomas F. Helms, III, sons of Thomas F. Helms, Jr.,
are employed by the Company. During 2003, Kent Helms, Manager-Sales Training &
Development, received aggregate compensation of $72,531 and Thomas F. Helms,
III, Manager-Marketing, received aggregate compensation of $100,308 for services
in such capacities. Pursuant to a policy adopted by the Board of Directors,
their compensation is subject to the approval of, and was approved by, the
directors who are not members of management.

           Jack Africk, the former President and Chief Operating Officer of the
Company, terminated his employment agreement with the Company effective December
31, 1998, but continues to serve as a member of the Company's Board of
Directors. In connection with Mr. Africk's resignation from employment, he and
the Company entered into a consulting agreement (the "Africk Consulting
Agreement") pursuant to which, Mr. Africk provides consulting services to the
Company on an as needed basis at the rate of $75,000 per annum. The Africk
Consulting Agreement is subject to annual renewals and has been renewed through
2003. For 2002, Mr. Africk received $75,000 pursuant to the terms of the Africk
Consulting Agreement and an additional $50,000 for consulting services that
exceeded the extent of services contemplated by the Africk Consulting Agreement.
For 2003, Mr. Africk's compensation under his agreement was increased to
$100,000 per annum and he received an additional $50,000 for consulting services
relating to the Company's acquisition of Stoker. For 2004, Mr. Africk's
agreement has been renewed on identical terms.

           On November 8, 2002, the Company also entered into an agreement with
Marketing Solutions USA, a company controlled by Mr. Africk, under which
Marketing Solutions USA represents the Company with a specific customer, and
receives a percentage commission. The agreement commenced January 1, 2003 and
terminated on December 31, 2003.

           Marc S. Cooper is a Managing Director of Peter J. Solomon Company
Limited ("PJSC"), an investment banking and financial advisory firm. In June
2001, the Company engaged PJSC to render general financial and strategic
advisory services through May 1, 2004. As compensation therefore, the Company


                                       61
<PAGE>
issued to PJSC, as a one time retainer fee, warrants to purchase 3,000 shares of
Common Stock at an exercise price of $40.00 per share, and agreed to reimburse
PJSC for out-of-pocket expenses incurred in connection with its provision of
services.

           On November 1, 2002, the Company engaged Peter J. Solomon Company to
provide support in the form of financial analysis and modeling, and strategic
advice with respect to the proposed purchase of assets of the Star Scientific,
Inc. The term of the contract expired on March 31, 2003, and the Company paid
Peter J. Solomon Company a total of $250,000.

           On September 18, 2003, the Company engaged Peter J. Solomon Company
to provide support in the form of financial analysis and modeling, and strategic
advice with respect to the refinancing transactions described herein. The term
of the contract expired, and the Company paid Peter J. Solomon Securities
Company Limited $500,000 in 2003 and an additional $1,000,000 upon the
successful completion of the refinancing transactions in February, 2004.

ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES

           The following summarizes the fees paid to the Company's principal
accountant, PricewaterhouseCoopers:

1) AUDIT FEES

The following fees were paid for professional services rendered by the principal
accountant relating to the audit of annual financial statements and required
quarterly and annual filings:

                          2002                               2003
                          ----                               ----
                        $151,836                           $605,653

2) AUDIT-RELATED FEES

The following fees were paid for professional services rendered by the principal
accountant relating to assurance and related services of the post-retirement
benefit plan (2002 and 2003) and due diligence performed on a potential
acquisition (2003):

                          2002                               2003
                          ----                               ----
                        $33,582                            $122,013

3) TAX FEES

The following fees were paid for professional services rendered by the principal
accountant relating to tax preparation, planning and compliance services:

                          2002                               2003
                          ----                               ----
                        $86,577                             $42,200

4) ALL OTHER FEES

The following fees were paid for professional services rendered by the principal
accountant relating to logistics consulting for a distribution systems modeling
project:

                          2002                               2003
                          ----                               ----
                        $95,728                               $0


                                       62
<PAGE>
5) AUDIT COMMITTEE DISCLOSURES

The Audit Committee has established policies and procedures related to the
pre-approval of all audit and non-audit services and are contained within the
Audit Committee Policies & Procedures for Principal Accountant Fees & Services.

The Policies & Procedures require the Audit Committee members, or one delegated
independent director, to approve all audit and non-audit services performed by
the principal accountants in advance of the activity by no less than thirty days
prior to the start of the engagement.

Pre-approval requirements can be waived under the de minimis exception according
to the following standards:

      1)    All non-audit services do not aggregate more than five (5) percent
            of total revenues paid by NATC to its outside principal accountants
            in the fiscal year when services are provided,

      2)    Were not recognized as non-audit services at the time of the
            engagement, and

      3)    Are promptly brought to the attention of the Audit Committee or
            designated member of such, and approved prior to the completion of
            the audit.

The Policies & Procedures also require that the principal accountants prepare
and submit an Annual Audit Plan outlining the audit strategy, scope and a
schedule of fees for each audit service performed.

A formal Audit Committee was formed at the end of the fiscal year 2002. The
Audit Committee members elected at that time also served on the Board of
Directors. The Board of Directors approved all audit and non-audit services for
2002; all audit and non-audit services were approved by the Audit Committee, in
accordance with the policies and procedures described above, for fiscal year
2003.


                                       63
<PAGE>
                                     PART IV

ITEM 15.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

           (a)(1) Financial Statements and Financial Statement Schedules

           The following consolidated financial statements of North Atlantic
Trading Company, Inc. and subsidiaries are filed as part of this Form 10-K and
are incorporated by reference in Item 8:

<TABLE>
<CAPTION>
                                                                                                                   PAGE
<S>                                                                                                              <C>
Report of Independent Auditors................................................................................      F-1
Consolidated Balance Sheets as of December 31, 2003 and 2002..................................................      F-2
Consolidated Statements of Operations and Comprehensive Income (Loss) for the years
      ended December 31, 2003, 2002, and 2001.................................................................      F-3
Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002,
      and 2001................................................................................................      F-5
Consolidated Statements of Changes in Stockholders' Deficit for the years ended
      December 31, 2003, 2002, and 2001.......................................................................      F-6
Notes to Consolidated Financial Statements....................................................................      F-7

</TABLE>

           (a)(2) Financial Statement Schedules:

           The required information is given in the consolidated financial
statements or notes thereto.

           (a)(3) See the list of exhibits set forth under Item 15(c) below.

           (b) Reports on Form 8-K

           (1)Current Report on Form 8-K, filed on November 24, 2003, reporting
under Item 2 "Acquisition or Disposition of Assets" and Item 7 "Financial
Statements and Exhibits" the acquisition of Stoker and the amendment to a loan
agreement.

           (2) Current Report on Form 8-K, filed on November 25, 2003, reporting
under Item 5 "Other Events" and Item 7 "Financial Statements and Exhibits"
events pertaining to the litigation with Republic Tobacco, L.P.

           (3) Current Report on Form 8-K, filed on December 24, 2003, reporting
under Item 5 "Other Events" and Item 7 "Financial Statements and Exhibits" the
extension of a revolving loan commitment termination date.





                                       64
<PAGE>
           (c) Exhibits







                                       65
<PAGE>
EXHIBIT
NUMBER            DESCRIPTION
------            -----------

2.1        --     Asset Purchase Agreement, dated as of February 18, 2003, among
                  North Atlantic Trading Company, Inc., Star Scientific, Inc.
                  and Star Tobacco, Inc. (incorporated herein by reference to
                  Exhibit 2.1 to the Registrant's Current Report on Form 8-K
                  filed on February 19, 2003).

2.2        --     Termination and Release Agreement, dated as of July 15, 2003,
                  among North Atlantic Trading Company, Inc., Star Scientific,
                  Inc. and Star Tobacco, Inc. (incorporated herein by reference
                  to Exhibit 2.1 to the Registrant's Current Report on Form 8-K
                  filed on July 17, 2003).

2.3        --     Release, dated July 15, 2003, executed by North Atlantic
                  Trading Company, Inc. (incorporated herein by reference to
                  Exhibit 2.2 to the Registrant's Current Report on Form 8-K
                  filed on July 17, 2003).

2.4        --     Release, dated July 15, 2003, executed by Star Scientific,
                  Inc. and Star Tobacco, Inc. (incorporated herein by reference
                  to Exhibit 2.3 to the Registrant's Current Report on Form 8-K
                  filed on July 17, 2003).

2.5        --     Stock Purchase Agreement, dated as of November 17, 2003, among
                  North Atlantic Trading Company, Inc., Bobby Stoker, Ronald
                  Stoker, Judith Stoker Fisher, BSF Partners, L.P., JFS
                  Partners, L.P., and RBJ Machinery Co., LLC (incorporated
                  herein by reference to Exhibit 2.1 to the Registrant's Current
                  Report on Form 8-K filed on November 24, 2003).

2.6        --     Agreement and Plan of Merger, dated as of February 9, 2004,
                  among North Atlantic Trading Company, Inc., North Atlantic
                  Holding Company, Inc., and NATC Merger Sub, Inc. (incorporated
                  herein by reference to Exhibit 2.1 to the Registrant's Current
                  Report on Form 8-K filed on February 11, 2004).

3.1(a)     --     Restated Certificate of Incorporation of North Atlantic
                  Trading Company, Inc., filed February 19, 1998 (incorporated
                  herein by reference to Exhibit 3.1(a) the Registrant's Annual
                  Report on Form 10-K for the fiscal year ended December 31,
                  1997).

3.1(b)     --     Certificate of Correction to the Restated Certificate of
                  Incorporation of North Atlantic Trading Company, Inc., dated
                  as of June 28, 2002 (incorporated herein by reference to
                  Exhibit 3.1(b) the Registrant's Annual Report on Form 10-K for
                  the fiscal year ended December 31, 2002).

3.1(c)     --     Certificate of Amendment to the Certificate of Incorporation
                  of North Atlantic Trading Company, Inc., dated July 30, 2002
                  (incorporated herein by reference to Exhibit 3.1 to the
                  Registrant's Current Report on Form 8-K filed on July 31,
                  2002).

                                       66
<PAGE>
3.1(d)     --     Certificate of Incorporation of North Atlantic Operating
                  Company, Inc., filed June 9 1997 (incorporated herein by
                  reference to Exhibit 3.1(b)(i) to Amendment No. 1 to
                  Registration Statement (Reg. No. 333-31931) on Form S-4 filed
                  with the Commission on September 3, 1997).

3.1(e)     --     Certificate of Amendment of Certificate of Incorporation of
                  North Atlantic Operating Company, Inc., filed June 17, 1997
                  (incorporated herein by reference to Exhibit 3.1(b)(ii) to
                  Amendment No. 1 to Registration Statement (Reg. No. 333-31931)
                  on Form S-4 filed with the Commission on September 3, 1997).

3.1(f)     --     Second Amended and Restated Certificate of Incorporation of
                  National Tobacco Finance Corporation, filed April 24, 1996
                  (incorporated herein by reference to Exhibit 3.1(c) to
                  Amendment No. 1 to Registration Statement (Reg. No. 333-31931)
                  on Form S-4 filed with the Commission on September 3, 1997).

3.1(g)     --     Amended and Restated Certificate of Limited Partnership of
                  National Tobacco Company, L.P., filed May 17, 1996
                  (incorporated herein by reference to Exhibit 3.1(d) to
                  Amendment No. 1 to Registration Statement (Reg. No. 333-31931)
                  on Form S-4 filed with the Commission on September 3, 1997).

3.1(h)     --     Certificate of Incorporation of International Flavors and
                  Technology, Inc., filed August 7, 1997 (incorporated herein by
                  reference to Exhibit 3.1(e)(i) to the Registrant's Annual
                  Report on Form 10-K for the fiscal year ended December 31,
                  1997).

3.1(i)     --     Certificate of Amendment of Certificate of Incorporation of
                  International Flavors and Technology, Inc., filed February 19,
                  1998 (incorporated herein by reference to Exhibit 3.1(e)(ii)
                  to the Registrant's Annual Report on Form 10-K for the fiscal
                  year ended December 31, 1997).

3.2(a)     --     Amended and Restated Bylaws of North Atlantic Trading Company,
                  Inc. (incorporated herein by reference to Exhibit 3.2(a) to
                  the Registrant's Quarterly Report on Form 10-Q for the fiscal
                  quarter ended March 31, 1998).

3.2(b)     --     Bylaws of North Atlantic Operating Company, Inc. (incorporated
                  herein by reference to Exhibit 3.2(b) to Registration
                  Statement (Reg. No. 333-31931) on Form S-4 filed with the
                  Commission on July 23, 1997).

3.2(c)     --     Bylaws of National Tobacco Finance Corporation (incorporated
                  herein by reference to Exhibit 3.2(c) to Registration
                  Statement (Reg. No. 333-31931) on Form S-4 filed with the
                  Commission on July 23, 1997).

3.2(d)     --     Third Amended and Restated Agreement of Limited Partnership of
                  National Tobacco Company, L.P., effective May 17, 1996
                  (incorporated herein by reference to Exhibit 3.2(d)(i) to
                  Amendment No. 1 to Registration Statement (Reg. No. 333-31931)
                  on Form S-4 filed with the Commission on September 3, 1997).


                                       67
<PAGE>
3.2 (e)    --     Amendment No. 1 to Third Amended and Restated Agreement of
                  Limited Partnership of National Tobacco Company, L.P.,
                  effective June 25, 1997 (incorporated herein by reference to
                  Exhibit 3.2(d)(ii) to Amendment No. 1 to Registration
                  Statement (Reg. No. 333-31931) on Form S-4 filed with the
                  Commission on September 3, 1997).

3.2(f)     --     Bylaws of International Flavors and Technology, Inc.
                  (incorporated herein by reference to Exhibit 3.2(e) to the
                  Registrant's Annual Report on Form 10-K for the fiscal year
                  ended December 31, 1997).

3.2(g)     --     Amendment No. 2 to the Third Amended and Restated Agreement of
                  Limited Partnership of National Tobacco Company, L.P.,
                  effective February 10, 2000 (incorporated by reference to
                  Exhibit 3.2 (g) to the Registrant's Annual Report on Form 10-K
                  for the fiscal year ended December 31, 1999).

4.1        --     Indenture, dated as of June 25, 1997, among North Atlantic
                  Trading Company, Inc., as issuer, National Tobacco Company,
                  L.P., North Atlantic Operating Company, Inc. and National
                  Tobacco Finance Corporation, as guarantors, and United States
                  Trust Company of New York, as trustee (incorporated herein by
                  reference to Exhibit 4.1 to Amendment No. 1 to Registration
                  Statement (Reg. No. 333-31931) on Form S-4 filed with the
                  Commission on September 3, 1997).

4.2        --     First Supplemental Indenture, dated as of February 26, 1998,
                  among North Atlantic Trading Company, Inc., National Tobacco
                  Company, L.P., National Tobacco Finance Corporation,
                  International Flavors and Technology, Inc. and United States
                  Trust Company of New York (incorporated herein by reference to
                  Exhibit 4.3 to the Registrant's Annual Report on Form 10-K for
                  the fiscal year ended December 31, 1997).

4.3        --     Warrant to Purchase Common Stock, granted in favor of
                  Guggenheim Investment Management, LLC by North Atlantic
                  Trading Company, Inc., dated September 30, 2002 (incorporated
                  herein by reference to Exhibit 4.3 to the Registrant's Annual
                  Report on Form 10-K for the fiscal year ended December 31,
                  2002).

4.4        --     Warrant to Purchase Common Stock, granted in favor of Peter J.
                  Solomon Company Limited by North Atlantic Trading Company,
                  Inc., dated as of June 4, 2001 (incorporated herein by
                  reference to Exhibit 4.4 to the Registrant's Annual Report on
                  Form 10-K for the fiscal year ended December 31, 2002).

4.5        --     Class B Term Note dated November 17, 2003, issued by North
                  Atlantic Trading Company, Inc. in favor of Upper Columbia
                  Capital Company, LLC ("Upper Columbia") in the principal
                  amount of Twenty Three Million Dollars ($23,000,000.00)
                  (incorporated herein by reference to Exhibit 4.1 to the
                  Registrant's Current Report on Form 8-K filed on November 24,
                  2003).

                                       68
<PAGE>
4.6        --     Class B Term Note dated July 31, 2003 (amended and restated as
                  of November 17, 2003), issued by North Atlantic Trading
                  Company, Inc., in favor of 1888 Fund, Ltd. in the principal
                  amount of Five Million Five Hundred Thousand Dollars
                  ($5,500,000.00) (incorporated herein by reference to Exhibit
                  4.2 to the Registrant's Current Report on Form 8-K filed on
                  November 24, 2003).

4.7        --     Class B Term Note dated July 31, 2003 (amended and restated as
                  of November 17, 2003), issued by North Atlantic Trading
                  Company, Inc., in favor of MAGMA CDO, Ltd. in the principal
                  amount of Five Million Five Hundred Thousand Dollars
                  ($5,500,000.00) (incorporated herein by reference to Exhibit
                  4.3 to the Registrant's Current Report on Form 8-K filed on
                  November 24, 2003).

4.8        --     Class B Term Note dated July 31, 2003 (amended and restated as
                  of November 17, 2003), issued by North Atlantic Trading
                  Company, Inc., in favor of Bingham CDO, L.P. in the principal
                  amount of Five Million Dollars ($5,000,000.00) (incorporated
                  herein by reference to Exhibit 4.4 to the Registrant's Current
                  Report on Form 8-K filed on November 24, 2003).

4.9        --     Class B Term Note dated July 31, 2003 (amended and restated as
                  of November 17, 2003), issued by North Atlantic Trading
                  Company, Inc., in favor of Stellar Funding, Ltd. in the
                  principal amount of Three Million Dollars ($3,000,000.00)
                  (incorporated herein by reference to Exhibit 4.5 to the
                  Registrant's Current Report on Form 8-K filed on November 24,
                  2003).

4.10*      --     Indenture, dated as of February 17, 2004, among North Atlantic
                  Trading Company, Inc., the Guarantors listed on the signature
                  pages thereto and Wells Fargo Bank Minnesota, National
                  Association, a national banking association, as Trustee.

4.11*      --     Registration Rights Agreement, dated as of February 17, 2004,
                  by and among North Atlantic Trading Company, Inc., the
                  Guarantors listed on the signature pages thereto, Citigroup
                  Global Markets Inc. and RBC Capital Markets Corporation.

9.1*       --     Amended and Restated Exchange and Stockholders' Agreement,
                  dated as of February 9, 2004, by and among North Atlantic
                  Holding Company, Inc., North Atlantic Trading Company, Inc.
                  and those stockholders listed therein.

9.2        --     Voting Trust Agreement, dated as of December 17, 1997, among
                  Thomas F. Helms, Jr., David I. Brunson and Jeffrey S. Hay, as
                  voting trustees, and Helms Management Corp. (incorporated
                  herein by reference to Exhibit 9.2 to the Registrant's Annual
                  Report on Form 10-K for the fiscal year ended December 31,
                  1997).

9.3        --     Amendment No. 1 to Voting Trust Agreement, dated as of August
                  18, 1999, among Thomas F. Helms, Jr. and David I. Brunson, as
                  voting trustees, and Helms Management Corp. (incorporated
                  herein by reference to Exhibit 9.3 to the Registrant's Annual
                  Report on Form 10-K for the fiscal year ended December 31,
                  2002).

                                       69
<PAGE>
9.4        --     Amendment No. 2 to Voting Trust Agreement, dated as of
                  September 22, 1999, among Thomas F. Helms, Jr. and David I.
                  Brunson, as voting trustees, and Helms Management Corp.
                  (incorporated herein by reference to Exhibit 9.4 to the
                  Registrant's Annual Report on Form 10-K for the fiscal year
                  ended December 31, 2002).

9.5        --     Amendment No. 3 to Voting Trust Agreement, dated as of July 7,
                  2000, among Thomas F. Helms, Jr. and David I. Brunson, as
                  voting trustees, and Helms Management Corp. (incorporated
                  herein by reference to Exhibit 9.5 to the Registrant's Annual
                  Report on Form 10-K for the fiscal year ended December 31,
                  2002).

10.1       --     Third Amended and Restated Purchasing and Processing
                  Agreement, dated as of June 25, 1997, between National Tobacco
                  Company, L.P. and Lancaster Leaf Tobacco Company of
                  Pennsylvania (incorporated herein by reference to Exhibit 10.1
                  to Amendment No. 1 to Registration Statement (Reg. No.
                  333-31931) on Form S-4 filed with the Commission on September
                  3, 1997).

10.2+      --     Amended and Restated Distribution and License Agreement, dated
                  as of November 30, 1992, between Bollore Technologies, S.A.
                  and North Atlantic Trading Company, Inc., a Delaware
                  corporation and predecessor to North Atlantic Operating
                  Company, Inc. [United States] (incorporated herein by
                  reference to Exhibit 10.2 to Amendment No. 2 to Registration
                  Statement (Reg. No. 333-31931) on Form S-4 filed with the
                  Commission on September 17, 1997).

10.3+      --     Amended and Restated Distribution and License Agreement, dated
                  as of November 30, 1992, between Bollore Technologies, S.A.
                  and North Atlantic Trading Company, Inc., a Delaware
                  corporation and predecessor to North Atlantic Operating
                  Company, Inc. [Asia] (incorporated herein by reference to
                  Exhibit 10.3 to Amendment No. 2 to Registration Statement
                  (Reg. No. 333-31931) on Form S-4 filed with the Commission on
                  September 17, 1997).

10.4+      --     Amended and Restated Distribution and License Agreement, dated
                  as of November 30, 1992, between Bollore Technologies, S.A.
                  and North Atlantic Trading Company, Inc., a Delaware
                  corporation and predecessor to North Atlantic Operating
                  Company, Inc. [Canada] (incorporated herein by reference to
                  Exhibit 10.4 to Amendment No. 2 to Registration Statement
                  (Reg. No. 333-31931) on Form S-4 filed with the Commission on
                  September 17, 1997).

10.5+      --     Restated Amendment, dated as of June 25, 1997, between Bollore
                  Technologies, S.A. and North Atlantic Operating Company, Inc.
                  (incorporated herein by reference to Exhibit 10.5 to Amendment
                  No. 2 to Registration Statement (Reg. No. 333-31931) on Form
                  S-4 filed with the Commission on September 17, 1997).


                                       70
<PAGE>
10.6       --     Warrant Agreement, dated as of June 25, 1997, between North
                  Atlantic Trading Company, Inc. and United States Trust Company
                  of New York, as warrant agent (incorporated herein by
                  reference to Exhibit 10.12 to Amendment No. 1 to Registration
                  Statement (Reg. No. 333-31931) on Form S-4 filed with the
                  Commission on September 3, 1997).

10.7++     --     1997 Share Incentive Plan of North Atlantic Trading Company,
                  Inc. (incorporated herein by reference to Exhibit 10.16 to
                  Amendment No. 1 to Registration Statement (Reg. No. 333-31931)
                  on Form S-4 filed with the Commission on September 3, 1997).

10.8++     --     Employment Agreement, dated May 17, 1996, between North
                  Atlantic Trading Company, Inc. and Thomas F. Helms, Jr.
                  (incorporated herein by reference to Exhibit 10.17 to
                  Amendment No. 1 to Registration Statement (Reg. No. 333-31931)
                  on Form S-4 filed with the Commission on September 3, 1997).

10.9 ++    --     Employment Agreement, dated April 14, 1997, between National
                  Tobacco Company, Inc. and David I. Brunson (incorporated
                  herein by reference to Exhibit 10.18(a) to Amendment No. 1 to
                  Registration Statement (Reg. No. 333-31931) on Form S-4 filed
                  with the Commission on September 3, 1997).

10.10++    --     Employment Agreement, dated April 23, 1997, between Thomas F.
                  Helms, Jr. and David I. Brunson (incorporated herein by
                  reference to Exhibit 10.18(b) to Amendment No. 1 to
                  Registration Statement (Reg. No. 333-31931) on Form S-4 filed
                  with the Commission on September 3, 1997).

10.11++    --     Nonqualified Stock Option Agreement, dated as of June 25,
                  1997, between North Atlantic Trading Company, Inc. and David
                  I. Brunson (incorporated herein by reference to Exhibit
                  10.18(c) to Amendment No. 1 to Registration Statement (Reg.
                  No. 333-31931) on Form S-4 filed with the Commission on
                  September 3, 1997).

10.12++    --     Amendment No. 1, dated and effective September 2, 1997, to the
                  Nonqualified Stock Option Agreement, dated as of June 25,
                  1997, between North Atlantic Trading Company, Inc. and David
                  I. Brunson (incorporated herein by reference to Exhibit
                  10.18(d) to Amendment No. 1 to Registration Statement (Reg.
                  No. 333-31931) on Form S-4 filed with the Commission on
                  September 3, 1997).

10.13++    --     Amendment No. 2, dated as of December 31, 1997, to the
                  Nonqualified Stock Option Agreement, dated as of June 25,
                  1997, between North Atlantic Trading Company, Inc. and David
                  I. Brunson (incorporated herein by reference to Exhibit
                  10.18(e) to the Registrant's Annual Report on Form 10-K for
                  the fiscal year ended December 31, 1997).

10.14++    --     Consulting Agreement, dated as of June 25, 1997, between North
                  Atlantic Trading Company, Inc. and Jack Africk (incorporated
                  herein by reference to Exhibit 10.20 to Amendment No. 1 to
                  Registration Statement (Reg. No. 333-31931) on Form S-4 filed
                  with the Commission on September 3, 1997).


                                       71
<PAGE>
10.15++    --     National Tobacco Company Management Bonus Program
                  (incorporated herein by reference to Exhibit 10.25 to
                  Amendment No. 1 to Registration Statement (Reg. No. 333-31931)
                  on Form S-4 filed with the Commission on September 3, 1997).

10.16++    --     Amended and Restated Nonqualified Stock Option Agreement dated
                  as of January 12, 1998, between North Atlantic Trading
                  Company, Inc. And Jack Africk (incorporated herein by
                  reference to Exhibit 10.28 to the Registrant's Annual Report
                  on Form 10-K for the fiscal year ended December 31, 1997).

10.17++    --     Assignment and Assumption, dated as of January 1, 1998,
                  between National Tobacco Company, L.P. and North Atlantic
                  Trading Company, Inc. (incorporated herein by reference to
                  Exhibit 10.30 to the Registrant's Annual Report on Form 10-K
                  for the fiscal year ended December 31, 1997).

10.18+     --     Amendment, dated October 22, 1997, to Amended and Restated
                  Distribution and License Agreements, between Bollore and North
                  Atlantic Operating Company, Inc. (incorporated herein by
                  reference to Exhibit 10.31 to the Registrant's Annual Report
                  on Form 10-K for the fiscal year ended December 31, 1997).

10.19      --     Sales Representative Agreement, effective as of January 1,
                  1998, between National Tobacco Company, L.P. and North
                  Atlantic Operating Company, Inc. (incorporated herein by
                  reference to Exhibit 10.32 to the Registrant's Annual Report
                  on Form 10-K for the fiscal year ended December 31, 1997).

10.20++    --     Amended and Restated Employment Agreement dated as of April
                  30, 1998, between North Atlantic Trading Company, Inc. and
                  David I. Brunson (incorporated herein by reference to Exhibit
                  10.2 to the Registrant's Report on 10-Q for the fiscal quarter
                  ended June 30, 1998).

10.21      --     Option Grant Letter, dated April 30, 1998, from Helms
                  Management Corp. to David I. Brunson (incorporated herein by
                  reference to Exhibit 10.5 to the Registrant's Quarterly Report
                  on 10-Q for the fiscal quarter ended June 30, 1998).

10.22      --     Subscription Agreement, dated as of March 24, 1998, between
                  North Atlantic Trading Company, Inc. and David I. Brunson
                  (incorporated herein by reference to Exhibit 10.42 to the
                  Registrant's Quarterly Report on 10-Q for the fiscal quarter
                  ended March 31, 1998).

10.23++    --     Letter Agreement, dated September 24, 1999, between North
                  Atlantic Trading Company, Inc. and Jack Africk (incorporated
                  by reference to Exhibit 10.34 to the Registrant's Annual
                  Report on Form 10-K for the fiscal year ended December 31,
                  1999).

10.24++    --     North Atlantic Trading Company, Inc. 1999 Executive Incentive
                  Plan (incorporated by reference to Exhibit 10.35 to the
                  Registrant's Annual Report on Form 10-K for the fiscal year
                  ended December 31, 1999).


                                       72
<PAGE>
10.25++    --     North Atlantic Trading Company, Inc. 1999 Management Bonus
                  Plan (incorporated by reference to Exhibit 10.36 to the
                  Registrant's Annual Report on Form 10-K for the fiscal year
                  ended December 31, 1999).

10.26*     --     Amended and Restated Loan Agreement, dated as of February 17,
                  2004, by and among Bank One, NA, LaSalle Bank National
                  Association, North Atlantic Trading Company, Inc., North
                  Atlantic Holding Company, Inc., the subsidiaries of North
                  Atlantic Trading Company, Inc. named therein and the lenders
                  party thereto.

10.27*     --     Amended and Restated Security Agreement, dated as of February
                  17, 2004, among North Atlantic Trading Company, Inc., National
                  Tobacco Company, L.P., North Atlantic Operating Company, Inc.,
                  National Tobacco Finance Corporation, Stoker, Inc., RBJ Sales,
                  Inc., Fred Stoker & Sons, Inc., North Atlantic Cigarette
                  Company, Inc. and Bank One, N.A., as agent on behalf of itself
                  and other banks.

10.28*     --     Amended and Restated Guaranty Agreement, dated as of February
                  17, 2004, among National Tobacco Company, L.P., North Atlantic
                  Operating Company, Inc., National Tobacco Finance Corporation,
                  Stoker, Inc., RBJ Sales, Inc., Fred Stoker & Sons, Inc., North
                  Atlantic Cigarette Company, Inc. and Bank One, N.A., as agent
                  on behalf of itself and other banks.

10.29*     --     Amended and Restated Pledge Agreement, dated as of February
                  17, 2004, among and North Atlantic Trading Company, Inc.,
                  National Tobacco Company, L.P., North Atlantic Operating
                  Company, Inc., National Tobacco Finance Corporation, Stoker,
                  Inc., RBJ Sales, Inc., Fred Stoker & Sons, Inc., North
                  Atlantic Cigarette Company, Inc. and Bank One, N.A., as agent
                  on behalf of itself and other banks.

10.30++    --     2001 Share Incentive Plan of North Atlantic Trading Company,
                  Inc. (incorporated by reference to Exhibit 10.36 to the
                  Registrant's Annual Report on Form 10-K for the fiscal year
                  ended December 31, 2001).

10.31++    --     Offer of Employment, dated March 28, 2002, between the Company
                  and Robert A. Milliken, Jr. (incorporated herein by reference
                  to Exhibit 1 to the Registrant's Quarterly Report on 10-Q for
                  the fiscal quarter ended March 31, 2002).

10.32      --     Promissory Note, dated March 31, 2002, issued by David I.
                  Brunson in favor of North Atlantic Trading Company, Inc.
                  (incorporated herein by reference to Exhibit 10.1 to the
                  Registrant's Quarterly Report on 10-Q for the fiscal quarter
                  ended June 30, 2002).

10.33      --     Promissory Note, dated March 31, 2002, issued by Chris Kounnas
                  in favor of North Atlantic Trading Company, Inc. (incorporated
                  herein by reference to Exhibit 10.2 to the Registrant's
                  Quarterly Report on 10-Q for the fiscal quarter ended June 30,
                  2002).


                                       73
<PAGE>
10.34      --     Secured Promissory Note, dated March 31, 2002, issued by Helms
                  Management Corp. in favor of North Atlantic Trading Company,
                  Inc. (incorporated herein by reference to Exhibit 10.3 to the
                  Registrant's Quarterly Report on 10-Q for the fiscal quarter
                  ended June 30, 2002).

10.35      --     Secured Promissory Note, dated March 31, 2002, issued by
                  Thomas F. Helms, Jr. in favor of North Atlantic Trading
                  Company, Inc. (incorporated herein by reference to Exhibit
                  10.4 to the Registrant's Quarterly Report on 10-Q for the
                  fiscal quarter ended June 30, 2002).

10.36      --     Pledge and Security Agreement, dated as of March 31, 2002,
                  between Thomas F. Helms, Jr., Helms Management Corp. and North
                  Atlantic Trading Company, Inc. (incorporated herein by
                  reference to Exhibit 10.5 to the Registrant's Quarterly Report
                  on 10-Q for the fiscal quarter ended June 30, 2002).

10.37++    --     Amendment, dated November 25, 2002, to the Amended and
                  Restated Employment Agreement dated as of April 30, 1998,
                  between North Atlantic Trading Company, Inc. and David I.
                  Brunson (incorporated herein by reference to Exhibit 10.38 to
                  the Registrant's Annual Report on Form 10-K for the fiscal
                  year ended December 31, 2002).

10.38++    --     Employment Agreement dated as of November 21, 2002, between
                  North Atlantic Trading Company, Inc. and James W. Dobbins
                  (incorporated herein by reference to Exhibit 10.39 to the
                  Registrant's Annual Report on Form 10-K for the fiscal year
                  ended December 31, 2002).

10.39      --     Transfer Agreement, dated as of December 30, 2002, by and
                  among Arnold Sheiffer, The Cleveland Clinic Foundation, North
                  Atlantic Trading Company, Inc., and Thomas F. Helms, Jr.
                  (incorporated herein by reference to Exhibit 10.40 to the
                  Registrant's Annual Report on Form 10-K for the fiscal year
                  ended December 31, 2002).

10.40      --     Transfer Agreement, dated as of December 30, 2002, by and
                  among Arnold Sheiffer, Robert Maurice Grunder Memorial Fund,
                  North Atlantic Trading Company, Inc., and Thomas F. Helms, Jr.
                  (incorporated herein by reference to Exhibit 10.41 to the
                  Registrant's Annual Report on Form 10-K for the fiscal year
                  ended December 31, 2002).

10.41++    --     2002 Share Incentive Plan (incorporated herein by reference to
                  Exhibit 10.42 to the Registrant's Annual Report on Form 10-K
                  for the fiscal year ended December 31, 2002).

10.42++    --     Letter Agreement, dated November 8, 2002, between North
                  Atlantic Trading Company, Inc. and Marketing Solutions USA
                  (incorporated herein by reference to Exhibit 10.43 to the
                  Registrant's Annual Report on Form 10-K for the fiscal year
                  ended December 31, 2002).


                                       74
<PAGE>
10.43++    --     Letter Agreement, dated September 30, 2002, between North
                  Atlantic Trading Company, Inc. and Jack Africk (incorporated
                  herein by reference to Exhibit 10.44 to the Registrant's
                  Annual Report on Form 10-K for the fiscal year ended December
                  31, 2002).

10.44      --     2003A Amendment to Loan Documents, dated as of July 31, 2003,
                  by and among North Atlantic Trading Company, Inc., National
                  Tobacco Company, L.P., North Atlantic Operating Company, Inc.,
                  National Tobacco Finance Corporation, Bank One, NA, successor
                  to Bank One, Kentucky N.A., as agent bank and the various
                  lending institutions named therein, Guggenheim Investment
                  Management, LLC, as agent for the Class B Lenders named
                  therein (incorporated herein by reference to Exhibit 10.1 to
                  the Registrant's Quarterly Report on Form 10-Q for the fiscal
                  quarter ended June 30, 2003).

10.45      --     Subordination Agreement, dated as of July 31, 2003, by and
                  among North Atlantic Trading Company, Inc., National Tobacco
                  Company, L.P., North Atlantic Operating Company, Inc.,
                  National Tobacco Finance Corporation, Bank One, NA, successor
                  to Bank One, Kentucky N.A., as agent bank and the various
                  lending institutions named therein, Guggenheim Investment
                  Management, LLC, as agent for the Class B Lenders named
                  therein (incorporated herein by reference to Exhibit 10.2 to
                  the Registrant's Quarterly Report on Form 10-Q for the fiscal
                  quarter ended June 30, 2003).

10.46      --     2003B Amendment to Loan Documents dated as of November 17,
                  2003, among North Atlantic Trading Company, Inc., National
                  Tobacco Company, L.P., North Atlantic Operating Company, Inc.,
                  National Tobacco Finance Corporation, Stoker, Inc., RBJ Sales,
                  Inc. and Fred Stoker & Sons, Inc., the Banks defined therein,
                  Bank One, NA, as agent for the Banks ("Agent Bank"), the Class
                  B Lenders as defined therein and Guggenheim Investment
                  Management, LLC, as agent for Class B Lenders ("Class B Loan
                  Agent") (incorporated herein by reference to Exhibit 10.1 to
                  the Registrant's Current Report on Form 8-K filed on November
                  24, 2003).

10.47      --     Amended and Restated Subordination Agreement dated as of
                  November 17, 2003, by and among North Atlantic Trading
                  Company, Inc., National Tobacco Company, L.P., North Atlantic
                  Operating Company, Inc., National Tobacco Finance Corporation,
                  Stoker, Inc., RBJ Sales, Inc. and Fred Stoker & Sons, Inc.,
                  the Banks defined therein, Bank One, NA, as agent for the
                  Banks ("Agent Bank"), the Class B Lenders as defined therein
                  and Guggenheim Investment Management, LLC, as agent for Class
                  B Lenders ("Class B Loan Agent") (incorporated herein by
                  reference to Exhibit 10.2 to the Registrant's Current Report
                  on Form 8-K filed on November 24, 2003).

10.48      --     Second Amendment to Mortgage, Security Agreement, Assignment
                  of Leases, Rents and Profits, Financing Statement and Fixture
                  Filing, dated as of November 17, 2003, among Bank One, NA (as
                  "Agent Bank" and "Mortgagee" for the benefit of the Banks as
                  defined in the 2003B Amendment to Loan Agreement) and National
                  Tobacco Company, L.P. (the "Mortgagor") (incorporated herein
                  by reference to Exhibit 10.3 to the Registrant's Current
                  Report on Form 8-K filed on November 24, 2003).


                                       75
<PAGE>
10.49      --     Assignment of Security Interest in the United States
                  Trademarks, dated November 17, 2003, issued by Stoker, Inc. in
                  favor of Bank One, NA (incorporated herein by reference to
                  Exhibit 10.4 to the Registrant's Current Report on Form 8-K
                  filed on November 24, 2003).

10.50      --     Assignment of Security Interest in the United States
                  Trademarks, dated November 17, 2003, issued by Fred Stoker &
                  Sons, Inc. in favor of Bank One, NA (incorporated herein by
                  reference to Exhibit 10.5 to the Registrant's Current Report
                  on Form 8-K filed on November 24, 2003).

10.51      --     2003C Amendment to Loan Documents dated as of December 23,
                  2003, by and among the Banks as defined therein, Bank One, NA,
                  as agent bank on behalf of the Banks, the Class B Lenders as
                  defined therein, Guggenheim Investment Management, LLC, as
                  agent on behalf of the Class B Lenders, North Atlantic Trading
                  Company, Inc. and the Subsidiaries as defined therein
                  (incorporated herein by reference to Exhibit 10.1 to the
                  Registrant's Current Report on Form 8-K filed on December 24,
                  2003).

10.52++*   --     Employment Agreement, dated December 1, 2003, between Lawrence
                  S. Wexler and North Atlantic Cigarette Company, Inc.

10.53*     --     Assignment and Assumption Agreement, dated as of February 9,
                  2004, between North Atlantic Trading Company, Inc. and North
                  Atlantic Holding Company, Inc.

21*        --     Subsidiaries of North Atlantic Trading Company, Inc.

31.1*      --     Certification of Chief Executive Officer

31.2*      --     Certification of Chief Financial Officer

32.1*      --     Certification by the Chief Executive Officer pursuant to 18
                  U.S.C.ss. 1350, as adopted by Section 906 of the
                  Sarbanes-Oxley Act of 2002 (furnished herewith).

32.2*      --     Certification by the Chief Financial Officer pursuant to 18
                  U.S.C.ss. 1350, as adopted by Section 906 of the
                  Sarbanes-Oxley Act of 2002 (furnished herewith).


      *     Filed herewith.

      +     Portions of this agreement have been omitted pursuant to Rule 406
            under the Securities Act of 1933, as amended, and have been filed
            confidentially with the Securities and Exchange Commission.

      ++    Management contracts or compensatory plan or arrangement.



                                       76
<PAGE>
                                  SIGNATURES

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

Date: March 29, 2004

                                  NORTH ATLANTIC TRADING COMPANY, INC.

                                  By: /s/ Thomas F. Helms, Jr.
                                      -----------------------------------------
                                      Thomas F. Helms, Jr.
                                      Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE                                             TITLE                                                 DATE
---------                                             -----                                                 ----
<S>                                                  <C>                                                   <C>
        /s/ Thomas F. Helms, Jr.                      Chairman of the Board                                 March 29, 2004
-------------------------------------------------     and Chief Executive Officer
        Thomas F. Helms, Jr.                          (Principal Executive Officer)



        /s/ David I. Brunson                          Director, President, Chief Financial Officer and      March 29, 2004
-------------------------------------------------     Treasurer (Principal Financial and Accounting
        David I. Brunson                              Officer)



        /s/ Jack Africk                               Director                                              March 29, 2004
-------------------------------------------------
        Jack Africk



        /s/ Marc S. Cooper                            Director                                              March 29, 2004
-------------------------------------------------
        Marc S. Cooper



        /s/ Geoffrey J.F. Gorman                      Director                                              March 29, 2004
-------------------------------------------------
        Geoffrey J.F. Gorman

</TABLE>







                                       77
<PAGE>
                                    CONTENTS

<TABLE>
<CAPTION>
                                                                                      PAGES
<S>                                                                                  <C>
Report of Independent Auditors                                                         F-1



Financial Statements:


           Consolidated Balance Sheets as of December 31, 2003 and 2002                F-2


           Consolidated Statements of Operations and Comprehensive Income (Loss)
                     for the years ended December 31, 2003, 2002 and 2001              F-3


           Consolidated Statements of Cash Flows for the years ended
                     December 31, 2003, 2002 and 2001                                  F-5


           Consolidated Statements of Changes in Stockholders' Deficit for
                     the years ended December 31, 2003, 2002 and 2001                  F-6


           Notes to Consolidated Financial Statements                                  F-7

</TABLE>



<PAGE>
                         REPORT OF INDEPENDENT AUDITORS


To the Board of Directors
North Atlantic Trading Company, Inc.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, comprehensive income (loss), cash flows,
and changes in stockholders' deficit present fairly, in all material respects,
the financial position of North Atlantic Trading Company, Inc. and Subsidiaries
(the Company) at December 31, 2003 and 2002 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2003, in conformity with accounting principles generally accepted in the
United States of America. 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 auditing standards generally accepted in the
United States of America, 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 our opinion.

As discussed in Note 2 to the consolidated financial statements, effective
January 1, 2002 the Company adopted the provisions of the Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 142 "Goodwill
and Other Intangible Assets."


/s/ PricewaterhouseCoopers LLP

New York, New York

March 29, 2004






                                      F-1
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2003 and 2002
(dollars in thousands except share data)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                        ASSETS                                               2003                      2002
                                                                                     ----------------------      ------------------
<S>                                                                                  <C>                         <C>
Current assets:
      Cash                                                                               $           304             $         805
      Accounts receivable, net of allowances of $367 and $448 in 2003 and 2002,                   10,384                     7,651
           respectively
      Inventories                                                                                 42,257                    40,818
      Income taxes receivable                                                                        910                       887
      Other current assets                                                                         3,594                     3,457
                                                                                     --------------------        ------------------
                     Total current assets                                                         57,449                    53,618
Property, plant and equipment, net                                                                 8,310                     5,158
Deferred income taxes                                                                             22,549                    24,916
Deferred financing costs                                                                           5,163                     2,642
Goodwill                                                                                         128,659                   123,557
Other intangible assets                                                                           10,851                         -
Other assets                                                                                      10,663                     3,703
                                                                                     --------------------        ------------------
                     Total assets                                                        $       243,644            $      213,594
                                                                                     ====================        ==================

                         LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
      Accounts payable                                                                   $         5,275            $        2,868
      Accrued expenses                                                                             6,796                     2,429
      Deferred income taxes                                                                        4,654                    10,552
      Revolving credit facility                                                                    6,300                     5,500
                                                                                     --------------------        ------------------
                     Total current liabilities                                                    23,025                    21,349

Notes payable and long-term debt                                                                 185,686                   155,000
Deferred income taxes                                                                              1,141                         -
Postretirement benefits                                                                            9,333                     7,824
Pension benefits and other long-term liabilities                                                   5,946                     4,969
                                                                                     --------------------        ------------------
                     Total liabilities                                                           225,131                   189,142
                                                                                     --------------------        ------------------

Commitments and contingencies

Preferred stock, mandatory redemption value of $65,080
      in 2003 and $57,805 in 2002                                                                 65,080                    57,805
                                                                                     --------------------        ------------------
Stockholders' deficit:
      Common stock, voting, $01 par value; authorized shares, 750,000; issued and
              outstanding shares, 528,241                                                              5                         5
      Common stock, nonvoting, $01 par value; authorized shares, 750,000; issued and
              outstanding shares, -0-
Additional paid-in capital                                                                         9,663                     9,246
Loans to stockholders for stock purchases                                                          (168)                     (157)
Accumulated other comprehensive loss                                                             (1,229)                   (1,125)
Accumulated deficit                                                                             (54,838)                  (41,322)
                                                                                     --------------------        ------------------
                     Total stockholders' deficit                                                (46,567)                  (33,353)
                                                                                     --------------------        ------------------
                     Total liabilities and stockholders' deficit                         $       243,644            $      213,594
                                                                                     ====================        ==================
</TABLE>

                   The accompanying notes are an integral part
                   of the consolidated financial statements.


                                      F-2
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands except share data)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                          2003              2002              2001
                                                                      --------------    -------------     -------------
<S>                                                                   <C>               <C>               <C>
Net sales                                                              $    101,593      $    94,425       $    89,622
Cost of sales                                                                48,616           40,973            37,697
                                                                      --------------    -------------     -------------
         Gross profit                                                        52,977           53,452            51,925
Selling, general and administrative expenses                                 32,589           24,065            23,372
Amortization expense                                                             67                -             5,490
                                                                      --------------    -------------     -------------
         Operating income                                                    20,321           29,387            23,063
Interest expense and financing costs                                         19,122           18,744            19,742
Other expense                                                                11,129            1,944             2,642
                                                                      --------------    -------------     -------------
         Income (loss) before income taxes                                  (9,930)            8,699               679
Income tax expense (benefit)                                                (3,689)            3,214             2,043
                                                                      --------------    -------------     -------------
         Net income (loss)                                                  (6,241)            5,485           (1,364)
Preferred stock dividends                                                   (7,275)          (6,976)           (6,745)
Net gain on restructuring of preferred stock                                      -            5,395                 -
                                                                      --------------    -------------     -------------
         Net income (loss) applicable to common shares                     (13,516)            3,904           (8,109)
         Add back:  goodwill amortization expense, net of tax                     -                -             4,088
                                                                      --------------    -------------     -------------
         Adjusted net income (loss) applicable to common shares        $   (13,516)      $     3,904       $   (4,021)
                                                                      ==============    =============     =============


                                                                          2003              2002              2001
                                                                      --------------    -------------     -------------
Basic earnings per common share:
      Income (loss)                                                    $    (11.82)      $     10.38       $    (2.58)
      Preferred stock dividends                                             (13.77)          (13.20)           (12.77)
      Net gain on restructuring of preferred stock                                -            10.21                 -
                                                                      --------------    -------------     -------------
      Net income (loss)                                                     (25.59)             7.39           (15.35)
      Add back:  goodwill amortization expense, net of tax                        -                -              7.74
                                                                      --------------    -------------     -------------
      Adjusted net income (loss)                                       $    (25.59)      $      7.39       $    (7.61)
Diluted earnings per common share:
   Income (loss)                                                       $    (11.82)      $      8.25       $    (2.58)
      Preferred stock dividends                                             (13.77)          (10.49)           (12.77)
      Net gain on restructuring of preferred stock                                -             8.11                 -
                                                                      --------------    -------------     -------------
      Net income (loss)                                                     (25.59)             5.87           (15.35)
      Add back:  goodwill amortization expense, net of tax                        -                -              7.74
                                                                      --------------    -------------     -------------
      Adjusted net income (loss)                                       $    (25.59)      $      5.87       $    (7.61)
                                                                      ==============    =============     =============

Weighted average common shares outstanding:
   Basic                                                                    528,241          528,241           528,241
   Diluted                                                                  528,241          664,939           528,241

</TABLE>

                   The accompanying notes are an integral part
                   of the consolidated financial statements.


                                      F-3
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands except share data)
--------------------------------------------------------------------------------


             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                        2003                    2002                    2001
                                                                    ------------            ------------            ------------
<S>                                                                 <C>                     <C>                     <C>
Net Income (loss)                                                     $  (6,241)               $  5,485               $  (1,364)

Other comprehensive income, net of tax benefit:
Net change related to cash flow hedges:
  Cumulative effect of accounting change                                      -                       -                      28
  Reclassification to net income                                              -                       -                     (28)
Minimum pension liability, net of tax                                      (104)                   (909)                   (216)
                                                                    ------------            ------------            ------------

Comprehensive income (loss)                                           $  (6,345)               $  4,576               $  (1,580)
                                                                    ============            ============            ============

</TABLE>










                   The accompanying notes are an integral part
                   of the consolidated financial statements.


                                      F-4
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                    2003              2002              2001
                                                                               --------------    -------------     -------------
<S>                                                                            <C>               <C>               <C>
Cash flows from operating activities:
       Net income (loss)                                                         $  (6,241)        $  5,485          $  (1,364)
       Adjustments to reconcile net income (loss) to net
          cash provided by (used in) operating activities:
           Depreciation                                                                589              700                637
           Amortization expense                                                         67                -              5,490
           Amortization of deferred financing costs                                  1,386            1,386              1,332
           Deferred income taxes                                                    (3,689)           2,738              2,043
           Compensation expense                                                        417              576                 33
           Changes in operating assets and liabilities:
                Accounts receivable                                                 (1,827)          (1,979)            (1,490)
                Inventories                                                          1,964            3,149              5,205
                Income tax receivable                                                  (23)            (654)                 -
                Other current assets                                                   752           (1,755)               368
                Other assets                                                        (1,309)            (985)            (1,039)
                Accounts payable                                                     1,848              150                264
                Accrued pension liabilities                                            366              495                513
                Accrued postretirement liabilities                                  (1,509)             558                615
                Accrued expenses and other                                           2,351           (1,479)               280
                                                                               --------------    -------------     -------------
                          Net cash provided by (used in) operating activities       (4,858)           8,385             12,887
                                                                               --------------    -------------     -------------
Cash flows from investing activities:
       Capital expenditures                                                         (1,561)            (625)              (603)
       Purchase of Stoker, Inc. (net of cash acquired)                             (21,650)               -                  -
                                                                               --------------    -------------     -------------
                          Net cash provided by (used in) investing activities      (23,211)            (625)              (603)
                                                                               --------------    -------------     -------------
Cash flows from financing activities:                                                                                        -
       Payments on senior term loans                                                     -          (12,500)           (12,500)
       Deferred financing costs incurred                                            (3,907)               -                  -
       Proceeds from revolving credit facility, net                                    800            5,500                  -
       Principal from long-term borrowings                                          42,000                -                  -
       Principal payments on long-term borrowings                                  (11,314)               -                  -
       Consent Solicitation expenses                                                     -           (1,219)                 -
       Net loans to stockholders for stock purchases                                   (11)              30                 (3)
                                                                               --------------    -------------     -------------
                          Net cash provided by (used in) financing activities       27,568           (8,189)           (12,503)
                                                                               --------------    -------------     -------------
Net increase (decrease) in cash                                                       (501)            (429)              (219)
Cash, beginning of period                                                              805            1,234              1,453
                                                                               --------------    -------------     -------------
Cash, end of period                                                              $     304        $     805          $   1,234
                                                                               ==============    =============     =============
Supplemental disclosures of cash flow information:
       Cash paid during the period for interest                                  $  17,911        $  17,560          $  18,466
                                                                               ==============    =============     =============
       Cash paid during the period for income taxes                              $       -        $     283          $       -
                                                                               ==============    =============     =============
</TABLE>

The Company purchased all of the common stock of Stoker, Inc. on November 17,
2003 for $21,650 (net of cash acquired of $1,672). See Note 3.


                   The accompanying notes are an integral part
                   of the consolidated financial statements.


                                      F-5
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
CHANGES IN STOCKHOLDERS' DEFICIT
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                         ACCUMULATED
                                                 COMMON     ADDITIONAL    LOANS TO          OTHER
                                                 STOCK,      PAID-IN  STOCKHOLDERS FOR  COMPREHENSIVE   ACCUMULATED
                                                 VOTING      CAPITAL  STOCK PURCHASES        LOSS          DEFICIT         TOTAL
                                                 ------      -------  ---------------        ----          -------         -----
<S>                                             <C>        <C>         <C>               <C>           <C>            <C>
Beginning balance, January 12, 2001              $    5     $  9,111     $   (184)        $              $ (37,117)    $  (28,185)

Compensation expense                                              33                                                           33
Net loans to stockholders for stock purchases                                  (3)                                             (3)
Amount related to minimum pension liability,
  net of tax of $132                                                                          (216)                          (216)
Preferred stock dividend                                                                                    (6,745)        (6,745)
Net loss                                                                                                    (1,364)        (1,364)
                                                -------    ---------    ---------        ---------      ----------    -----------
Ending balance, December 31, 2001                     5        9,144         (187)            (216)        (45,226)       (36,480)

Compensation expense                                             102                                                          102
Net loans to stockholders for stock purchases                                  30                                              30
Amount related to minimum pension liability,
    net of tax of $344                                                                        (909)                          (909)
Preferred stock dividend                                                                                    (6,976)        (6,976)
Net gain on restructuring of preferred stock                                                                 5,395          5,395
Net income                                                                                                   5,485          5,485
                                                -------    ---------    ---------        ---------      ----------    -----------
Ending balance, December 31, 2002                     5        9,246         (157)          (1,125)        (41,322)       (33,353)

Compensation expense                                             417                                                          417
Net loans to stockholders for stock purchases                                 (11)                                            (11)
Amount related to minimum pension liability
    net of tax of $64                                                                         (104)                          (104)
Preferred stock dividend                                                                                    (7,275)        (7,275)
Net loss                                                                                                    (6,241)        (6,241)
                                                -------    ---------    ---------        ---------      ----------    -----------
Ending balance, December 31, 2003                $    5     $  9,663     $   (168)        $ (1,229)      $ (54,838)    $  (46,567)
                                                =======    =========    =========        =========      ==========    ===========
</TABLE>







                   The accompanying notes are an integral part
                   of the consolidated financial statements.


                                      F-6
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)


1.         ORGANIZATION:

           North Atlantic Trading Company, Inc. and Subsidiaries (the Company)
           manufactures and distributes tobacco and related products through its
           smokeless tobacco, make-your-own, and premium manufactured cigarettes
           operating segments. The smokeless tobacco segment manufactures and
           distributes smokeless tobacco products under the Beech-Nut, Durango,
           Trophy and Havana Blossom brand names. The make-your-own segment
           imports and distributes premium cigarette papers, smoking tobaccos
           and related products under the Zig-Zag brand name. The premium
           cigarette segment contract manufactures and distributes premium
           manufactured cigarettes through wholesale distributors in selected
           areas of the United States.

           National Tobacco Company, L.P. (a limited partnership) was formed and
           acquired the smokeless tobacco division of Lorillard, Inc. in 1988.
           On April 14, 1992, the general partner and majority owner and certain
           limited partners sold their partnership interest to a new general
           partner. Accordingly, the April 1992 transaction was accounted for as
           the formation of a new entity, National Tobacco Company, L.P. (the
           Partnership). Certain members of management of the Partnership formed
           NTC Holding, LLC (the Holding Company), a limited liability company
           with a finite life expiring December 31, 2100, and caused the Holding
           Company to form National Tobacco Finance Corporation (the Finance
           Corporation), a wholly-owned subsidiary of the Holding Company.

           On May 17, 1996, the Partnership was recapitalized and the Holding
           Company acquired a 99% limited partnership interest in the
           Partnership and the Finance Corporation became the sole general
           partner and owner of the remaining 1% interest of the Partnership.
           Accordingly, this transaction was accounted for as the formation of a
           new entity under the purchase method of accounting.

           On May 19, 1997, certain members of management and holders of
           membership interests in the Holding Company formed a corporation
           named North Atlantic Trading Company, Inc. (the "Corporation"). On
           June 25, 1997, the Corporation acquired the membership interests in
           the Holding Company and the Holding Company transferred all of its
           assets to the Corporation, including its limited partnership interest
           in the Partnership, all of the capital stock of the Finance
           Corporation, and its rights to acquire NATC Holdings USA, Inc.
           ("NATC"). The Corporation then formed North Atlantic Operating
           Company, Inc. ("NAOC"), a Delaware corporation and wholly-owned
           subsidiary of the Corporation. NAOC then exercised its rights to
           acquire all of the outstanding capital stock of NATC. NATC and its
           wholly-owned subsidiary were then merged into NAOC.

           On April 10, 2003, North Atlantic Cigarette Company, Inc. was formed
           to contract manufacture and distribute premium manufactured
           cigarettes.

           On November 17, 2003, the Company purchased all of the common stock
           of Stoker, Inc. ("Stoker"). See Note 3, "Acquisition of Business".
           Stoker is the parent of the wholly-owned subsidiaries, Fred Stoker &
           Sons, Inc. and RBJ Sales, Inc.

2.         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

           CONSOLIDATION: The consolidated financial statements include the
           accounts of the Company and its wholly-owned subsidiaries. All
           significant intercompany transactions have been eliminated.


                                      F-7
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)


2.         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

           REVENUE RECOGNITION: The Company recognizes revenues and the related
           costs upon transfer of title and risk of loss to the customer. The
           Company classifies customer rebates as sales deductions in accordance
           with the requirements of Emerging Issues Task Force Issue No. 01-09
           and classifies shipping costs incurred as a component of cost of
           goods sold in accordance with the requirements of Emerging Issues
           Task Force Issue No. 00-10.

           SHIPPING COSTS: The Company records shipping costs incurred as a
           component of selling, general and administrative expenses. Shipping
           costs incurred were $2,790, $2,583, and $2,560 in 2003, 2002, and
           2001, respectively.

           RESEARCH AND DEVELOPMENT COSTS: Research and development costs are
           expensed as incurred. These expenses, classified as selling and
           administrative expenses, were $577 in 2003, $539 in 2002, and $487 in
           2001.

           CASH AND CASH EQUIVALENTS: The Company considers any highly liquid
           investments with a maturity of three months or less from the date of
           purchase to be cash equivalents.

           INVENTORIES: Inventories are stated at the lower of cost or market.
           Cost is determined using the last-in, first-out ("LIFO") method for
           approximately 92% of the inventories. Leaf tobacco is presented in
           current assets in accordance with standard industry practice,
           notwithstanding the fact that such tobaccos are carried longer than
           one year for the purpose of curing.

           FIXED ASSETS: Fixed assets are stated at cost less accumulated
           depreciation. Depreciation is provided using the straight-line method
           over the estimated useful lives of the related assets (4 to 7 years
           for machinery, equipment and furniture, and 25 years for buildings).
           Expenditures for repairs and maintenance are charged to expense as
           incurred. The costs of major renewals and betterments are capitalized
           and depreciated over their estimated useful lives. Upon disposition
           of fixed assets, the costs and related accumulated depreciation
           amounts are relieved and any resulting gain or loss is reflected in
           operations during the period of disposition.

           GOODWILL AND OTHER INTANGIBLE ASSETS: Effective January 1, 2002, the
           Company adopted Statement of Financial Accounting Standards No. 142,
           "Goodwill and Other Intangible Assets" ("SFAS No. 142"). The
           Statement addresses financial accounting and reporting for acquired
           goodwill and other intangible assets and supersedes Accounting
           Principles Board Opinion No. 17, "Intangible Assets" and amends
           Statement of Financial Accounting Standards No. 121, "Accounting for
           the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
           Disposed Of" ("SFAS No. 121"), to exclude from its scope goodwill and
           intangible assets that are not amortized. SFAS No. 121 was
           subsequently superseded by Statement of Financial Accounting
           Standards No. 144, "Accounting for the Impairment or Disposal of
           Long-Lived Assets" ("SFAS No. 144").

           SFAS No. 142 addresses how goodwill and other intangible assets
           should be accounted for after they have been initially recognized in
           the financial statements. Under SFAS No. 142, goodwill is no longer
           to be amortized but reviewed for impairment annually or more
           frequently if certain indicators arise, using a two-step approach.
           SFAS No. 142 was effective January 1, 2002 and the Company was
           required to complete step one of a transitional impairment test by
           June 30, 2002 and to complete step two of the transitional impairment
           test, if step one indicated that the reporting unit's carrying value
           exceeds its fair value by December 31, 2002. Any impairment loss


                                      F-8
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)


2.         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

           resulting from the transitional impairment test was required to be
           recorded as a cumulative effect of a change in accounting principle
           in the quarter ended March 31, 2002. Any subsequent impairment losses
           will be reflected in operating income in the consolidated statement
           of operations. The net goodwill balances attributable to each of the
           Company's reporting units were tested for impairment by comparing the
           fair value of each reporting unit to its carrying value as of
           December 31, 2003. Fair value was determined by using the valuation
           technique of calculating the present value of estimated expected
           future cash flows (using a discount rate commensurate with the risks
           involved). The Company has reported that no impairment of goodwill
           has been incurred as of December 31, 2003.

           DEFERRED FINANCING COSTS: Deferred financing costs are amortized over
           the terms of the related debt obligations using the effective
           interest method.

           INCOME TAXES: The Company records the effects of income taxes under
           the liability method in which deferred income tax assets and
           liabilities are recognized based on the difference between the
           financial and tax basis of assets and liabilities using the enacted
           tax rates in effect for the years in which the differences are
           expected to reverse.

           ADVERTISING AND PROMOTION: Advertising and promotion costs, including
           point of sale materials, are expensed as incurred and amounted to
           $2,658, $911, and $1,030 for the years ending December 31, 2003, 2002
           and 2001, respectively.

           FINANCIAL INSTRUMENTS: The Company adopted Statement of Financial
           Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
           Instruments and Hedging Activities" on January 1, 2001, resulting in
           a cumulative effect adjustment to increase other comprehensive income
           by $28. Forward contracts that qualify as hedges are adjusted to
           their fair value through other comprehensive income as determined by
           market prices on the measurement date. Gains and losses on these
           contracts are transferred from other comprehensive income into net
           income as the related inventories are sold.

           STOCK-BASED COMPENSATION: The Company measures stock compensation
           costs related to the stock options described in Note 15 on the fair
           value based method which is the preferred method under the provisions
           of Statement of Financial Accounting Standards (SFAS) No. 123,
           "Accounting for Stock-Based Compensation." The fair value based
           method requires compensation cost for stock options to be recognized
           based on the fair value of stock options granted.

           COMPUTATION OF EARNINGS PER COMMON SHARE: Basic earnings per common
           share is computed by dividing the net income (loss) applicable to
           common shares by the weighted average number of common shares
           outstanding during the period.

           Diluted earnings per share is computed by dividing the net income
           (loss) applicable to common shares by the weighted average number of
           common and common equivalent shares (warrants and stock options),
           where dilutive, outstanding during the period.

           RISKS AND UNCERTAINTIES: Manufacturers and sellers of tobacco
           products are subject to regulation at the federal, state and local
           levels. Such regulations include, among others, labeling
           requirements, limitations on advertising, and prohibition of sales to
           minors. The trend in recent years has been toward increased


                                      F-9
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)


2.         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

           regulation of the tobacco industry. There can be no assurance as to
           the ultimate content, timing or effect of any regulation of tobacco
           products by any federal, state or local legislative or regulatory
           body, nor can there be any assurance that any such legislation or
           regulation would not have a material adverse effect on the Company's
           financial position, results of operations or cash flows.

           The tobacco industry has experienced and is experiencing significant
           product liability litigation. Most tobacco liability lawsuits have
           been brought against manufacturers and sellers of cigarettes for
           injuries allegedly caused by smoking or by exposure to smoke.
           However, several lawsuits have been brought against manufacturers and
           sellers of smokeless tobacco for injuries to health allegedly caused
           by use of smokeless tobacco. Typically, such claims assert that use
           of smokeless tobacco is addictive and causes oral cancer. As
           discussed in Note 19, the Company was named as a defendant in such a
           lawsuit. There can be no assurance that the Company will not sustain
           losses in connection with such lawsuits and that such losses will not
           have a material adverse effect on the Company's financial position,
           results of operations or cash flows or that additional lawsuits will
           not be brought against the Company.

           Forty-six states, certain U.S. territories and the District of
           Columbia are parties to the Master Settlement Agreement ("MSA") and
           the Smokeless Tobacco Master Settlement Agreement ("STMSA"). To the
           Company's knowledge, the other signatories to the MSA are 49
           cigarette manufacturers and/or distributors and the only other
           signatory to the STMSA is US Smokeless Tobacco Company. In the
           Company's opinion, the fundamental basis for each agreement is the
           states' consents to withdraw all claims for monetary, equitable and
           injunctive relief against certain tobacco products manufacturers and
           others and, in return, the signatories have agreed to certain
           marketing restrictions and regulations as well as certain payment
           obligations.

           Pursuant to the MSA and subsequent states' statutes, a "cigarette
           manufacturer" (which is defined to also include make-your-own
           cigarette tobacco) has the option of either becoming a signatory to
           the MSA or opening, funding and maintaining an escrow account, with
           subaccounts on behalf of each settling state. The STMSA has no
           similar provisions. The MSA escrow accounts are governed by states'
           statutes that expressly give the manufacturers the option of opening,
           funding and maintaining an escrow account in lieu of becoming a
           signatory to the MSA. The statutes require companies, who are not
           signatories to the MSA, to deposit, on an annual basis, into
           qualified banks escrow funds based on the number of cigarettes or
           cigarette equivalents, i.e., the pounds of MYO tobacco, sold. The
           purpose of these statutes is expressly stated to be to eliminate the
           cost disadvantage the settling manufacturers have as a result of
           entering into the MSA. Such companies are entitled to direct the
           investment of the escrowed funds and withdraw any appreciation, but
           cannot withdraw the principal for twenty-five years from the year of
           each annual deposit, except to withdraw funds deposited pursuant to
           an individual state's escrow statute to pay a final judgment to that
           state's plaintiffs in the event of such a final judgment against the
           Company. Either option - becoming a MSA signatory or establishing an
           escrow account - is permissible.

           NAOC and Stoker have chosen to open and fund an MSA escrow account as
           its means of compliance. As of December 31, 2003, NAOC has funded a
           total of approximately $2.0 million into its account and Stoker
           approximately $2.9 million into its account. It is management's
           opinion, due to the possibility of future federal or state
           regulations, though none have to date been enacted, that entering
           into one or both of the settlement agreements or establishing and


                                      F-10
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)


2.         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

           maintaining an escrow account would not necessarily prevent future
           regulations from having a material adverse effect on the results of
           operations, financial position and cash flows of the Company.

           Various states have enacted or proposed complementary legislation
           intended to curb the activity of certain manufacturers and importers
           of cigarettes that are selling into MSA states without signing the
           MSA or who have failed to properly establish and fund a qualifying
           escrow account. To date, no such statute has been enacted which could
           inadvertently and negatively impact the Company, which has been and
           is currently fully compliant with all applicable laws, regulations
           and statutes, but there can be no assurance that the enactment of any
           such complementary legislation in the future will not have a material
           adverse effect on the results of operations, financial position or
           cash flows of the Company.

           Pursuant to the MSA escrow account statutes, in order to be compliant
           with the MSA escrow requirements, the Company is required to deposit
           such funds for each calendar year into a qualifying escrow account by
           April 15 of the following year. As of December 31, 2003, the Company
           has recorded approximately $8,282 in Other Non-Current Assets. During
           2003, approximately $3,303 was deposited into a qualifying escrow
           account. As of December 31, 2003 the escrow balance is approximately
           $4,865, which represents the total deposit balance plus approximately
           $15 interest earned thereon. The remaining amount of approximately
           $3,417 relates to 2003 and will be deposited by April 15, 2004. The
           Company is entitled to direct the investment of the escrow funds and
           is allowed to withdraw any appreciation, but cannot withdraw the
           principal for twenty-five years from the year of each annual deposit,
           except to withdraw funds deposited pursuant to an individual state's
           escrow statute to pay a final judgment to that state's plaintiffs in
           the event of such a judgment against the Company.

           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, disclosure of contingent assets
           and liabilities as of the dates of the financial statements and the
           reported amounts of revenues and expenses during the reporting
           periods. Actual results could differ from those estimates. The
           Company's significant estimates include those affecting the valuation
           and useful lives of property, plant and equipment and goodwill and
           other intangible assets, assumptions used in determining pension and
           postretirement benefit obligations, accrued and deferred income taxes
           and litigation contingencies.

           CONCENTRATION OF CREDIT RISK: At December 31, 2003 and 2002, the
           Company had bank deposits in excess of federally insured limits of
           approximately $8.7 million and $1.2 million, respectively.

           The Company sells its products to distributors and retail
           establishments throughout the United States. A single customer
           accounted for 21.7%, 13.1% and 10.1% of the Company's revenues in
           2003, 2002 and 2001, respectively. The Company performs periodic
           credit evaluations of its customers and generally does not require
           collateral on trade receivables. As of December 31, 2003, Cod
           Company, Inc., the Company's largest customer, accounted for 42.1% of
           the outstanding accounts receivable balances. Historically, the
           Company has not experienced significant credit losses.


                                      F-11
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)


2.         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

           ACCOUNTS RECEIVABLE: Accounts receivable are recognized at their net
           realizable value. The activity of allowance for doubtful accounts
           during 2003 and 2002 is as follows (in thousands):

<TABLE>
<CAPTION>
                                                                   2003            2002
                                                               -----------     ------------
<S>                                                            <C>             <C>
              Balance at beginning of period                   $       448     $        350
              Provision for doubtful accounts                          121               96
              Charge offs, net                                        (202)               2
                                                               -----------     ------------
              Balance at end of period                         $       367     $        448
                                                               ===========     ============
</TABLE>

           OTHER EXPENSE: Other expense of $11.1 million in 2003 represents $7.4
           million associated with the judgment rendered against the Company in
           connection with the litigation with Republic Tobacco, Inc. as
           described in Note 19, "Contingency" under "Kentucky and Illinois
           Complaints" and $3.3 million associated with the termination of the
           Star Cigarette Asset Purchase Agreement, as described in Note 22,
           "Terminated Asset Purchase Agreement". Other expense of $1.9 million
           and $2.6 million in 2002 and 2001, respectively, consists primarily
           of legal, investigative and related expenses with respect to the
           infringement activities involving Zig-Zag premium cigarette papers.

3.         ACQUISITION OF BUSINESS:

           On November 17, 2003, the Company acquired the common stock of
           Stoker. Stoker, headquartered in Dresden, Tennessee, manufactures and
           markets smokeless tobacco and make-your-own ("MYO") tobacco and
           related products under various brand names. This acquisition is
           expected to significantly increase net sales and cash flows. The
           Company also believes that gross margins will improve as a result of
           the increased net sales coupled with the elimination of certain costs
           related to Stoker's historical operations and the consolidation of
           facilities and functions.

           The purchase price of $22.5 million in cash was financed with
           borrowings under the Tranche B term loan in the existing senior
           credit facility. The acquisition has been accounted for under the
           purchase method, and the results of Stoker have been included in the
           Company's consolidated results from the date of acquisition.

           The aggregate purchase price consists of (in thousands):

              Cash                                       $      22,500
              Transaction costs                                    822
                                                         -------------
              Total aggregate purchase price             $      23,322
                                                         =============


                                      F-12
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)


3.         ACQUISITION OF BUSINESS, CONTINUED:

           The following summarizes the estimated fair values of the assets
           acquired and liabilities assumed at the date of acquisition (in
           thousands):

                   Cash                                            $    1,672
                   Accounts receivable                                    906
                   Inventories                                          3,403
                   Property, plant and equipment                        2,180
                   Other intangible assets                              9,922
                   Other assets and restricted escrow funds             6,568
                   Accounts payable                                      (559)
                   Pension plan liability                                (750)
                   Accrued expenses                                    (2,028)
                   Income taxes payable                                (1,845)
                   Deferred income taxes                               (1,249)
                                                                  -----------
                                                                       18,220
                   Goodwill                                             5,102
                                                                  -----------
                   Aggregate purchase price                        $   23,322
                                                                  ===========


           In connection with the other intangible assets relating to the Stoker
           acquisition, see Note 7.

           The unaudited pro forma combined historical results, as if Stoker had
           been acquired at the beginning of fiscal 2003 and 2002, respectively,
           are estimated to be:

<TABLE>
<CAPTION>
                                                             2003                    2002
                                                       ---------------         ---------------
<S>                                                    <C>                     <C>
                    Net sales                          $       126,162         $       121,407
                    Net income (loss)                  $        (4,186)        $         7,795
                    Earnings per share -
                          Basic                        $         (7.92)        $         14.76
                          Assuming dilution            $         (7.92)        $         11.72
</TABLE>


           The pro forma results are not necessarily indicative of what actually
           would have occurred if the acquisition had been completed as of the
           beginning of each fiscal period presented, nor are they necessarily
           indicative of future consolidated results.

           As part of an employment agreement between the Company and the former
           President of Stoker, the Company agreed to pay $300 per annum for a
           period of three years relating to employee non-competition.

           On November 17, 2003, Stoker terminated its employee defined benefit
           plan. As part of the stock purchase agreement, the shareholders of
           Stoker agreed to fund $750 in a restricted escrow account to fund
           future payments to current and retired Stoker employees.


                                      F-13
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)


4.         FAIR VALUE OF FINANCIAL INSTRUMENTS:

           The following disclosure of the estimated fair value of financial
           instruments is made in accordance with the requirements of SFAS No.
           107, "Disclosure About Fair Value of Financial Instruments," as
           amended by SFAS No. 126. The estimated fair value amounts have been
           determined by the Company using the methods and assumptions described
           below. However, considerable judgment is required to interpret market
           data to develop estimates of fair value. Accordingly, the estimates
           presented herein are not necessarily indicative of the amounts the
           Company could realize in a current market exchange. The use of
           different market assumptions and/or estimation methodologies may have
           a material effect on the estimated fair value amounts.

                CASH AND CASH EQUIVALENTS: Cash and cash equivalents are by
                definition short-term and the carrying amount is a reasonable
                estimate of fair value.

                ACCOUNTS RECEIVABLE:  The fair value of accounts receivable
                approximates their carrying value.

                NOTES PAYABLE AND LONG-TERM DEBT: The fair value of the notes
                payable and long-term debt approximates their carrying value.


5.         INVENTORIES:

           The components of inventories at December 31 are as follows (in
           thousands):

<TABLE>
<CAPTION>
                                                           2003                     2002
                                                      ---------------         ---------------
<S>                                                  <C>                     <C>
         Raw materials and work in process            $         5,996         $         3,111
         Leaf tobacco                                           8,274                  10,328
         Finished goods - loose leaf tobacco                    6,018                   4,174
         Finished goods - MYO products                          6,323                   4,722
         Other                                                  1,350                     728
                                                      ---------------         ---------------
                                                               27,961                  23,063
         LIFO reserve                                          14,296                  17,755
                                                      ---------------         ---------------
                                                      $        42,257         $        40,818
                                                      ===============         ===============
</TABLE>

           The reduction of LIFO inventory quantities decreased net income of
           the Company by approximately $3,500 and $2,400 for the years ended
           December 31, 2003 and 2002, respectively.

           The LIFO inventory value is in excess of its current estimated
           replacement cost by the amount of the LIFO reserve.

           At December 31, 2003, the Company recorded an inventory valuation
           allowance of $218 related to unusable inventories.



                                      F-14
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)


6.         PROPERTY, PLANT AND EQUIPMENT:

           Property, plant and equipment at December 31 consists of (in
           thousands):

<TABLE>
<CAPTION>
                                                                                          2003                    2002
                                                                                     ---------------         ---------------
<S>                                                                                  <C>                     <C>
         Land                                                                        $           654         $           654
         Buildings and improvements                                                            4,363                   3,888
         Machinery and equipment                                                               9,250                   6,864
         Furniture and fixtures                                                                3,164                   2,419
                                                                                     ---------------         ---------------
                                                                                              17,431                  13,825
         Accumulated depreciation                                                             (9,121)                 (8,667)
                                                                                     ---------------         ---------------
                                                                                     $         8,310         $         5,158
                                                                                     ===============         ===============

7.         GOODWILL AND OTHER INTANGIBLE ASSETS:

           Goodwill at December 31 consists of (in thousands):
                                                                                          2003                    2002
                                                                                     ---------------         ---------------
         NTC goodwill, net of accumulated amortization of $4,500 at December
               31, 2003 and 2002                                                     $        27,450         $        27,450
         NAOC goodwill, net of accumulated amortization of $21,175 at December
               31, 2003 and 2002                                                              96,107                  96,107
         Stoker goodwill (see Note 3)                                                          5,102                       -
                                                                                     ---------------         ---------------
                                                                                     $       128,659         $       123,557
                                                                                     ===============         ===============
</TABLE>

<TABLE>
<CAPTION>
                                                                                                    PREMIUM
                                                                                                  MANUFACTURED
                                                               SMOKELESS              MYO          CIGARETTES             TOTAL
                                                               ---------              ---          ----------             -----
<S>                                                           <C>                 <C>             <C>                  <C>
         Balance as of January 1, 2003                          $ 27,450           $ 96,107         $     -             $ 123,557
         Purchase of Stoker                                        3,224              1,878               -                 5,102
                                                               ---------          ---------        --------            ----------
         Balance as of December 31, 2003                        $ 30,674           $ 97,985         $     -             $ 128,659
                                                               =========          =========        ========            ==========
</TABLE>

           The following table summarizes information about the Company's
           allocation of other intangible assets. Other intangibles, all of
           which relate to the purchase of Stoker, consist of (in thousands):


                                      F-15
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)


7.         GOODWILL AND OTHER INTANGIBLE ASSETS, CONTINUED:

<TABLE>
<CAPTION>
                                                                                                      AS OF
                                                                                                DECEMBER 31, 2003
                                                                                     ---------------------------------------
                                                                                     GROSS CARRYING            ACCUMULATED
                                                                                         AMOUNT                AMORTIZATION
                                                                                     ---------------         ---------------
<S>                                                                                  <C>                     <C>
         Unamortized indefinite life intangible assets
               Trade names                                                           $         8,500         $             -
               Formulas                                                                           51                       -
                                                                                     ---------------         ---------------
         Total                                                                       $         8,551         $             -
                                                                                     ===============         ===============
         Amortized intangible assets:
               Customer list (useful life of 10 years)                               $         1,400         $            17
               Non-compete agreement (useful life of 3 years)                                    900                      50
                                                                                     ---------------         ---------------
                                                                                     $         2,300         $            67
                                                                                     ===============         ===============
</TABLE>


           The Company amortizes the non-competition agreement over its life of
           3 years. Amortization expense for other intangibles was approximately
           $67 for the year ending December 31, 2003. Estimated future
           amortization expense is $440 for each of the years ending December
           31, 2004 and 2005, $390 for the year ending December 31, 2006, and
           $140 for the years ending December 31, 2007 and 2008.

8.         OTHER ASSETS:

           Other assets at December 31, 2003 and 2002 includes loans and accrued
           interest to the principal shareholder of $1,559 and $1,488,
           respectively, amounts related to the MSA escrow account of $9,032 and
           $2,092, respectively.

9.         DEFERRED FINANCING COSTS:

           Deferred financing costs at December 31 consist of (in thousands):

<TABLE>
<CAPTION>
                                                                             2003                    2002
                                                                       ---------------         ---------------
<S>                                                                   <C>                     <C>
            Deferred financing costs, net of accumulated
               amortization of $8,917 and $7,532 at
               December 31, 2003 and 2002, respectively                $         5,163         $         2,642
                                                                       ===============         ===============
</TABLE>

           In connection with the refinancing of the Company's debt on February
           17, 2004, the Company will evaluate, during the first quarter of
           2004, the need to expense deferred financing costs outstanding as of
           December 31, 2003.


                                      F-16
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)


10.        NOTES PAYABLE AND LONG-TERM DEBT:

           Notes payable and long-term debt at December 31 consists of (in
           thousands):

                                         2003                    2002
                                    ---------------         ---------------
               Senior notes         $       155,000         $       155,000
               Notes payable                 30,686                       -
                                    ---------------         ---------------
                                    $       185,686         $       155,000
                                    ===============         ===============


           On June 25, 1997, the Company issued $155.0 million of 11% Senior
           Notes due 2004 (the "Notes") which were called for redemption on
           April 2, 2004. The Notes are unsecured senior obligations of the
           Company which were scheduled to mature on June 15, 2004. The Notes
           bear interest at 11% per annum, payable semiannually on June 15 and
           December 15, to holders of record at the close of business on the
           June 1 or December 1 immediately preceding the interest payment date.

           At December 31, 2003, the Company was operating under a Loan
           Agreement (the "Loan Agreement"), dated December 31, 2000, with Bank
           One, Kentucky, NA. as Agent (the "Agent"), and the banks named
           therein, which provided for a $25.0 million term loan and a $10.0
           million revolving credit facility. The Term Loan was payable in eight
           (8) quarterly installments of $3,125 million each plus accrued
           interest, which commenced on March 31, 2001. Both the term loan and
           the revolving credit facility matured on December 31, 2002, at which
           time the term loan was paid in full. On December 31, 2002, the
           Company entered into an Amended Loan Agreement (the "Amended Loan
           Agreement") with Bank One in which the revolving credit facility was
           increased to $20 million and extended to December 31, 2003. During
           2003, the Amended Loan Agreement was amended to reduce the revolving
           credit facility to $15.0 million and to extend the maturity to March
           31, 2004. The unused portion of revolving credit facility at December
           31, 2003 amounted to $8.7 million. The Company paid a commitment fee
           of 0.50% per annum on a quarterly basis on the unused balance of the
           revolving credit facility. The outstanding amounts relating to the
           revolving credit facility as of December 31, 2003 and 2002 have been
           classified as current liabilities in the Consolidated Balance Sheet.
           All terms of the original Loan Agreement remained in place except for
           the replacement of a Fixed Charge Coverage Covenant with an Interest
           Coverage Covenant. The Company's obligations under the Loan Agreement
           were guaranteed by National Tobacco, NAOC and NTFC. In addition, the
           Company's obligations were collateralized by all of the Company's
           assets and the Company's equity in its subsidiaries. The interest
           rate on borrowings under the Amended Loan Agreement was based, at the
           Company's option, on either LIBOR or the prime rate as announced by
           the Agent from time to time. At December 31, 2003, the Notes Payable
           outstanding under the Tranche B term loan portion consisted of $7.7
           million incurred to finance the posting of a $7.7 million judgment
           bond (including accrued interest and fees) in connection with the
           litigation with Republic Tobacco (See Note 19, Contingencies) and
           $23.0 million to finance the acquisition of Stoker (See Note 3,
           Acquisition of Business). As of December 31, 2003, the interest rate
           on borrowings under the Amended Loan Agreement was 5.15%.

           The Loan Agreement and the Senior Notes included cross default
           provisions and limited the incurrence of additional indebtedness,
           dividends, transactions with affiliates, asset sales, acquisitions,


                                      F-17
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)


10.        NOTES PAYABLE AND LONG-TERM DEBT, CONTINUED:

           mergers, prepayments of indebtedness, liens and encumbrances, and
           other matters. At December 31, 2003, the Company was in compliance
           with all provisions of the Amended Loan Agreement and Senior Notes.

           At December 31, 2003, the Senior Notes and Notes Payable were
           reclassified as noncurrent liabilities in the Consolidated Balance
           Sheet, reflecting the Company's intention and ability to refinance
           the Amended Loan Agreement and. Senior Notes, as described above.

           On February 17, 2004, the Company consummated the refinancing of its
           existing debt and preferred stock. The refinancing consisted
           principally of (1) the offering and sale of $200.0 million principal
           amount of the Senior Notes (the "New Senior Notes") by the Company,
           (2) the entering into of an amended and restated loan, agreement that
           provides a $50.0 million senior secured revolving credit facility to
           the Company and (3) the concurrent sale of $97.0 million aggregate
           principal amount at maturity of senior discount notes of North
           Atlantic Holding Company, Inc. (the "Parent").

           The New Senior Notes are senior unsecured obligations of the Company
           and will mature on March 1, 2012. The New Senior Notes bear interest
           at the rate of 9 1/4% per annum from the date of issuance, or from
           the most recent date to which interest has been paid or provided for,
           and is payable semiannually on March 1 and September 1 of each year,
           commencing on September 1, 2004. The Company will not be required to
           make mandatory redemptions or sinking fund payments prior to the
           maturity of the Notes.

           On and after March 1, 2008, the Notes will be redeemable, at the
           Company's option, in whole at any time or in part from time to time,
           upon not less than 30 nor more than 60 days prior notice at the
           following redemption prices (expressed in percentages of principal
           amount), if redeemed during the 12-month period commencing March 1 of
           the years set forth below, plus accrued and unpaid interest to the
           redemption date (subject to the right of holders of record on the
           relevant record date to receive interest due on the relevant interest
           payment date):

           YEAR                                         REDEMPTION PRICE
           ----                                         ----------------

           2008                                             104.625%
           2009                                             102.313%
           2010 and thereafter                              100.000%


           In addition, prior to March 1, 2008, the Company may redeem the
           Notes, at its option, in whole at any time or in part from time to
           time, upon not less than 30 nor more than 60 days prior notice at a
           redemption price equal to 100% of the principal amount of the Notes
           redeemed plus a "make-whole" premium based on U.S. Treasury rates as
           of, and accrued and unpaid interest to, the applicable redemption
           date.

           In addition, at any time prior to March 1, 2007, the Company may, at
           its option, redeem up to 35% of the aggregate principal amount of the
           Notes with the Net Cash Proceeds of one or more Equity Offerings by
           Parent or the Company so long as there is a Public Market at the Time
           of such redemption, at a redemption price equal to 109.250% of the


                                      F-18
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)


10.        NOTES PAYABLE AND LONG-TERM DEBT, CONTINUED:

           principal amount thereof, plus accrued and unpaid interest thereon,
           if any, to the date of redemption; provided, however, that after any
           such redemption at least 65% of the aggregate principal amount of the
           Notes issued under the Indenture remains outstanding. In order to
           effect the foregoing redemption with the proceeds of any Equity
           Offering, the Company shall make such redemption not more than 60
           days after the consummation of any such Equity Offering.

           In connection with the refinancing, the Company also amended and
           restated the existing credit facility, resulting in a new $50.0
           million (reducing to $40.0 million in August 2005) senior revolving
           credit facility with Bank One, N.A. as agent (the "Agent Bank") and
           La Salle Bank, National Association. The credit agreement (the "New
           Credit Agreement") governing the new senior revolving credit facility
           includes a letter of credit sublimit of $25.0 million and terminates
           three years from the closing date. The Company will use the new
           senior revolving credit facility for working capital and general
           corporate purposes.

           Indebtedness under the New Credit Agreement is guaranteed by each of
           the Company's current and future direct and indirect subsidiaries,
           and is secured by a first perfected lien on substantially all of the
           Company's and the Company's direct and indirect subsidiaries' current
           and future assets and property. The collateral includes a pledge by
           the Parent of its equity interest in the Company and a first priority
           lien on all equity interest and intercompany notes held by the
           Company and its subsidiaries.

           Each advance under the New Credit Agreement will bear interest at
           variable rates based, at the Company's option, on either the prime
           rate plus 1% or LIBOR plus 3%. The New Credit Agreement provides for
           voluntary prepayment, subject to certain exceptions, of loans. In
           addition, without the prior written consent of the Agent Bank, the
           Company will not allow a Change in Control (as defined in the New
           Credit Agreement), the sale of any material part of its assets and
           the assets of its subsidiaries on a consolidated basis or, subject to
           certain exceptions, the issuance of equity or debt.

           Under the new senior revolving credit facility, the Company is
           required to pay the lenders under the New Credit Agreement a closing
           fee equal to 1.25% of the aggregate commitments, payable on the
           closing date, and an annual commitment fee in variable amounts
           ranging from 0.50% to 0.65% of the difference between the commitment
           amount and the average usage of the facility, payable on a quarterly
           basis, on the undrawn and unused portion of the credit facility. The
           Company is also required to pay to the lenders, letter of credit fees
           equal to 3.00% per annum multiplied by the maximum a mount available
           from time to time to be drawn under such letter of credit issued
           under the New Credit Agreement and to the lender issuing a letter of
           credit a fronting fee of 0.125% per annum multiplied by the aggregate
           face amount of letters of credit outstanding during a fiscal quarter
           plus other customary administrative, amendment, payment and
           negotiation charges in connection with such letters of credit.

           The New Credit Agreement requires the Company and its subsidiaries to
           meet certain financial tests, including a minimum fixed charge
           coverage ratio, and a minimum consolidated adjusted EBITDA. The New
           Credit Agreement also contains covenants, which among other things,
           limit the incurrence of additional indebtedness, dividends,
           transactions with affiliates, asset sales, acquisitions, mergers,
           prepayments of other indebtedness, liens and encumbrances and other
           matters customarily restricted in such agreements. In addition, the
           New Credit Agreement requires that certain members of Executive


                                      F-19
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)


10.        NOTES PAYABLE AND LONG-TERM DEBT, CONTINUED:

           Management remain active in the day-to-day operation and management
           of the Company and its subsidiaries during the term of the facility.

           The New Credit Agreement contains customary events of default,
           including payment defaults, breach of representations and warranties,
           covenant defaults, cross-acceleration, cross-defaults to certain
           other indebtedness, certain events of bankruptcy and insolvency, the
           occurrence of a Change in Control and judgment defaults.

           Concurrently with the offering of the New Senior Notes, the Parent
           issued $97.0 million aggregate principal amount at maturity ($60.0
           million in gross proceeds) of its senior unsecured discount notes due
           2014. The Parent Notes are Parent's senior obligations and are
           unsecured, ranking equally in right of payment to all of Parent's
           future unsubordinated obligations and senior in right of payment to
           any obligations that are by their terms subordinated to the Parent
           Notes, and will be effectively subordinated to any secured
           obligations of Parent to the extent of the assets securing those
           obligations. The Parent Notes are not be guaranteed by the Company or
           any of its subsidiaries and are structurally subordinated to all of
           the Company and its subsidiaries' obligations, including the New
           Senior Notes.

11.        INCOME TAXES:

           The income tax provision (benefit) for the years ended December 31,
           2003, 2002, and 2001 consists of the following components (in
           thousands):

<TABLE>
<CAPTION>
                                                                   2003                     2002                   2001
                                                             ---------------           --------------          ------------
<S>                                                          <C>                       <C>                     <C>
           Deferred
              Federal                                        $        (3,301)          $        2,876          $      1,828
              State and local                                           (388)                     338                   215
                                                             ---------------           --------------          ------------
                                                             $        (3,689)          $        3,214          $      2,043
                                                             ===============           ==============          ============
</TABLE>

           Deferred tax assets and liabilities at December 31, 2003 and 2002
           consist of (in thousands):

<TABLE>
<CAPTION>
                                                                  2003                                  2002
                                                    --------------------------------      --------------------------------
                                                        ASSETS          LIABILITIES          ASSETS           LIABILITIES
                                                    --------------     -------------      -------------      -------------
<S>                                                 <C>                <C>                <C>                <C>
    Inventory                                       $            -     $       4,654      $           -      $       7,855
    Property, plant and equipment                                -             1,141                319                  -
    Goodwill and other intangible assets                     6,372                 -             12,676              2,697
    Accrued pension and postretirement costs                 5,630                 -              3,739                  -
    Minimum pension liability                                  540                 -                476                  -
    NOL carryforward                                         8,051                 -              6,406                  -
    Other                                                    1,956                 -              1,300                  -
                                                    --------------     -------------      -------------      -------------
    Deferred income taxes                           $       22,549     $       5,795      $      24,916      $      10,552
                                                    ==============     =============      =============      =============
</TABLE>

           At December 31, 2003 the Company had NOL carryforwards for income tax
           purposes of $21.2 million which expire in the years beginning in
           2012.


                                      F-20
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)


11.        INCOME TAXES, CONTINUED:

           The Company has determined that at December 31, 2003, its ability to
           realize future benefits of net deferred tax assets meets the "more
           likely than not" criteria in SFAS No. 109, "Accounting for Income
           Taxes"; therefore, no valuation allowance has been recorded.

           Reconciliation of the federal statutory rate and the effective income
           tax rate for the years ended December 31, 2003, 2002, and 2001 is as
           follows:

                                             2003        2002          2001
                                            ------      ------        ------

           Federal statutory rate            35.0%       35.0%         35.0%
           State taxes                        3.5         3.0          24.3
           Goodwill amortization               -           -          241.8
           Other                             (1.4)       (1.1)         (0.7)
                                            ------      ------        ------

           Effective income tax rate         37.1%       36.9%        300.4%
                                            ======      ======        ======

12.        PENSION AND POSTRETIREMENT BENEFIT PLANS:

           The Company has two defined benefit pension plans covering
           substantially all of its employees. Benefits for the hourly
           employees' plan are based on a stated benefit per year of service,
           reduced by amounts earned in a previous plan. Benefits for salaried
           employees are based on years of service and the employees' final
           compensation.

           The Company sponsors two defined benefit postretirement plans that
           cover both salaried and hourly employees. One plan provides medical
           and dental benefits, and the other provides life insurance benefits.
           The post-retirement health care plan is contributory, with retiree
           contributions adjusted annually; the life insurance plan is
           noncontributory.

           The following tables provide a reconciliation of the changes in the
           plans' benefit obligations and fair value of assets for the years
           ended December 31, 2003 and 2002 and a statement of the funded status
           as of December 31 (in thousands):

<TABLE>
<CAPTION>
                                                                      PENSION BENEFITS                  POSTRETIREMENT BENEFITS
                                                                   2003              2002              2003                 2002
                                                              -------------      -------------    -------------       -------------
<S>                                                           <C>                <C>              <C>                 <C>
Reconciliation of benefit obligation:
    Benefit obligation at January 1                           $     12,737       $     11,280     $      9,351        $      6,695
    Service cost                                                       552                550              728                 421
    Interest cost                                                      803                803              807                 473
    Actuarial loss                                                   1,772                619            3,847               2,098
    Benefits paid                                                     (566)              (515)            (435)               (336)
                                                              -------------      -------------    -------------       -------------
Benefit obligation at December 31                             $     15,298       $     12,737     $     14,298        $      9,351
                                                              =============      =============    =============       =============

Reconciliation of fair value of plan assets:
    Fair value of plan assets at January 1                    $      6,956       $      7,729     $          -        $          -
    Actual return on plan assets                                     1,643               (937)               -                   -
    Employer contributions                                           1,400                679              435                 336
    Benefit paid                                                      (566)              (515)            (435)               (336)
                                                              -------------      -------------    -------------       -------------
Fair value of plan assets at December 31                      $      9,433       $      6,956     $          -        $          -
                                                              =============      =============    =============       =============
Funded status:
    Funded status at December 31                              $     (5,865)      $     (5,781)    $    (14,318)       $     (9,351)
    Unrecognized prior service cost                                      6                  7                -                   -
    Unrecognized net actuarial loss                                  3,032              2,408            4,985               1,527
                                                              -------------      -------------    -------------       -------------

Net amount recognized                                         $     (2,827)      $     (3,366)    $     (9,333)       $     (7,824)
                                                              =============      =============    =============       =============
</TABLE>

                                      F-21
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)

12.       PENSION AND POSTRETIREMENT BENEFIT PLANS, CONTINUED:

The asset allocation for the Company's defined benefit plans as of December 31,
2003 and 2002, and the target allocation for 2004, by asset category, follows:

                                                          Percentage of
                                      Target             Plan Assets at
                                    Allocation          December 31, 2003
                                    ----------          -----------------
                                       2004             2003         2002
                                       ----             ----         ----

         Asset category:
         Equity securities            65.0%            67.0%         69.0%
         Debt Securities              35.0%            33.0%         28.0%
         Cash                          0.0%             0.0%          3.0%
                                    -------          -------       -------
         Total                       100.0%           100.0%        100.0%
                                    =======          =======       =======

          Equity securities  included no shares of the Company's common stock at
          December 31, 2003 or 2002.

          The Company's  investment  philosophy  is to earn a reasonable  return
          without  subjecting  plan assets to undue risk.  The Company  uses one
          management  firm to manage  plan  assets,  which are  invested in high
          quality equity and debt securities. The Company's investment objective
          is to provide long-term growth of capital as well as current income.

          The  following  table  provides the amounts  recognized in the balance
          sheets as of December 31 (in thousands):

<TABLE>
<CAPTION>
                                                             PENSION BENEFITS              POSTRETIREMENT BENEFITS
                                                       ---------------------------    ------------------------------
                                                             2003          2002            2003             2002
                                                       ------------   ------------    ------------      ------------
<S>                                                  <C>             <C>             <C>                <C>
      Accrued benefit cost                             $    (2,827)   $    (3,366)    $    (9,333)      $    (7,824)
      Minimum pension liability                             (1,769)        (1,601)              -                 -
      Deferred tax asset                                       540            476               -                 -
      Accumulated other comprehensive income                 1,229          1,125               -                 -
                                                       ------------   ------------    ------------      ------------

      Net amount recognized                            $    (2,827)   $    (3,366)    $    (9,333)      $    (7,824)
                                                       ============   ============    ============      ============
</TABLE>


                                      F-22
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)

12.        PENSION AND POSTRETIREMENT BENEFIT PLANS, CONTINUED:

           The following table provides the components of net periodic pension
           and postretirement benefit costs for the plans for the years ended
           December 31 (in thousands):

<TABLE>
<CAPTION>
                                                        PENSION BENEFITS                         POSTRETIREMENT BENEFITS
                                          ----------------------------------------      -------------------------------------------

                                               2003           2002          2001            2003            2002            2001
                                          -----------    -----------   -----------      -----------     -----------     -----------
<S>                                      <C>            <C>           <C>              <C>             <C>             <C>
    Service cost                          $      552     $      550   $       558       $      728      $     421      $       379
    Interest cost                                803            803           738              808            473              435
    Expected return on plan assets              (582)          (658)         (716)               -              -                -
    Amortization of gains and losses              85              -           (31)             408              -              (18)
                                          -----------    -----------   -----------      -----------     -----------     -----------

    Net periodic benefit cost             $      858     $       695   $      549       $    1,944      $      894      $      796
                                          ===========    ===========   ===========      ===========     ===========     ===========

           The Company is required to make assumptions regarding such variables
           as the expected long-term rate of return on plan assets and the
           discount rate applied to determine service cost and interest cost.
           The rate of return on assets used is determined based upon analysis
           of the plans' historical performance relative to the overall markets
           and mix of assets. The assumptions listed below represents
           Management's review of relevant market conditions and have been
           adjusted, as appropriate. The weighted average assumptions used in
           the measurement of the Company's benefit obligation are as follows:

                                                    PENSION BENEFITS                POSTRETIREMENT BENEFITS
                                             ---------------------------          --------------------------
                                              2003      2002       2001            2003      2002      2001
                                             ------    ------     ------          ------    ------    ------
    Discount rate                             5.50%     6.75%      7.25%           6.25%     6.75%     7.25%
    Expected return on plan assets            8.50%     8.50%      8.50%              -         -         -
    Rate of compensation increase             4.00%     4.00%      4.00%              -         -         -


           For measurement purposes, the assumed health care cost trend rate for
           participants under age 65 as of December 31, 2003 and 2002 was 12.0%
           and 12.0%, respectively, and for participants age 65 and over the
           rate was 12.0% and 12.0%, respectively. The health care cost trend
           rate was assumed to decline gradually to 5% for pre-age 65 and for
           post-age 65 costs over 27 years.

           Assumed health care cost trend rates could have a significant effect
           on the amounts reported for the postretirement benefit plans. A 1%
           increase in assumed health care cost trend rates would have the
           following effects (in thousands):

                                                                                 2003            2002           2001
                                                                              --------         --------       --------
           Effect on total of service and interest cost                       $    269         $    3         $    2
                components of net periodic postretirement cost

           Effect on the health care component of                             $  2,280         $   49         $   35
                the accumulated postretirement benefit obligation

</TABLE>
           The Company's policy for the plan is to make contributions equal to
           the benefits paid during the year. The Company expects to make $0.5
           million of contributions to the plan in the year ended December 31,
           2004.



                                      F-23
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)

12.        PENSION AND POSTRETIREMENT BENEFIT PLANS, CONTINUED:

           The Company also sponsors a voluntary 401(k) retirement savings plan.
           Eligible employees may elect to contribute up to 15% of their annual
           earnings subject to certain limitations. Through December 31, 1998,
           the Company matched 50% of each eligible participant's contribution
           up to 5% of the participant's compensation for the plan year.
           Beginning January 1, 2002, the Company changed its matching
           contribution policy. The Company match for the Hourly employees was
           increased to 100.0% of each eligible participant's contribution up to
           6% of compensation for the plan year. The Company's matching for
           Hourly employees is subject to a 3-year vesting schedule. The Company
           match for the salaried employees was increased to 100.0% of each
           eligible participant's contribution up to 6% of compensation for the
           plan year. Company matching is immediate for salaried employees.
           Additional discretionary matching contributions by the Company are
           determined annually by the Board of Directors. Company matching
           contributions to this plan were approximately $0.5 million, $0.4
           million and $0.3 million for each of the years ended December 31,
           2003, 2002 and 2001.

13.        LEASE COMMITMENT:

           The Company leases certain office space and vehicles for varying
           periods.

           The following is a schedule of future minimum lease payments for
           operating leases that had initial or remaining non-cancelable lease
           terms in excess of one year as of December 31, 2003, (in thousands):

                                                               OPERATING
                                                                 LEASES
                                                              ----------
                2004                                          $      726
                2005                                                 633
                2006                                                 350
                2007                                                 288
                2008                                                 290
                2009 and beyond                                    1,797
                                                              ----------
                Total minimum lease payments                  $    4,084
                                                              ==========


           Lease expense for the years ended December 31, 2003, 2002 and 2001
           was $840, $786 and $790, respectively.



                                      F-24
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)

14.        MANDATORILY REDEEMABLE PREFERRED STOCK

           On July 1, 2002 the Company commenced a consent solicitation (the
           "Consent Solicitation") from registered holders of its 12% Senior
           Exchange Payment-in-Kind Preferred Stock, par value $0.01 per share
           ("Preferred Stock"), for certain amendments to the certificate of
           incorporation of the Company which would amend the terms of the
           Preferred Stock. The proposed amendments required the consent of the
           holders of a majority of the issued and outstanding shares of common
           stock of the Company and the consent of the holders of a majority of
           the issued and outstanding shares of Preferred Stock. A consent by
           the holders of a majority of the Company's outstanding common stock
           was executed on June 28, 2002. On July 29, 2002, the Consent
           Solicitation was successfully completed, with the Company receiving
           consents from the holders of more than 99% of the outstanding shares
           of Preferred Stock.

           The amendments to the Preferred Stock, among other things: (i)
           accelerated the mandatory redemption date of the Preferred Stock from
           June 15, 2007 to June 15, 2005, which will require the Company to
           redeem the Preferred Stock at an earlier date, (ii) reduced the
           liquidation preference from $25.00 to $22.00 per share, which will
           lower the Company's cost of redeeming the Preferred Stock and will
           lower the amount of dividends payable thereon (which dividends are
           equal to 12% of the liquidation preference per annum), (iii)
           eliminated any redemption premium, which will lower the Company's
           potential cost of redeeming the Preferred Stock prior to June 15,
           2005, (iv) reduced the repurchase price that the Company must offer
           the holders of Preferred Stock upon a change of control from 101% to
           100% of the liquidation preference, which will lower the Company's
           potential cost of any such repurchase obligation, (v) permitted
           future dividends to be paid through the issuance of additional shares
           of preferred stock, which will provide the Company with greater
           flexibility in financing its operations, and (vi) included a
           definition for the term "Permitted Investments", which definition was
           inadvertently omitted from the Certificate of Designation pursuant to
           which the Preferred Stock was created.

           As consideration for these amendments, the Company paid each
           registered holder of Preferred Stock that consented thereto $0.40 per
           share in cash. A total of approximately $985 in consent fees were
           paid. The Company paid an additional amount of approximately $236 in
           legal and other fees related to the Consent Solicitation.

           The Company has recorded the Preferred Stock at its current value in
           the accompanying Balance Sheet. The resulting gain of $5.4 million,
           net of the consent and other fees described above, was recognized in
           the accompanying Statements of Operations for the year ended December
           3 1, 2002.

           The Company's future ability to make dividend payments in cash will
           depend upon the availability of funds and whether the Company has
           satisfied the "restricted payments" provision under the Indenture
           pursuant to which the Senior Notes were issued. Currently, the
           Company can satisfy that provision. Additionally, the Company has
           sufficient authorized and un-issued shares of Preferred Stock to make
           its dividend payments through the issuance of additional shares. For
           the dividend payments on September 15, 2002, December 15, 2002, March
           15, 2003, June 15, 2003, September 15, 2003 and December 15, 2003,
           the Company chose to make this payment in kind.

           Persons affiliated with the initial purchases of the Preferred Stock
           were also issued warrants, with an original fair value of $0.7
           million, to purchase 19,050 shares of common stock of the Company for
           $0.01 per share, exercisable immediately. The original fair value of
           these warrants has been recorded in equity, with a corresponding
           amount capitalized and included in deferred financing costs.



                                      F-25
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)

14.        MANDATORILY REDEEMABLE PREFERRED STOCK, CONTINUED:

           On March 18, 2004, in connection with the refinancing of its existing
           debt, the Company redeemed all outstanding shares of the preferred
           stock, at the applicable redemption price equal to the liquidation
           preference of the preferred stock ($22.00 per share), plus an amount
           in cash equal to all accumulated and unpaid dividends.

15.        SHARE INCENTIVE PLAN:

           The Company has two share incentive plans covering certain key
           employees which provide for the granting of options to purchase
           common stock of the Company and other stock related benefits. As of
           December 31, 2003, no benefits other than the stock options described
           below had been granted. The total number of shares available for
           granting under the plans is 111,856. Stock option activity is
           summarized below:

<TABLE>
<CAPTION>
                                                                        WEIGHTED       WEIGHTED
                                                                        AVERAGE        AVERAGE
                                                        INCENTIVE       EXERCISE      GRANT DATE
                                                         SHARES           PRICE       FAIR VALUE
                                                    -------------     -------------  -------------
<S>                                              <C>                 <C>             <C>
           Outstanding, December 31, 2001           $      61,760     $    18.19     $      26.51

           Granted                                         35,511          85.76            22.97
           Exercised                                           -              -                -
           Forfeited                                      (2,000)        (18.19)          (26.51)
                                                    -------------
           Outstanding, December 31, 2002                  95,271          43.38            25.19

           Granted                                          2,500          90.00            22.75
           Exercised                                            -              -                -
           Forfeited                                      (4,500)        (90.00)          (22.75)
                                                    -------------
           Outstanding, December 31, 2003                  93,271          42.38            26.37
                                                    =============
</TABLE>

           At December 31, 2003, the outstanding stock options' exercise price
           for 61,856 options is $18.19 per share, all of which are exercisable.
           The outstanding stock options' exercise price for 31,415 options is
           $90.00, 9,229 of which are exercisable with the remaining 22,186
           becoming exercisable from 2004 through 2007. All stock options expire
           10 years from the grant date. The weighted average of the remaining
           lives of the outstanding stock options is approximately 3.9 years for
           the options with the $18.19 exercise price and 8.8 years for the
           options with the $90.00 exercise price. The Company estimates that
           all of the stock options granted will be exercised and that the
           expected life of all stock options is five years from the date of
           grant. The weighted average fair value of the options was determined
           as the difference between the fair value of the common stock on the
           grant date and the present value of the exercise price over the
           expected life of five years at a risk free interest rate of 6%, with
           no assumed dividend yield.


                                      F-26
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)


15.        SHARE INCENTIVE PLAN, CONTINUED:

           Of the stock options described above, 47,986 include a provision
           under which the Company will reimburse the employee for the
           difference between their ordinary income tax liability and the
           liability computed using the capital gains rate in effect upon
           exercise of the options. The effect of this provision is accounted
           for as a variable portion of the option plan.

           The Company has recorded compensation expense related to the options
           based on the provisions of SFAS No. 123 under which the fixed portion
           of such expense is determined as the fair value of the options on the
           date of grant and amortized over the vesting period. The variable
           portion of the compensation expense is measured on each reporting
           date with the expense amount adjusted for changes in the fair value
           of the Company's stock on that date. Compensation expense of
           approximately $417, $102 and $33 ($258, $63 and $20, net of deferred
           income tax benefit) has been recognized in the Statements of
           Operations for the years ended December 31, 2003, 2002 and 2001,
           respectively.

16.        INCOME (LOSS) PER COMMON SHARE RECONCILIATION (DOLLARS IN THOUSANDS,
           EXCEPT PER SHARE AMOUNTS):

<TABLE>
<CAPTION>
                                                                               FOR THE YEAR ENDED DECEMBER 31, 2003
                                                                    -----------------------------------------------------
                                                                         INCOME            SHARES            PER SHARE
                                                                       (NUMERATOR)      (DENOMINATOR)         AMOUNT
                                                                    ---------------    ---------------    ---------------

<S>                                                                <C>                <C>                 <C>
Net loss                                                            $       (6,241)
Less:  Preferred stock dividends                                             7,275
                                                                    ---------------
Basic and diluted:
     Net loss available to common stockholders                      $      (13,516)           528,241     $       (25.59)
                                                                    ===============    ===============    ===============

                                                                               FOR THE YEAR ENDED DECEMBER 31, 2002
                                                                    -----------------------------------------------------
                                                                         INCOME            SHARES            PER SHARE
                                                                       (NUMERATOR)      (DENOMINATOR)          AMOUNT
                                                                    ---------------    ---------------    ---------------

Net income                                                          $        5,485
Less:  Preferred stock dividends                                            (6,976)
Plus:  Net gain on restructuring of preferred stock                          5,395
                                                                    ---------------
Basic:
     Net income available to common stockholders                    $        3,904            528,241     $         7.39
                                                                    ===============    ===============    ===============
Diluted:
     Net income available to common stockholders                    $        3,904            664,939     $         5.87
                                                                    ===============    ===============    ===============


                                                                               FOR THE YEAR ENDED DECEMBER 31, 2001
                                                                    -----------------------------------------------------
                                                                         INCOME            SHARES            PER SHARE
                                                                       (NUMERATOR)      (DENOMINATOR)         AMOUNT
                                                                    ---------------    ---------------    ---------------

Net loss                                                            $       (1,364)
Less:  Preferred stock dividends                                            (6,745)
                                                                    ---------------
Basic and diluted:
     Net loss available to common stockholders                      $       (8,109)           528,241     $       (15.35)
                                                                    ===============    ===============    ===============
</TABLE>

                                      F-27
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)


           The calculations above are based on the weighted average number of
           shares of common stock outstanding during the year. For the years
           ended December 31, 2003 and December 31, 2001, common equivalent
           shares from stock options of 93,271 and 61,760 are excluded from the
           computations as their effect is antidilutive. For the years ended
           December 3 1, 2003, 2002 and 2001, warrants of 63,490 are excluded
           from the computations as their effect is antidilutive.

17.        FOURTH QUARTER ADJUSTMENT:

           The fourth quarters of 2003, 2002 and 2001 include net adjustments to
           increase (decrease) the income tax provision by approximately
           ($3,300), $1,300 and $1,490, respectively. The fourth quarters of
           2003 and 2002 also included adjustments to increase the LIFO expense
           by approximately $1.9 million and $1.7 million, net of income tax of
           approximately $1.1 million and $1.0 million, respectively. The fourth
           quarter of 2003 also included adjustments to increase the post
           retirement benefits expense by approximately $1.5 million, as a
           result of year-end actuarial computations.

18.        SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):

           All amounts are in thousands except net income (loss) per share.

<TABLE>
<CAPTION>
                                                                                         QUARTER
                                                       -----------------------------------------------------------------------------
                                                              1ST                 2ND                 3RD                4TH
                                                       ------------------  ------------------  -----------------  -----------------
<S>                                                 <C>                  <C>                   <C>                 <C>
         2003

         Net sales                                            $14,249           $  30,251          $  28,718            $28,375
         Gross profit                                           6,549              17,496             16,882             12,049
         Net income (loss)                                    (5,164)            (11,822)                232              3,237
         Basic net income (loss) per share                     (9.78)             (22.38)               0.44               6.13
         Diluted net income (loss) per share                   (9.78)             (22.38)               0.38               6.13

         2002

         Net sales                                          $  21,952           $  18,218          $  26,014          $  28,241
         Gross profit                                          13,283               9,688             15,477             15,004
         Net income (loss)                                      (305)             (2,575)              6,185                599
         Basic net income (loss) per share                     (0.58)              (4.88)              11.71               1.13
         Diluted net income (loss) per share                   (0.58)              (4.88)               9.46               0.90

</TABLE>


                                      F-28
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)

19.        CONTINGENCIES:

           Kentucky and Illinois Complaints. On July 15, 1998, NAOC and NTC
           filed a complaint (the "Kentucky Complaint") against Republic
           Tobacco, Inc. and its affiliates ("Republic Tobacco") in Federal
           District Court for the Western District of Kentucky. Republic Tobacco
           imports and sells Roll-Your-Own ("RYO") premium cigarette papers
           under the brand names JOB and TOP as well as other brand names. The
           Kentucky Complaint alleges, inter alia, that Republic Tobacco's use
           of exclusivity agreements, rebates, incentive programs, buy-backs and
           other activities related to the sale of premium cigarette papers in
           the southeastern United States violate federal and state antitrust
           and unfair competition laws and that Republic Tobacco defaced and
           directed others to deface NAOC's point of purchase vendor displays
           for premium cigarette papers by covering up the ZIG-ZAG brand name
           and advertising material with advertisements for Republic Tobacco's
           RYO cigarette paper brands. The Kentucky Complaint alleges that these
           activities constitute unfair competition under federal and state
           laws.

           On June 30, 1998, Republic Tobacco filed a complaint against the
           Company, NAOC and NTC in the U.S. District Court of the Northern
           District of Illinois (the "Illinois Complaint") and served it on the
           Company after the institution of the Kentucky action. In the Illinois
           Complaint, Republic Tobacco seeks declaratory relief with respect to
           the Company's claims. In addition, the Illinois Complaint alleges
           that certain actions taken by the Company to inform its customers of
           its claims against Republic Tobacco constitute tortuous interference
           with customer relationships, false advertising, violations of Uniform
           Deceptive Trade Practices and Consumer Fraud Acts, defamation and
           unfair competition. In addition, although not included in its
           original complaint but in its amended complaint, Republic Tobacco
           alleged that the Company has unlawfully monopolized and attempted to
           monopolize the market on a national and regional basis for premium
           cigarette papers. Republic sought unspecified compensatory damages,
           injunctive relief and attorneys fees and costs.

           On October 20, 2000, Republic Tobacco filed a motion to dismiss,
           stay, or transfer the Kentucky Complaint to the Illinois Court. On
           December 19, 2000, the Court denied Republic Tobacco's motion,
           holding that it was premature. The Court noted also that it had
           communicated with the Court in Illinois and that it had concluded
           that Republic Tobacco may not be entitled to any preference on forum
           selection, which would ordinarily be given because it was first to
           file. The Kentucky complaint is still on file.

           Prior to the completion of discovery, the Court dismissed Republic
           Tobacco's antitrust claims against the Company. After discovery was
           completed in 2001, both parties moved for summary judgment on the
           others claims. In April 2002, the District Court for the Northern
           District of Illinois decided the summary judgment motions by
           dismissing all claims of both the Company and Republic Tobacco and
           its affiliates, except for Republic Tobacco's claim of defamation per
           se against the Company, on which it granted summary judgment on
           liability in favor of Republic Tobacco, and a Lanham Act false
           advertising claim, based on the same facts as the defamation claim,
           for equitable relief. In February 2003, the District Court granted
           Republic's motion for summary judgment on the Company's counterclaim
           that Republic tortiously interfered with the Company's business
           relationships and economic advantage. The only claim that remained to
           be tried was Republic's Lanham Act claim and damages on the
           defamation claim on which the Court previously ruled that Republic
           could only obtain equitable relief if successful.


                                      F-29
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)

19.        CONTINGENCIES, CONTINUED:

           On July 8, 2003, following a four day trial, an Illinois jury
           returned a verdict in favor of Republic on the defamation claims of
           $8.4 million in general damages and $10.2 million in punitive
           damages, for a total damage award of $18.6 million. The Company filed
           post-trial motions for a new trial and, in the alternative, for a
           reduction of the awards. On August 1, 2003, the Company posted a
           judgment bond in the amount of $18.8 million with the U.S. District
           Court. This was accomplished by obtaining a $19.0 million senior
           secured term loan pursuant to a July 31, 2003 amendment to the
           Company's existing credit facility. On November 20, 2003, the court
           ruled that the awards were excessive and reduced the awards by
           approximately 60%, with the award of compensatory damages being
           reduced to $3.36 million and the award of punitive damages being
           reduced to $4.08 million, for a total of $7.44 million. On December
           18, 2003, Republic accepted these reduced awards.

           On January 8, 2004, the Company appealed from the final judgment,
           including the finding of liability in this case as well as the amount
           of the award. There can be no assurance, however, that the Company
           will prevail on appeal. On January 22, 2004, Republic filed a general
           notice of cross appeal, but did not specify the issues or claims for
           which it is seeking appellate review. On March 7, 2004, the Company
           filed its opening brief with the Court of Appeals. Republic's brief
           is scheduled to be filed April 7, 2004. The Company and Republic each
           may file reply briefs thereafter.

           LITIGATION RELATED TO ALLEGED PERSONAL INJURY

           West Virginia Complaints. Trial of the West Virginia complaints
           against the smokeless tobacco defendants has been postponed
           indefinitely, as described below. On October 6, 1998 NTC was served
           with a summons and complaint on behalf of 65 individual plaintiffs in
           an action in the Circuit Court of Kanawha County, West Virginia,
           entitled Kelly Allen, et al. v. Philip Morris Incorporated, et al.
           (Civil Action Nos. 98-C-240l). On November 13, 1998, NTC was served
           with a second summons and complaint on behalf of 18 plaintiffs in an
           action in the Circuit Court of Kanawha County, West Virginia,
           entitled Billie J. Akers, et al. v. Philip Morris Incorporated et al.
           (Civil Action Nos. 98-C-2696 to 98-C-2713). The complaints are
           identical in most material respects. In the Allen case, the
           plaintiffs have specified the defendant companies for each of the 65
           cases. NTC is named in only one action. One Akers plaintiff alleged
           use of an NTC product, alleging lung cancer.

           On September 14, 2000, NTC was served with a summons and complaint on
           behalf of 539 separate plaintiffs filed in Circuit Court of Ohio
           County, West Virginia, entitled Linda Adams, et al. v. Philip Morris
           Inc., et al. (Civil Action Nos. 00-C-373 to 00-C-911). Only one of
           these plaintiffs alleged use of a product currently manufactured by
           NTC. The time period during which this plaintiff allegedly used the
           product has not yet been specified. Thus, it is not yet known whether
           NTC is a proper defendant in this case.

           On September 19, 2000, NTC was served with a second summons and
           complaint on behalf of 561 separate plaintiffs filed in Circuit Court
           of Ohio County, West Virginia, entitled Ronald Accord, et al. v.
           Philip Morris Inc., et al. (Civil Action Nos. 00-C-923 to 00-C-1483).
           A total of five of these plaintiffs alleged use of a product
           currently manufactured by NTC. One of these plaintiffs does not
           specify the time period during which the product was allegedly used.
           Another alleges use that covers, in part, a period when NTC did not
           manufacture the product. On motion by cigarette company defendants,


                                      F-30
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)

19.        CONTINGENCIES, CONTINUED:

           this claim was dismissed on February 11, 2004, for failure to follow
           the case management order. Of the remaining three, one alleges
           consumption of a competitor's chewing tobacco from 1966 to 2000 and
           NTC's BEECH-NUT chewing tobacco from 1998 to 2000; another alleges a
           twenty-four year smoking history ending in 1995 and consumption of
           BEECH-NUT chewing tobacco from 1990 to 1995; and the last alleges a
           thirty-five year smoking history ending in 2000, and consumption of
           NTC's DURANGO ICE chewing tobacco from 1990 to 2000 (although DURANGO
           ICE did not come onto the market until 1999).

           In November 2001, NTC was served with an additional four separate
           summons and complaints in actions filed in the Circuit Court of Ohio
           County, West Virginia. The actions are entitled Donald Nice v. Philip
           Morris Incorporated, et al. (Civil Action No. 01-C-479), Korene S.
           Lantz v. Philip Morris Incorporated, et al. (Civil Action No.
           01-C-480), Ralph A. Prochaska, et al. v. Philip Morris, Inc., et al.
           (Civil Action No. 01-C-481), and Franklin Scott, et al. v. Philip
           Morris, Inc., et al., (Civil Action No. 0l-C-482).

           All of the West Virginia smokeless tobacco actions have been
           consolidated before the West Virginia Mass Litigation Panel for
           discovery and trial of certain issues. Trial of these matters was
           planned in two phases. In the initial phase, a trial was to be held
           to determine whether tobacco products, including all forms of
           smokeless tobacco, cigarettes, cigars and pipe and roll-your-own
           tobacco, can cause certain specified diseases or conditions. In the
           second phase, individual plaintiffs would attempt to prove that they
           were in fact injured by tobacco products. Fact and expert discovery
           in these cases has closed, however, in the cigarette cases the Court
           has allowed additional discovery.

           The claims against the Company in the various consolidated West
           Virginia actions include negligence, strict liability, fraud in
           differing forms, conspiracy, breach of warranty and violations of the
           West Virginia consumer protection and antitrust acts. The complaints
           in the West Virginia cases request unspecified compensatory and
           punitive damages.

           The manufacturers of smokeless tobacco products (as well as the
           manufacturers of cigarettes) moved to sever the claims against the
           smokeless tobacco manufacturer defendants from the claims against the
           cigarette manufacturer defendants. That motion was granted and the
           trial date on the smokeless tobacco claims has now been postponed
           indefinitely.

           Minnesota Complaint. On September 24, 1999, NTC was served with a
           complaint in a case entitled Tuttle v. Lorillard Tobacco Company, et
           al. (Case No. C2-99-7105), brought in Minnesota. The other
           manufacturing defendants are Lorillard and The Pinkerton Tobacco
           Company. The Complaint alleges that plaintiff's decedent was injured
           as a result of using NTC's (and, prior to the formation of NTC,
           Lorillard's) BEECH-NUT brand and Pinkerton's RED MAN brand of
           loose-leaf chewing tobacco. Plaintiff asserts theories of liability,
           breach of warranty, fraud, and variations on fraud and
           misrepresentation. Plaintiff specifically requests in its complaint
           an amount of damages in excess of fifty thousand dollars ($50,000)
           along with costs, disbursements and attorneys' fees, and ". . . an
           order prohibiting defendants from disseminating in Minnesota further
           misleading advertising and making further untrue, deceptive
           and/misleading statements about the health effects and/or addictive
           nature of smokeless tobacco products. . . ." After discovery, summary
           judgment motions were filed on behalf of all defendants. On March 3,
           2003, the Court granted defendants' motions, dismissing all claims
           against all defendants and the Court has since denied the plaintiff's
           motion for reconsideration. Plaintiff has appealed the dismissal.
           Briefing has been completed. Oral argument before the Court of
           Appeals was held on February 11, 2004, and the decision is pending.


                                      F-31
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)

19.        CONTINGENCIES, CONTINUED:

           Although the Company believes that it has good defenses to the above
           actions in West Virginia and Minnesota and it intends to vigorously
           defend each such action, no assurances can be given that it will
           prevail. If any of the plaintiffs were to prevail, the results could
           have a material adverse effect on the results of operations,
           financial position and cash flows of the Company.

           LITIGATION RELATED TO COUNTERFEITING

           Texas Infringing Products Litigation. In Bollore, S.A. v. Import
           Warehouse, Inc., Civ. No. 3-99-CV-1196-R (N.D. Texas), Bollore, the
           Company's Licensor of ZIG-ZAG brand premium cigarette papers,
           obtained a sealed order allowing it to conduct a seizure of
           infringing and counterfeit ZIG-ZAG products in the United States. On
           June 7, 1999, seizures of products occurred in Michigan and Texas.
           Subsequently, all named defendants have been enjoined from buying and
           selling such infringing or counterfeit goods. Bollore and the Company
           have negotiated settlements with all defendants. These defendants
           included Import Warehouse, Ravi Bhatia, Tarek Makki and Adham Makki.
           Those settlements included a consent injunction against distribution
           of infringing or counterfeit goods.

           On May 18, 2001, the Company, in conjunction with Bollore, conducted
           raids on the businesses and homes of certain defendants previously
           enjoined (including Tarek Makki and Adham Makki) from selling
           infringing or counterfeit ZIG-ZAG brand products in the Bollore S.A.
           v. Import Warehouse litigation. Evidence was uncovered that showed
           that these defendants and certain other individuals were key
           participants in importing and distributing counterfeit ZIG-ZAG
           premium cigarette papers. After a two day hearing in the U.S.
           District Court for the Northern District of Texas, on May 30, 2001,
           the Court held the previously enjoined defendants in contempt of
           court, and enjoined the additional new defendants, including Ali
           Makki, from selling infringing or counterfeit ZIG-ZAG premium
           cigarette papers.

           The Company entered into a settlement with the defendants, the
           principal terms of which included a cash payment, an agreed permanent
           injunction, the withdrawal of the defendants' appeal of the civil
           contempt order, an agreed judgment of $11 million from the civil
           contempt order and an agreement to forbear from enforcing that $11
           million money judgment until such time in the future that the
           defendants violate the terms of the permanent injunction. Two of the
           defendants, Tarek Makki and Adham Makki, also agreed to provide
           complete information concerning the counterfeiting conspiracy as well
           as information on other parties engaged in the purchase and
           distribution of infringing ZIG-ZAG premium cigarette papers.

           On February 17, 2004, the Company and Bollore filed a motion in the
           U.S. District Court for the Northern District of Texas, which had
           issued the original injunctions against the infringing defendants,
           seeking, with respect to respondents Adham Makki, Tarek Makki and Ali
           Makki, to have the $11 million judgment released from the forbearance
           agreement described above, and to have the named respondents held in
           contempt of court. The motion alleged that the three respondents had
           trafficked in counterfeit ZIG-ZAG cigarette papers after the
           execution of the settlement, citing evidence that all three had been
           charged in the United States District Court for the Eastern District
           of Michigan with criminal violations of the United States
           counterfeiting laws by trafficking in counterfeit ZIG-ZAG cigarette
           papers, which trafficking occurred after the settlement agreement. A
           hearing was held on March 3, 2004, and it will resume on April 7,
           2004.


                                      F-32
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)

19.        CONTINGENCIES, CONTINUED:

           Pursuant to the U.S. Distribution Agreement and a related agreement
           between Bollore and the Company, any collections on the judgments
           issued in the Bollore v. Import Warehouse case are to be divided
           evenly between Bollore and the Company after the payment of all
           expenses.

           On February 7, 2002, Bollore, NAOC and the Company filed a motion
           with the District Court in the Texas action seeking to hold Ravi
           Bhatia and Import Warehouse Inc. in contempt of court for violating
           the terms of the consent order and injunction entered against those
           defendants. The Company alleges that Mr. Bhatia and Import Warehouse
           sold counterfeit goods to at least three different companies over an
           extended period of time. On June 27, 2003, the Court found Import
           Warehouse and Mr. Bhatia in contempt of court for violating an
           existing injunction barring those parties from distributing
           infringing ZIG-ZAG cigarette paper products. The Court requested that
           the Company and Bollore (the Company's co-plaintiff in the case) file
           a submission detailing the damages incurred. The Company and Bollore
           filed their submission on July 25, 2003 which reported and requested
           damages of $2.4 million. Briefing has been completed and the parties
           are awaiting the decision of the Court.

           California Infringing Products Litigation. On March 23, 2001, the
           Company participated as co-plaintiff with NAOC and Bollore in an
           action entitled Bollore, S.A. v. A&A Smart Shopping (Case No. CV
           01-02766 FMC (MANx)), filed in the U.S. District Court for the
           Central District of California. The plaintiffs alleged that nine
           distributors in California were selling counterfeit ZIG-ZAG brand
           premium cigarette papers. In an effort to better manage this case for
           trial, the plaintiffs settled against certain defendants, obtained
           judgments for damage against most of the defendants and obtained
           permanent injunctions against all of the settling defendants.

           A trial of the plaintiffs' claims against the remaining defendants,
           in the A&A Smart Shopping case, Downey Wholesale and Fadel
           El-Shahawi, Downey's principal, began October 1, 2002. On October 15,
           2002, after a two week jury trial, the jury found for the plaintiffs
           on all counts. The plaintiffs were awarded a total of $2,000,000 in
           damages, and the jury found that defendant Downey and the defendant
           Fadel El-Shahawi acted willfully and with fraud, oppression or
           malice. As a result, plaintiffs were entitled to and did request the
           Court to award them their reasonable attorney fees and expenses,
           which awarded plaintiffs $751,000. The verdict also allowed the
           Court, in its discretion, to apply a multiple of up to three times
           the verdict amount in order to adequately compensate plaintiffs and
           also, to award punitive damages. The parties settled the punitive
           damages and multiplier portions of the case for $500,000, of which
           half was paid on November 15, 2002 and the remainder will be paid in
           equal monthly installments over the next two year period, commencing
           on December 1, 2002. All recoveries from this litigation will be
           shared equally by NAOC and Bollore. Defendants filed a new trial
           motion which the Court has denied. However, the Court reduced the
           plaintiff's damages award to approximately $1.7 million. On March 13,
           2003, the Court denied the defendants' motions. The defendants filed
           a notice of appeal and the Court postponed the briefing schedule
           relating thereto pending Court-sponsored mediation which was held on
           October 30, 2003. During the course of the mediation, the parties
           agreed to settle the case for the sum of $ 1.5 million, to be divided
           equally by the plaintiffs, and a permanent injunction against the
           sale of infringing ZIG-ZAG premium cigarette paper products by
           defendants.


                                      F-33
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)

19.        CONTINGENCIES, CONTINUED:

           In addition to the above described legal proceedings, the Company is
           subject to other litigation in the ordinary course of its business.
           The Company does not believe that any of these other proceedings will
           have a material adverse effect on the results of operations,
           financial position or cash flows of the Company. For a description of
           regulatory matters and related industry litigation to which the
           Company is a party, see Part I, Item 1. "Business--Regulation."


20.        PARENT-ONLY FINANCIAL INFORMATION:

           The Corporation is a holding company with no independent operations
           and no independent assets other than its investments in its
           subsidiaries, income tax receivables, deferred income tax assets
           related to the differences between the book and tax basis of its
           investment in the Partnership, and deferred financing costs related
           to its debt.

           All of the Corporation's subsidiaries are wholly-owned and guarantee
           the Senior Notes of the Corporation on a full, unconditional, and
           joint and several basis and any other subsidiaries of the Corporation
           other than the guarantors are minor. Within the Senior Notes there
           are no significant restrictions on the ability of the Corporation to
           obtain funds from its subsidiaries by dividend or loan. Separate
           financial statements of the subsidiaries are not required and have
           not been included in these financial statements.

21.        SEGMENT INFORMATION:

           The Company has been historically organized on the basis of product
           lines which are comprised of three reportable segments. The smokeless
           tobacco segment manufactures smokeless tobacco products which are
           distributed primarily through wholesale and food distributors in the
           United States. The make-your-own segment imports and distributes
           cigarette papers, tobaccos and related products primarily through
           wholesale distributors in the United States. The premium cigarette
           segment distributes contract manufactured cigarettes through
           wholesale distributors in the United States.

           The accounting policies of the segments are the same as those
           described in the "Summary of Significant Accounting Policies."
           Segment data includes a charge allocating all corporate costs to each
           operating segment. Elimination and Other includes the assets of the
           Company not assigned to segments and the elimination of intercompany
           accounts between segments. The Company evaluates the performance of
           its segments and allocates resources to them based on earnings before
           interest, taxes, depreciation, amortization, certain non-cash charges
           and other income and expenses (Adjusted EBITDA).


                                      F-34
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)


21.       SEGMENT INFORMATION, CONTINUED:

          The table below presents financial information about reported segments
          for 2003, 2002 and 2001 (in thousands):

<TABLE>
<CAPTION>
                                                                      PREMIUM
                                  SMOKELESS          MAKE-YOUR-     MANUFACTURED      ELIMINATIONS
         2003                     TOBACCO              OWN           CIGARETTES        AND OTHER           TOTAL
--------------------            -----------        -----------      -----------       -----------      -----------
<S>                          <C>                 <C>               <C>              <C>               <C>
Net sales                      $     36,697       $     64,677      $       64       $       155      $    101,593
Operating income                      4,668             18,533          (2,843)               30            20,388
Adjusted EBITDA                      10,504             20,143          (2,825)               32            27,754
Assets                               72,570            277,612           2,218          (108,756)          243,644

         2002
--------------------
Net sales                      $     35,732       $     58,693      $        -       $         -      $     94,425
Operating income                      5,966             23,421               -                 -            29,387
Adjusted EBITDA                       9,904             25,214               -                 -            35,118
Assets                               67,951            256,756               -          (111,113)          213,594

         2001
--------------------
Net sales                      $     38,647       $     50,975      $        -       $         -      $     89,622
Operating income                      5,610             17,453               -                 -            23,063
Adjusted EBITDA                      10,542             22,491               -                 -            33,033
Assets                               69,781            237,008               -           (90,126)          216,663

          A reconciliation  of Adjusted EBITDA to total  consolidated  operating
          income for 2003, 2002, and 2001 is as follows (in thousands):

                                                                 2003               2002              2001
                                                             ------------       ------------     ------------

                     Adjusted EBITDA                         $    27,754        $    35,118      $    33,033
                     Depreciation expense                           (589)              (700)            (637)
                     Amortization expense                              -                  -           (5,490)
                     LIFO adjustment                              (3,459)            (3,878)          (2,682)
                     Stock option expense                           (417)              (576)             (33)
                     Pension/Postretirement expense               (2,901)              (577)          (1,128)
                                                             ------------       ------------     ------------

                     Operating income                        $    20,388        $    29,387      $    23,063
                                                             ============       ============     ============
</TABLE>

22.        TERMINATED ASSET PURCHASE AGREEMENT:

           On February 18, 2003, the Company entered into an asset purchase
           agreement (the "Star Cigarette Asset Purchase Agreement") with Star
           Scientific, Inc. ("Star Scientific"), and Star Tobacco, Inc., a
           wholly-owned subsidiary of Star Scientific ("Star Tobacco" and,
           together with Star Scientific, "Star"). Pursuant to the Star
           Cigarette Asset Purchase Agreement, the Company was to purchase
           substantially all of the assets of Star relating to the
           manufacturing, marketing and distribution of four discount cigarette
           brands in the United States (the "Star Cigarette Assets"). The
           purchase price for the Star Cigarette Assets was to have been $80.0
           million in cash, subject to certain closing adjustments and the
           assumption of certain liabilities related to the Star Cigarette
           Assets.

           On July 15, 2003, the Company and Star reached a mutual agreement to
           terminate the Star Cigarette Asset Purchase Agreement. Pursuant to
           the termination agreement, Star Scientific retained a $2.0 million


                                      F-35
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)

22.        TERMINATED ASSET PURCHASE AGREEMENT, CONTINUED:

           earnest money deposit that had been placed into escrow by the Company
           and the parties executed releases of any liabilities arising out of
           the Star Cigarette Asset Purchase Agreement. The Company incurred
           $3.3 million of direct costs during 2003, including the $2.0 million
           earnest money deposit referred to above, in connection with this
           transaction. These costs are included in Other Expenses in the
           Condensed Consolidated Statements of Operations.

23.        NEW ACCOUNTING STANDARDS:

           In August 2001, the FASB issued Statement No. 143, "Accounting for
           Asset Retirement Obligation" ("SFAS 143"). SFAS 143 requires that
           obligations associated with the retirement of a tangible long-lived
           asset be recorded as a liability when those obligations are incurred,
           with the amount of the liability initially measured at fair value.
           Upon initially recognizing a liability for an asset-retirement
           obligation ("ARO"), an entity must capitalize the cost by recognizing
           an increase in the carrying amount of the related long-lived asset.
           Over time, the liability is accreted to its present value each
           period, and the capitalized cost is depreciated over the useful life
           of the related asset. Upon settlement of the liability, an entity
           either settles the obligation for its recorded amount or incurs a
           gain or loss upon settlement. SFAS 143 was effective for financial
           statements for fiscal years beginning after June 15, 2002. The
           Company adopted the provisions of SFAS 143 in fiscal 2003. SFAS 143
           did not have an impact on the Company's financial statements.

           On January 1, 2002, the Company adopted FASB Statement No. 144,
           "Accounting for the Impairment or Disposal of Long-Lived Assets"
           ("Statement 144"). Statement 144 develops a single accounting model
           for long-lived assets to be disposed of by sale, and addresses
           significant implementation issues related to previous guidance.
           Statement 144 requires that long-lived assets to be disposed of by
           sale be measured at the lower of their carrying amount or fair value
           less cost to sell, whether reported in continuing operations or in
           discontinued operations. Statement 144 also broadens the reporting of
           discontinued operations by potentially qualifying more disposal
           transactions for discontinued operations reporting. The adoption of
           Statement 144 did not have an impact on the Company's financial
           statements.

           In April 2002, the FASB issued Statement No. 145, "Rescission of FASB
           Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
           Technical Corrections". This Statement eliminates the automatic
           classification of gain or loss on extinguishment of debt as an
           extraordinary item of income and requires that such gain or loss be
           evaluated for extraordinary classification under the criteria of
           Accounting Principles Board No. 30, "Reporting Results of
           Operations." This Statement also requires sales-leaseback accounting
           for certain lease modifications that have economic effects that are
           similar to sales-leaseback transactions, and makes various other
           technical corrections to existing pronouncements. This Statement,
           which is effective for the Company for the year ending December 31,
           2003, did not have an impact on the Company's financial statements.

           In December 2002, the FASB issued SFAS No. 148, "Accounting for
           Stock-Based Compensation-Transition and Disclosure" ("SFAS 148").
           SFAS 148 amends SFAS 123 providing alternative methods of transition
           for a voluntary change to the fair value based method of accounting
           for stock-based employee compensation. SFAS 148 also amends the
           disclosure requirements of SFAS 123 and requires additional
           disclosures in annual and interim financial statements regarding the
           method of accounting for stock-based employee compensation and the
           effect of the method used on financial results. The Company accounts
           for stock-based compensation in accordance with SFAS No. 123.
           Therefore, SFAS 148 does not have an impact on the Company's
           financial statements.


                                      F-36
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)


23.        NEW ACCOUNTING STANDARDS, CONTINUED:

           In January 2003, the Financial Accounting Standards Board issued
           Financial Accounting Standards Board Interpretation No. 46,
           Consolidation of Variable Interest Entities, an Interpretation of ARB
           No. 51 (FIN 46). FIN 46 requires certain variable interest entities
           to be consolidated by the primary beneficiary of the entity if the
           equity investors in the entity do not have the characteristics of a
           controlling financial interest or do not have sufficient equity at
           risk for the entity to finance its activities without additional
           subordinated financial support from other parties. FIN 46 is
           effective immediately for all new variable interest entities created
           or acquired after January 31, 2003. For variable interest entities
           created or acquired prior to February 1, 2003, the provisions of FIN
           46 must be applied for the first interim or annual period beginning
           after June 15, 2003. FIN 46 does not have an impact on the Company's
           financial statements.

           In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
           for Certain Financial Instruments with Characteristics of both
           Liabilities and Equity" ("SFAS 150"). SFAS 150 establishes standards
           for how an issuer classifies and measures certain financial with
           characteristics of both liabilities and equity. The provisions of
           SFAS 150 relating to mandatorily redeemable non-controlling interests
           associated with finite-lived subsidiaries as amended by FASAB Staff
           Position 150-3, has been deferred, for an indefinite period. The
           provisions of SFAS 150 relating to all other financial instruments
           apply immediately to all financial instruments entered into or
           modified after May 31, 2003, and otherwise is effective at the
           beginning of the first interim period beginning after June 15, 2003.
           The implementation of SFAS 150 is delayed for nonpublic companies to
           fiscal periods beginning after December 15, 2003. In accordance with
           the foregoing, the Company is assessing the impact of the adoption of
           SFAS 150 on its financial statements.

           In December 2003, the FASB issued revised Interpretation No. 46,
           "Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46
           provides guidance on how to identify a variable interest entity
           ("VIE") and determine when the assets, liabilities, non-controlling
           interest, and results of operations of a VIE need to be included in a
           company's consolidated financial statements. FIN 46 also requires
           additional disclosures by primary beneficiaries and other significant
           variable interest holders. Application of FIN 46 is required for
           interest in special-purpose entities for years ending after December
           15, 2003. The Company has determined that it has no special-purpose
           entities. Application of FIN 46 is required for all other types of
           VIE' s for periods ending after March 15, 2004. Although the Company
           does not expect FIN 46 to have a material impact on the Company's
           financial condition or results of operations, it is continuing to
           evaluate this complex interpretation.

           In December 2003, the FASB issued a revision of SFAS No. 132,
           "Employers' Disclosures about Pensions and Other Postretirement
           Benefits," to improve financial statement disclosures for benefit
           plans. The project was initiated by the FAB in 2003 in response to
           concerns raised by investors and other users of financial statements
           about the need for greater transparency of pension information. SFAS
           No. 132R requires that companies provide more details about their
           plan assets, benefit obligations, cash flows, benefit costs, and
           other relevant information. SFAS No. l32R is effective for years
           ending after December 15, 2003. The Company adopted SFAS No. l32R as
           of December 31, 2003 and has provided the required disclosures in
           Note 12, "Pension and Postretirement Benefit Plans."


                                      F-37
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2003, 2002 and 2001
(dollars in thousands)


23.        NEW ACCOUNTING STANDARDS, CONTINUED:

           In January 2004, the FASB issued FASB Staff Position No. FAS 106-1,
           "Accounting and Disclosure Requirements Related to the Medicare
           Prescription Drug, Improvement and Modernization Act of 2003" ("FSP
           FAS 106-1"). FSP FAS 106-1 allows companies to assess the effect of
           the Medicare Prescription Drug, Improvement and Modernization Act of
           2003 ("MMA") on their postretirement benefit obligations and costs
           and reflect the effects in the 2 003 financial statements, pursuant
           to SFAS No. 106, "Employer's Accounting for Postretirement Benefits
           Other Than Pensions." Companies are also allowed to make a one-time
           election to defer accounting for the effects of MMA until
           authoritative guidance is issued. The guidance in FSP FAS 106-1 is
           effective for years ending after December 7, 2003. In accordance with
           FSP FAS 106-1, the accumulated postretirement benefit obligation and
           postretirement net periodic benefit costs in the Company's
           consolidated financial statements and disclosed in Note 12, "Pension
           and Postretirement Benefit Plans" do not reflect the effects of MMA
           on the Company's plans. In addition, specific authoritative guidance
           on the accounting for the federal subsidy, one of the provisions of
           MMA, is pending, and that guidance, when issued, could require the
           Company to change previously reported information. However, in the
           Company's opinion, any change due to the accounting for the federal
           subsidy would be immaterial.

24.        SUBSEQUENT EVENT:

           On February 17, 2004, the Company consummated the general corporate
           reorganization and the refinancing of its existing debt and preferred
           stock. The general corporate reorganization consisted of the creation
           of the Parent. The refinancing consisted principally of (1) the
           offering and sale of $200.0 million principal amount of senior notes
           by the Company, (2) the entering into of an amended and restated loan
           agreement that provides a $50.0 million senior secured revolving
           credit facility to the Company and (3) the concurrent offering and
           sale of $97.0 million aggregate principal amount at maturity of
           senior discount notes of the Parent. Both the senior notes and the
           senior discount notes were offered pursuant to Rule l44A and
           Regulation S under the Securities Act of 1933, as amended.

           Concurrently with the closing of the refinancing, the Company also
           called for redemption all of its outstanding 11% senior notes due
           2004, in accordance with the terms of the indenture governing such
           notes, at the applicable redemption price of 100.0% of the principal
           amount thereof, plus interest accrued to the redemption date of April
           2, 2004. At December 31, 2003, the Company has outstanding $155.0
           million aggregate principal amount of its 11% senior notes due 2004.

           On March 18, 2004, the Company redeemed all outstanding shares of its
           12% senior exchange payment-in-kind preferred stock, at the
           applicable redemption price equal to the liquidation preference of
           the preferred stock ($22.00 per share), plus an amount in cash equal
           to all accumulated and unpaid dividends.


                                      F-38
<PAGE>
EXHIBIT
NUMBER            DESCRIPTION
------            -----------

2.1        --     Asset Purchase Agreement, dated as of February 18, 2003, among
                  North Atlantic Trading Company, Inc., Star Scientific, Inc.
                  and Star Tobacco, Inc. (incorporated herein by reference to
                  Exhibit 2.1 to the Registrant's Current Report on Form 8-K
                  filed on February 19, 2003).

2.2        --     Termination and Release Agreement, dated as of July 15, 2003,
                  among North Atlantic Trading Company, Inc., Star Scientific,
                  Inc. and Star Tobacco, Inc. (incorporated herein by reference
                  to Exhibit 2.1 to the Registrant's Current Report on Form 8-K
                  filed on July 17, 2003).

2.3        --     Release, dated July 15, 2003, executed by North Atlantic
                  Trading Company, Inc. (incorporated herein by reference to
                  Exhibit 2.2 to the Registrant's Current Report on Form 8-K
                  filed on July 17, 2003).

2.4        --     Release, dated July 15, 2003, executed by Star Scientific,
                  Inc. and Star Tobacco, Inc. (incorporated herein by reference
                  to Exhibit 2.3 to the Registrant's Current Report on Form 8-K
                  filed on July 17, 2003).

2.5        --     Stock Purchase Agreement, dated as of November 17, 2003, among
                  North Atlantic Trading Company, Inc., Bobby Stoker, Ronald
                  Stoker, Judith Stoker Fisher, BSF Partners, L.P., JFS
                  Partners, L.P., and RBJ Machinery Co., LLC (incorporated
                  herein by reference to Exhibit 2.1 to the Registrant's Current
                  Report on Form 8-K filed on November 24, 2003).

2.6        --     Agreement and Plan of Merger, dated as of February 9, 2004,
                  among North Atlantic Trading Company, Inc., North Atlantic
                  Holding Company, Inc., and NATC Merger Sub, Inc. (incorporated
                  herein by reference to Exhibit 2.1 to the Registrant's Current
                  Report on Form 8-K filed on February 11, 2004).

3.1(a)     --     Restated Certificate of Incorporation of North Atlantic
                  Trading Company, Inc., filed February 19, 1998 (incorporated
                  herein by reference to Exhibit 3.1(a) the Registrant's Annual
                  Report on Form 10-K for the fiscal year ended December 31,
                  1997).

3.1(b)     --     Certificate of Correction to the Restated Certificate of
                  Incorporation of North Atlantic Trading Company, Inc., dated
                  as of June 28, 2002 (incorporated herein by reference to
                  Exhibit 3.1(b) the Registrant's Annual Report on Form 10-K for
                  the fiscal year ended December 31, 2002).

3.1(c)     --     Certificate of Amendment to the Certificate of Incorporation
                  of North Atlantic Trading Company, Inc., dated July 30, 2002
                  (incorporated herein by reference to Exhibit 3.1 to the
                  Registrant's Current Report on Form 8-K filed on July 31,
                  2002).

                                  Exhibit - 1
<PAGE>
3.1(d)     --     Certificate of Incorporation of North Atlantic Operating
                  Company, Inc., filed June 9 1997 (incorporated herein by
                  reference to Exhibit 3.1(b)(i) to Amendment No. 1 to
                  Registration Statement (Reg. No. 333-31931) on Form S-4 filed
                  with the Commission on September 3, 1997).

3.1(e)     --     Certificate of Amendment of Certificate of Incorporation of
                  North Atlantic Operating Company, Inc., filed June 17, 1997
                  (incorporated herein by reference to Exhibit 3.1(b)(ii) to
                  Amendment No. 1 to Registration Statement (Reg. No. 333-31931)
                  on Form S-4 filed with the Commission on September 3, 1997).

3.1(f)     --     Second Amended and Restated Certificate of Incorporation of
                  National Tobacco Finance Corporation, filed April 24, 1996
                  (incorporated herein by reference to Exhibit 3.1(c) to
                  Amendment No. 1 to Registration Statement (Reg. No. 333-31931)
                  on Form S-4 filed with the Commission on September 3, 1997).

3.1(g)     --     Amended and Restated Certificate of Limited Partnership of
                  National Tobacco Company, L.P., filed May 17, 1996
                  (incorporated herein by reference to Exhibit 3.1(d) to
                  Amendment No. 1 to Registration Statement (Reg. No. 333-31931)
                  on Form S-4 filed with the Commission on September 3, 1997).

3.1(h)     --     Certificate of Incorporation of International Flavors and
                  Technology, Inc., filed August 7, 1997 (incorporated herein by
                  reference to Exhibit 3.1(e)(i) to the Registrant's Annual
                  Report on Form 10-K for the fiscal year ended December 31,
                  1997).

3.1(i)     --     Certificate of Amendment of Certificate of Incorporation of
                  International Flavors and Technology, Inc., filed February 19,
                  1998 (incorporated herein by reference to Exhibit 3.1(e)(ii)
                  to the Registrant's Annual Report on Form 10-K for the fiscal
                  year ended December 31, 1997).

3.2(a)     --     Amended and Restated Bylaws of North Atlantic Trading Company,
                  Inc. (incorporated herein by reference to Exhibit 3.2(a) to
                  the Registrant's Quarterly Report on Form 10-Q for the fiscal
                  quarter ended March 31, 1998).

3.2(b)     --     Bylaws of North Atlantic Operating Company, Inc. (incorporated
                  herein by reference to Exhibit 3.2(b) to Registration
                  Statement (Reg. No. 333-31931) on Form S-4 filed with the
                  Commission on July 23, 1997).

3.2(c)     --     Bylaws of National Tobacco Finance Corporation (incorporated
                  herein by reference to Exhibit 3.2(c) to Registration
                  Statement (Reg. No. 333-31931) on Form S-4 filed with the
                  Commission on July 23, 1997).

3.2(d)     --     Third Amended and Restated Agreement of Limited Partnership of
                  National Tobacco Company, L.P., effective May 17, 1996
                  (incorporated herein by reference to Exhibit 3.2(d)(i) to
                  Amendment No. 1 to Registration Statement (Reg. No. 333-31931)
                  on Form S-4 filed with the Commission on September 3, 1997).


                                  Exhibit - 2
<PAGE>
3.2 (e)    --     Amendment No. 1 to Third Amended and Restated Agreement of
                  Limited Partnership of National Tobacco Company, L.P.,
                  effective June 25, 1997 (incorporated herein by reference to
                  Exhibit 3.2(d)(ii) to Amendment No. 1 to Registration
                  Statement (Reg. No. 333-31931) on Form S-4 filed with the
                  Commission on September 3, 1997).

3.2(f)     --     Bylaws of International Flavors and Technology, Inc.
                  (incorporated herein by reference to Exhibit 3.2(e) to the
                  Registrant's Annual Report on Form 10-K for the fiscal year
                  ended December 31, 1997).

3.2(g)     --     Amendment No. 2 to the Third Amended and Restated Agreement of
                  Limited Partnership of National Tobacco Company, L.P.,
                  effective February 10, 2000 (incorporated by reference to
                  Exhibit 3.2 (g) to the Registrant's Annual Report on Form 10-K
                  for the fiscal year ended December 31, 1999).

4.1        --     Indenture, dated as of June 25, 1997, among North Atlantic
                  Trading Company, Inc., as issuer, National Tobacco Company,
                  L.P., North Atlantic Operating Company, Inc. and National
                  Tobacco Finance Corporation, as guarantors, and United States
                  Trust Company of New York, as trustee (incorporated herein by
                  reference to Exhibit 4.1 to Amendment No. 1 to Registration
                  Statement (Reg. No. 333-31931) on Form S-4 filed with the
                  Commission on September 3, 1997).

4.2        --     First Supplemental Indenture, dated as of February 26, 1998,
                  among North Atlantic Trading Company, Inc., National Tobacco
                  Company, L.P., National Tobacco Finance Corporation,
                  International Flavors and Technology, Inc. and United States
                  Trust Company of New York (incorporated herein by reference to
                  Exhibit 4.3 to the Registrant's Annual Report on Form 10-K for
                  the fiscal year ended December 31, 1997).

4.3        --     Warrant to Purchase Common Stock, granted in favor of
                  Guggenheim Investment Management, LLC by North Atlantic
                  Trading Company, Inc., dated September 30, 2002 (incorporated
                  herein by reference to Exhibit 4.3 to the Registrant's Annual
                  Report on Form 10-K for the fiscal year ended December 31,
                  2002).

4.4        --     Warrant to Purchase Common Stock, granted in favor of Peter J.
                  Solomon Company Limited by North Atlantic Trading Company,
                  Inc., dated as of June 4, 2001 (incorporated herein by
                  reference to Exhibit 4.4 to the Registrant's Annual Report on
                  Form 10-K for the fiscal year ended December 31, 2002).

4.5        --     Class B Term Note dated November 17, 2003, issued by North
                  Atlantic Trading Company, Inc. in favor of Upper Columbia
                  Capital Company, LLC ("Upper Columbia") in the principal
                  amount of Twenty Three Million Dollars ($23,000,000.00)
                  (incorporated herein by reference to Exhibit 4.1 to the
                  Registrant's Current Report on Form 8-K filed on November 24,
                  2003).

                                  Exhibit - 3
<PAGE>
4.6        --     Class B Term Note dated July 31, 2003 (amended and restated as
                  of November 17, 2003), issued by North Atlantic Trading
                  Company, Inc., in favor of 1888 Fund, Ltd. in the principal
                  amount of Five Million Five Hundred Thousand Dollars
                  ($5,500,000.00) (incorporated herein by reference to Exhibit
                  4.2 to the Registrant's Current Report on Form 8-K filed on
                  November 24, 2003).

4.7        --     Class B Term Note dated July 31, 2003 (amended and restated as
                  of November 17, 2003), issued by North Atlantic Trading
                  Company, Inc., in favor of MAGMA CDO, Ltd. in the principal
                  amount of Five Million Five Hundred Thousand Dollars
                  ($5,500,000.00) (incorporated herein by reference to Exhibit
                  4.3 to the Registrant's Current Report on Form 8-K filed on
                  November 24, 2003).

4.8        --     Class B Term Note dated July 31, 2003 (amended and restated as
                  of November 17, 2003), issued by North Atlantic Trading
                  Company, Inc., in favor of Bingham CDO, L.P. in the principal
                  amount of Five Million Dollars ($5,000,000.00) (incorporated
                  herein by reference to Exhibit 4.4 to the Registrant's Current
                  Report on Form 8-K filed on November 24, 2003).

4.9        --     Class B Term Note dated July 31, 2003 (amended and restated as
                  of November 17, 2003), issued by North Atlantic Trading
                  Company, Inc., in favor of Stellar Funding, Ltd. in the
                  principal amount of Three Million Dollars ($3,000,000.00)
                  (incorporated herein by reference to Exhibit 4.5 to the
                  Registrant's Current Report on Form 8-K filed on November 24,
                  2003).

4.10*      --     Indenture, dated as of February 17, 2004, among North Atlantic
                  Trading Company, Inc., the Guarantors listed on the signature
                  pages thereto and Wells Fargo Bank Minnesota, National
                  Association, a national banking association, as Trustee.

4.11*      --     Registration Rights Agreement, dated as of February 17, 2004,
                  by and among North Atlantic Trading Company, Inc., the
                  Guarantors listed on the signature pages thereto, Citigroup
                  Global Markets Inc. and RBC Capital Markets Corporation.

9.1*       --     Amended and Restated Exchange and Stockholders' Agreement,
                  dated as of February 9, 2004, by and among North Atlantic
                  Holding Company, Inc., North Atlantic Trading Company, Inc.
                  and those stockholders listed therein.

9.2        --     Voting Trust Agreement, dated as of December 17, 1997, among
                  Thomas F. Helms, Jr., David I. Brunson and Jeffrey S. Hay, as
                  voting trustees, and Helms Management Corp. (incorporated
                  herein by reference to Exhibit 9.2 to the Registrant's Annual
                  Report on Form 10-K for the fiscal year ended December 31,
                  1997).

9.3        --     Amendment No. 1 to Voting Trust Agreement, dated as of August
                  18, 1999, among Thomas F. Helms, Jr. and David I. Brunson, as
                  voting trustees, and Helms Management Corp. (incorporated
                  herein by reference to Exhibit 9.3 to the Registrant's Annual
                  Report on Form 10-K for the fiscal year ended December 31,
                  2002).

                                  Exhibit - 4
<PAGE>
9.4        --     Amendment No. 2 to Voting Trust Agreement, dated as of
                  September 22, 1999, among Thomas F. Helms, Jr. and David I.
                  Brunson, as voting trustees, and Helms Management Corp.
                  (incorporated herein by reference to Exhibit 9.4 to the
                  Registrant's Annual Report on Form 10-K for the fiscal year
                  ended December 31, 2002).

9.5        --     Amendment No. 3 to Voting Trust Agreement, dated as of July 7,
                  2000, among Thomas F. Helms, Jr. and David I. Brunson, as
                  voting trustees, and Helms Management Corp. (incorporated
                  herein by reference to Exhibit 9.5 to the Registrant's Annual
                  Report on Form 10-K for the fiscal year ended December 31,
                  2002).

10.1       --     Third Amended and Restated Purchasing and Processing
                  Agreement, dated as of June 25, 1997, between National Tobacco
                  Company, L.P. and Lancaster Leaf Tobacco Company of
                  Pennsylvania (incorporated herein by reference to Exhibit 10.1
                  to Amendment No. 1 to Registration Statement (Reg. No.
                  333-31931) on Form S-4 filed with the Commission on September
                  3, 1997).

10.2+      --     Amended and Restated Distribution and License Agreement, dated
                  as of November 30, 1992, between Bollore Technologies, S.A.
                  and North Atlantic Trading Company, Inc., a Delaware
                  corporation and predecessor to North Atlantic Operating
                  Company, Inc. [United States] (incorporated herein by
                  reference to Exhibit 10.2 to Amendment No. 2 to Registration
                  Statement (Reg. No. 333-31931) on Form S-4 filed with the
                  Commission on September 17, 1997).

10.3+      --     Amended and Restated Distribution and License Agreement, dated
                  as of November 30, 1992, between Bollore Technologies, S.A.
                  and North Atlantic Trading Company, Inc., a Delaware
                  corporation and predecessor to North Atlantic Operating
                  Company, Inc. [Asia] (incorporated herein by reference to
                  Exhibit 10.3 to Amendment No. 2 to Registration Statement
                  (Reg. No. 333-31931) on Form S-4 filed with the Commission on
                  September 17, 1997).

10.4+      --     Amended and Restated Distribution and License Agreement, dated
                  as of November 30, 1992, between Bollore Technologies, S.A.
                  and North Atlantic Trading Company, Inc., a Delaware
                  corporation and predecessor to North Atlantic Operating
                  Company, Inc. [Canada] (incorporated herein by reference to
                  Exhibit 10.4 to Amendment No. 2 to Registration Statement
                  (Reg. No. 333-31931) on Form S-4 filed with the Commission on
                  September 17, 1997).

10.5+      --     Restated Amendment, dated as of June 25, 1997, between Bollore
                  Technologies, S.A. and North Atlantic Operating Company, Inc.
                  (incorporated herein by reference to Exhibit 10.5 to Amendment
                  No. 2 to Registration Statement (Reg. No. 333-31931) on Form
                  S-4 filed with the Commission on September 17, 1997).


                                  Exhibit - 5
<PAGE>
10.6       --     Warrant Agreement, dated as of June 25, 1997, between North
                  Atlantic Trading Company, Inc. and United States Trust Company
                  of New York, as warrant agent (incorporated herein by
                  reference to Exhibit 10.12 to Amendment No. 1 to Registration
                  Statement (Reg. No. 333-31931) on Form S-4 filed with the
                  Commission on September 3, 1997).

10.7++     --     1997 Share Incentive Plan of North Atlantic Trading Company,
                  Inc. (incorporated herein by reference to Exhibit 10.16 to
                  Amendment No. 1 to Registration Statement (Reg. No. 333-31931)
                  on Form S-4 filed with the Commission on September 3, 1997).

10.8++     --     Employment Agreement, dated May 17, 1996, between North
                  Atlantic Trading Company, Inc. and Thomas F. Helms, Jr.
                  (incorporated herein by reference to Exhibit 10.17 to
                  Amendment No. 1 to Registration Statement (Reg. No. 333-31931)
                  on Form S-4 filed with the Commission on September 3, 1997).

10.9 ++    --     Employment Agreement, dated April 14, 1997, between National
                  Tobacco Company, Inc. and David I. Brunson (incorporated
                  herein by reference to Exhibit 10.18(a) to Amendment No. 1 to
                  Registration Statement (Reg. No. 333-31931) on Form S-4 filed
                  with the Commission on September 3, 1997).

10.10++    --     Employment Agreement, dated April 23, 1997, between Thomas F.
                  Helms, Jr. and David I. Brunson (incorporated herein by
                  reference to Exhibit 10.18(b) to Amendment No. 1 to
                  Registration Statement (Reg. No. 333-31931) on Form S-4 filed
                  with the Commission on September 3, 1997).

10.11++    --     Nonqualified Stock Option Agreement, dated as of June 25,
                  1997, between North Atlantic Trading Company, Inc. and David
                  I. Brunson (incorporated herein by reference to Exhibit
                  10.18(c) to Amendment No. 1 to Registration Statement (Reg.
                  No. 333-31931) on Form S-4 filed with the Commission on
                  September 3, 1997).

10.12++    --     Amendment No. 1, dated and effective September 2, 1997, to the
                  Nonqualified Stock Option Agreement, dated as of June 25,
                  1997, between North Atlantic Trading Company, Inc. and David
                  I. Brunson (incorporated herein by reference to Exhibit
                  10.18(d) to Amendment No. 1 to Registration Statement (Reg.
                  No. 333-31931) on Form S-4 filed with the Commission on
                  September 3, 1997).

10.13++    --     Amendment No. 2, dated as of December 31, 1997, to the
                  Nonqualified Stock Option Agreement, dated as of June 25,
                  1997, between North Atlantic Trading Company, Inc. and David
                  I. Brunson (incorporated herein by reference to Exhibit
                  10.18(e) to the Registrant's Annual Report on Form 10-K for
                  the fiscal year ended December 31, 1997).

10.14++    --     Consulting Agreement, dated as of June 25, 1997, between North
                  Atlantic Trading Company, Inc. and Jack Africk (incorporated
                  herein by reference to Exhibit 10.20 to Amendment No. 1 to
                  Registration Statement (Reg. No. 333-31931) on Form S-4 filed
                  with the Commission on September 3, 1997).


                                  Exhibit - 6
<PAGE>
10.15++    --     National Tobacco Company Management Bonus Program
                  (incorporated herein by reference to Exhibit 10.25 to
                  Amendment No. 1 to Registration Statement (Reg. No. 333-31931)
                  on Form S-4 filed with the Commission on September 3, 1997).

10.16++    --     Amended and Restated Nonqualified Stock Option Agreement dated
                  as of January 12, 1998, between North Atlantic Trading
                  Company, Inc. And Jack Africk (incorporated herein by
                  reference to Exhibit 10.28 to the Registrant's Annual Report
                  on Form 10-K for the fiscal year ended December 31, 1997).

10.17++    --     Assignment and Assumption, dated as of January 1, 1998,
                  between National Tobacco Company, L.P. and North Atlantic
                  Trading Company, Inc. (incorporated herein by reference to
                  Exhibit 10.30 to the Registrant's Annual Report on Form 10-K
                  for the fiscal year ended December 31, 1997).

10.18+     --     Amendment, dated October 22, 1997, to Amended and Restated
                  Distribution and License Agreements, between Bollore and North
                  Atlantic Operating Company, Inc. (incorporated herein by
                  reference to Exhibit 10.31 to the Registrant's Annual Report
                  on Form 10-K for the fiscal year ended December 31, 1997).

10.19      --     Sales Representative Agreement, effective as of January 1,
                  1998, between National Tobacco Company, L.P. and North
                  Atlantic Operating Company, Inc. (incorporated herein by
                  reference to Exhibit 10.32 to the Registrant's Annual Report
                  on Form 10-K for the fiscal year ended December 31, 1997).

10.20++    --     Amended and Restated Employment Agreement dated as of April
                  30, 1998, between North Atlantic Trading Company, Inc. and
                  David I. Brunson (incorporated herein by reference to Exhibit
                  10.2 to the Registrant's Report on 10-Q for the fiscal quarter
                  ended June 30, 1998).

10.21      --     Option Grant Letter, dated April 30, 1998, from Helms
                  Management Corp. to David I. Brunson (incorporated herein by
                  reference to Exhibit 10.5 to the Registrant's Quarterly Report
                  on 10-Q for the fiscal quarter ended June 30, 1998).

10.22      --     Subscription Agreement, dated as of March 24, 1998, between
                  North Atlantic Trading Company, Inc. and David I. Brunson
                  (incorporated herein by reference to Exhibit 10.42 to the
                  Registrant's Quarterly Report on 10-Q for the fiscal quarter
                  ended March 31, 1998).

10.23++    --     Letter Agreement, dated September 24, 1999, between North
                  Atlantic Trading Company, Inc. and Jack Africk (incorporated
                  by reference to Exhibit 10.34 to the Registrant's Annual
                  Report on Form 10-K for the fiscal year ended December 31,
                  1999).

10.24++    --     North Atlantic Trading Company, Inc. 1999 Executive Incentive
                  Plan (incorporated by reference to Exhibit 10.35 to the
                  Registrant's Annual Report on Form 10-K for the fiscal year
                  ended December 31, 1999).


                                  Exhibit - 7
<PAGE>
10.25++    --     North Atlantic Trading Company, Inc. 1999 Management Bonus
                  Plan (incorporated by reference to Exhibit 10.36 to the
                  Registrant's Annual Report on Form 10-K for the fiscal year
                  ended December 31, 1999).

10.26*     --     Amended and Restated Loan Agreement, dated as of February 17,
                  2004, by and among Bank One, NA, LaSalle Bank National
                  Association, North Atlantic Trading Company, Inc., North
                  Atlantic Holding Company, Inc., the subsidiaries of North
                  Atlantic Trading Company, Inc. named therein and the lenders
                  party thereto.

10.27*     --     Amended and Restated Security Agreement, dated as of February
                  17, 2004, among North Atlantic Trading Company, Inc., National
                  Tobacco Company, L.P., North Atlantic Operating Company, Inc.,
                  National Tobacco Finance Corporation, Stoker, Inc., RBJ Sales,
                  Inc., Fred Stoker & Sons, Inc., North Atlantic Cigarette
                  Company, Inc. and Bank One, N.A., as agent on behalf of itself
                  and other banks.

10.28*     --     Amended and Restated Guaranty Agreement, dated as of February
                  17, 2004, among National Tobacco Company, L.P., North Atlantic
                  Operating Company, Inc., National Tobacco Finance Corporation,
                  Stoker, Inc., RBJ Sales, Inc., Fred Stoker & Sons, Inc., North
                  Atlantic Cigarette Company, Inc. and Bank One, N.A., as agent
                  on behalf of itself and other banks.

10.29*     --     Amended and Restated Pledge Agreement, dated as of February
                  17, 2004, among and North Atlantic Trading Company, Inc.,
                  National Tobacco Company, L.P., North Atlantic Operating
                  Company, Inc., National Tobacco Finance Corporation, Stoker,
                  Inc., RBJ Sales, Inc., Fred Stoker & Sons, Inc., North
                  Atlantic Cigarette Company, Inc. and Bank One, N.A., as agent
                  on behalf of itself and other banks.

10.30++    --     2001 Share Incentive Plan of North Atlantic Trading Company,
                  Inc. (incorporated by reference to Exhibit 10.36 to the
                  Registrant's Annual Report on Form 10-K for the fiscal year
                  ended December 31, 2001).

10.31++    --     Offer of Employment, dated March 28, 2002, between the Company
                  and Robert A. Milliken, Jr. (incorporated herein by reference
                  to Exhibit 1 to the Registrant's Quarterly Report on 10-Q for
                  the fiscal quarter ended March 31, 2002).

10.32      --     Promissory Note, dated March 31, 2002, issued by David I.
                  Brunson in favor of North Atlantic Trading Company, Inc.
                  (incorporated herein by reference to Exhibit 10.1 to the
                  Registrant's Quarterly Report on 10-Q for the fiscal quarter
                  ended June 30, 2002).

10.33      --     Promissory Note, dated March 31, 2002, issued by Chris Kounnas
                  in favor of North Atlantic Trading Company, Inc. (incorporated
                  herein by reference to Exhibit 10.2 to the Registrant's
                  Quarterly Report on 10-Q for the fiscal quarter ended June 30,
                  2002).


                                  Exhibit - 8
<PAGE>
10.34      --     Secured Promissory Note, dated March 31, 2002, issued by Helms
                  Management Corp. in favor of North Atlantic Trading Company,
                  Inc. (incorporated herein by reference to Exhibit 10.3 to the
                  Registrant's Quarterly Report on 10-Q for the fiscal quarter
                  ended June 30, 2002).

10.35      --     Secured Promissory Note, dated March 31, 2002, issued by
                  Thomas F. Helms, Jr. in favor of North Atlantic Trading
                  Company, Inc. (incorporated herein by reference to Exhibit
                  10.4 to the Registrant's Quarterly Report on 10-Q for the
                  fiscal quarter ended June 30, 2002).

10.36      --     Pledge and Security Agreement, dated as of March 31, 2002,
                  between Thomas F. Helms, Jr., Helms Management Corp. and North
                  Atlantic Trading Company, Inc. (incorporated herein by
                  reference to Exhibit 10.5 to the Registrant's Quarterly Report
                  on 10-Q for the fiscal quarter ended June 30, 2002).

10.37++    --     Amendment, dated November 25, 2002, to the Amended and
                  Restated Employment Agreement dated as of April 30, 1998,
                  between North Atlantic Trading Company, Inc. and David I.
                  Brunson (incorporated herein by reference to Exhibit 10.38 to
                  the Registrant's Annual Report on Form 10-K for the fiscal
                  year ended December 31, 2002).

10.38++    --     Employment Agreement dated as of November 21, 2002, between
                  North Atlantic Trading Company, Inc. and James W. Dobbins
                  (incorporated herein by reference to Exhibit 10.39 to the
                  Registrant's Annual Report on Form 10-K for the fiscal year
                  ended December 31, 2002).

10.39      --     Transfer Agreement, dated as of December 30, 2002, by and
                  among Arnold Sheiffer, The Cleveland Clinic Foundation, North
                  Atlantic Trading Company, Inc., and Thomas F. Helms, Jr.
                  (incorporated herein by reference to Exhibit 10.40 to the
                  Registrant's Annual Report on Form 10-K for the fiscal year
                  ended December 31, 2002).

10.40      --     Transfer Agreement, dated as of December 30, 2002, by and
                  among Arnold Sheiffer, Robert Maurice Grunder Memorial Fund,
                  North Atlantic Trading Company, Inc., and Thomas F. Helms, Jr.
                  (incorporated herein by reference to Exhibit 10.41 to the
                  Registrant's Annual Report on Form 10-K for the fiscal year
                  ended December 31, 2002).

10.41++    --     2002 Share Incentive Plan (incorporated herein by reference to
                  Exhibit 10.42 to the Registrant's Annual Report on Form 10-K
                  for the fiscal year ended December 31, 2002).

10.42++    --     Letter Agreement, dated November 8, 2002, between North
                  Atlantic Trading Company, Inc. and Marketing Solutions USA
                  (incorporated herein by reference to Exhibit 10.43 to the
                  Registrant's Annual Report on Form 10-K for the fiscal year
                  ended December 31, 2002).


                                  Exhibit - 9
<PAGE>
10.43++    --     Letter Agreement, dated September 30, 2002, between North
                  Atlantic Trading Company, Inc. and Jack Africk (incorporated
                  herein by reference to Exhibit 10.44 to the Registrant's
                  Annual Report on Form 10-K for the fiscal year ended December
                  31, 2002).

10.44      --     2003A Amendment to Loan Documents, dated as of July 31, 2003,
                  by and among North Atlantic Trading Company, Inc., National
                  Tobacco Company, L.P., North Atlantic Operating Company, Inc.,
                  National Tobacco Finance Corporation, Bank One, NA, successor
                  to Bank One, Kentucky N.A., as agent bank and the various
                  lending institutions named therein, Guggenheim Investment
                  Management, LLC, as agent for the Class B Lenders named
                  therein (incorporated herein by reference to Exhibit 10.1 to
                  the Registrant's Quarterly Report on Form 10-Q for the fiscal
                  quarter ended June 30, 2003).

10.45      --     Subordination Agreement, dated as of July 31, 2003, by and
                  among North Atlantic Trading Company, Inc., National Tobacco
                  Company, L.P., North Atlantic Operating Company, Inc.,
                  National Tobacco Finance Corporation, Bank One, NA, successor
                  to Bank One, Kentucky N.A., as agent bank and the various
                  lending institutions named therein, Guggenheim Investment
                  Management, LLC, as agent for the Class B Lenders named
                  therein (incorporated herein by reference to Exhibit 10.2 to
                  the Registrant's Quarterly Report on Form 10-Q for the fiscal
                  quarter ended June 30, 2003).

10.46      --     2003B Amendment to Loan Documents dated as of November 17,
                  2003, among North Atlantic Trading Company, Inc., National
                  Tobacco Company, L.P., North Atlantic Operating Company, Inc.,
                  National Tobacco Finance Corporation, Stoker, Inc., RBJ Sales,
                  Inc. and Fred Stoker & Sons, Inc., the Banks defined therein,
                  Bank One, NA, as agent for the Banks ("Agent Bank"), the Class
                  B Lenders as defined therein and Guggenheim Investment
                  Management, LLC, as agent for Class B Lenders ("Class B Loan
                  Agent") (incorporated herein by reference to Exhibit 10.1 to
                  the Registrant's Current Report on Form 8-K filed on November
                  24, 2003).

10.47      --     Amended and Restated Subordination Agreement dated as of
                  November 17, 2003, by and among North Atlantic Trading
                  Company, Inc., National Tobacco Company, L.P., North Atlantic
                  Operating Company, Inc., National Tobacco Finance Corporation,
                  Stoker, Inc., RBJ Sales, Inc. and Fred Stoker & Sons, Inc.,
                  the Banks defined therein, Bank One, NA, as agent for the
                  Banks ("Agent Bank"), the Class B Lenders as defined therein
                  and Guggenheim Investment Management, LLC, as agent for Class
                  B Lenders ("Class B Loan Agent") (incorporated herein by
                  reference to Exhibit 10.2 to the Registrant's Current Report
                  on Form 8-K filed on November 24, 2003).

10.48      --     Second Amendment to Mortgage, Security Agreement, Assignment
                  of Leases, Rents and Profits, Financing Statement and Fixture
                  Filing, dated as of November 17, 2003, among Bank One, NA (as
                  "Agent Bank" and "Mortgagee" for the benefit of the Banks as
                  defined in the 2003B Amendment to Loan Agreement) and National
                  Tobacco Company, L.P. (the "Mortgagor") (incorporated herein
                  by reference to Exhibit 10.3 to the Registrant's Current
                  Report on Form 8-K filed on November 24, 2003).


                                  Exhibit - 10
<PAGE>
10.49      --     Assignment of Security Interest in the United States
                  Trademarks, dated November 17, 2003, issued by Stoker, Inc. in
                  favor of Bank One, NA (incorporated herein by reference to
                  Exhibit 10.4 to the Registrant's Current Report on Form 8-K
                  filed on November 24, 2003).

10.50      --     Assignment of Security Interest in the United States
                  Trademarks, dated November 17, 2003, issued by Fred Stoker &
                  Sons, Inc. in favor of Bank One, NA (incorporated herein by
                  reference to Exhibit 10.5 to the Registrant's Current Report
                  on Form 8-K filed on November 24, 2003).

10.51      --     2003C Amendment to Loan Documents dated as of December 23,
                  2003, by and among the Banks as defined therein, Bank One, NA,
                  as agent bank on behalf of the Banks, the Class B Lenders as
                  defined therein, Guggenheim Investment Management, LLC, as
                  agent on behalf of the Class B Lenders, North Atlantic Trading
                  Company, Inc. and the Subsidiaries as defined therein
                  (incorporated herein by reference to Exhibit 10.1 to the
                  Registrant's Current Report on Form 8-K filed on December 24,
                  2003).

10.52++*   --     Employment Agreement, dated December 1, 2003, between Lawrence
                  S. Wexler and North Atlantic Cigarette Company, Inc.

10.53*     --     Assignment and Assumption Agreement, dated as of February 9,
                  2004, between North Atlantic Trading Company, Inc. and North
                  Atlantic Holding Company, Inc.

21*        --     Subsidiaries of North Atlantic Trading Company, Inc.

31.1*      --     Certification of Chief Executive Officer

31.2*      --     Certification of Chief Financial Officer

32.1*      --     Certification by the Chief Executive Officer pursuant to 18
                  U.S.C.ss. 1350, as adopted by Section 906 of the
                  Sarbanes-Oxley Act of 2002 (furnished herewith).

32.2*      --     Certification by the Chief Financial Officer pursuant to 18
                  U.S.C.ss. 1350, as adopted by Section 906 of the
                  Sarbanes-Oxley Act of 2002 (furnished herewith).


      *     Filed herewith.

      +     Portions of this agreement have been omitted pursuant to Rule 406
            under the Securities Act of 1933, as amended, and have been filed
            confidentially with the Securities and Exchange Commission.

      ++    Management contracts or compensatory plan or arrangement.




                                  Exhibit - 11