================================================================================
                       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, 2000

                                                     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]

As of February 28, 2001, the only class of voting or non-voting common equity
issued and outstanding is the Registrant's Voting Common Stock, par value $.01
per share, 100% of which is owned by 47 holders of record, 41 of whom are
affiliates or employees of the Registrant. There is no trading market for the
Voting Common Stock.

As of February 28, 2001, 528,241 shares of the Registrant's Voting Common Stock,
par value $.01 per share, and no shares of the Registrant's Non-Voting Common
Stock, par value $.01 per share, were outstanding.


64980.0003
<PAGE>

                      North Atlantic Trading Company, Inc.
                          2000 Form 10-K Annual Report

<TABLE>
                                TABLE OF CONTENTS
                                                                                                               PAGE
                                     PART I
<S>                                                                                                              <C>
    Item 1.       Business........................................................................................1
    Item 2.       Properties.....................................................................................11
    Item 3.       Legal Proceedings..............................................................................12
    Item 4.       Submission of Matters to a Vote of Security Holders............................................17

                                     PART II

    Item 5.       Market for Registrant's Common Stock and Related Stockholder Matters...........................18
    Item 6.       Selected Financial Data........................................................................18
    Item 7.       Management's Discussion and Analysis of Financial Condition and Results of
                      Operations.................................................................................20
    Item 7A.      Quantitative and Qualitative Disclosures About Market Risk.....................................25
    Item 8.       Financial Statements and Supplementary Data....................................................25
    Item 9.       Changes in and Disagreements With Accountants on Accounting and Financial Disclosure...........26

                                    PART III

    Item 10.      Directors and Executive Officers of the Registrant.............................................27
    Item 11.      Executive Compensation.........................................................................28
    Item 12.      Security Ownership of Certain Beneficial Owners and Management.................................36
    Item 13.      Certain Relationships and Related Transactions.................................................38

                                     PART IV

    Item 14.      Exhibits, Financial Statement Schedules, and Reports on Form 8-K...............................39

</TABLE>


<PAGE>
                                     PART I

Item 1.    Business
           --------

OVERVIEW

                  North Atlantic Trading Company, Inc. (the "Company") is a
holding company, which is organized under the laws of the State of Delaware. The
Company has two significant wholly owned subsidiaries: National Tobacco Company,
L.P. ("National Tobacco") and North Atlantic Operating Company, Inc. ("NAOC").
National Tobacco is the third largest manufacturer and marketer of loose leaf
chewing tobacco in the United States, selling its products under the brand names
BEECH-NUT REGULAR, BEECH-NUT WINTERGREEN, TROPHY, HAVANA BLOSSOM and DURANGO.
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 brand
name pursuant to an exclusive long-term distribution agreement with Bollore,
S.A. ("Bollore"). NAOC also contracts for the manufacture of and distributes
Make-Your-Own ("MYO") tobaccos and related products under the ZIG-ZAG brand
name, pursuant to its trademarks.

RECENT EVENTS

                  On February 10, 2000, National Tobacco entered into a
definitive Asset Purchase Agreement with Swedish Match North America Inc.
("Swedish Match"). Under the terms of this agreement, National Tobacco agreed to
sell its chewing tobacco brands and related formulation, technology and
inventory. The purchase price for these assets was $165 million. Therefore,
these assets were reported in the Company's financial statements for the fiscal
year ended December 31, 1999 as a discontinued operation. The transaction was
challenged by the Federal Trade Commission ("FTC") as anti-competitive under the
antitrust laws. The FTC moved for a preliminary injunction in the United States
District Court for the District of Columbia. After a one-week trial in September
2000, the Court granted a preliminary injunction on December 14, 2000, barring
the closing of the transaction pending a full administrative hearing. On
December 22, 2000, the Company and Swedish Match mutually agreed to terminate
the agreement. Accordingly, these assets have been reclassified as continuing
operations and the Company's financial statements have been restated to reflect
this change.

EVOLUTION OF THE COMPANY

                  The Company was formed in 1997 to facilitate a corporate
reorganization and related financing in connection with the simultaneous
acquisition of NATC Holdings USA, Inc. ("NATC") and its ZIG-ZAG business (the
"Acquisition"). Prior to the Acquisition, National Tobacco and its corporate
general partner, National Tobacco Finance Corporation ("NTFC"), were wholly
owned subsidiaries of NTC Holding, LLC, a Delaware limited liability company
("LLC"). All of the outstanding interests in LLC, together with certain
subordinated debt obligations, were acquired by the Company in connection with
the Acquisition. LLC transferred all of its assets to the Company, including the
limited and general partnership interests in National Tobacco, and was
subsequently dissolved.

                  In 1988, Thomas F. Helms, Jr., Chairman and Chief Executive
Officer, and an investor group led by Lehman Brothers, formed National Tobacco
to acquire the smokeless tobacco division of Lorillard, which had introduced the
popular BEECH-NUT brand in 1897. Together with the management team he assembled
in connection with this initial buyout, Mr. Helms participated in two subsequent
leveraged buyouts prior to 1997, each of which increased the percentage of
management ownership.



                                       1
<PAGE>

                  Upon consummation of the Acquisition, NATC and its operating
subsidiary were merged into NAOC. NATC was originally formed by an investor
group to acquire certain assets from UST, Inc. ("UST") in March 1993, including,
among other rights, the exclusive rights to market and distribute ZIG-ZAG
premium cigarette papers in the United States, Canada and certain other
international markets. In 1938, UST obtained the North American distribution
rights for the ZIG-ZAG brands, which had been originally introduced in France in
1869, from Bollore, a major French industrial concern.

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

BUSINESS STRATEGY

                  The Company's current business strategy, whether through
internal growth or through acquisitions, is to (i) continue to cultivate the
sales, marketing and distribution synergies of its subsidiaries; (ii) capitalize
on the strong brand-name identities of its products; and (iii) increase
operating efficiencies of its subsidiaries.

INDUSTRY AND MARKETS

                  The Company competes in two distinct markets: (1) the
Smokeless Tobacco market and (2) the MYO cigarette market. The Company believes
that both the Smokeless Tobacco market, which includes the loose leaf chewing
tobacco segment, and the MYO cigarette market, which is comprised of the premium
cigarette papers sector and the rapidly emerging MYO tobaccos and related
products sector, are each characterized by non-cyclical demand, relative brand
loyalty, meaningful barriers to entry, minimal 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 chewing tobacco, have a
long, established tradition of use in the United States dating back to colonial
times. Loose leaf chewing tobacco has generally been most popular in the
Southeast, Southwest and rural Northeast and North Central regions of the United
States. An estimated 7 million Americans are regular users of smokeless tobacco
products, according to the Smokeless Tobacco Council.

                  The smokeless tobacco industry is comprised of the five
product categories listed below. The Company believes that many consumers of
smokeless tobacco regularly use products in more than one of the following
categories. In addition to the Company, other major manufacturers and marketers
in the smokeless tobacco industry include UST, Pinkerton Tobacco Co., Conwood
Corporation and Swisher International Group Inc. The Company currently offers
only loose leaf chewing tobacco products; whereas, most other competitors offer
more than a single smokeless category.

         Moist snuff is cured, aged, flavored and finely ground tobacco packaged
         in round fiber or plastic cans.

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

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



                                       2
<PAGE>

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

         Dry snuff is a powdered tobacco product, which is sometimes flavored
         and is packaged in a variety of containers.

                  According to information provided by the Smokeless Tobacco
Council, manufacturers' sales for the smokeless tobacco industry were $991
million in 1989 and $1.98 billion in 1999, representing a compound annual growth
rate of 7.3%. This increase is primarily related to the increase in
manufacturers' sales of moist snuff which have grown from $608 million in 1989
to $1.60 billion in 1999, representing a compound annual growth rate of 10.4%
and whose volume has grown from 39.9 million pounds in 1989 to 57.2 million
pounds in 1999 for a compounded annual growth rate of 8.0%. Manufacturers' sales
of loose leaf chewing tobacco were $280 million in 1989 and $291.4 million in
1999, representing a compound annual growth rate of 1.1% during the same period;
however, its volume during this same period declined from 59.7 million pounds to
44.6 million pounds, a compound annual rate of decline of 0.9%.

                  Loose leaf chewing tobacco products are typically sold through
the following retail distribution channels: mass merchandisers, convenience
stores, discount tobacco stores, food stores, chain and independent drug stores.
Discount tobacco retailers are becoming an increasingly important distribution
channel for all tobacco products, including loose leaf chewing tobacco, for
their volume has grown to be approximately 20% of all tobacco sales. Certain
retailers purchase loose leaf chewing tobacco direct from manufacturers,
although most purchase through wholesale distributors.

MYO Cigarettes

                  Although rapidly emerging, the MYO cigarette market remains a
minor component of the overall United States cigarette industry which, if viewed
in total as a part of that industry, would represent an estimated market share
of 1%. In 2000, the United States cigarette industry sold approximately 400
billion cigarettes, which were consumed by approximately 24% of the adult
population.

                  The MYO products are typically sold through the following
retail distribution channels: convenience stores, mass merchandisers, discount
tobacco stores, food stores and chain and independent drug stores. Certain
retailers purchase MYO products direct from manufacturers, although most
purchase through wholesale distributors.

PRODUCTS

                  Currently, the Company manufactures and markets loose leaf
chewing tobacco and imports and distributes premium cigarette papers and related
products and contract manufactures and markets MYO tobaccos and related
products.

Loose Leaf Chewing Tobacco

                  Loose leaf chewing tobacco products can be broadly
characterized as either full-flavored or mild. According to A.C. Nielsen, in
2000 full-flavored products accounted for approximately 45% of the loose leaf
volume and mild flavored products comprised an estimated 55%. Loose leaf chewing
tobacco is made from aged, air-cured tobacco, which is processed and flavored
and then packaged in foil pouches. The BEECH-NUT brands are available in two
flavors: Regular and Wintergreen. BEECH-NUT REGULAR is a full-flavored product
and ranked second in sales in the full-flavored loose leaf chewing tobacco


                                       3
<PAGE>

category, and third overall. BEECH-NUT WINTERGREEN was introduced by Lorillard
in 1979 and has the largest market share of any flavored loose leaf brand.
National Tobacco introduced its TROPHY brand into the mild product category in
1992. In addition to the BEECH-NUT brands and TROPHY, National Tobacco currently
produces a regional brand, HAVANA BLOSSOM, sold primarily in West Virginia,
Pennsylvania and Ohio and a value brand, DURANGO, which was introduced in March
1998.

Premium Cigarette Papers and MYO Tobaccos and Related Products

                  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, ZIG-ZAG 1 1/4 width French Orange and ZIG-ZAG Kutcorners, which
is designed for easier hand-rolling. Other paper products sold under the ZIG-ZAG
name are 1 1/2 sized cigarette papers and a ZIG-ZAG waterproof paper that is
sold in Canada. MYO products include ZIG-ZAG Gold Standard and Classic American
Blend tobaccos, ZIG-ZAG cigarette tubes and ZIG-ZAG cigarette rolling and
injector machines.

SALES AND MARKETING

                  Currently, National Tobacco has a 92 person nationwide sales
organization. Since January 1, 1998, National Tobacco and NAOC have operated
under a Sales Representation Agreement, pursuant to which National Tobacco
markets NAOC's products.

                  Historically, NAOC's sales force focused on wholesalers in the
large chain convenience store, drug store and mass merchandising channels
without calling on retail outlets, while National Tobacco's larger sales force
called on both wholesalers and retail merchants in these channels as well as the
food store and discount tobacco store channels. The Company believes that the
resources and longstanding relationships of its sales force has enabled the
Company to move each of its product lines into geographical markets and retail
channels where they previously had been underdeveloped.

                  National Tobacco's loose leaf chewing tobacco has historically
been distributed through approximately 1,300 wholesale tobacco and food
distributors. In 2000, BEECH-NUT REGULAR and TROPHY represented 58% and 23% of
National Tobacco's loose leaf chewing tobacco sales. At the retail level,
National Tobacco's loose leaf chewing tobacco products are promoted through
in-store volume and price-discount programs and the use of innovative, high
visibility point-of-purchase floor and shelf displays, banners and posters.
National Tobacco has not been reliant upon nor does it conduct any advertising
in the consumer media.

                  NAOC's premium cigarette papers have historically been
distributed through approximately 1,100 wholesale distributors. Sales by NAOC of
its ZIG-ZAG White and ZIG-ZAG French Orange premium cigarette papers are the
most important products in terms of volume, accounting for more than 78% of
NAOC's sales in 2000. The majority of ZIG-ZAG premium cigarette papers
promotional activity is at the distributor level and consists of distributor
promotions, trade shows and trade advertising. The MYO tobaccos and related
products promotional activity is more focused at the retail level with spending
on POS and space management and at the consumer level with price off promotions,
primarily through the use of coupons.

                  The Company's largest customer is The McLane Company
("McLane"), which accounted for approximately 10.2% of its smokeless tobacco and
MYO revenues in 2000. The Company believes that the loss of any other customer
or distributor account would not have a material impact on the financial
condition or operations of the Company.



                                       4
<PAGE>

TRADEMARKS AND TRADE SECRETS

                  National Tobacco has numerous registered trademarks relating
to its loose leaf chewing tobacco products, including the trademarks for its
BEECH-NUT and TROPHY products. These trademarks, which are significant to
National Tobacco's business, expire periodically and are renewable for
additional 20-year terms upon expiration. Flavor formulae relating to National
Tobacco'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. NAOC owns the ZIG-ZAG trademark with respect to
tobacco and related products.

RAW MATERIALS, PRODUCT SUPPLY AND INVENTORY MANAGEMENT

Loose Leaf Chewing Tobacco

                  National Tobacco's loose leaf chewing tobacco is produced from
air-cured leaf tobacco. National Tobacco utilizes tobaccos grown domestically in
Pennsylvania and Wisconsin and imported from many countries, including but not
limited to, Argentina, Brazil, Columbia, France, Germany, Indonesia, Italy,
Mexico, and the Philippines. Management does not believe that it is dependent on
any single country source for tobacco. Pursuant to an agreement with Lancaster
Leaf Tobacco Company of Pennsylvania ("Lancaster"), Lancaster, under
instructions from National Tobacco, (i) purchases and processes tobacco on an
exclusive basis, (ii) stores tobacco inventory purchased on behalf of National
Tobacco and (iii) generally maintains a 12- to 24-month supply of National
Tobacco's various tobacco types at its facilities. National Tobacco generally
maintains a one- to two-month operating supply of tobacco in its Louisville
facility.

                  Other than raw tobacco, the ingredients used in National
Tobacco's finished loose leaf chewing tobacco products include food grade
flavorings, all of which have been approved by the FDA and other federal
agencies. National Tobacco is not dependent upon any one supplier for those raw
materials or for the supply of its products' packaging.

Premium Cigarette Paper and MYO Tobaccos and Related Products

                  Pursuant to the Distribution Agreements (as defined below),
NAOC must purchase its premium cigarette papers 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. See
"Distribution Agreements." Additionally, to maintain a steady supply of product,
Bollore is required to maintain in a public warehouse in the United States a
two-month supply of emergency inventory at Bollore's expense.

                  The Distribution Agreements establish the purchase price for
papers through 2004, subject to certain annual adjustments to reflect increases
or decreases in the U.S. and Canadian consumer price indices. 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 after the bill of lading date and its invoices are payable in French
francs. The Distribution Agreements also contain a provision to reduce
catastrophic foreign exchange risk by providing that Bollore will bear certain
exchange rate risks at levels that are fixed through 2004. The exchange rate
risk allocations set forth in the Distribution Agreements will be renegotiated
in 2004 along with the prices to be paid by NAOC to Bollore for the premium
cigarette papers.



                                       5
<PAGE>

                  NAOC maintains an adequate supply of product in addition to
the immediately available, two-month emergency inventory on hand at the expense
of Bollore. By its purchasing patterns, NAOC builds inventory outside
promotional periods in order to have adequate inventory to meet increased demand
during promotional periods. NAOC's inventory is maintained at the Company's
manufacturing facility in Louisville, Kentucky and in bonded public warehouses
located in Reno, Nevada and Pittsburgh, Pennsylvania.

                  NAOC obtains its MYO tobaccos primarily from international
sources and is not dependent on any one type of tobacco for its blend. The MYO
related products are purchased in finished form from several suppliers.
Management believes adequate inventories are maintained and that its sources of
supply are adequate for projected needs.

MANUFACTURING

                  National Tobacco manufactures its loose leaf chewing tobacco
products and NAOC contracts for the manufacture of its premium cigarette papers,
cigarette tubes, rolling and injecting machines and MYO tobaccos. The Company
believes that National Tobacco's production capabilities, quality control,
research and development and overall facilities and equipment are vital to
maintaining the high-quality brand image and operating efficiency of its loose
leaf tobacco operations.

Production and Quality Control

                  National Tobacco's production process utilizes proprietary
techniques and is subject to strict quality control. During each production day,
National Tobacco's quality control group periodically tests the quality of the
tobacco, casings (flavorings in syrup form), application of casings and
packaging. National Tobacco utilizes sophisticated quality control and pilot
plant production equipment to test and closely monitor the quality of its
products. The quality of National Tobacco's products is largely the result of
using high grade, air-cured 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,
a primary responsibility of the Quality Control group is to insure that
established standards are strictly adhered to in this area, especially as it
relates to the MYO products.

Research and Development

                  National Tobacco 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. In addition, the Research and Development Department is also
responsible for new product development.

                  The Company, primarily through National Tobacco, spent
approximately $553,000, $532,000 and $464,000 on its research and development
and quality control efforts for the years 1998, 1999 and 2000, respectively.



                                       6
<PAGE>

Facilities and Equipment

                  The Louisville, Kentucky plant, which is owned by National
Tobacco, was formerly used by Lorillard for the manufacture of cigarettes,
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
improvement. Approximately two-thirds of the plant is currently utilized, thus,
there is substantial excess manufacturing and storage capacity. The existing
structures provide ample space to accommodate an expansion of the Company.

COMPETITION

                  National Tobacco is the third largest manufacturer and
marketer of loose leaf chewing tobacco. The other three principal competitors in
the loose leaf chewing tobacco segment, which, together with National Tobacco,
generate approximately 95% of this segment's sales, are Pinkerton Tobacco Co.,
Conwood Corporation and Swisher International Group Inc. Due to increased
competition with moist snuff, another smokeless product that is used
interchangeably with loose leaf by many consumers, the major competitor
marketing this product is UST, Inc., the largest moist snuff as well as the
largest smokeless tobacco company in the United States. In addition, the three
previously named companies in the loose leaf segment also manufacture and market
moist snuff. NAOC is the largest importer and distributor in North America of
premium cigarette papers. NAOC's two major competitors for premium cigarette
paper sales, which, together with NAOC, generate approximately 95% of such
sales, are Republic Tobacco Company and Robert Burton Associates, a wholly-owned
subsidiary of Imperial Tobacco Group plc. Primary competitors in the MYO area
also, include Lane Ltd., a subsidiary of Brown & Williamson Tobacco Corporation,
and Republic Tobacco Company.

                  Certain competitors of the Company are better capitalized than
the Company and have greater financial and other resources than those available
to the Company. The Company believes that 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 February 28, 2001, the Company employed a total of 229
full-time employees. With the exception of 88 manufacturing employees, all other
operations are non-union. The manufacturing employees are covered by three
collective bargaining agreements. One of these agreements, covering 83
employees, will expire in December 2001. The other two agreements will expire
during 2002.

REGULATION

                  The tobacco industry, particularly with respect to cigarettes,
has been under public scrutiny for over thirty years. Industry critics include
special interest groups, the Surgeon General and many legislators at the state
and federal levels. Although the smokeless tobacco companies have recently come
under some scrutiny, much of the focus has been directed at the cigarette
industry due to its large size relative to the smokeless tobacco industry.

                  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,


                                       7
<PAGE>

including increases in various taxes, has been a major cause of the overall
decline in consumption of tobacco products since the early 1970's. Moreover, the
future trend is toward increasing regulation of the tobacco industry.

                  Federal law has recently required states, in order to receive
full funding for federal substance abuse block grants, to establish the minimum
age of 18 years for the sale of tobacco products together with an appropriate
enforcement program. In recent years, a variety of bills relating to tobacco
issues has been introduced in the United States Congress, including bills that
would (i) prohibit the advertising and promotion of all tobacco products and/or
restrict or eliminate the 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 FTC to the Food and Drug
Administration ("FDA"); (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 sales,
operations or financial condition of the Company.

                  In 1996, Massachusetts enacted a statute which requires all
tobacco companies to disclose information regarding the ingredients and nicotine
content of their products, which information will, subject to certain
conditions, be made publicly available. The ingredients of National Tobacco's
products are considered by the Company to be proprietary and such disclosure
could result in the manufacture and sale of imitations, which could have a
material adverse effect on its tobacco business. On December 10, 1997, U.S.
District Judge O'Toole (D. Mass.) entered a preliminary injunction on behalf of
five smokeless tobacco companies (including National Tobacco) against the
Attorney General of Massachusetts and the Commissioner of Public Health. The
order bars the officials from taking any steps to enforce the
ingredient-reporting requirements of the Massachusetts statute pending a trial
on the merits. On November 6, 1998, the United States Court of Appeals for the
First Circuit affirmed the injunction. The tobacco companies did not seek an
injunction against the nicotine reporting requirements of the Massachusetts
statute.

                  On September 7, 2000, upon motion, the District Court granted
summary judgement in favor of the tobacco plaintiffs, ruling that the
Massachusetts disclosure statute violated among other things, the Takings and
Commence Clauses of the U.S. Constitution. Massachusetts has filed an appeal
which is currently being briefed.

                  Regulations issued by the Massachusetts Attorney General
affecting point of sale and certain advertising issues with respect to tobacco
products which were to become effective August 1, 1999, were delayed until
December 31, 1999 to allow for further review. The Attorney General made minor
modifications to the regulations. In January 2000, the Federal District Court in
Massachusetts upheld the advertising and point-of-sale regulations, rejecting
the industry's First Amendment challenge. On July 12, 2000, the First Circuit
Court of Appeals affirmed the District Court's opinion. The cigarette company
plaintiffs petitioned the U.S. Supreme Court to review the case, and on January
8, 2001, the Court agreed to hear the case. The stay of the regulations
continues pending further action by the Court. The case is expected to be
decided before the end of this year's term in July 2001. The Massachusetts
regulations, among other things, would restrict access to tobacco products.
Historically, smokeless tobacco products have been sold primarily by allowing
customers direct access to the product. Accordingly, there can be no assurance


                                       8
<PAGE>

that prohibiting such direct access would not have an adverse effect on sales.

                  While there is no current regulation materially and adversely
affecting 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 an adverse effect on the
business of NAOC and, consequently, the financial condition of the Company.

STATE ATTORNEY GENERAL SETTLEMENT AGREEMENTS

                  In November 1998 most of the states, represented by their
attorneys general acting through the National Association of Attorneys General,
signed two contracts: the Master Settlement Agreement ("MSA") and the Smokeless
Tobacco Master Settlement Agreement ("STMSA"). To the best of the Company's
knowledge, the signatories to the MSA are 23 cigarette manufacturers and/or
distributors and the only signatory to the STMSA is UST Inc. 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 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 settling. The
Company is 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 has chosen to open and fund an escrow account. The STMSA has
no similar provisions. There can be no assurance as to whether entering into one
or both settlement agreements or choosing not to do so or establishing and
maintaining an escrow account pursuant to the above would have a material
adverse effect on the Company's financial position, results of operations or
cash flows.

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. From July 1, 1986 through December 31, 1990, the
excise tax on chewing tobacco was $0.08 per pound. Effective January 1, 1991 the
federal excise tax on chewing tobacco was increased to $0.10 per pound, and
again increased to $0.12 per pound effective January 1, 1993. Effective January
1, 2000, the tax was increased to $0.17 per pound.



                                       9
<PAGE>

                  Effective January 1, 2000, the excise tax on premium cigarette
paper is $.0106 per fifty papers, the tax on cigarette tubes is $.0213 per fifty
tubes, and the tax on MYO tobacco is $.9567 per pound. Future enactment of
increases in excise taxes could have a material adverse effect on the Company.
The Company is unable to predict the likelihood of passage of future increases
in excise taxes. Tobacco products and premium cigarette papers are also subject
to certain state and local taxes. The imposition of state and local taxes can
have a detrimental impact on sales in that state or locality. Any enactment of
new state excise taxes or an increase in existing excise taxes is likely to have
an adverse effect on sales in such situations.

ENVIRONMENTAL REGULATIONS

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

DISTRIBUTION AGREEMENTS

                  As part of the acquisition of the ZIG-ZAG premium cigarette
paper business in 1997, NAOC entered into three long-term distribution and
licensing agreements with Bollore with respect to sales of premium cigarette
papers in the United States, Canada and Hong Kong, Singapore, Dubai, Qatar, Oman
and Jordan (respectively, the "U.S. Distribution Agreement," the "Canada
Distribution Agreement" and the "Other Countries Distribution Agreement," and,
collectively, the "Distribution Agreements"). Under the Distribution Agreements,
Bollore has granted NAOC the exclusive right to purchase premium cigarette
papers bearing the ZIG-ZAG brand name from Bollore for resale in the countries
noted above. 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 the countries noted above.

                  The Distribution Agreements establish the purchase price
through 2004, subject to certain annual adjustments to reflect increases or
decreases in the U.S. and Canadian Consumer Price Indices. 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 after the bill of lading date and its invoices are payable in French
francs. The Distribution Agreements reduce catastrophic foreign exchange risk by
providing that Bollore will bear certain exchange rate risks at levels fixed
through 2004. The catastrophic exchange rate risk allocations set forth in the
Distribution Agreements will be renegotiated in 2004 along with the prices to be
paid by NAOC to Bollore for the premium cigarette papers.

                  According to the Distribution Agreements, NAOC must purchase
finished premium cigarette paper 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 safeguards in order
for NAOC to maintain 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 emergency
inventory in the United States at Bollore's expense.

                  Under the Distribution Agreements, NAOC has agreed for the
term of the Distribution Agreements and for a period of five years after
termination of such Distribution Agreements not to engage, directly or
indirectly, in the manufacturing, selling, distributing, marketing or otherwise


                                       10
<PAGE>

promoting in the countries identified above 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 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 executed on November
30, 1992. Each of the U.S. Distribution Agreement and the Canada Distribution
Agreement was for an initial term of twenty years commencing from the effective
date of such agreement and will be renewed automatically for successive twenty
year terms unless sooner terminated in accordance with the provisions of such
agreement. The Other Countries Distribution Agreement was for an initial term of
ten years commencing from the effective date of such agreement and will be
renewed automatically for successive ten year terms unless sooner 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 were exceeded in 2000) 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 the
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, premium cigarette paper or premium
cigarette paper booklets of a competitor. Additionally, each of the Canada
Distribution Agreement and the Other Countries Distribution Agreement is
terminable by either NAOC or Bollore upon the termination of the U.S.
Distribution Agreement.

Item 2.    Properties
           ----------

                  As of December 31, 2000, the Company operated manufacturing,
distribution, office and warehouse space in the United States with a total floor
area of approximately 610,351 square feet. Of this footage, approximately 10,351
square feet are leased and approximately 600,000 square feet are owned.

                  To provide a cost-efficient supply of products to its
customers, the Company maintains centralized management of manufacturing and
nationwide distribution facilities. National Tobacco has one manufacturing and
distribution facility located in Louisville, Kentucky and five other public
warehouse distribution facilities in locations throughout the United States.
NAOC utilizes the facility in Louisville as well as two public warehouse
distribution facilities that are located in Pittsburgh and Reno.

                  The following table describes the principal properties of the
Company (other than sales service centers, sales office space or warehouse
space) as of December 31, 2000.



                                       11
<PAGE>

<TABLE>
<CAPTION>
                                                                                 Square           Owned or
                         Location                  Principal Use                  Feet             Leased
                         --------                  -------------                  ----             ------
<S>                                                 <C>                          <C>               <C>
                         New York, NY               Corporate                     10,351           Leased
                                                    headquarters
                         Louisville, KY             Loose leaf                   600,000           Owned(1)
                                                    chewing   tobacco
                                                    manufacturing,
                                                    R&D,  warehousing
                                                    and distribution
</TABLE>

Item 3.      Legal Proceedings
             -----------------

                  FTC Action. On February 10, 2000, National Tobacco entered
into a definitive Asset Purchase Agreement with Swedish Match. Under the terms
of this agreement, National Tobacco agreed to sell its chewing tobacco brands
and related formulation, technology and inventory. The purchase price for these
assets was $165 million. The transaction was challenged by the Federal Trade
Commission as anti-competitive under the antitrust laws. The FTC moved for a
preliminary injunction in the United States District Court for the District of
Columbia. After a one-week trial in September 2000, the Court granted a
preliminary injunction on December 14, 2000, barring the closing of the
transaction pending full administrative hearing. On December 22, 2000 the
Company and Swedish Match mutually agreed to terminate the Agreement. No
permanent order or consent judgment was entered with respect to the FTC action.

                  Proposition 65. On March 30, 1998, an action was filed in
California State Court, in the City and County of San Francisco, against
defendants United States Tobacco Company, Inc., Conwood Company, L.P., Pinkerton
Tobacco Company, Inc., National Tobacco, Swisher International Group Inc., Brown
& Williamson Tobacco Corporation, Merrill Reese Inc., Lucky Stores Inc., Quick
Stop Markets Inc., Raley's, Inc., Save Mart Supermarkets Inc., Save-On Drug
Stores Inc., The Southland Corporation, Circle K Stores, Inc., Longs Drug Stores
Corporation, Walgreen Co., Safeway, Inc. and DOES 1-500. The plaintiff amended
their claim on June 10, 1998 and subsequently served the complaint on National
Tobacco. The complaint purported to be brought by the City and County of San
Francisco on behalf of the people of the State of California and by the
Environmental Law Foundation on behalf of the general public.

                  Plaintiffs claimed that the defendants violated the California
Safe Drinking Water and Toxic Enforcement Act of 1986, Health and Safety Code
25249.6 ("Proposition 65") by "knowingly and intentionally" exposing California
consumers to carcinogens and reproductive toxins in smokeless tobacco products
while failing to provide a "clear and reasonable" warning that smokeless tobacco
products contain substances that are "known to the state to cause cancer" and
"known to the state to cause reproductive toxicity." Plaintiffs further claimed
that the defendants violated California Unfair Competition Act, Business &
Professions Code 17200, et seq., by marketing smokeless tobacco to children, and

--------------------------
(1) Encumbered by a mortgage securing all obligations and liabilities under the
Senior Secured Facilities.


                                       12
<PAGE>

by fraudulently concealing from the public the alleged adverse consequences and
addiction allegedly associated with smokeless tobacco products.

                  The complaint sought a preliminary and permanent injunction
preventing defendants from selling smokeless tobacco products without a "clear
and reasonable" warning, as well as an injunction ordering defendants to
undertake a court-approved public information campaign to instruct children that
the use of smokeless tobacco products results in exposure to substances known to
the State of California to cause cancer and reproductive harm. The plaintiffs
also sought an award of statutory penalties and damage for each violation of
Proposition 65 and the Unfair Competition Act, disgorgement of profits from the
sale of smokeless tobacco products, and attorney's fees and costs. Plaintiffs
and defendants are in the process of negotiating a settlement, and the case has
been dismissed pending the completion of those negotiations. Management does not
expect that the terms of any settlement will have a materially adverse effect on
the Company. If negotiations should fail, the Company expects that the case
would be refiled.

                  Kentucky and Illinois Complaints. On July 15, 1998, NAOC and
National Tobacco filed a complaint against Republic Tobacco, Inc. and its
affiliates ("Republic Tobacco") in Federal District Court for the Western
District of Kentucky. The complaint was subsequently amended on August 18, 1998
(collectively, the complaint and the amended complaint are referred to herein as
the "Kentucky Complaint"). Republic Tobacco imports and sells Roll-Your-Own
("RYO") cigarette papers under the 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.
The Kentucky Complaint also alleges that Republic Tobacco has 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 the federal and state law.

                  On June 30, 1998, Republic Tobacco filed a complaint against
the Company, NAOC and National Tobacco in the United States District Court of
the Northern District of Illinois. Republic Tobacco did not serve this complaint
or otherwise notify the Company of its existence until after the filing and
service of the Kentucky Complaint. The Company believes that this complaint was
filed in anticipation of the filing of the Kentucky Complaint. This complaint
was amended by Republic Tobacco on September 16, 1998 (collectively, the
complaint and the amended complaint are referred to herein as the "Illinois
Complaint"). In the Illinois Complaint, Republic Tobacco seeks declaratory
relief that (a) Republic Tobacco's action in defacing the Company's point of
purchase display vendors do not violate federal or state laws and (b) that
Republic Tobacco's trade practices do not violate federal or state antitrust or
unfair competition laws. 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 alleges that the Company has unlawfully monopolized
and attempted to monopolize the market for premium cigarette papers.

                  The Company has alleged that Republic Tobacco's trade
practices in the southeastern United States have unlawfully restricted the
Company's ability to expand the distribution of ZIG-ZAG premium cigarette papers
in the southeast, where sales have been historically underdeveloped.



                                       13
<PAGE>

                  The Company intends to vigorously pursue its claims set forth
in the Kentucky Complaint and intends to vigorously defend against the claims
asserted in the Illinois Complaint. With respect to the claims set forth in the
Illinois Complaint, the Company filed a Motion to Dismiss concerning a
substantial portion of the claims against the Company, and believes that the
claims against the Company are without merit.

                  On April 9, 1999, the Court in the Illinois cases ruled on the
motion to dismiss, dismissing certain of Republic's claims against the Company,
including Republic's monopolization claim. The Court also dismissed the
Company's counterclaims with leave to replead those claims. The Company has done
so. On September 17, 1999, Republic filed a Second Amended Complaint, which was
substantially identical to the original complaint, except that it alleged a
series of purportedly monopolistic practices on a regional market basis against
the Company. The Company filed a motion to dismiss the allegations for failure
to state a claim on which relief could be granted. On December 23, 1999, the
Court dismissed the new antitrust claims in Republic's Second Amended Complaint.

                  On October 20, 2000 Republic filed a motion to dismiss, stay,
or transfer the Kentucky proceeding to the Illinois Court. On December 19, 2000,
the Court denied Republic'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 may not be entitled to any preference on forum selection
because it was the first to file.

                  Fact discovery has been concluded. Expert discovery has
commenced, is continuing and is currently scheduled to conclude in May 2001.

                  West Virginia Complaints. On October 6, 1998 National Tobacco
Company, L.P. ("National") was served with a summons and complaint 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). While
National was served with a single service and complaint, the caption lists 65
separate plaintiffs, each with an individual case number.

                  In the Allen case, the plaintiffs have specified the defendant
companies for each of the 65 cases. National was named in only six of the cases,
five of which alleged consumption prior to National's existence of products
bearing the trademarks currently owned by National. The remaining case alleges
lung cancer as the injury. National has been dismissed from the first five
cases, and intends to vigorously defend the remaining action.

                  On November 13, 1998, National was served with a summons and
complaint 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). While National was served with a single
summons and complaint, the caption of the complaint lists 18 separate
plaintiffs, each with an individual case number. This action was filed by the
same plaintiffs' attorney who filed the Allen action and the complaint is
identical in most material respects.

                  These two actions were commenced by two separate plaintiffs,
"individually and/or as the representatives of the various descendants named
herein [who] are residents of the State of West Virginia and/or smoked
cigarettes or used other tobacco products, manufactured, promoted, advertised,
marked, sold and/or distributed by all defendants." The complaint contains no
specific allegations referring to any individual plaintiff. These two actions
were brought against major manufacturers of cigarettes, smokeless tobacco


                                       14
<PAGE>

products, and certain other organizations.

                  The complaint alleges that "plaintiffs and plaintiffs'
descendents suffer/had suffered from a form of cancer or vascular disease and
other injuries due wholly or in part to defendants' products and/or activities."
The complaint further alleges that the actions "arise from decades of
intentionally wrongful conduct by the defendants who have manufactured,
promoted, and sold cigarettes and both smokeless and loose tobacco to the
plaintiffs and plaintiffs descendants and millions of Americans while knowing,
but denying and concealing that their products cause diseases, including but not
limited to esophageal, laryngeal, pharyngeal, mouth and throat cancers and
Buerger's Disease." The complaints do not identify which plaintiffs, if any,
allege injury as a result of the use of smokeless tobacco.

                  The Akers complaint asserts 24 unspecified counts and seeks
referral to the West Virginia Mass Litigation Panel, because the actions
allegedly "involve multiple plaintiffs pursuing related claims or actions
involving one or more common questions of act or law and the plaintiffs seek
damages caused by some "product." The complaints seek unspecified compensatory
damages. The Company intends to vigorously defend against each such complaint.

                  Discovery of all tobacco-related (cigarette, cigar and
smokeless products) actions in the State of West Virginia, including the Allen
and Akers cases, has been referred to a Mass Litigation Panel, and assigned to
one judge. On January 11, 2000, the judge assigned the cases issued an order
concerning discovery schedules and establishing a trial procedure for the
purpose of trying all issues of law and fact common to all defendants. On
February 29, 2000, West Virginia plaintiffs' counsel, pursuant to the court's
order, identified all individual plaintiffs and the defendants against whom they
had claims. No individual plaintiff in the Akers cases alleged use of a product
manufactured by National, although National remains a defendant in those
actions.

                  On September 14, 2000, National was served with a Summons and
Consolidated Complaint 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). While National was served with a single Summons and
Consolidated Complaint, the caption of the Consolidated Complaint lists 539
separate plaintiffs, each with an individual case number. Only one of these
plaintiffs alleged use of a product currently manufactured by National. The time
period during which this plaintiff allegedly used the product has not yet been
specified. Thus, it is not yet known whether National is a proper defendant in
this case.

                  On September 19, 2000, National was served with a Summons and
Consolidated Complaint 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). While National was served with a single Summons and
Consolidated Complaint, the caption of the Consolidated Complaint lists 561
separate plaintiffs, each with an individual case number. A total of five of
these plaintiffs allege use of a product currently manufactured by National. One
of these plaintiffs does not specify the time period during which the product
was allegedly used, and one alleges use that covers, in part, a period when
National did not manufacture the product. Of the remaining three, one alleges
consumption of a competitor's chewing tobacco from 1966 to 2000 and National
Tobacco'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 National Tobacco's Durango
Ice chewing tobacco from 1990 to 2000 (although Durango Ice did not come onto
the market until 1999).


                                       15
<PAGE>

                  Trial of these matters is planned in two phases. In the
initial phase, a trial will 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. The trial date for the initial phase has not been set. However, the
court has stated that it will not go forward until after the trial of an
unrelated cigarette class action, which is currently scheduled for September
2001.

                  On March 19, 2001, the manufacturers of the different products
moved to sever the claims against their products, requesting separate trials.
National joined the motion filed by Swedish Match requesting a separate trial
for chewing tobacco.

                  Minnesota Complaint. On September 24, 1999, National 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 National's
(and, prior to the formation of National, 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. The case has been removed to federal court. Motions to
dismiss were filed on all counts except for negligence and, on September 28,
2000, the Court granted all of National's motions. The sole cause of action
remaining is for negligence. The Court, however, granted leave to the plaintiff
to replead within sixty days those alleged causes of action based on alleged
fraud. On December 18, 2000, the Plaintiff filed an amended complaint
reasserting fraud claims. On January 19, 2001, defendents again moved to dismiss
the fraud claims. Briefing has been completed and hearing on the motions is
scheduled for May 11, 2001. Discovery is continuing in the case.

                  Although the Company believes that it has good defenses to the
above actions in West Virginia, California and Minnesota, no assurances can be
given that it will prevail. If any of the plaintiffs were to prevail, the
results could have a materially adverse effect on the Company's financial
position, results of operations or cash flows.

                  Regulatory and Other Events. Regulations were issued in 1999
by the Massachusetts Attorney General affecting point of sale and certain
advertising issues with respect to tobacco products. In January 2000, the
Federal District Court in Massachusetts upheld the advertising and point-of-sale
regulations, rejecting the industry's First Amendment challenge. On July 12,
2000, the First Circuit Court of Appeals affirmed the District Court's decision.
The cigarette company plaintiffs have requested that the United States Supreme
Court review the case, and a stay of the regulations pending the disposition of
that request has been granted. On January 8, 2001, the United States Supreme
Court agreed to review the case and the stay has been extended pending that
review. The Massachusetts regulations, among other things, restrict access to
tobacco products. Historically, smokeless tobacco products have been sold
primarily by allowing customers direct access to the product. Accordingly, there
can be no assurance that prohibiting such direct access would not have an
adverse effect on sales.

                  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
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 one
group of defendants. Settlement discussions are ongoing with all other


                                       16
<PAGE>

defendants. Management believes that successful prosecution of this litigation,
either by settlement or otherwise, will have a favorable impact on its premium
cigarette paper business.

                  In addition to the above described legal proceedings, the
Company is subject to other litigation in the ordinary course of its business.
None of these proceedings are considered material.

                  For a description of other industry litigation in 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.













                                       17
<PAGE>

                                     PART II

Item 5.    Market for Registrant's Common Stock and Related Stockholder Matters
           --------------------------------------------------------------------

                  There is no trading market for the Company's Voting Common
Stock, par value $.01 per share (the "Common Stock"), and, as of February 28,
2001, such stock was held by 47 stockholders of record, 41 of whom are
affiliates or employees of the Company.

                  There have been no dividends declared on the Common Stock. The
current 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; however, the Board of Directors will review the dividend policy
periodically to determine whether the declaration of dividends is appropriate.
In addition, the payment of dividends by the Company is subject to certain
restrictions contained in (i) the Company's senior secured credit facility and
(ii) the indenture and certificate of designation, respectively, with regard to
the Company's outstanding senior notes and preferred stock.

Item 6.    Selected Financial Data
           -----------------------

                      CONSOLIDATED SELECTED FINANCIAL DATA

                (Amounts in thousands, except per share amounts)

                  On February 11, 2000, the Company entered into a definitive
Asset Purchase Agreement with Swedish Match. Under the terms of this agreement,
the Company agreed to sell certain smokeless tobacco assets, including its
chewing tobacco brands and related formulation, technology and inventory.
Therefore, the smokeless tobacco segment was reported in the Company's financial
statements for the fiscal year ended December 31, 1999 as a discontinued
operation. The transaction was challenged by the Federal Trade Commission
("FTC") as anti-competitive under the antitrust laws. The FTC moved for a
preliminary injunction with United States District Court for the District of
Columbia. After a one-week trial in September 2000, the Court granted a
preliminary injunction on December 14, 2000, barring the closing of the
transaction pending full administrative review. On December 22, 2000, the
Company and Swedish Match mutually agreed to terminate the Asset Purchase
Agreement. The smokeless tobacco segment has been reclassified as continuing
operations and the Company's financial statements for the fiscal year ended
December 31, 1999 have been restated accordingly. Costs related to the proposed
sale of $1.8 million, which had previously been deferred, have been recognized
in other expenses for the year ended December 31, 2000.

                  The following table sets forth the consolidated selected
statements of operations, balance sheet and other data for the Company and its
predecessor for the periods indicated. The selected data is derived from the
audited consolidated financial statements of the Company and its predecessor for
such years. As described in the consolidated financial statements, the Company
completed an acquisition of NATC and a recapitalization of the Company on June
25, 1997. Additionally, as described in the notes to the consolidated financial
statements, the Company's predecessor was recapitalized on May 17, 1996 in
connection with the formation of the Company. As such, the selected data of the
Company and its predecessor are not comparable in certain respects due to the
purchase accounting effect of this acquisition and these recapitalizations. This
selected data should be read in conjunction with, and is qualified by reference
to, the consolidated financial statements of the Company and its predecessor,
and the related notes thereto, and the Management Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere in this Form
10-K.




                                       18
<PAGE>
<TABLE>
<CAPTION>
                                                                                The Company                         The Predecessor
                                                      ------------------------------------------------------------  -----------
                                                                  Year Ended December 31,
                                                                                                       Period from  Period from
                                                                                                       5/17/96 to   1/1/96 to
                                                         2000        1999      1998       1997(1)       12/31/96    5/16/96
                                                         ----        ----      ----       -------       --------    -------
<S>                                                   <C>       <C>         <C>           <C>            <C>         <C>
STATEMENT OF OPERATIONS DATA:
  Net Sales.........................................  $ 93,145  $    94,461 $  93,081    $ 84,430    $ 36,126        $ 19,810
  Income (loss) from continuing
      operations (net of preferred stock
      dividends of $6,005 in 2000, $5,361 in 1999,
      $4,751 in 1998 and $2,268 in 1997) applicable
      to common shares............................     (8,104)      (3,766)    (3,744)        5,146        383           1,132
  Net Income/(loss) applicable to common
      Shares(2).....................................   (9,205)      (3,766)    (3,744)       (1,975)       383           1,132
  Basic earnings per common share:
      Income/(loss) from continuing operations        ($15.35)     ($ 7.13)   ($ 7.09)       $ 9.75         --             --
      Extraordinary loss...........................   (  1.61)           --         --       (13.48)        --             --
      Cumulative effect of change in accounting
       principle....................................  (   .47)           --         --           --         --             --
                                                     ---------  ----------- -----------  ----------

    Net Loss applicable to common shares              ($17.43)     ($ 7.13)     ($7.09)     ($ 3.73)        --             --
                                                     =========  =========== ===========  ==========

  Diluted earnings per common share:
      Income/(loss) from continuing operations        ($15.35)     ($ 7.13)    ($ 7.09)       $ 8.43        --             --
      Extraordinary loss............................  (  1.61)           --          --      (11.66)        --             --
      Cumulative effect of change in accounting
       principle....................................  (   .47)           --          --          --         --             --
                                                     ---------  ----------- -----------  ----------

      Net Loss applicable to common shares....        ($17.43)     ($ 7.13)    ($ 7.09)    ($ 3.23)         --             --
                                                     =========  =========== ===========  ==========
BALANCE SHEET DATA (AT END OF PERIOD):
  Total assets...................................... $227,757      $243,603    $260,307     $273,083    $96,553        $81,887
                                                     ========   =========== ===========  =========== ==========   ============
  Total debt, including current
  maturities........................................ $180,000      $195,864    $215,586     $230,000    $70,696        $43,388
                                                     ========   =========== ===========  =========== ==========   ============
  Mandatorily redeemable preferred
  stock                                              $ 50,698      $ 44,693    $ 39,332     $ 34,581    $    --        $     --
                                                    =========   =========== ===========  =========== ==========    ============
OTHER DATA:
  Adjusted EBITDA(3)................................ $ 33,182      $ 37,688    $ 38,503     $ 32,668    $10,885        $  4,810
                                                    =========   =========== ===========  =========== ===========   =============
</TABLE>

(1)  The selected data for the year ended December 31, 1997 includes the results
     of operations of NAOC since its acquisition on June 25, 1997.

(2)  Net income (loss) attributable to common shares for the year ended December
     31, 2000 includes an extraordinary 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".

     Net income (loss) attributable to common shares for the year ended December
     31, 1997 includes an extraordinary loss of $7,121 (net of income tax
     benefit of $4,365) related to the write-off of debt discounts and deferred
     financing costs upon the occurrence of the recapitalization of the Company
     on June 25, 1997. Income (loss) from continuing operations and net income
     (loss) applicable to common shares for the periods prior to June 25, 1997
     does not include income tax expense because the Company and the Predecessor
     were a limited liability company and a partnership, respectively, prior to
     June 25, 1997, and did not incur any federal or state income taxes for such
     periods.

(3)  Adjusted EBITDA represents net income plus interest, taxes, depreciation,
     amortization and certain non-cash charges and expenses. Adjusted EBITDA is
     presented because management believes that Adjusted EBITDA is useful as an
     indicator of the Company's historical cash flow available to service its
     debt. Adjusted EBITDA should not be considered as an alternative to, or
     more meaningful than, net income (loss) (as determined in accordance with
     generally accepted accounting principles (GAAP)) as a measure of the
     Company's operating results or cash flows (as determined in accordance with
     GAAP) as a measure of the Company's liquidity.


                                       19
<PAGE>




Following is a reconciliation of Net Income to Adjusted EBITDA:
<TABLE>
<CAPTION>
                                                       The Company                                 The Predecessor
                                          -------------------------------------------------------  ---------------

                                                      Year Ended December 31,              Period
                                          ------------------------------------------        from      Period from
                                                                                         5/17/96 to    1/1/96 to
                                          2000         1999          1998       1997      12/31/96      5/16/96
                                          ----         ----          ----       ----      --------      -------
<S>                                       <C>          <C>         <C>           <C>         <C>         <C>
Net Income (Loss) ...................   $ (3,200)   $  1,595    $  1,007    $    293    $    383      $  1,132
   Interest expense, net ............     22,261      23,488      24,927      18,361       6,398         2,453
   Income tax expense ...............      1,529       3,813       3,213         852          --            --
   Depreciation .....................      1,067       1,923       1,687       1,619       1,034           454
   Amortization .....................      5,490       5,490       5,490       3,213         504           365
   Other (income) expense ...........      1,801       (117)         (5)        (16)        (46)          (34)
    Financial advisory fee expense            --          --          --          --          --           114
   Unfunded pension obligation ......        201         594          --          --          --            --
   LIFO adjustment ..................      2,434         174         904        (129)      2,619           187
   Stock option compensation expense          33          70         819         900          --            --
   Postretirement expense ...........        465         557         502         472          64           110
   Cumulative effective of accounting
     change .........................        251          --          --          --          --            --
   Extraordinary loss, net of income
     tax benefit ....................        850          --          --       7,121          --            --
                                        --------    --------    --------    --------    --------      --------
Adjusted EBITDA .....................   $ 33,182    $ 37,688    $ 38,503    $ 32,668    $ 10,885      $  4,810
                                        ========    ========    ========    ========    ========      ========

</TABLE>

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

RESULTS OF OPERATIONS

                  The discussion set forth below relates to the consolidated
results of continuing operations and financial condition of the Company for the
years ended December 31, 2000, 1999 and 1998. The following table sets forth
certain statement of operations data and the related percentage of net sales as
adjusted to give retroactive effect to the restatement of smokeless tobacco
assets as a continuing operation (dollars in thousands):
<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                          ------------------------------------------------------------------------
                                                   2000                     1999                      1998
                                                   ----                     ----                      ----
<S>                                       <C>             <C>        <C>            <C>        <C>           <C>
Net Sales..........................       $93,145         100.0%     $94,461        100.0%     $93,081       100.0%
Cost of sales......................        33,689          36.2       32,151         34.0       32,222        34.6
                                          -------     ---------    ---------     --------    ---------    --------
Gross Profit.......................        59,456          63.8       62,310         66.0       60,859        65.4
Selling, general and
   administrative expenses.........        30,474          32.7       27,940         29.6       26,268        28.2
Amortization of goodwill...........         5,490           5.9        5,490          5.8        5,490         5.9
                                          ---------   -----------  ---------     --------    ---------    --------
Operating income...................        23,492          25.2       28,880         30.6       29,101        31.3
Interest expense & financing costs, net    22,261          23.9       23,488         24.9       24,927        26.8
Other expense (income).............         1,801           1.9         (16)           --         (46)          --
                                          ---------   -----------  ---------     --------    ---------    --------
Income/(loss) from operations before
income tax expense.................          (570)         (0.6)       5,408          5.7        4,220         4.5
Income tax expense.................         1,529           1.6        3,813          4.0        3,213         3.4
                                          ---------   -----------  ---------     --------    ---------    --------
Income (loss) before extraordinary loss
and cumulative effect of change in
accounting principle...............        (2,099)         (2.2)       1,595          1.7        1,007         1.1
Extraordinary loss.................          (850)         (0.9)          --           --           --          --
Cumulative effect of change in
accounting principle...............          (251)         (0.3)          --           --           --          --
                                          ---------   -----------  ---------     --------    ---------    --------
Net income (loss)..................       ($3,200)        (3.4%)      $1,595         1.7%     $  1,007        1.1%
                                          =========   ===========  =========     ========    =========    ========
</TABLE>

                                       20
<PAGE>

COMPARISON OF YEAR ENDED DECEMBER 31, 2000 TO YEAR ENDED DECEMBER 31, 1999

                  Net Sales. For the year ended December 31, 2000, net sales
were $93.1 million, a decrease of $1.3 million or 1.4% from the prior year.
Sales of the Smokeless Tobacco segment decreased $6.1 million, or 13.3% from the
prior year reflecting, in part, a 16.0% volume decrease, which was partially
offset by manufacturers' price increases during 2000. Net sales in 2000 were
adversely impacted primarily by a dispute with a substantial customer; an
unsuccessful cost savings attempt to change the Smokeless Tobacco segment's Buy
1/Get 1 Free packaging; and reduced market coverage resulting from increased
resignations of field sales personnel during the period which certain assets of
the Smokeless Tobacco segment were under agreement to be sold. In addition, net
sales continued to be adversly impacted by competitive pressures, including
increased discounting, from looseleaf and moist snuff manufacturers.For the
Smokeless Tobacco segment, these factors had an estimated aggregate unfavorable
impact on net sales of $4.4 million. Sales of the MYO segment increased $4.8
million, or 9.8% from the prior year. This increase was due primarily to an
increase of $3.4 million in sales of the expanded MYO product line and an
increase of $1.5 million in sales to Canada as a result of an increase in sales
and in inventory levels to avoid out-of-stock situations.

                  Gross Profits. For the year ended December 31, 2000, gross
profit decreased 4.6% to $59.5 million from $62.3 million from the prior year
and the gross profit percentage declined to 63.8% from 66.0%. Gross profit and
gross profit percentage of the Smokeless Tobacco segment decreased to $22.5
million or 56.7% of net sales in 2000 from $28.7 million or 62.6% of net sales
for the prior year. The non-cash LIFO inventory adjustment of $2.1 million in
2000 accounted for 34% of the $6.2 million decline. Management believes that the
factors discussed above, which adversely impacted net sales by $4.4 million, had
an estimated adverse impact on gross profits of $2.8 million. Gross profit and
gross profit percentage of the MYO segment increased to $37.0 million or 69.2%
of net sales in 2000 from $33.6 million or 69.1% of net sales for the prior year
due, in part, to the rapid growth in this segment resulting from increased
distribution and new product introductions and, in part, to the strong identity
of the Zig-Zag brand.

                  Currency. Currency movements and price increases are the
primary adjustment factors for changes in costs of goods sold. Cigarette papers
are purchased from Bollore on terms of net 45 days in French francs. Thus, NAOC
bears certain foreign exchange risks for its inventory purchases. To hedge this
risk, NAOC utilizes short-term forward currency contracts, through which NAOC
secures French francs in order to provide payment for its monthly purchases of
inventory. In addition, Bollore provides a contractual hedge against significant
currency fluctuation in its agreement with NAOC. For the year ended December 31,
2000, currency rates were generally favorable for the Company due to the
strength of the U.S. dollar versus the French franc. The Company was able to
successfully hedge its currency risk by utilizing short-term forward currency
contracts. In the event that the trend of the French franc were to strengthen
against the U.S. dollar, the Company would reassess its currency strategy.

                  Selling, General and Administrative Expenses. Selling, general
and administrative expenses for the year ended December 31, 2000 increased 9.1%
to $30.5 million from the prior year's $28.0 million. This increase was due
primarily to increased legal and litigation expenses and marketing and sales
incentives, the latter of which was to create enhanced distribution of the
expanded MYO product line.

                  Amortization of Goodwill. Amortization of goodwill was
unchanged at $5.5 million from the prior year.

                  Interest Expense and Financing Costs. Interest expense and
financing costs decreased to $22.3 million from $23.5 million for the prior
year. This decrease was the result of a lower average term loan balance, despite
a higher average interest rate environment.



                                       21
<PAGE>

                  Other Expense (Income). Other expense (income) increased to an
expense of $1.8 million. This expense was for legal fees and other costs
associated with the proposed sale of the smokeless tobacco segment, which was
terminated in December 2000.

                  Income Tax Expense. Income tax expense decreased to $1.5
million from $3.8 million for the prior year as a result of the decrease in
taxable income from the prior year. Despite a loss from operations, the Company
incurred an income tax expense due to the non-deductibility of certain goodwill
charges associated with the 1997 acquisition and recapitalization.

                  Extraordinary Loss. The Company recorded an extraordinary loss
of $0.9 million (net of income tax benefit of $0.5 million) for the year ended
December 31, 2000 related to the write-off of deferred financing costs
associated with the initial acquisition financing in June 1997 and the
subsequent refinancing of the Company's term loan on December 29, 2000.

                  Cumulative Effect of Change in Accounting Principle. The
Company recorded a cumulative effect of change in accounting principle of $0.3
million (net of income tax benefit of $0.1 million) for the year ended December
31, 2000, as a result of the adoption of Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements".

                  Net Income (Loss). Due to the factors described above, there
was a net loss of $3.2 million for the year ended December 31, 2000 compared to
net income of $1.6 million for the prior year.

COMPARISON OF YEAR ENDED DECEMBER 31, 1999 TO YEAR ENDED DECEMBER 31, 1998

                  Net Sales. For the year ended December 31, 1999, net sales
were $94.5 million, an increase of $1.4 million or 1.5%, from the prior year.
Sales of the Smokeless Tobacco segment decreased $5.0 million, or 9.8% from the
prior year reflecting a 11.5% volume decrease which was partially offset by
manufacturers' price increases during 1999. The primary reason for the decline
in volume was management's decision to reduce its free goods discounting
activity in favor of a cents-off strategy. Secondly, competitive pressures and
increased industry discounting adversely affected full price sales. Sales of the
MYO segment increased $6.4 million, or 15.1% from the prior year. This increase
was due primarily to an increase of $4.3 million in sales of the expanded MYO
product line and an increase of $1.3 million in premium cigarette papers.

                  Gross Profits. For the year ended December 31, 1999, gross
profit increased 2.4% to $62.3 million from $60.9 million from the prior year,
while the gross profit percentage increased to 66.0% from 65.4%. Gross profit of
the Smokeless Tobacco segment decreased to $28.7 million from $31.1 million due
to the decline in net sales; however, the gross profit percentage increased to
62.6% of net sales from 61.3% for the prior year due primarily to the impact of
the LIFO inventory adjustment in 1998. Gross profit of the MYO segment increased
to $33.6 million from $29.7 million but gross profit percentage decreased to
69.1% of net sales from 70.3% from the prior year due to a change in product mix
in connection with the expanded development of the MYO product line.

                  Currency. Currency movements and price increases are the
primary adjustment factors for changes in costs of goods sold. Cigarette papers
are purchased from Bollore on terms of net 45 days in French francs. Thus, NAOC
bears certain foreign exchange risks in its inventory purchases. To hedge this
risk, NAOC utilizes short-term forward currency contracts, through which NAOC
secures French francs in order to provide payment for its monthly purchases of
inventory. In addition, Bollore provides a contractual hedge against substantial
currency fluctuation in its agreement with NAOC. For the year ended December 31,
1999, currency rates were generally favorable for the Company due to the
strength of the U.S. dollar versus the French franc. The Company was able to


                                       22
<PAGE>

successfully hedge its currency risk by utilizing short-term forward currency
contracts. In the event that the trend of the French franc were to strengthen
against the U.S. dollar, the Company would reassess its currency strategy.

                  Selling, General and Administrative Expenses. Selling, general
and administrative expenses for the year ended December 31, 1999 increased to
6.4% to $28.0 million from the prior year's expense of $26.3 million. This
increase was due primarily to increased marketing and sales incentives related
to the expansion of the MYO product category.

                  Amortization of Goodwill. Amortization of goodwill was
unchanged at $5.5 million from the prior year.

                  Interest Expense and Financing Costs. Interest expense and
financing costs decreased to $23.5 from $24.9 million for the prior year. This
decrease was primarily the result of a lower average term loan balance.

                  Income Tax Expense. Income tax expense increased to $3.8
million from $3.2 million for the prior year as a result of the increase in
taxable income from the prior year.

                  Net Income. Due to the factors described above, net income was
$1.6 million for the year ended December 31, 1999 compared to $1.0 million for
the prior year.

LIQUIDITY AND CAPITAL REQUIREMENTS

                  Working capital was $28.9 million at December 31, 2000
compared to $37.0 million at December 31, 1999. This decrease was primarily the
result of a reduction in inventory of $4.3 million due to the timing of purchase
commitments in anticipation of the proposed asset sale; a decrease in cash of
$1.4 million due, in part, to the refinancing of the Company's senior secured
credit facilities in December 2000; a decrease in receivables of $0.8 million;
and an increase in payables of $2.1 million. The Company funds its seasonal
working capital requirements through its operating cash flows, and, if needed,
bank borrowings. As of December 31, 2000, the Company had an undrawn
availability of $9.0 million under its committed $10.0 million revolving credit
facility.

                  On December 29, 2000 the Company entered into a Loan Agreement
(the "Loan Agreement") with Bank One, Kentucky, N.A. as Agent (the "Agent"), and
the banks named therein to refinance its existing bank credit facility described
below. The Loan Agreement provides for a $25 million term loan and a $10 million
revolving line of credit. Borrowings under the Loan Agreement bear interest at
variable rates based, at the Company's option, at the Agent's prime, or LIBOR
rates. The term loan is payable in eight (8) quarterly installments of
$3,125,000 each plus accrued interest, commencing on March 31, 2001. Both the
term loan and the revolver mature on December 31, 2002. As part of the revolving
line of credit, the lenders agreed to issue up to $10 million of standby letters
of credit. The Company's obligations under the Loan Agreement are guaranteed by
National Tobacco, NAOC, and NTFC. In addition, the Company's obligations are
secured by all of the Company's assets and the Company's equity in its
subsidiaries. The interest rate on borrowings under the Loan Agreement was
8.9875% at December 31, 2000. In addition, the Company must pay a quarterly
commitment fee of 0.5% per annum of the unused portion of the revolver.



                                       23
<PAGE>

                  The Loan Agreement replaces a credit agreement (the "Old
Credit Agreement") entered into on June 25, 1997 with a syndicate of lenders
which provided borrowings of $85 million under a term facility and a revolver
with available credit of up to $25 million, including a letter of credit
sub-limit of $10 million. Borrowings under the Old Credit Agreement also bore
interest at variable rates based, at the Company's option, on prime, federal
funds or LIBOR rates. In addition, the Company also was required to pay a
quarterly commitment fee of 0.5% per annum of the unused portion of the
revolver.

                  The tobacco for loose leaf chewing tobacco requires aging of
approximately two years before being processed into finished products. The
Company believes that National Tobacco maintains sufficient tobacco inventories
to ensure proper aging as well as an adequate supply based on its historical and
projected sales activity. The Company also believes that NAOC maintains adequate
inventories based on its historical and projected sales activity and that the
supply of such inventory will remain stable for the foreseeable future.

                  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 smokeless tobacco products due, in part, to its successful procurement
and reformulation activities.

                  For 2000, the Company spent $456,000 in capital expenditures.
Given its current operation, the Company believes that its annual capital
expenditure requirements for 2001 will be in the range of $500,000 - $750,000.

                  Currently, the Company believes that its operating cash flows,
together with its revolving credit facility, should be adequate to satisfy its
reasonably foreseeable capital requirements. The financing of any significant
future products, business or property acquisitions may require additional debt
or equity financing.

RECENT ACCOUNTING PRONOUNCEMENTS

                  In June 1998, the Financial Accounting Standards Board (FASB)
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement requires that all derivatives be measured at fair
value and recognized in the balance sheet as either assets or liabilities. SFAS
No. 133 also requires that changes in a derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualified hedges allows a derivative's gains and losses to offset
related results on the hedged item in the income statement and requires formal
documentation, designation, and assessment of the effectiveness of derivatives
that receive hedge accounting.

                  In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133," which makes SFAS No. 133 effective for fiscal years
beginning after June 15, 2000. The Company adopted SFAS No. 133 as of January 1,
2001, and management does not expect the adoption to have a material impact on
the consolidated financial statements.

FORWARD-LOOKING STATEMENTS

                  The Company cautions you 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


                                       24
<PAGE>

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, 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 you 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 term and revolving loans under its senior secured credit facility. The
Company's credit facility bears interest at rates which vary with changes in (i)
the London Interbank Offered Rate (LIBOR) or (ii) a rate of interest announced
publicly by the Federal Reserve. The Company does not speculate on the future
direction of interest rates. As of December 31, 2000, $25.0 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 in French francs. Accordingly, exposure exists
to potentially adverse movement in foreign currency rates. NAOC uses short-term
forward currency contracts to hedge the risk in foreign currency exchange rates.
In addition, Bollore provides a contractual hedge against substantial 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 entirely offsets the effects of changes in
foreign exchange rates.

                  NAOC regularly reviews its hedging programs and may as part of
this review determine at any time to change its hedging policy. As of December
31, 2000, NAOC had an outstanding forward currency contract with a notional
value of $511,000 which resulted in a $45,000 payable on a mark-to-market basis.

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 accountants, with respect thereto, referred to in the Index to
Consolidated Financial Statements and Financial Statement Schedules of the
Company contained in Item 14(a), appear on pages F-1 through F-30 of this Form
10-K and are incorporated herein by reference thereto. Information required by


                                       25
<PAGE>

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.













                                       26
<PAGE>

                                    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."
<TABLE>
Name                                    Age      Position
----                                    ---      --------
<S>                                     <C>      <C>
Thomas F. Helms, Jr................     60       Chief Executive Officer, President and Chairman of the Board
David I. Brunson...................     50       Executive  Vice  President--Finance  and  Administration,   Chief
                                                 Financial Officer, Treasurer, Secretary  and Director
Jack Africk........................     72       Director
Arnold Sheiffer....................     68       Director
</TABLE>
                  Thomas F. Helms, Jr. Thomas F. Helms, Jr. has been Chief
Executive Officer, Chairman of the Board and the sole member of the
Administration Committee of the Company since June 1997. On January 1, 1999, Mr.
Helms assumed the additional responsibilities of President of the Company. He
had previously held the position of President of the Company and its
subsidiaries (other than International Flavors and Technology, Inc. ("IFT"))
prior to January 1998. He currently serves as Chairman of the Board of each of
the Company's corporate subsidiaries. He has been Chief Executive Officer of
National Tobacco and NTFC since 1988 and has held the same office with NAOC and
IFT since October 1997. 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. Prior to that time, Mr. Helms was
employed in marketing and sales positions in various divisions of Revlon
Consumer Products Corporation.

                  David I. Brunson. David I. Brunson has been Executive Vice
President--Finance and Administration, Chief Financial Officer and a Director of
the Company since June 1997 and a member of the Company's Executive Committee
since December 1997. He has held the same offices with National Tobacco and NTFC
(since April 1997), NAOC (since October and June 1997, respectively) and IFT
(since October 1997). In December 1998, Mr. Brunson was also appointed to the
offices of Treasurer and Secretary of the Company and Secretary of IFT. In
addition, he currently holds the offices of Treasurer and Assistant Secretary
with each of the Company's subsidiaries (other than IFT). Mr. Brunson has also
served as a member of the Board of the Directors of each of the Company's
corporate subsidiaries since October 1997 (or, in the case of NAOC, since June
1997). Prior to joining the Company, from November 1992 until April 1997, he was
employed as a Managing Director at Societe Generale and 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 since October
1997 and has been serving as a consultant to the Company since January 1999.
From January through December 1998 he served as President and Chief Operating
Officer of the Company and each of its subsidiaries (other than IFT). From
February to December 1998, Mr. Africk was also a Director of each of the
Company's corporate subsidiaries. Beginning in 1996 and until the consummation


                                       27
<PAGE>

of the Acquisition, he was Chief Executive Officer of NATC. Prior to that time,
from 1993 to 1996, Mr. Africk was a consultant and Director of NATC. Mr. Africk
is a former Vice Chairman of 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 Managing Partner of
Evolution Partners and as a Director of Tanger Factory Outlets and Crown Central
Petroleum.

                  Arnold Sheiffer. Arnold Sheiffer has served as a Director of
the Company since June 1997. He has also served as a member of the Audit and
Compensation Committees of the Board of Directors since November and December
1997, respectively. Since July 2000, Mr. Sheiffer's principal occupation is
serving as a Managing Director of Sandler Capital Management, a company engaged
in investment management in the media and communications industries. From May
1999 through November 2000, he served as Chairman and Chief Executive Officer of
SmartRoute Systems, Inc., a nationwide provider of real time traffic. From
February 1995 until May 1999, he was a Managing Director of Shenkman Capital
Management, Inc., a company engaged in the management of investments in high
yield securities. He currently serves as a director of James Cable Inc., an
owner and operator of cable systems, and as a director of Petry Media Corp., a
leading representative of television stations in the sale of national spot
advertising.

                  Mr. Leonard Pickett was elected by the Board of Directors of
the Company to serve as a director in January 2000 and served until his
accidental death in December 2000.

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

ELECTION OF DIRECTORS

                  Pursuant to the terms of an Exchange and Stockholders'
Agreement, dated as of June 25, 1997, among the Company and certain of the
stockholders of the Company (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 the Company unless
dividends are not paid in cash to the holders of the Company's Senior Preferred
Stock when such dividends are required to be paid in cash, in which event such
holders have the right to elect two directors. 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.

COMMITTEES OF THE BOARD

                  The Board of Directors currently has two committees: an Audit
Committee, and an Administration Committee, which administers the Company's 1997
Share Incentive Plan. The sole member of the Audit Committee during 2000 was Mr.
Sheiffer. The sole member of the Administration Committee was Mr. Helms.

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 Chief
Executive Officer and Executive Vice-President of the Company (the "Executive
Officers") for the fiscal years ended December 31, 1998, 1999 and 2000 (each
person appearing in the table is referred to as a "Named Executive"):



                                       28
<PAGE>

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                  Annual Compensation
                                                                  -------------------           All Other
NAME AND PRINCIPAL POSITION                         Year        Salary ($)    Bonus ($)      Compensation ($)
---------------------------                         ----        ----------    ---------      ----------------
<S>                                                 <C>           <C>            <C>              <C>
Thomas F. Helms, Jr. ..........................     2000          $525,000       $336,500         $48,720 (1)
     Chief Executive Officer and President          1999           525,000              0          48,320 (2)
                                                    1998           441,108        175,000         163,799 (3)
David I. Brunson...............................     2000           406,538        200,000          19,193 (4)
     Executive Vice President--Finance and          1999           354,231        300,000          18,793 (5)
     Administration and Chief Financial Officer     1998           333,339        450,000          13,980 (6)
</TABLE>

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

(1)      Includes insurance premiums of $41,917 paid by the Company with respect
         to term life and disability insurance, and contributions by the Company
         of $6,803 to a defined contribution plan.

(2)      Includes insurance premiums of $41,917 paid by the Company with respect
         to term life and disability insurance, and contributions by the Company
         of $6,403 to a defined contribution plan.

(3)      Includes insurance premiums of $34,132 paid by the Company with respect
         to term life insurance, contributions by the Company of $4,800 to a
         defined contribution plan and payment of a $124,867 non-cash bonus in
         satisfaction of an employee loan.

(4)      Includes insurance premiums of $12,390 paid by the Company with respect
         to term life and disability insurance and contributions by the Company
         of $6,803 to a defined contribution plan.

(5)      Includes insurance premiums of $12,390 paid by the Company with respect
         to term life and disability insurance and contributions by the Company
         of $6,403 to a defined contribution plan.

(6)      Includes insurance premiums of $9,180 paid by the Company with respect
         to term life insurance and contribution by the Company of $4,800 to a
         defined contribution plan.


STOCK OPTIONS

                  The Company did not award any stock options to any of the
Named Executives during the last fiscal year.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

                  Thomas F. Helms, Jr., President and Chief Executive Officer of
the Company, is the sole member of the Company's Administration Committee and
was, until October 1997, the sole director of the Board of Directors of NTFC. As
such, he performed the equivalent function of a compensation committee for these
entities. Mr. Helms' relationship with NTFC, National Tobacco, and the Company
is set forth under "Board of Directors and Executive Officers." On April 26,
1988 and December 15, 1988, Mr. Helms borrowed $75,000 and $45,000,
respectively, in connection with the purchase of a portion of his partnership
interests in National Tobacco 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 owns all of the non-voting capital stock, issued


                                       29
<PAGE>

a promissory note to the Company in the aggregate principal amount of $886,900,
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 conversion of LLC to a
"C" corporation in connection with the Acquisition. Upon execution of the
$886,900 note, the prior notes issued by Mr. Helms were cancelled. The current
note bears interest at the rate of 6.5% per annum and has a final maturity on
March 31, 2003. 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 conversion of LLC. This note bears interest at the rate
of 6.5% per annum and has a final maturity on December 31, 2003. As of February
28, 2001, the aggregate amount outstanding under the above notes was
approximately $1,036,900.

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. Mr. Africk and Mr. Sheiffer each
receives compensation of $25,000 as a member of the Company's Board of
Directors.

EMPLOYMENT AND CONSULTING 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 which Mr. Helms is currently
receiving an annual base salary of $525,000 which is reviewed annually, plus a
bonus in accordance with the Company's Executive Plan (as defined). 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 will
receive various other benefits, including life insurance and health,
hospitalization, 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, except 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, Executive Vice President--Finance and
Administration, Chief Financial Officer, Treasurer and Secretary of the Company,
entered into an amended and restated employment agreement with the Company on
April 30, 1998 (as so amended and restated, the "Brunson Employment Agreement").
Pursuant to the Brunson Employment Agreement, Mr. Brunson is currently receiving
an annual base salary of $425,000, which is reviewed annually, plus a bonus in
accordance with the Company's Executive Plan. The Brunson Employment Agreement
provides for a term ending on the later of April 30, 2002 or the second
anniversary of the date notice of termination is first given, and is terminable
at will except with respect to severance. 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 will receive various other benefits, including life insurance and
medical, disability, pension benefits, club memberships, 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


                                       30
<PAGE>

of Mr. Brunson's employment and for any subsequent period during which severance
is paid to Mr. Brunson.

                  In the event Mr. Brunson resigns for good reason or is
terminated without cause, he is entitled to receive his annual base salary, and
a pro rated bonus (based on the highest 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
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.

                  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 were vested as of the closing of the
Acquisition and one-third of these options were vested on each of the first two
anniversaries of the date of his employment, April 23, 1997. In connection with
the exercise of such options and subject to certain limitations, including a
requirement that Mr. Brunson shall not leave, resign or 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.

JACK AFRICK

                  Jack Africk, the former President and Chief Operating Officer
of the Company, terminated his employment agreement with the Company (the
"Africk Employment Agreement") effective December 31, 1998, but continues to
serve as a member of the Company's Board of Directors and, as described below,
as a consultant to the Company.

                  In connection with Mr. Africk's resignation, he and the
Company agreed to enter into a consulting agreement (the "1999 Consulting
Agreement"). Pursuant to the 1999 Consulting Agreement, Mr. Africk is to provide
consulting services to the Company on an as needed basis at the rate of $75,000
per annum. The 1999 Consulting Agreement is subject to annual renewals on 90
days notice.

                  During his tenure as President and Chief Operating Officer and
pursuant to a non-qualified stock option agreement, Mr. Africk was granted
options to purchase 14,962 shares of Common Stock of the Company, all of which
were vested in full as of December 31, 1998. In connection with Mr. Africk's
resignation, the Company agreed to extend the exercise period for these options
until their expiration date on July 28, 2012. The Company also agreed that, as
had been previously provided in the Africk Employment Agreement, the Company
would pay Mr. Africk 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.


                                       31
<PAGE>

RETIREMENT PLAN

                  The table below illustrates the approximate amounts of annual
normal retirement benefits payable under the Company's Retirement Plan (as
defined herein).
<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>             <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
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., 13 years; and David I. Brunson, 3 years.

BONUS PLANS

                  In March 1999, the Compensation Committee of the Company's
Board of Directors adopted the 1999 Executive Incentive Plan (the "Executive
Plan"), the 1999 Management Bonus Plan (the "Management Plan") and the 1999
Discretionary Bonus Plan (the "Discretionary Plan"). The Executive Plan provides
executive members of the Company with the opportunity to receive bonus pay based
on the Company's annual EBITDA performance, subject to approval of the Board of


                                       32
<PAGE>

Directors. In addition, the Board of Directors can make discretionary bonus
payments to one or more participants in the 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 EBITDA
performance as well as the individual performance of participants, subject to
approval of Executive Management. If the Company's annual EBITDA performance is
not achieved, Executive Management, subject to approval of the Board of
Directors, can make discretionary bonus payments. Under the Discretionary Bonus
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 "Incentive Plan").

                  The 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 Incentive Plan makes available for Benefits an aggregate
amount of 61,856 shares of Common Stock (59,760 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 Incentive Plan.

Administration

                  The 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
Thomas F. Helms, Jr. The Administration Committee is authorized, subject to the
provisions of the Incentive Plan, to establish such rules and regulations as it
deems necessary for the proper administration of the Incentive Plan and to make
such determinations and interpretations and to take such action in connection
with the 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.


                                       33
<PAGE>

Eligibility for Participation

                  Key employees of the Company or any of its subsidiaries are
eligible to participate in the 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 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 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 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 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 or Common Stock, 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.

Stock Awards

                  The 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.


                                       34
<PAGE>

Performance Awards

                  The 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 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 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 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 Incentive Plan. No
Benefit shall be granted under the Incentive Plan after June 25, 2007. The Board
of Directors reserves the right to amend, suspend or terminate the Incentive
Plan at any time, subject to the rights of participants with respect to any
outstanding Benefits.

                  The 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.


                                       35
<PAGE>

Item 12.     Security Ownership of Certain Beneficial Owners and Management
             --------------------------------------------------------------

                  The table below sets forth certain information regarding the
beneficial ownership of Common Stock as of March 1, 2000 by (i) each person or
entity who beneficially owns five percent or more of the Common Stock, (ii) each
Director and Named Executive of the Company and (iii) all Directors and
executive officers of the Company 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)
                                                                                -------------------------------------
                                                                                 Before Exercise    After Exercise
           Beneficial Owner                            Number of Shares             of Warrants        of Warrants
           ----------------                            ----------------           -------------      -------------
<S>                                                    <C>                             <C>                <C>
           Thomas F. Helms, Jr. (b)..................   478,911                        90.7%              80.9%
               Helms Management Corp.
           David I. Brunson(c).......................   304,478                        54.5               48.9
           Herbert Morris(d).........................    37,990                         7.2                6.4
               Flowing Velvet Productions, Inc.
               3 Points of View
               Warwick, New York 10990
           Maurice R. Langston(d)....................    37,038                         7.0                6.3
               Langston Enterprises, Inc.
           Alan R. Minsterketter(d)..................    27,613                         5.2                4.7
               Alan M. Inc.
           Jack Africk(e)............................    21,212                         3.9                3.5
           Arnold Sheiffer...........................    11,225                         2.1                1.9
           DIRECTORS AND EXECUTIVE OFFICERS
               AS A GROUP (5 PERSONS) (C) (D) (E)....   490,136                         92.8%              82.8%
</TABLE>

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

(a)  The percentages assume, in the column entitled "Before Exercise of
     Warrants," that none of the outstanding warrants to purchase an aggregate
     of 63,490 shares at an exercise price of $.01 per share is exercised and,
     in the column entitled "After Exercise of Warrants," that all of such
     warrants will be exercised.

(b)  Helms Management Corp., all of the voting capital stock of which is owned
     by Mr. Helms 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
     271,300 shares of Common Stock, which represents approximately 51.4% of the
     outstanding shares assuming that none of the outstanding warrants are
     exercised, or 45.8% of the outstanding shares assumes that all such
     warrants are exercised. The 271,300 shares owned by Helms Management Corp.
     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 "Voting
     Trust Agreement." Because of Mr. Helms' ability to vote an additional
     151,231 shares of Common Stock held by members of the Company's management
     in respect of the election of the Company's 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 18,390 shares of 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 the
     stockholders of the Company 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 Productions,
     Inc. See "Voting Agreement."

(c)  Includes (i) 2,250 shares of Common Stock owned by Mr. Brunson, (ii) 30,928
     shares subject to currently exercisable stock options held by Mr. Brunson
     and (iii) 271,300 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.


                                       36
<PAGE>

(e)  Includes 6,250 shares of 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.

STOCKHOLDERS' AGREEMENT

                  The Company and certain stockholders of the Company are
parties to the Stockholders' Agreement, setting forth among other things, the
manner in which directors of the Company are to be selected. See
"Management--Election of Directors." The Stockholders' Agreement also sets forth
certain restrictions on the transfer of shares of 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
existing stockholders with certain "tag-along" rights to participate ratably in
sales of Common Stock to third parties and requires existing stockholders to
participate ratably in certain sales of Common Stock to third parties. Subject
to the terms of all applicable debt agreements of the Company and its
subsidiaries and to the rights of holders of the Company's preferred stock, the
Stockholders' Agreement provides that the Company 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 the Company 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 the Company and its subsidiaries, and to the
rights of holders of the Company's preferred stock, the Company also has the
right to repurchase the shares of 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.

                  In addition, in connection with the transfer of 18,390 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 the Company.

VOTING TRUST AGREEMENT

                  Thomas F. Helms, Jr. and David I. Brunson are voting trustees
under a Voting Trust Agreement with Helms Management Corp. Helms Management
Corp. owns 271,300 shares of Common Stock in the Company, 240,000 of which are
subject to the Voting Trust Agreement. Pursuant to the Voting Trust Agreement,
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 holder of the voting trust certificate may remove at any time any
of the voting trustees and replace any of them 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 AGREEMENT

                  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.



                                       37
<PAGE>

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

                  On March 24, 1998, David I. Brunson, Executive Vice
President-Finance and Administration, Chief Financial Officer, Treasurer and
Secretary 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. The
note bears interest at 6.5% per annum and has a final maturity on March 31,
2003.

                  For information concerning loans made by the Company to Thomas
F. Helms, Jr., see "Compensation Committee Interlocks and Insider
Participation."

                  Kent Helms, son of Thomas F. Helms, Jr., Chief Executive
Officer and President of the Company, served as a consultant to the Company in
connection with the design of its internet site from January through September
2000 and received aggregate compensation for such services of approximately
$56,000. Since October 2000, Kent Helms has been employed by the Company as
Director, e Business Development and receives a salary from the Company of
$65,000 per annum.

                  Jack Africk, a director of the Company, also serves as a
consultant to the Company. See "Employment and Consulting Agreements" above.





                                       38
<PAGE>

                                     PART IV

Item 14.     Exhibits, Financial Statement Schedules, and Reports on Form 8-K
             ----------------------------------------------------------------

                  (a) 1. Financial Statements:

                  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:

                          INDEX TO FINANCIAL STATEMENTS

NORTH ATLANTIC TRADING COMPANY, INC.                                     PAGE
------------------------------------                                     ----

AUDITED CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Accountants....................................... F-1
Consolidated Balance Sheets as of December 31, 2000 and 1999............ F-2
Consolidated Statements of Operations for the
     years ended December 31, 2000, 1999, and 1998...................... F-3
Consolidated Statements of Cash Flows for the
     years ended December 31, 2000, 1999, and 1998.                      F-4
Consolidated Statements of Changes in Stockholders' Deficit for the
     years ended December 31, 2000, 1999, and 1998...................... F-5
Notes to Consolidated Financial Statements.............................. F-6

                  2. Financial Statement Schedules:

                  All other schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and, therefore,
have been omitted.

                  3. See the accompanying Index to Exhibits, which precedes the
Exhibits filed with this Form 10-K.





                                       39
<PAGE>

                                INDEX TO EXHIBITS

<TABLE>
EXHIBIT
NUMBER                 DESCRIPTION
------                 -----------
<S>                    <C>
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)(i) the  Registrant's
                       Annual Report on Form 10-K for the fiscal year ended December 31, 1997).

3.1(b)          --     Certificate of  Incorporation  of North Atlantic  Operating  Company,  Inc., filed June 9 1997
                       (incorporated  herein by reference to Exhibit  3.1(b)(i) to the Registrant's  Annual Report on
                       Form 10-K for the fiscal year ended December 31, 1997).

3.1(c)          --     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(d)          --     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(e)          --     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(f)          --     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(g)          --     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  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 September 3, 1997).


                                       40
<PAGE>

EXHIBIT
NUMBER                 DESCRIPTION
------                 -----------

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 September 3, 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).

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  Report on Form 10-K for the fiscal  year ended  December
                       31, 2000).

3.3             --     Certificate of Designation of 12% Senior  Exchange  Payment-In-Kind  Preferred  Stock of North
                       Atlantic  Trading  Company,  Inc., filed July 22,  1997  (incorporated  herein by reference to
                       Exhibit 3.3(b) to Amendment No. 1 to Registration  Statement (Reg. No.  333-31931) on Form S-4
                       filed with the Commission on September 3, 1997).

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 The 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).


                                       41
<PAGE>

EXHIBIT
NUMBER                 DESCRIPTION
------                 -----------

9.1             --     Exchange  and  Stockholders'  Agreement,  dated as of  June 25,  1997,  by and  between  North
                       Atlantic Trading Company,  Inc. and those stockholders  signatory thereto (incorporated herein
                       by reference to Exhibit 9 to Amendment  No. 1 to Registration  Statement (Reg. No.  333-31931)
                       on Form S-4 filed with the Commission on September 3, 1997).

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 2, 1999, among Thomas F. Helms,
                       Jr. and David I. Brunson,  as voting trustees,  and Helms  Management  Corp.  (incorporated by
                       reference  to Exhibit  9.3 to the  Registrant's  Report on Form 10-K for the fiscal year ended
                       December 31, 2000).

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 3, 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 3, 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 3, 1997).


                                       42
<PAGE>

EXHIBIT
NUMBER                 DESCRIPTION
------                 -----------

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 3, 1997).

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 10.12 to Amendment No. 1 to Registration  Statement (Reg. No.  333-31931)
                       on Form S-4 filed with the Commission on September 3, 1997).

10.8++          --     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++         --     Letter  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).


                                       43
<PAGE>

EXHIBIT
NUMBER                 DESCRIPTION
------                 -----------

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).

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 27,   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           --     Amendment  to  Credit  Agreement,  dated as of June 5,  1998,  among  North  Atlantic  Trading
                       Company,  Inc., the various lending institutions  referenced therein, and National Westminster
                       Bank plc, as  Administrative  Agent  (incorporated  herein by reference to Exhibit 10.1 to the
                       Registrant's Report on 10-Q for the fiscal quarter ended June 30, 1998).

10.21++         --     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).

10.22           --     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  Report on 10-Q for the
                       fiscal quarter ended June 30, 1998).


                                       44
<PAGE>

EXHIBIT
NUMBER                 DESCRIPTION
------                 -----------

10.23           --     Promissory  Note,  dated April 14,  1998,  issued by Helms  Management Corp. in favor of North
                       Atlantic  Trading  Company,  Inc.  (incorporated  herein by  reference  to Exhibit 10.7 to the
                       Registrant's Report on 10-Q for the fiscal quarter ended June 30, 1998).

10.24           --     Amendment,  dated as of February 1,  1998,  among North Atlantic  Trading  Company,  Inc., the
                       various  lending  institutions  referenced  therein  and  National  Westminster  Bank plc,  as
                       administrative  agent  (incorporated  herein by reference to Exhibit 10.39 to the Registrant's
                       Report on 10-Q for the fiscal quarter ended March 31, 1998).

10.25           --     Consent,  dated as of March 12,  1998, among North Atlantic Trading Company, Inc., the various
                       lending  institutions  referenced therein and National Westminster Bank plc, as administrative
                       agent  (incorporated  herein by reference to Exhibit 10.40 to the Registrant's  Report on 10-Q
                       for the fiscal quarter ended March 31, 1998).

10.26           --     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 Report on 10-Q for the fiscal quarter ended March 31, 1998).

10.27           --     Promissory Note, dated March 24,  1998,  issued by David I. Brunson in favor of North Atlantic
                       Trading Company,  Inc.  (incorporated herein by reference to Exhibit 10.44 to the Registrant's
                       Report on 10-Q for the fiscal quarter ended March 31, 1998).

10.28           --     Promissory  Note,  dated April 14,  1998,  issued by Helms  Management Corp. in favor of North
                       Atlantic  Trading  Company,  Inc.  (incorporated  herein by  reference  to Exhibit 10.7 to the
                       Registrant's Report on 10-Q for the fiscal quarter ended June 30, 1998).

10.29++         --     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  Report on Form
                       10-K for the fiscal year ended December 31, 2000).

10.30++         --     North Atlantic Trading Company,  Inc. 1999 Executive Incentive Plan (incorporated by reference
                       to Exhibit 10.35 to the  Registrant's  Report on Form 10-K for the fiscal year ended  December
                       31, 2000).

10.31++         --     North Atlantic Trading Company,  Inc. 1999 Management Bonus Plan (incorporated by reference to
                       Exhibit 10.36 to the Registrant's Report on Form 10-K for
                       the fiscal year ended December 31, 2000).

10.32*          --     Loan Agreement,  dated as of December 29, 2000, by and among North Atlantic  Trading  Company,
                       Inc.,  National  Tobacco Company,  L.P.,  North Atlantic  Operating  Company,  Inc.,  National
                       Tobacco  Finance  Corporation  and Bank One,  Kentucky  N.A.,  as agent  bank and the  various
                       lending institutions named therein.


                                       45
<PAGE>

EXHIBIT
NUMBER                 DESCRIPTION
------                 -----------

10.33*          --     Security  Agreement,  dated as of December 29, 2000,  among North  Atlantic  Trading  Company,
                       Inc.,  National  Tobacco Company,  L.P.,  North Atlantic  Operating  Company,  Inc.,  National
                       Tobacco  Finance  Corporation  and Bank One  Kentucky,  N.A.,  as agent  for  certain  lending
                       institutions.

10.34*          --     Guaranty  Agreement,  dated as of December 29, 2000,  among National  Tobacco  Company,  L.P.,
                       North Atlantic Operating  Company,  Inc.,  National Tobacco Finance  Corporation and Bank One,
                       Kentucky, N.A., as agent for certain lending institutions.

10.35*          --     Pledge  Agreement,  dated as of December 29, 2000 among and North  Atlantic  Trading  Company,
                       Inc.,  National  Tobacco Company,  L.P.,  North Atlantic  Operating  Company,  Inc.,  National
                       Tobacco  Finance  Corporation  and Bank One  Kentucky,  N.A.,  as agent  for  certain  lending
                       institutions.

21              --     Subsidiaries of North Atlantic  Trading  Company,  Inc.  (incorporated  herein by reference to
                       Exhibit 21 to the Registrant's Report on Form 10-K forthe fiscal year ended December 31, 1998).

</TABLE>

                           *        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 required to be filed as an exhibit pursuant to
                  Item 14(c) of the rules governing the preparation of this
                  Report.



                                       46
<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 30, 2001

                                  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>

SIGNATURE                                      TITLE                                         DATE
---------                                      -----                                         ----

<S>                                            <C>                                           <C>
       /s/ Thomas F. Helms, Jr.                Chairman of the Board                         March 30, 2001
------------------------------------------     and Chief Executive Officer
       Thomas F. Helms, Jr.                    (Principal Executive Officer)



       /s/ David I. Brunson                    Director, Executive Vice President            March 30, 2001
------------------------------------------     Finance and Administration, Chief Financial
       David I. Brunson                        Officer (Principal Financial and Accounting
                                               Officer)



       /s/ Jack Africk                         Director                                      March 30, 2001
------------------------------------------
       Jack Africk


       /s/ Arnold Sheiffer                     Director                                      March 30, 2001
------------------------------------------
       Arnold Sheiffer

</TABLE>




                                       47
<PAGE>

NORTH ATLANTIC TRADING COMPANY, INC.
AND SUBSIDIARIES

REPORT ON AUDITS OF CONSOLIDATED BALANCE SHEETS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS,
CASH FLOWS AND CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998


<PAGE>


                                 C O N T E N T S

                                                                      PAGES

Report of Independent Accountants                                      F-1


Financial Statements:

Consolidated Balance Sheets as of December 31,
2000 and 1999                                                          F-2

Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998                                       F-3

Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998                                       F-4

Consolidated Statements of Changes in Stockholders' Deficit for
the years ended December 31, 2000, 1999 and 1998                       F-5

Notes to Consolidated  Financial Statements                            F-6


<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS


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, 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, 2000 and 1999 and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2000, 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 of the Notes to the Consolidated Financial Statements,
the Company changed its method of accounting for revenue recognition as a result
of the adoption of Staff Accounting Bulletin No. 101, "Revenue Recognition".





/s/ PricewaterhouseCoopers LLP


February 8, 2001




                                      F-1
<PAGE>

NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
for the years ended December 31, 2000, 1999 and 1998
(dollars in thousands except share data)

<TABLE>
<CAPTION>
                                     ASSETS                                            2000                1999
                                                                                 -----------------   -----------------
<S>                                                                              <C>                 <C>
Current assets:
Cash                                                                             $          1,453    $          2,885
Accounts receivable                                                                         4,182               4,984
Inventories                                                                                49,172              53,499
Income taxes receivable                                                                       233                 175
Other current assets                                                                        2,070               1,688
                                                                                 -----------------   -----------------

Total current assets                                                                       57,110              63,231

Property, plant and equipment, net                                                          5,267               5,878
Deferred income taxes                                                                      29,294              29,718
Deferred financing costs                                                                    5,360               8,956
Goodwill, net                                                                             129,047             134,537
Other assets                                                                                1,679               1,283
                                                                                 -----------------   -----------------

Total assets                                                                     $        227,757    $        243,603
                                                                                 =================   =================

                     LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable                                                                 $          2,454    $            314
Accrued expenses                                                                            3,124               3,176
Deferred income taxes                                                                      10,149               9,718
Current portion of notes payable and long-term debt                                        12,500              13,002
                                                                                 -----------------   -----------------

Total current liabilities                                                                  28,227              26,210

Notes payable and long-term debt                                                          167,500             182,862
Other long-term liabilities                                                                 9,517               8,851
                                                                                 -----------------   -----------------

Total liabilities                                                                         205,244             217,923
                                                                                 -----------------   -----------------

Preferred stock, net of unamortized discount of $1,089 in 2000 and $1,259 in
1999; mandatory redemption value of $51,500 in 2000 and $45,700
in 1999                                                                                    50,698              44,693
                                                                                 -----------------   -----------------

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                                                                  9,111               9,078
Loans to stockholders for stock purchases                                                   (184)               (184)
Accumulated deficit                                                                      (37,117)            (27,912)
                                                                                 -----------------   -----------------

Total stockholders' deficit                                                              (28,185)            (19,013)
                                                                                 -----------------   -----------------

     Total liabilities and stockholders' deficit                                 $        227,757    $        243,603
                                                                                 =================   =================
</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, 2000,
1999 and 1998 (dollars in thousands except share data)

<TABLE>
<CAPTION>
                                                                       2000              1999              1998
                                                                  ----------------  ----------------  ----------------
<S>                                                                     <C>               <C>               <C>
Net sales                                                               $  93,145         $  94,461         $  93,081
Cost of sales                                                              33,689            32,151            32,222
                                                                  ----------------  ----------------  ----------------

Gross profit                                                               59,456            62,310            60,859

Selling, general and administrative expenses                               30,474            27,940            26,268
Amortization of Goodwill                                                    5,490             5,490             5,490
                                                                  ----------------  ----------------  ----------------

Operating income                                                           23,492            28,880            29,101

Interest expense and financing costs                                       22,261            23,488            24,927
Other income (expense)                                                    (1,801)                16                46
                                                                  ----------------  ----------------  ----------------

Income (loss) before income tax                                             (570)             5,408             4,220

Income tax expense                                                          1,529             3,813             3,213
                                                                  ----------------  ----------------  ----------------

Income (loss) before extraordinary loss &
cumulative effect of change in
accounting principle                                                      (2,099)             1,595             1,007

Extraordinary loss, net of income tax benefit of $521                       (850)                 -                 -
                                                                  ----------------  ----------------  ----------------

Income (loss) before cumulative effect
of change in accounting principle                                         (2,949)             1,595             1,007

Cumulative effect of change in accounting principle,
net of income tax benefit of $153                                           (251)                 -                 -
                                                                  ----------------  ----------------  ----------------

Net income (loss)                                                         (3,200)             1,595             1,007

Preferred stock dividends                                                   6,005             5,361             4,751
                                                                  ----------------  ----------------  ----------------

Net loss applicable to common shares                                   $  (9,205)        $  (3,766)        $  (3,744)
                                                                  ================  ================  ================

Basic and Diluted earnings per common share:
Net income (loss) before extraordinary loss &
cumulative effect of change in accounting principle                     $  (3.98)          $   3.02          $   1.91
Extraordinary loss, net of income tax benefit                              (1.61)
                                                                                                  -                 -
Cumulative effect of change in accounting principle
net of income tax benefit                                                  (0.47)                 -                 -
Preferred stock dividends                                                 (11.37)           (10.15)            (9.00)
                                                                  ----------------  ----------------  ----------------

Net loss                                                               $  (17.43)         $  (7.13)         $  (7.09)
                                                                  ================  ================  ================

Weighted average common shares outstanding:
Basic and Diluted                                                         528,241           528,241           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 CASH FLOWS
for the years ended December 31, 2000, 1999 and 1998
(dollars in thousands)

<TABLE>
<CAPTION>
                                                                       2000              1999              1998
                                                                  ----------------  ----------------  ----------------
<S>                                                                  <C>                <C>               <C>
Cash flows from operating activities:
Net income (loss)                                                    $    (3,200)       $     1,595       $     1,007
Adjustments to reconcile net income to net
cash provided by operating activities:
Extraordinary loss                                                          1,371                 -                 -
Depreciation                                                                1,067             1,923             1,687
Amortization of goodwill                                                    5,490             5,490             5,490
Amortization of deferred financing costs                                    2,275             2,276             2,274
Change in accrued pension liabilities                                         201               594               190
Change in accrued postretirement liabilities                                  465               557               502
Compensation expense                                                           33                70               819
Changes in operating assets and liabilities:
Accounts receivable                                                           802               502             (853)
Inventories                                                                 4,327             4,988           (2,377)
Income tax receivable                                                        (58)             (175)             5,326
Other current assets                                                        (382)             (414)                47
Deferred income taxes                                                         855             4,034             3,336
Other assets                                                                (396)             (267)             (775)
Accounts payable                                                            2,140             (144)             (201)
Accrued expenses and other                                                  (102)             (533)           (2,770)
                                                                  ----------------  ----------------  ----------------

Net cash provided by operating activities                                  14,888            20,496            13,702
                                                                  ----------------  ----------------  ----------------

Cash flows from investing activities:
Capital expenditures, net                                                   (456)             (770)             (467)
                                                                  ----------------  ----------------  ----------------

Net cash used in investing activities                                       (456)             (770)             (467)
                                                                  ----------------  ----------------  ----------------

Cash flows from financing activities:
Payments on senior term loans                                            (15,864)          (19,721)          (14,414)
Net loans to stockholders for stock purchases                                   -                63              (91)
                                                                  ----------------  ----------------  ----------------

Net cash provided by (used in) financing activities                      (15,864)          (19,658)          (14,505)
                                                                  ----------------  ----------------  ----------------

Net increase (decrease) in cash                                           (1,432)                68           (1,270)
Cash, beginning of period                                                   2,885             2,817             4,087

Cash, end of period                                                   $     1,453       $     2,885       $     2,817
                                                                  ================  ================  ================

Supplemental disclosures of cash flow information:
Cash paid during the period for interest                              $    20,737       $    21,563       $    23,126
                                                                  ================  ================  ================

Cash paid during the period for income taxes                                    -                 -       $        75
                                                                  ================  ================  ================

</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 CHANGES IN STOCKHOLDERS' DEFICIT
for the years ended December 31, 2000, 1999 and 1998
(dollars in thousands)

<TABLE>
<CAPTION>
                                                                          LOANS TO
                                               COMMON      ADDITIONAL    STOCKHOLDERS                       TOTAL
                                               STOCK,        PAID-IN      FOR STOCK      ACCUMULATED    STOCKHOLDERS'
                                               VOTING        CAPITAL      PURCHASES        DEFICIT         DEFICIT
                                             ------------  ------------ --------------  --------------  --------------
<S>                                          <C>           <C>          <C>             <C>              <C>
Beginning balance, January 1, 1998           $         5   $     8,316  $        (156)  $     (20,402)   $     (12,237)

Compensation expense                                   -           704              -               -              704
Net loans to stockholders for stock purchases          -             -            (91)              -              (91)
Preferred stock dividend                               -             -              -          (4,751)          (4,751)
Net income                                             -             -              -           1,007            1,007
                                             ------------  ------------ --------------  --------------  --------------

Ending balance, December 31, 1998                      5         9,020           (247)        (24,146)        (15,368)

Compensation expense                                   -            58              -               -              58
Net loans to stockholders for stock purchases          -             -             63               -              63
Preferred stock dividend                               -             -              -          (5,361)         (5,361)
Net income                                             -             -              -           1,595           1,595
                                             ------------  ------------ --------------  --------------  --------------

Ending balance, December 31, 1999                      5         9,078           (184)        (27,912)        (19,013)

Compensation expense                                   -            33              -               -              33
Preferred stock dividend                               -             -              -          (6,005)         (6,005)
Net loss                                               -             -              -          (3,200)         (3,200)
                                             ------------  ------------ --------------  --------------  --------------

Ending balance, December 31, 2000            $         5   $     9,111  $        (184)  $     (37,117)  $     (28,185)
                                             ------------  ------------ --------------  --------------  --------------

</TABLE>

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

                                      F-5
<PAGE>

NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------------------------------------------------------------------


1.     BASIS OF PRESENTATION:

       North Atlantic Trading Company, Inc. and Subsidiaries (the Company)
       manufactures and distributes tobacco and related products through its
       smokeless tobacco and make-your-own 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,
       tobaccos and related products under the Zig-Zag brand name.

       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, 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 February 11, 2000, the Company entered into a definitive Asset
       Purchase Agreement with Swedish Match North American, Inc. ("Swedish
       Match"). Under the terms of this agreement, the Company agreed to sell
       certain smokeless tobacco assets, including its chewing tobacco brands
       and related formulation, technology and inventory. Therefore, as a
       subsequent event, the smokeless tobacco segment was reported in the
       December 31, 1999 financial statements as a discontinued operation. The
       transaction was challenged by the Federal Trade Commission ("FTC") as
       anti-competitive under the antitrust laws. The FTC moved for a prelminary
       injunction in the United States District Court for the District of
       Columbia. After a one-week



                                      F-6
<PAGE>

NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------------------------------------------------------------------

 1.    BASIS OF PRESENTATION, CONTINUED:

       trial in September 2000, the Court granted a preliminary injunction in
       December 14, 2000, barring the closing of the transaction pending a full
       administrative hearing. As a result, on December 22, 2000, the Company
       and Swedish Match mutually agreed to terminate the Asset Purchase
       Agreement. Accordingly, the smokeless tobacco segment has been
       reclassified as continuing operations and the December 31, 1999 financial
       statements have been restated as such. Costs related to the sale of $1.8
       million, which had previously been deferred, have been recognized in
       other expenses for the year ended December 31, 2000.

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

       CONSOLIDATION: The consolidated financial statements include the
       consolidated accounts of the Corporation, the Finance Corporation, the
       Partnership and NAOC. All intercompany accounts have been eliminated.

       REVENUE RECOGNITION: The Company recognizes revenues and the related
       costs upon transfer of title and risk of loss to the customer.

       In December 1999, the Securities and Exchange Commission ("SEC") issued
       Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
       Statements" ("SAB 101"). The Company adopted SAB 101 effective January 1,
       2000, resulting in a cumulative effect adjustment of $251,000 (net of tax
       benefit of $153,000) as of the date of adoption and a decrease in
       December 31, 2000 net income of $91,000 (net of tax benefit of $57,000).
       The change in accounting method would not have a material effect on the
       statement of operations for the years ended 1999 or 1998 if adopted in
       those years.

       SHIPPING COSTS: The Company records shipping costs incurred as a
       component of selling, general and administrative expenses. Shipping costs
       incurred were $2,443,000, $2,561,000 and $2,529,000 in 2000, 1999, and
       1998, respectively.

       INVENTORIES: 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.

       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.



                                      F-7
<PAGE>

NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------------------------------------------------------------------

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

       GOODWILL: The excess of purchase price over fair value of net assets
       acquired is amortized using the straight-line method over 40 years and 25
       years for the Partnership and NAOC, respectively.

       The Company periodically reviews the appropriateness of the remaining
       life of its intangible assets considering whether any event has occurred
       or condition has developed which may indicate that the remaining life or
       the amortization method requires adjustment. After reviewing the
       appropriateness of the remaining life and the pattern of usage of the
       intangible assets, the Company then assesses the overall recoverability
       of intangible assets by determining if the unamortized balance can be
       recovered through undiscounted future operating cash flows.

       DEFERRED FINANCING COSTS: Deferred financing costs are amortized over the
       terms of the related debt obligations using the 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 are expensed
       as incurred.

       FINANCIAL INSTRUMENTS: The Company enters into foreign currency forward
       contracts to hedge its exposure to changes in foreign currency exchange
       rates primarily on inventory purchase commitments. Gains and losses on
       these contracts are included in income as the related inventories are
       sold.

       STOCK-BASED COMPENSATION: The Company measures stock compensation costs
       related to the stock options described in Note 12 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 NET LOSS PER COMMON SHARE: Basic net loss per common share
       has been computed by dividing the net loss applicable to common shares by
       the weighted average number of common shares outstanding during the
       period.

       Diluted net loss per share has been computed by dividing the net 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: Smokeless and make-your-own tobacco companies,
       like other 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

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

       advertising, and prohibition of sales to minors. The trend in recent
       years has been toward increased 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


                                      F-8
<PAGE>

NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------------------------------------------------------------------

       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 16, the
       Partnership 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.

       Further, in November 1998 most of the states, represented by their
       attorneys general acting through the National Association of Attorneys
       General (NAAG), signed two contracts: the Master Settlement Agreement
       (MSA) and the Smokeless Tobacco Master Settlement Agreement (STMSA). To
       the best of the Company's knowledge, the signatories to the MSA are 23
       cigarette manufacturers and/or distributors and the only signatory to the
       STMSA is UST Inc. 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 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 settling. The Company is
       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,



                                      F-9
<PAGE>

NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------------------------------------------------------------------

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

       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 has chosen to open and fund an escrow account. The
       STMSA has no similar provisions. There can be no assurance as to whether
       entering into one or both settlement agreements or choosing not to do so
       or establishing and maintaining an escrow account pursuant to the above
       would have a material adverse effect on the Company's financial position,
       results of operations or cash flows.

       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, 2000, the Company has recorded approximately $487,000 as an
       other non-current asset. Of the approximately $487,000, $113,000 relates
       to the Company's 1999 obligation. During 2000, $109,000 was deposited
       into a qualifying escrow account and $4,000 represents interest earned
       thereon. The remaining amount of approximately $374,000 relates to 2000
       and will be deposited by April 15, 2001. The Company is entitled to
       direct the investment of the escrowed 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 at 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.

       CONCENTRATION OF CREDIT RISK: At December 31, 2000 and 1999, the Company
       had bank deposits in excess of federally insured limits of approximately
       $1.8 million and $3.3 million, respectively.

       The Company sells its products to distributors and retail establishments
       throughout the United States. A single customer accounted for 10.2% and
       10.7% of the Company's smokeless tobacco and make-your-own revenues in
       2000 and 1999, respectively. The Company performs periodic credit
       evaluations of its customers and generally does not require collateral on
       trade receivables. Historically, the Company has not experienced
       significant credit losses.

       RECLASSIFICATIONS: Certain prior period amounts have been reclassified to
       conform to current year presentation.

3.     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


                                      F-10
<PAGE>

NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------------------------------------------------------------------

       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.



4.     INVENTORIES:

       The reduction of LIFO inventory quantities decreased net income of the
       Company by approximately $1.5 million and $0.8 million for the years
       ended December 31, 2000 and 1999, respectively.

       The components of inventories at December 31 are as follows (in
thousands):
<TABLE>
<CAPTION>
                                                             2000               1999
                                                       -----------------  -----------------
<S>                                                           <C>                <C>
       Raw materials and work in process                      $   2,354          $   1,704
       Leaf tobacco                                              14,378             17,028
       Finished goods - loose leaf tobacco                        3,397              2,631
       Finished goods - MYO products                              4,288              4,928
       Other                                                        441                460
                                                       -----------------  -----------------

                                                                 24,858             26,751
       LIFO reserve                                              24,314             26,748
                                                       -----------------  -----------------

                                                              $  49,172          $  53,499
                                                       =================  =================
</TABLE>
       The LIFO inventory value is in excess of its current estimated
       replacement cost by the amount of the LIFO reserve.

5.     PROPERTY, PLANT AND EQUIPMENT:

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


                                      F-11
<PAGE>

NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                      2000               1999
                                                                                -----------------  -----------------
<S>                                                                             <C>                <C>
       Land                                                                     $             654  $             654
       Buildings and improvements                                                           3,633              3,546
       Machinery and equipment                                                              6,246              6,087
       Furniture and fixtures                                                               2,064              1,854
                                                                                -----------------  -----------------


                                                                                           12,597             12,141

       Accumulated depreciation                                                           (7,330)            (6,263)
                                                                                -----------------  -----------------

                                                                                $           5,267  $           5,878
                                                                                =================  =================

 6.    GOODWILL:

       Goodwill at December 31 consists of (in thousands):

                                                                                      2000               1999
                                                                                -----------------  -----------------

       Partnership goodwill, net of accumulated amortization of $3,701
       And $2,902 at December 31, 2000 and 1999, respectively                   $          28,249  $          29,047

       NAOC goodwill, net of accumulated amortization of $16,484
       and $11,793 at December 31, 2000 and 1999, respectively                            100,798            105,490
                                                                                -----------------  -----------------

                                                                                $         129,047  $         134,537
                                                                                =================  =================

 7.    DEFERRED FINANCING COSTS:

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

                                                                                      2000               1999
                                                                                -----------------  -----------------

       Deferred financing costs, net of accumulated amortization of
       $4,761 and $5,684 at December 31, 2000 and 1999,
       Respectively                                                             $           5,360  $           8,956
                                                                                =================  =================

</TABLE>

 8.    NOTES PAYABLE AND LONG-TERM DEBT:

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

                                      F-12
<PAGE>

NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                      2000               1999
                                                                                -----------------  -----------------
<S>                                                                             <C>                <C>
       Senior notes                                                             $        155,000   $        155,000
       Term borrowings under credit agreements                                            25,000             40,864
                                                                                -----------------  -----------------

                                                                                         180,000            195,864
       Less current portion                                                               12,500             13,002
                                                                                -----------------  -----------------

                                                                                $        167,500   $        182,862
                                                                                =================  =================
</TABLE>
       On June 25, 1997, the Corporation issued $155.0 million of 11% Senior
       Notes due 2004 (the Notes). The Notes are unsecured senior obligations of
       the Corporation which 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.

       The Notes have no mandatory redemption requirements; however, they are
       redeemable at the option of the Corporation at a redemption price of
       105.5%, 102.75%, or 100.0%, plus accrued interest, on or after June 15,
       2001, 2002, and 2003 and thereafter, respectively. In addition, in the
       event of a change in control of the Corporation, as defined, the holders
       have the right to require the Corporation to repurchase the Notes at a
       purchase price of 101.0% plus accrued interest.

       On December 29, 2000, the Corporation entered into a new credit agreement
       (the Credit Agreement) with a bank which provided borrowings of $25.0
       million under a term facility and a revolver with available credit of up
       to $10.0 million. The borrowings under the term facility require
       quarterly principal payments over the two-year period through the
       maturity date of December 31, 2002, while the revolver may be repaid and
       reborrowed as necessary, with any unpaid amounts due and payable upon its
       termination date of December 31, 2002. Borrowings under the term facility
       and revolver bear interest per annum at variable rates based on prime or
       LIBOR rates at the Corporation's option. The interest rate on borrowings
       under the term facility was 8.9875% at December 31, 2000. In addition,
       the Corporation must pay a quarterly commitment fee of 0.5% per annum of
       the unused portion of the revolver.

       On June 25, 1997, the Corporation entered into a credit agreement (the
       Old Credit Agreement) with a syndicate of lenders which provided
       borrowings of $85.0 million under a term facility and a revolver with
       available credit of up to $25.0 million, including a letter of credit
       sub-limit of $10.0 million. Borrowings under the term facility and
       revolver bore interest per annum at variable rates based on prime,
       federal funds or LIBOR rates at the Corporation's option. In



                                      F-13
<PAGE>

NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------------------------------------------------------------------

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

       addition, the Corporation was required to pay a quarterly commitment fee
       of 0.5% per annum of the unused portion of the revolver.
       The Notes and the Credit Agreement include cross default provisions and
       limit the incurrence of additional indebtedness, dividends, transactions
       with affiliates, asset sales, acquisitions, mergers, prepayments of
       indebtedness, liens and encumbrances, and other matters. The Credit
       Agreement also requires the Corporation to meet a fixed charge coverage
       test.

       Scheduled maturities (exclusive of future mandatory prepayments, if any)
       of the Corporation's notes payable and long-term debt are as follows (in
       thousands):

       Through December 31, 2001                        $   12,500
       Through December 31, 2002                            12,500
       Through December 31, 2003                                 -
       Through December 31, 2004                           155,000
       Through December 31, 2005                                 -
                                                        -----------

                                                        $  180,000
                                                        ===========



 9.    INCOME TAXES:

       The income tax provision for the years ended December 31, 2000, 1999 and
       1998 consists of the following components (in thousands):

                              2000               1999               1998
                        -----------------  -----------------  -----------------

       Current:
       Federal                         -                  -                  -
       State and local                 -                  -           $    200
                        -----------------  -----------------  -----------------

                                       -                  -                200
                        -----------------  -----------------  -----------------

       Deferred:
       Federal                  $    839          $   3,609              2,943
       State and local                16                204                 70
                        -----------------  -----------------  -----------------

                                     855              3,813              3,013
                        -----------------  -----------------  -----------------

                                $    855          $   3,813          $   3,213
                        =================  =================  =================

9.     INCOME TAXES, CONTINUED:

       Deferred tax assets and liabilities at December 31, 2000 and 1999 consist
of (in thousands):


                                      F-14
<PAGE>

NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                     2000                           1999
                                                          ----------------------------  -----------------------------
                                                             ASSETS      LIABILITIES       ASSETS       LIABILITIES
                                                          -------------  -------------  --------------  -------------
<S>                                                           <C>            <C>             <C>             <C>
       Inventory                                                     -       $ 10,149               -        $ 9,718
       Property, plant and equipment                          $    703                       $    237              -
       Goodwill                                                 17,031                         20,361              -
       Accrued pension and postretirement costs                  3,166                          3,116              -
       NOL carryforward                                          7,336                          4,948              -
       Other                                                     1,058                          1,056              -
                                                          -------------  -------------  --------------  -------------

       Deferred income taxes                                  $ 29,294       $ 10,149        $ 29,718        $ 9,718
                                                          =============  =============  ==============  =============


       At December 31, 2000, the Company had NOL carryforwards for income tax
       purposes of $19.3 million which expire in the years beginning in 2012.

       The Company has determined that at December 31, 2000 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, 2000, 1999 and 1998 is as follows:

                                             2000               1999                 1998
                                         --------------     --------------       -------------
<S>                                             <C>                  <C>                 <C>
       Federal statutory rate                   (35.0) %             35.0 %              35.0 %
       State taxes                                                                        3.0
                                                   3.2                5.7
       Goodwill amortization                      70.0               30.4                39.5
       Other                                     (1.8)              (0.6)               (1.4)
                                         -----------------  -----------------    ----------------

       Effective income tax rate                  36.4 %             70.5 %              76.1 %
                                         =================  =================    ================

</TABLE>

10.    PENSION AND POSTRETIREMENT BENEFIT PLANS:

       The Company has 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.


                                      F-15
<PAGE>

NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------------------------------------------------------------------

10.   PENSION AND POSTRETIREMENT BENEFIT PLANS, CONTINUED:

       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 over the two-year
       period ended December 31, 2000, and a statement of the funded status as
       of December 31 (in thousands):
<TABLE>
<CAPTION>
                                                           PENSION BENEFITS             POSTRETIREMENT BENEFITS
                                                    -------------------------------  -------------------------------
                                                         2000            1999            2000             1999
                                                    --------------- ---------------  --------------  ---------------
<S>                                                     <C>              <C>             <C>              <C>
       Reconciliation of benefit obligation:
       Benefit obligation at January 1                  $   10,110       $   8,887       $   5,044        $   5,126
       Service cost                                            515             651             320              335
       Interest cost                                           682             631             396              348
       Actuarial loss (gain)                                 (758)             296             314            (645)
       Benefit  paid                                         (386)           (355)           (187)            (120)
                                                    --------------- ---------------  --------------  ---------------

       Benefit obligation at December 31                $   10,163       $  10,110       $   5,887        $   5,044
                                                    =============== ===============  ==============  ===============

       Reconciliation of fair value of plan assets:
       Fair value of plan assets at January 1           $    8,648       $   8,138                                -
       Actual return on plan assets                            270             865                                -
       Employer contributions                                  109               -             187              120
       Benefit  paid                                         (387)           (355)           (187)            (120)
                                                    --------------- ---------------  --------------  ---------------

       Fair value of plan assets at December 31         $    8,640       $   8,648       $       -        $       -
                                                    =============== ===============  ==============  ===============

       Funded status:
       Funded status at December 31                     $  (1,523)       $ (1,462)       $  (5,887)       $ (5,044)
       Unrecognized prior service cost                           8               9                -               -
       Unrecognized net (gain) loss                        (1,320)         (1,181)            (764)         (1,142)
                                                    --------------- ---------------  --------------  ---------------

       Accrued benefit cost                             $  (2,835)       $ (2,634)       $  (6,651)       $ (6,186)
                                                    =============== ===============  ==============  ===============

</TABLE>


                                      F-16
<PAGE>

NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------------------------------------------------------------------

10.    PENSION AND POSTRETIREMENT BENEFIT PLANS, CONTINUED:

       The following table provides the amounts recognized in the balance sheets
       as of December 31 (in thousands):
<TABLE>
<CAPTION>
                                                           PENSION BENEFITS             POSTRETIREMENT BENEFITS
                                                    -------------------------------  -------------------------------
                                                         2000            1999            2000             1999
                                                    --------------- ---------------  --------------  ---------------
<S>                                                 <C>             <C>              <C>             <C>
       Accrued benefit cost at January 1            $       (2,634) $       (2,040)  $       (6,186) $       (5,628)
       Net periodic benefit cost
                                                              (310)           (594)            (652)           (678)
       Contributions
                                                                109               -             187             120
                                                    --------------- ---------------  --------------  ---------------

       Accrued benefit cost at December 31          $       (2,835) $       (2,634)  $      (6,651)  $       (6,186)
                                                    =============== ===============  ==============  ===============


       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):

                                             PENSION BENEFITS                        POSTRETIREMENT BENEFITS
                                           -----------------------------------  -----------------------------------
                                             2000        1999         1998        2000         1999        1998
                                           ----------  ----------   ----------  ----------  -----------  ----------
<S>                                           <C>         <C>          <C>         <C>          <C>         <C>
       Service cost                           $  515      $  651       $  541      $  320       $  335      $  304
       Interest cost                             682         631          554         396          348         317
       Expected return on plan assets          (738)       (676)        (508)                        -           -
       Amortization of gains and losses        (149)        (12)         (23)        (64)          (5)         (5)
                                           ----------  ----------   ----------  ----------  -----------  ----------

       Net periodic benefit cost              $  310      $  594       $  564      $  652       $  678      $  616
                                           ==========  ==========   ==========  ==========  ===========  ==========


       The weighted average assumptions used in the measurement of the Company's
       benefit obligation are as follows:

                                                    PENSION BENEFITS                 POSTRETIREMENT BENEFITS
                                           -----------------------------------  -----------------------------------
                                             2000        1999         1998        2000        1999         1998
                                           ----------  ----------  -----------  ----------  ----------  -----------
<S>                                             <C>         <C>          <C>         <C>         <C>          <C>
       Discount rate                            7.5%        8.0%         7.0%        7.5%        8.0%         7.0%
       Expected return on plan assets           8.5%        8.5%         8.5%                       -            -
       Rate of compensation increase            4.0%        4.0%         4.0%                       -            -

</TABLE>

       For measurement purposes, the assumed health care cost trend rate for
       participants under age 65 as of December 31, 2000 and 1999 was 8.0% and
       8.5%, respectively, and for participants age 65 and over the rate was
       7.0% and 7.5%, 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.



                                      F-17
<PAGE>


NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------------------------------------------------------------------

10.    PENSION AND POSTRETIREMENT BENEFIT PLANS, CONTINUED:

       Assumed health care cost trend rates have a significant effect on the
       amounts reported for the postretirement benefit plans. A 1% change in
       assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
                                                                         2000            1999             1998
                                                                     --------------  --------------  ---------------
<S>                                                                       <C>             <C>              <C>
        Effect on total of service and interest cost
        components of net periodic postretirement
        cost                                                              $  2,000        $  2,000         $  2,000

        Effect on the health care component of
        the accumulated postretirement benefit
        obligation                                                          32,000          27,000           23,000
</TABLE>

       The Company also sponsors a voluntary retirement savings plan (401(k)).
       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,
       1999, the Company changed its matching contribution policy. The Company
       match for the Hourly employee was increased to 66.7% of each eligible
       participant's contribution up to 6% of compensation for the plan year.
       The Company match for the Salaried employees was increased to the greater
       of (1) 66.7% of each eligible participant's contribution up to 6% of
       compensation, or (2) 100% of the first 3% plus 50% of the next 2% of each
       eligible participant's contribution. Company matching is subject to a
       vesting schedule. Additional discretionary matching contributions by the
       Company are determined annually by the Board of Directors. Company
       matching contributions to this plan were approximately $0.3 million, $0.3
       million and $0.2 million for the years ended December 31, 2000, 1999 and
       1998, respectively.

11.MANDATORILY REDEEMABLE PREFERRED STOCK:

       On December 31, 2000 and 1999, the Company had authorized 12 million
       shares of 12% Senior Payment-In-Kind Preferred Stock (the Preferred
       Stock) of which 2.06 million shares and 1.83 million shares,
       respectively, were issued and outstanding. Each share of Preferred Stock
       has a par value of $0.01 and a liquidation preference of $25, for total
       liquidation values of approximately $51.5 million and $45.7 million at
       December 31, 2000 and 1999, respectively. Prior to June 2002, holders of
       the Preferred Stock are entitled to receive dividends at an annual rate
       of 12% of the liquidation preference, payable quarterly in cash or by the
       issuance of additional shares of Preferred Stock having an aggregate
       liquidation preference equal to the amount of the dividends, at the
       Company's option. Following June 15, 2002, dividends must be



                                      F-18
<PAGE>

NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------------------------------------------------------------------

11.   MANDATORILY REDEEMABLE PREFERRED STOCK, CONTINUED:

       paid in cash. Preferred stock dividends, including the interest accretion
       described below, for the years ended December 31, 2000, 1999 and 1998
       were $6.0 million, $5.4 million, and $4.8 million, respectively, which
       were recorded as an increase in the carrying value of the Preferred
       Stock.

       On June 25, 1997, the holders of the Preferred Stock were issued
       warrants, with an original fair value of $1.7 million, to purchase 44,440
       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 recorded as a discount on the
       carrying value of the Preferred Stock. This discount is being amortized
       under the interest method over the 10-year term of the Preferred Stock as
       a part of the annual preferred stock dividend requirement. Amortization
       of the discount was $0.2 million for each of the years ended December 31,
       2000, 1999 and 1998.

       Prior to June 15, 2000, the Company had the option, subject to certain
       restrictions, to redeem up to 35% of the Preferred Stock from the net
       cash proceeds from any one or more public equity offerings of the
       Company, for 112% of the Liquidation preference plus all accumulated and
       unpaid dividends. The Preferred Stock is not redeemable from June 16,
       2000 to June 15, 2002. The Preferred Stock is then redeemable, at the
       Company's option, on or after the following dates at the indicated
       redemption prices (expressed as a percentage of the liquidation
       preference) plus all accumulated and unpaid dividends: June 15, 2002 -
       106%; June 15, 2003 - 104%; June 15, 2004 - 102%; and June 15, 2005 -
       100%. The Preferred Stock is mandatorily redeemable on June 15, 2007 at a
       price equal to the liquidation preference plus all accumulated and unpaid
       dividends. The Preferred Stock is also redeemable, at the option of the
       holders, upon a change in control of the Company, as defined, at a price
       equal to 101% of the liquidation preference plus all accumulated and
       unpaid dividends.

       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.

12.    SHARE INCENTIVE PLAN:

       The Company has a share incentive plan covering certain key employees
       which provides for the grant of options to purchase common stock of the
       Company and other stock related benefits. As of December 31, 2000, no
       benefits other than the stock options described below had been granted.
       The total number of shares available for granting under the plan is
       61,856.


                                      F-19
<PAGE>

NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------------------------------------------------------------------

12.    SHARE INCENTIVE PLAN, CONTINUED:

       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, 1998             54,760        $   18.19       $   26.51

       Granted                                    5,000            18.19           26.51
                                          --------------  ---------------  --------------

       Exercised                                      -                -               -
       Forfeited                                      -                -               -
       Outstanding, December 31, 1999            59,760            18.19           26.51
                                          --------------  ---------------  --------------

       Granted                                        -                -               -
                                          --------------  ---------------  --------------

       Exercised                                      -                -               -
       Forfeited                                      -                -               -
                                          --------------  ---------------  --------------

       Outstanding, December 31, 2000            59,760            18.19           26.51
                                          ==============  ===============  ==============
</TABLE>
       Of the stock options outstanding on December 31, 2000, 56,010 were
       exercisable, with an additional 3,750 becoming exercisable at a rate of
       25% per year from 2001 to 2003. All stock options expire 15 years from
       the grant date. 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.

       A significant percentage of the stock options described above includes 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 remeasured on each reporting date with the
       expense amount adjusted for changes in the fair value of the company
       stock on that date. Compensation expense of $33,000, $70,000 and $819,000
       ($20,000, $43,000, and $508,000 net


                                      F-20
<PAGE>

NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------------------------------------------------------------------

12.    SHARE INCENTIVE PLAN, CONTINUED:

       of deferred income tax benefit) has been recognized in the statements of
       operations for the years ended December 31, 2000, 1999 and 1998,
       respectively.



13.    INCOME (LOSS) FROM CONTINUING OPERATIONS PER COMMON SHARE RECONCILIATION
       (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS):

<TABLE>
<CAPTION>
                                                                    FOR THE YEAR ENDED DECEMBER 31, 2000
                                                            ------------------------------------------------------
                                                                INCOME             SHARES            PER SHARE
                                                              (NUMERATOR)       (DENOMIMATOR)         AMOUNT
                                                            ----------------  ------------------  ----------------
<S>                                                         <C>               <C>                 <C>
       Net loss before extraordinary loss and cumulative
       effect of change in accounting principle             $        (2,099)
       Extraordinary loss, net of income tax benefit                   (850)
       Cumulative effect of change in accounting
       principle, net of income tax benefit                            (251)
       Less: Preferred stock dividends                               (6,005)
                                                            ----------------

       Basic and diluted:
       Net loss available to common stockholders            $        (9,205)             528,241  $         (17.43)
                                                            ================  ==================  ================

                                                                    FOR THE YEAR ENDED DECEMBER 31, 1999
                                                            ------------------------------------------------------
                                                                INCOME             SHARES            PER SHARE
                                                              (NUMERATOR)       (DENOMIMATOR)         AMOUNT
                                                            ----------------  ------------------  ----------------

       Net income                                           $          1,595
       Less: Preferred stock dividends                               (5,361)
                                                            ----------------

       Basic and diluted:
       Net loss available to common stockholders            $        (3,766)             528,241  $         (7.13)
                                                            ================  ==================  ================


                                                                    FOR THE YEAR ENDED DECEMBER 31, 1998
                                                            ------------------------------------------------------
                                                                INCOME             SHARES            PER SHARE
                                                              (NUMERATOR)       (DENOMIMATOR)         AMOUNT
                                                            ----------------  ------------------  ----------------

       Net income                                           $          1,007
       Less: Preferred stock dividends                                (4,751)
                                                            ----------------

       Basic and diluted:
       Net loss available to common stockholders            $        (3,744)             528,241  $         (7.09)
                                                            ================  ==================  ================
</TABLE>


                                      F-21
<PAGE>

NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------------------------------------------------------------------

13.    INCOME (LOSS) FROM CONTINUING OPERATIONS PER COMMON SHARE RECONCILIATION
       (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS):

       The calculations above are based on the weighted average number of shares
       of common stock outstanding during the year. Common equivalent shares
       from stock options of 25,236 and warrants of 63,490 are excluded from the
       computations as their effect is antidilutive.



14.    EXTRAORDINARY LOSS:

       Upon the refinancing of the Company's term loan on December 29, 2000 as
       described in Note 8, the Company recorded an extraordinary loss of $0.9
       million (net of tax benefit of $0.5 million) for the write-off of related
       deferred financing costs.



15.    FOURTH QUARTER ADJUSTMENT:

       The fourth quarter of 2000 and 1999 include adjustments to increase the
       income tax provision by approximately $1,140,000 and $1,035,000,
       respectively, as a result of the year-end income tax computations. The
       fourth quarter 2000 also includes an adjustment to increase the LIFO
       expense by approximately $1.5 million, net of income tax of approximately
       $0.9 million.



16.    CONTINGENCIES:

       PROPOSITION 65. On March 30, 1998, an action was filed in California
       State Court, in the City and County of San Francisco, against defendants
       United States Tobacco Company, Inc., Conwood Company, L.P., Pinkerton
       Tobacco Company, Inc., National Tobacco, Swisher International Group
       Inc., Brown & Williamson Tobacco Corporation, Merrill Reese Inc., Lucky
       Stores Inc., Quick Stop Markets Inc., Raley's, Inc., Save Mart
       Supermarkets Inc., Save-On Drug Stores Inc., The Southland Corporation,
       Circle K Stores, Inc., Longs Drug Stores Corporation, Walgreen Co.,
       Safeway, Inc. and DOES 1-500. The plaintiff amended their claim on June
       10, 1998 and subsequently served the complaint on National Tobacco. The
       complaint purported to be brought by the City and County of San Francisco
       on behalf of the people of the State of California and by the
       Environmental Law Foundation on behalf of the general public.

       Plaintiffs claimed that the defendants violated the California Safe
       Drinking Water and Toxic Enforcement Act of 1986, Health and Safety Code
       25249.6 ("Proposition 65") by "knowingly and intentionally" exposing
       California consumers to carcinogens and reproductive toxins in smokeless
       tobacco products while failing to provide a "clear and reasonable"
       warning that smokeless tobacco products contain substances that are
       "known to the state to cause cancer" and "known to the state to cause
       reproductive toxicity." Plaintiffs further claimed that the defendants
       violated California Unfair Competition Act, Business & Professions Code
       17200, et


                                      F-22
<PAGE>

NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------------------------------------------------------------------

16.    CONTINGENCIES, CONTINUED:

       seq., by marketing smokeless tobacco to children, and by fraudulently
       concealing from the public the alleged adverse consequences and addiction
       allegedly associated with smokeless tobacco products.

       The complaint sought a preliminary and permanent injunction preventing
       defendants from selling smokeless tobacco products without a "clear and
       reasonable" warning, as well as an injunction ordering defendants to
       undertake a court-approved public information campaign to instruct
       children that the use of smokeless tobacco products results in exposure
       to substances known to the State of California to cause cancer and
       reproductive harm. The plaintiffs also sought an award of statutory
       penalties and damage for each violation of Proposition 65 and the Unfair
       Competition Act, disgorgement of profits from the sale of smokeless
       tobacco products, and attorney's fees and costs. Plaintiffs and
       defendants are in the process of negotiating a settlement, and the case
       has been dismissed pending the completion of those negotiations.
       Management does not expect that the terms of any settlement will have a
       materially adverse effect on the Company. If negotiations should fail,
       the Company expects that the case would be refiled.

       KENTUCKY AND ILLINOIS COMPLAINTS. On July 15, 1998, NAOC and National
       Tobacco filed a complaint against Republic Tobacco, Inc. and its
       affiliates ("Republic Tobacco") in Federal District Court for the Western
       District of Kentucky. The complaint was subsequently amended on August
       18, 1998 (collectively, the complaint and the amended complaint are
       referred to herein as the "Kentucky Complaint"). Republic Tobacco imports
       and sells Roll-Your-Own ("RYO") cigarette papers under the 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. The Kentucky Complaint also
       alleges that Republic Tobacco has 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 the federal and state law.

       On June 30, 1998, Republic Tobacco filed a complaint against the Company,
       NAOC and National Tobacco in the United States District Court of the
       Northern District of Illinois. Republic Tobacco did not serve this
       complaint or otherwise notify the Company of its existence until after
       the filing and service of the Kentucky Complaint. The Company believes
       that this complaint was filed in anticipation of the filing of the
       Kentucky Complaint. This complaint was amended by Republic Tobacco on
       September 16, 1998 (collectively, the complaint and the amended complaint
       are referred to herein as the "Illinois Complaint"). In the Illinois
       Complaint, Republic Tobacco seeks declaratory relief that (a) Republic
       Tobacco's action in



                                      F-23
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------------------------------------------------------------------

16.    CONTINGENCIES, CONTINUED:

       defacing the Company's point of purchase display vendors do not violate
       federal or state laws and (b) that Republic Tobacco's trade practices do
       not violate federal or state antitrust or unfair competition laws. 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 alleges that the Company has unlawfully
       monopolized and attempted to monopolize the market for premium cigarette
       papers.

       The Company has alleged that Republic Tobacco's trade practices in the
       southeastern United States have unlawfully restricted the Company's
       ability to expand the distribution of Zig-Zag premium cigarette papers in
       the southeast, where sales have been historically underdeveloped.

       The Company intends to vigorously pursue its claims set forth in the
       Kentucky Complaint. The Company intends to vigorously defend the Illinois
       Complaint. With respect to the claims set forth in the Illinois
       Complaint, the Company filed a Motion to Dismiss concerning a substantial
       portion of the claims against the Company, and believes that Republic
       Tobacco's claims against the Company are without merit.

       On April 9, 1999, the Court in the Illinois cases ruled on the motion to
       dismiss, dismissing certain of Republic's claims against the Company,
       including Republic's monopolization claim. The Court also dismissed the
       Company's counterclaims with leave to replead those claims. The Company
       has done so. On September 17, 1999, Republic filed a Second Amended
       Complaint, which was substantially identical to the original complaint,
       except that it alleged a series of purportedly monopolistic practices on
       a regional market basis against the Company. The Company filed a motion
       to dismiss the allegations for failure to state a claim on which relief
       could be granted. On December 23, 1999, the Court dismissed the new
       antitrust claims in Republic's Second Amended Complaint.

       On October 20, 2000 Republic filed a motion to dismiss, stay, or transfer
       the Kentucky proceeding to the Illinois Court. On December 19, 2000, the
       Court denied Republic'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 may not be entitled to any preference on
       forum selection because it was the first to file.

       Fact discovery has been concluded. Expert discovery has commenced and is
       continuing.

       WEST VIRGINIA COMPLAINTS. On October 6, 1998 National Tobacco Company,
       L.P. ("National") was served with a summons and complaint in an action in
       the Circuit Court of Kanawha County, West Virginia, entitled Kelly Allen,
       et al. v. Philip Morris Incorporated, et


                                      F-24
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NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------------------------------------------------------------------

16.    CONTINGENCIES, CONTINUED:

       al. (Civil Action Nos. 98-C-2401). While National was served with a
       single service and complaint, the caption lists 65 separate plaintiffs,
       each with an individual case number.

       In the Allen case, the plaintiffs have specified the defendant companies
       for each of the 65 cases. National was named in only six of the cases,
       five of which alleged consumption prior to National's existence of
       products bearing the trademarks currently owned by National. The
       remaining case alleges lung cancer as the injury. National has been
       dismissed from the first five cases, and intends to vigorously defend the
       remaining action.

       On November 13, 1998, National was served with a summons and complaint 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). While National was served with a
       single summons and complaint, the caption of the complaint lists 18
       separate plaintiffs, each with an individual case number. This action was
       filed by the same plaintiffs' attorney who filed the Allen action and the
       complaint is identical in most material respects.

       These two actions were commenced by two separate plaintiffs,
       "individually and/or as the representatives of the various descendants
       named herein [who] are residents of the State of West Virginia and/or
       smoked cigarettes or used other tobacco products, manufactured, promoted,
       advertised, marked, sold and/or distributed by all defendants." The
       complaint contains no specific allegations referring to any individual
       plaintiff. These two actions were brought against major manufacturers of
       cigarettes, smokeless tobacco products, and certain other organizations.

       The complaint alleges that "plaintiffs and plaintiffs' descendents
       suffer/had suffered from a form of cancer or vascular disease and other
       injuries due wholly or in part to defendants' products and/or
       activities." The complaint further alleges that the actions "arise from
       decades of intentionally wrongful conduct by the defendants who have
       manufactured, promoted, and sold cigarettes and both smokeless and loose
       tobacco to the plaintiffs and plaintiffs descendants and millions of
       Americans while knowing, but denying and concealing that their products
       cause diseases, including but not limited to esophageal, laryngeal,
       pharyngeal, mouth and throat cancers and Buerger's Disease." The
       complaints do not identify which plaintiffs, if any, allege injury as a
       result of the use of smokeless tobacco.

       The Akers complaint asserts 24 unspecified counts and seeks referral to
       the West Virginia Mass Litigation Panel, because the actions allegedly
       "involve multiple plaintiffs pursuing related claims or actions involving
       one or more common questions of act or law and the plaintiffs seek
       damages caused by some product." The complaints seek unspecified
       compensatory damages. The Company intends to vigorously defend against
       each such complaint.

       Discovery of all tobacco-related (cigarette, cigar, and smokeless
       products) actions in the State of West Virginia, including the Allen and
       Akers cases, has been referred to a Mass Litigation



                                      F-25
<PAGE>

NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------------------------------------------------------------------

16.    CONTINGENCIES, CONTINUED:

       Panel, and assigned to one judge. On January 11, 2000, the judge assigned
       the cases issued an order concerning discovery schedules and establishing
       a trial procedure for the purpose of trying all issues of law and fact
       common to all defendants. On February 29, 2000, West Virginia plaintiffs'
       counsel, pursuant to the court's order, identified all individual
       plaintiffs and the defendants against whom they had claims. No individual
       plaintiff in the Akers cases alleged use of a product manufactured by
       National, although National remains a defendant in those actions.

       On September 14, 2000, National was served with a Summons and
       Consolidated Complaint 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). While National was served with
       a single Summons and Consolidated Complaint, the caption of the
       Consolidated Complaint lists 539 separate plaintiffs, each with an
       individual case number. Only one of these plaintiffs alleged use of a
       product currently manufactured by National. The time period during which
       this plaintiff allegedly used the product has not yet been specified.
       Thus, it is not yet known whether National is a proper defendant in this
       case.

       On September 19, 2000, National was served with a Summons and
       Consolidated Complaint 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). While National was served with
       a single Summons and Consolidated Complaint, the caption of the
       Consolidated Complaint lists 561 separate plaintiffs, each with an
       individual case number. A total of five of these plaintiffs allege use of
       a product currently manufactured by National. One of these plaintiffs
       does not specify the time period during which the product was allegedly
       used, and one alleges use that covers, in part, a period when National
       did not manufacture the product. Of the remaining three, one alleges
       consumption of a competitor's chewing tobacco from 1966 to 2000 and
       National Tobacco'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
       National Tobacco's Durango Ice chewing tobacco from 1990 to 2000
       (although Durango Ice did not come onto the market until 1999).

       Trial of these matters is planned in two phases. In the initial phase, a
       trial will 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. The trial date for the initial phase has not been set.
       However, the court has stated that it will not go forward until after the
       trial of an unrelated cigarette class action, which is currently
       scheduled for September 2001.


                                      F-26
<PAGE>

NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------------------------------------------------------------------

16.    CONTINGENCIES, CONTINUED:

       On March 19, 2001, the manufacturers of the different products moved to
       sever the claims against their products, requesting separate trials.
       National joined the motion filed by Swedish Match requesting a separate
       trial for chewing tobacco.

       MINNESOTA COMPLAINT. On September 24, 1999, National 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
       National's (and, prior to the formation of National, 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. The case has been
       removed to federal court. Motions to dismiss were filed on all counts
       except for negligence and, on September 28, 2000, the Court granted all
       of National's motions. The sole cause of action remaining is for
       negligence. The Court, however, granted leave to the plaintiff to replead
       within sixty days those alleged causes of action based on alleged fraud.
       On December 18, 2000, the Plaintiff filed an amended complaint
       reasserting fraud claims. On January 19, 2001, defendants again moved to
       dismiss the fraud claims. Briefing has been completed and hearing on the
       motions is scheduled for May 11, 2001. Discovery is continuing in the
       case.

       Although the Company believes that it has good defenses to the above
       actions in West Virginia, California and Minnesota, no assurances can be
       given that it will prevail. If any of the plaintiffs were to prevail, the
       results could have a materially adverse effect on the Company's financial
       position, results of operations or cash flows.

       REGULATORY AND OTHER EVENTS. Regulations were issued in 1999 by the
       Massachusetts Attorney General affecting point of sale and certain
       advertising issues with respect to tobacco products. In January 2000, the
       Federal District Court in Massachusetts upheld the advertising and
       point-of-sale regulations, rejecting the industry's First Amendment
       challenge. On July 12, 2000, the First Circuit Court of Appeals affirmed
       the District Court's decision. The cigarette company plaintiffs have
       requested that the United States Supreme Court review the case, and a
       stay of the regulations pending the disposition of that request has been
       granted. On January 8, 2001, the United States Supreme Court agreed to
       review the case and the stay has been extended pending that review. The
       Massachusetts regulations, among other things, restrict access to tobacco
       products. Historically, smokeless tobacco products have been sold
       primarily by allowing customers direct access to the product.
       Accordingly, there can be no assurance that prohibiting such direct
       access would not have an adverse effect on sales.

       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 cigarette
       papers, obtained a sealed order allowing it to conduct a seizure of
       infringing and counterfeit ZIG-ZAG products in the United States. On



                                      F-27
<PAGE>

NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------------------------------------------------------------------

16.    CONTINGENCIES, CONTINUED:

       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 one group of defendants. Settlement
       discussions are ongoing with all other defendants. Management believes
       that successful prosecution of this litigation, either by settlement or
       otherwise, will have a favorable impact on its premium cigarette paper
       business.



17.    PARENT-ONLY FINANCIAL INFORMATION:

       The Corporation is a holding company with no operations and no 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
       debt of the Corporation on a full, unconditional, and joint and several
       basis. In management's opinion, separate financial statements of the
       subsidiaries are not meaningful to investors and have not been included
       in these financial statements.

       Following is unaudited parent-only summarized financial information of
       the Corporation (in thousands):
<TABLE>
<CAPTION>
                                                                                             2000              1999
                                                                                       ----------------- -----------------
<S>                                                                                          <C>               <C>
       Noncurrent assets                                                                     $  210,207        $  229,453
       Current liabilities                                                                       20,468            20,861
       Noncurrent liabilities                                                                   167,500           182,862
       Redeemable preferred stock                                                                50,698            44,693


                                                                                            YEAR ENDED DECEMBER 31,
                                                                                       -----------------------------------
                                                                                             2000              1999
                                                                                       ----------------- -----------------

       Equity in earnings of subsidiaries                                                     $  19,551         $  27,069
       Income loss before extraordinary loss and preferred stock dividends                      (2,305)             1,564


</TABLE>


                                      F-28
<PAGE>

NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------------------------------------------------------------------

18.    SEGMENT INFORMATION:

       In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of
       an Enterprise and Related Information." The Company has been historically
       organized on the basis of product lines which are comprised of two
       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 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).

       The table below presents financial information about reported segments
       for 2000, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
                                              SMOKELESS                           ELIMINATIONS
                      2000                     TOBACCO         MAKE-YOUR-OWN        AND OTHER           TOTAL
       -----------------------------------  ---------------  ------------------- ----------------  ----------------
<S>                                             <C>                <C>                 <C>              <C>
       Net sales                                $   39,733         $     53,412        $       -        $   93,145
       Adjusted EBITDA                              10,684               22,498                             33,182
       Assets                                       73,845              223,732         (69,820)           227,757

                      1999
       -----------------------------------

       Net sales                                    45,814               48,647                             94,461
       Adjusted EBITDA                              14,747               22,941                             37,688
       Assets                                       81,482              208,539         (46,418)           243,603

                      1998
       -----------------------------------

       Net sales                                    50,803               42,278                -            93,081
       Adjusted EBITDA                              18,077               20,426                -            38,503
       Assets                                       87,908              193,713         (21,314)           260,307
</TABLE>


                                      F-29
<PAGE>

NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------------------------------------------------------------------

18.    SEGMENT INFORMATION, CONTINUED:

       A reconciliation of Adjusted EBITDA to total consolidated operating
       income for 2000, 1999, and 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
                                                2000              1999              1998
                                           ---------------  -----------------  ----------------
<S>                                            <C>               <C>               <C>
       Adjusted EBITDA                         $   33,182        $    37,688       $    38,503
       Depreciation expense                       (1,067)            (1,923)           (1,687)
       Amortization expense                       (5,490)            (5,490)           (5,490)
       LIFO adjustment                            (2,434)              (174)             (904)
       Stock option expense                          (33)               (70)             (819)
       Postretirement/Pension expense               (666)            (1,151)             (502)
                                           ---------------  -----------------  ----------------

       Operating income                        $   23,492        $    28,880        $   29,101
                                           ===============  =================  ================

</TABLE>

19.    NEW ACCOUNTING STANDARDS:

       In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
       No. 133, "Accounting for Derivative Instruments and Hedging Activities."
       This statement requires that all derivatives be measured at fair value
       and recognized in the balance sheet as either assets or liabilities. SFAS
       No. 133 also requires that changes in a derivative's fair value be
       recognized currently in earnings unless specific hedge accounting
       criteria are met. Special accounting for qualified hedges allows a
       derivative's gains and losses to offset related results on the hedged
       item in the income statement and requires formal documentation,
       designation, and assessment of the effectiveness of derivatives that
       receive hedge accounting.

       In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
       Instruments and Hedging Activities-Deferral of the Effective Date of FASB
       Statement No. 133," which makes SFAS No. 133 effective for fiscal years
       beginning after June 15, 2000. The Company adopted SFAS No. 133 as of
       January 1, 2001, and management does not expect the adoption to have a
       material impact on the consolidated financial statements.




                                      F-30
<PAGE>

                                  EXHIBIT INDEX

                                       TO

                      NORTH ATLANTIC TRADING COMPANY, INC.

                           ANNUAL REPORT ON FORM 10-K

                     FOR FISCAL YEAR ENDED DECEMBER 31, 2000


<TABLE>

EXHIBIT
NUMBER                 DESCRIPTION
------                 -----------
<S>                    <C>
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)(i) the  Registrant's
                       Annual Report on Form 10-K for the fiscal year ended December 31, 1997).

3.1(b)          --     Certificate of  Incorporation  of North Atlantic  Operating  Company,  Inc., filed June 9 1997
                       (incorporated  herein by reference to Exhibit  3.1(b)(i) to the Registrant's  Annual Report on
                       Form 10-K for the fiscal year ended December 31, 1997).

3.1(c)          --     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(d)          --     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(e)          --     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(f)          --     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(g)          --     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).


<PAGE>

EXHIBIT
NUMBER                 DESCRIPTION
------                 -----------

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  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 September 3, 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 September 3, 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).

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  Report on Form 10-K for the fiscal  year ended  December
                       31, 2000).

3.3             --     Certificate of Designation of 12% Senior  Exchange  Payment-In-Kind  Preferred  Stock of North
                       Atlantic  Trading  Company,  Inc., filed July 22,  1997  (incorporated  herein by reference to
                       Exhibit 3.3(b) to Amendment No. 1 to Registration  Statement (Reg. No.  333-31931) on Form S-4
                       filed with the Commission on September 3, 1997).

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).


                                       2
<PAGE>

EXHIBIT
NUMBER                 DESCRIPTION
------                 -----------

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 The 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).

9.1             --     Exchange  and  Stockholders'  Agreement,  dated as of  June 25,  1997,  by and  between  North
                       Atlantic Trading Company,  Inc. and those stockholders  signatory thereto (incorporated herein
                       by reference to Exhibit 9 to Amendment  No. 1 to Registration  Statement (Reg. No.  333-31931)
                       on Form S-4 filed with the Commission on September 3, 1997).

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 2, 1999, among Thomas F. Helms,
                       Jr. and David I. Brunson,  as voting trustees,  and Helms  Management  Corp.  (incorporated by
                       reference  to Exhibit  9.3 to the  Registrant's  Report on Form 10-K for the fiscal year ended
                       December 31, 2000).

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 3, 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 3, 1997).



                                       3
<PAGE>

EXHIBIT
NUMBER                 DESCRIPTION
------                 -----------

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 3, 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 3, 1997).

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 10.12 to Amendment No. 1 to Registration  Statement (Reg. No.  333-31931)
                       on Form S-4 filed with the Commission on September 3, 1997).

10.8++          --     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++         --     Letter  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).



                                       4
<PAGE>

EXHIBIT
NUMBER                 DESCRIPTION
------                 -----------

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).

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 27,   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).



                                       5
<PAGE>

EXHIBIT
NUMBER                 DESCRIPTION
------                 -----------

10.20           --     Amendment  to  Credit  Agreement,  dated as of June 5,  1998,  among  North  Atlantic  Trading
                       Company,  Inc., the various lending institutions  referenced therein, and National Westminster
                       Bank plc, as  Administrative  Agent  (incorporated  herein by reference to Exhibit 10.1 to the
                       Registrant's Report on 10-Q for the fiscal quarter ended June 30, 1998).

10.21++         --     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).

10.22           --     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  Report on 10-Q for the
                       fiscal quarter ended June 30, 1998).

10.23           --     Promissory  Note,  dated April 14,  1998,  issued by Helms  Management Corp. in favor of North
                       Atlantic  Trading  Company,  Inc.  (incorporated  herein by  reference  to Exhibit 10.7 to the
                       Registrant's Report on 10-Q for the fiscal quarter ended June 30, 1998).

10.24           --     Amendment,  dated as of February 1,  1998,  among North Atlantic  Trading  Company,  Inc., the
                       various  lending  institutions  referenced  therein  and  National  Westminster  Bank plc,  as
                       administrative  agent  (incorporated  herein by reference to Exhibit 10.39 to the Registrant's
                       Report on 10-Q for the fiscal quarter ended March 31, 1998).

10.25           --     Consent,  dated as of March 12,  1998, among North Atlantic Trading Company, Inc., the various
                       lending  institutions  referenced therein and National Westminster Bank plc, as administrative
                       agent  (incorporated  herein by reference to Exhibit 10.40 to the Registrant's  Report on 10-Q
                       for the fiscal quarter ended March 31, 1998).

10.26           --     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 Report on 10-Q for the fiscal quarter ended March 31, 1998).

10.27           --     Promissory Note, dated March 24,  1998,  issued by David I. Brunson in favor of North Atlantic
                       Trading Company,  Inc.  (incorporated herein by reference to Exhibit 10.44 to the Registrant's
                       Report on 10-Q for the fiscal quarter ended March 31, 1998).

10.28           --     Promissory  Note,  dated April 14,  1998,  issued by Helms  Management Corp. in favor of North
                       Atlantic  Trading  Company,  Inc.  (incorporated  herein by  reference  to Exhibit 10.7 to the
                       Registrant's Report on 10-Q for the fiscal quarter ended June 30, 1998).

10.29++         --     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  Report on Form
                       10-K for the fiscal year ended December 31, 2000).



                                       6
<PAGE>

EXHIBIT
NUMBER                 DESCRIPTION
------                 -----------

10.30++         --     North Atlantic Trading Company,  Inc. 1999 Executive Incentive Plan (incorporated by reference
                       to Exhibit 10.35 to the  Registrant's  Report on Form 10-K for the fiscal year ended  December
                       31, 2000).

10.31++         --     North Atlantic Trading Company,  Inc. 1999 Management Bonus Plan (incorporated by reference to
                       Exhibit 10.36 to the Registrant's Report on Form 10-K for
                       the fiscal year ended December 31, 2000).

10.32*          --     Loan Agreement,  dated as of December 29, 2000, by and among North Atlantic  Trading  Company,
                       Inc.,  National  Tobacco Company,  L.P.,  North Atlantic  Operating  Company,  Inc.,  National
                       Tobacco  Finance  Corporation  and Bank One,  Kentucky  N.A.,  as agent  bank and the  various
                       lending institutions named therein.

10.33*          --     Security  Agreement,  dated as of December 29, 2000,  among North  Atlantic  Trading  Company,
                       Inc.,  National  Tobacco Company,  L.P.,  North Atlantic  Operating  Company,  Inc.,  National
                       Tobacco  Finance  Corporation  and Bank One  Kentucky,  N.A.,  as agent  for  certain  lending
                       institutions.

10.34*          --     Guaranty  Agreement,  dated as of December 29, 2000,  among National  Tobacco  Company,  L.P.,
                       North Atlantic Operating  Company,  Inc.,  National Tobacco Finance  Corporation and Bank One,
                       Kentucky, N.A., as agent for certain lending institutions.

10.35*          --     Pledge  Agreement,  dated as of December 29, 2000 among and North  Atlantic  Trading  Company,
                       Inc.,  National  Tobacco Company,  L.P.,  North Atlantic  Operating  Company,  Inc.,  National
                       Tobacco  Finance  Corporation  and Bank One  Kentucky,  N.A.,  as agent  for  certain  lending
                       institutions.

21              --     Subsidiaries of North Atlantic  Trading  Company,  Inc.  (incorporated  herein by reference to
                       Exhibit 21 to the Registrant's Report on Form 10-K for
                       the fiscal year ended December 31, 1998).

</TABLE>

                           *        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 required to be filed as an exhibit pursuant to
                  Item 14(c) of the rules governing the preparation of this
                  Report.


                                       7