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, 1999

                                       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 29, 2000, 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 29, 2000, 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.



NY2:\894705\01\J6CX01!.DOC\64980.0003
<PAGE>
                      North Atlantic Trading Company, Inc.
                          1999 Form 10-K Annual Report


                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                                        PAGE

                                     PART I
<S>                 <C>
     Item 1.         Business..............................................................................................1
     Item 2.         Properties...........................................................................................11
     Item 3.         Legal Proceedings....................................................................................11
     Item 4.         Submission of Matters to a Vote of Security Holders..................................................15

                                     PART II

     Item 5.         Market for Registrant's Common Stock and Related Stockholder Matters.................................16
     Item 6.         Selected Financial Data..............................................................................16
     Item 7.         Management's Discussion and Analysis of Financial Condition and Results of Operations................18
     Item 7A.        Quantitative and Qualitative Disclosures About Market Risk...........................................22
     Item 8.         Financial Statements and Supplementary Data..........................................................23
     Item 9.         Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.................23

                                    PART III

     Item 10.        Directors and Executive Officers of the Registrant...................................................24
     Item 11.        Executive Compensation...............................................................................26
     Item 12.        Security Ownership of Certain Beneficial Owners and Management.......................................33
     Item 13.        Certain Relationships and Related Transactions.......................................................35

                                     PART IV

     Item 14.        Exhibits, Financial Statement Schedules, and Reports on Form 8-K.....................................36

</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.
During 1999 and currently, the Company is comprised of 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 roll-your-own ("RYO") cigarette papers
and other tobacco-related products, which are sold under the ZIG-ZAG brand name
pursuant to an exclusive long-term distribution agreement with Bollore, S.A.
("Bollore") and contract manufactures and distributes RYO and Make-Your-Own
("MYO") tobaccos and tobacco-related products under the ZIG-ZAG brand name.

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 is $165 million. In addition,
National Tobacco will continue to manufacture these brands for Swedish Match for
a limited period of time following the sale under a transitional contract
manufacturing arrangement. Pursuant to the agreement, National Tobacco has
retained all of its existing liabilities, including but not limited to, product
liabilities with respect to the time it owned the brands. All of National
Tobacco's obligations under the agreement have been guaranteed by the Company.
The transaction is subject to regulatory approval and other customary conditions
and is expected to close shortly after such regulatory approval is obtained. As
a result, the Company's new initiative is to focus on the RYO and MYO products
sold under the ZIG-ZAG brand name. Such focus will impact how the Company's
subsidiaries will be organized from sales, marketing and operational
perspectives, and the Company is in the process of evaluating various
alternatives.

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 RYO cigarette
paper 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


<PAGE>
in connection with this initial buyout, Mr. Helms participated in two subsequent
leveraged buyouts prior to 1997, all of which boosted the percentage of
management ownership.

                     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 the exclusive rights to market and distribute ZIG-ZAG RYO 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 brand-name identity of its products; and (iii) increase operating
efficiencies within the subsidiaries of the Company.

INDUSTRY AND MARKETS

                     The Company believes that the smokeless tobacco market,
which includes loose leaf chewing tobacco, and the RYO cigarette paper market
are each characterized by non-cyclical demand, brand loyalty, significant
barriers to entry, minimal capital expenditure requirements, high profit
margins, strong wholesale prices and the ability to generate strong and
consistent free cash flows. 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, 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 RYO
cigarette market is a minor component of the overall United States cigarette
industry which, if viewed as a part of that industry, would have an estimated
share of 1%. In 1999, the United States cigarette industry sold in excess of 400
billion cigarettes, which were consumed by approximately 25% of the adult
population.

Smokeless Tobacco

                     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
of smokeless tobacco 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.


                                       2
<PAGE>
           Plug chewing tobacco is made from air-cured leaf tobacco, heavily
           flavored and pressed into small bricks or blocks.

           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 $1.92 billion in 1998, representing a compound annual growth
rate of 6.8%. This increase is primarily related to the increase in
manufacturers' sales of moist snuff which have grown from $608 million in 1989
to $1.51 billion in 1998, representing a compound annual growth rate of 9.5% and
whose volume has grown from 39.9 million pounds in 1989 to 54.7 million pounds
in 1998 for a compounded annual growth rate of 3.2%. Manufacturers' sales of
loose leaf chewing tobacco were $280 million in 1989 and $327 million in 1998,
representing a compound annual growth rate of 1.6% during the same period;
however, its volume during this same period declined from 59.7 million pounds to
45.9 million pounds, a compound rate of decline of 2.6%.

Loose Leaf Chewing Tobacco

                     Loose leaf chewing tobacco products are typically sold
through the following retail distribution channels (in order of importance):
food stores, mass merchandisers, convenience stores, discount tobacco 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.

RYO Cigarette Paper

                     RYO cigarette papers are typically sold through the
following retail distribution channels (in order of importance): convenience
stores, chain and independent drug stores, mass merchandisers, food stores and
discount tobacco stores. Certain retailers purchase RYO cigarette papers direct
from manufacturers, although most purchase through wholesale distributors.

PRODUCTS

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

Loose Leaf Chewing Tobacco

                     Loose leaf chewing tobacco products can be broadly
characterized as either full-flavored or mild, each accounting for approximately
one half of industry volume. 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 ranks second in
sales in the full-flavored loose leaf chewing tobacco category, and third


                                       3
<PAGE>
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.

RYO Cigarette Papers and RYO and MYO Tobaccos and Related Products

                     RYO cigarette papers are sold in a variety of different
widths and styles, primarily 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 products sold under the ZIG-ZAG name are 1 1/2 RYO cigarette papers, Gold
Standard and Classic American tobacco for roll-your-own-cigarettes, ZIG-ZAG
cigarette rollers, cigarette tubes and tube injectors and a ZIG-ZAG waterproof
paper that is sold in Canada.

SALES AND MARKETING

                     Currently, National Tobacco has a 107 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 underrepresented.

                     National Tobacco's loose leaf chewing tobacco has
historically been distributed through approximately 1,500 wholesale tobacco and
food distributors. In 1999, BEECH-NUT REGULAR and TROPHY represented 48% and 31%
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 print or
media consumer advertising.

                     NAOC's RYO cigarette papers have historically been
distributed through approximately 950 wholesale distributors. Sales by NAOC of
its ZIG-ZAG White and ZIG-ZAG French Orange RYO cigarette papers are the most
important products in terms of volume, accounting for in excess of 69% of NAOC's
sales. The majority of ZIG-ZAG promotional activity is at the distributor level
and consists of distributor promotions, trade shows and trade advertising.

                     The Company's largest customer is The McLane Company
("McLane"), which accounted for approximately 14.4% and 8.4% of its loose leaf
chewing tobacco and RYO cigarette paper revenues in 1999, respectively. 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.

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


                                       4
<PAGE>
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 are
owned by Bollore and have been licensed to NAOC; however, NAOC does own the
ZIG-ZAG trademark with respect to certain tobacco 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 (i) under instructions from National Tobacco, purchases and processes
tobacco on an exclusive basis, (ii) stores tobacco inventory purchased on behalf
of National Tobacco and (iii) generally maintains a 15- 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 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.

RYO Cigarette Paper

                     Under normal conditions, pursuant to the Distribution
Agreements (as defined below), NAOC must purchase its RYO cigarette papers from
Bollore. See "Distribution Agreements." To maintain a steady supply of product:
(i) NAOC may seek third-party suppliers and continue the use of the ZIG-ZAG
trademark if Bollore is unable or unwilling to perform under the Distribution
Agreements; and (ii) 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
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 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 RYO cigarette papers.

                     NAOC seeks to maintain an adequate supply of product in
addition to the immediately available, two-month emergency inventory on hand at
the expense of Bollore. NAOC also 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. See "Distribution Agreements."


                                       5
<PAGE>
MANUFACTURING

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

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 ongoing
analysis of tobacco cut, flavorings and moisture content.

Research and Development

                     National Tobacco has a research and development department
that reformulates existing 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 it has been and will be able to continue to develop cost
effective blends of tobacco and flavorings that will maintain or reduce overall
costs without compromising the high product quality.

                     The Company, primarily through National Tobacco, spent
approximately $592,000, $553,000 and $532,000 on its research and development
and quality control efforts for the years 1997, 1998 and 1999, respectively.

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 majority of the
facility's structures sits on half of the total acres. The facilities are in
good condition and have received regular maintenance and capital improvement.
About two-thirds of the plant is currently utilized, thus, there is substantial
excess manufacturing and storage capacity. The existing structures would provide
ample space to accommodate an expansion of the Company's products.

COMPETITION

                     National Tobacco is the third largest manufacturer and
marketer of loose leaf chewing tobacco and NAOC is the largest importer and
distributor in North America of RYO cigarette papers. The other three principal
competitors for loose leaf chewing tobacco sales, which, together with National
Tobacco, generate approximately 95% of such sales, are Pinkerton Tobacco Co.,
Conwood Corporation and Swisher International Group Inc. Due to increased
competition with moist snuff, an alternative smokeless product that is used
interchangeably by many loose leaf consumers, and in addition to the three
previously named companies, the major competitor is UST, Inc., the largest moist
snuff as well as the largest smokeless tobacco company in the United States.
NAOC's two major competitors for RYO cigarette paper sales, which, together with


                                       6
<PAGE>
NAOC, generate approximately 95% of such sales, are Republic Tobacco Company and
Imperial Tobacco Group plc. 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 the high brand recognition
and perceived quality of each of its products, its manufacturing and operating
efficiencies, and its significant sales, marketing and distribution strengths.

EMPLOYEES

                     As of February 29, 2000, the Company employed a total of
256 full-time employees. All of the Company's operations are non-union, with the
exception of 96 manufacturing employees, who are covered by three collective
bargaining agreements. One of these agreements, covering 91 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 since the early 1970s has been a major cause of the overall decline
in consumption of tobacco products. 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 Federal Trade Commission
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 August 1995, the FDA published proposed rules for
regulation of tobacco and tobacco products. Following a year of comment and
revision, in August 1996 the FDA promulgated final rules which were scheduled to
take effect in August 1997, except for a portion of the rules prohibiting the
sale of tobacco to persons under 18, which had already become effective. The
FDA's regulations sought to restrict access to tobacco and tobacco products,
regulate tobacco labeling, and limit promotion and advertising of tobacco.


                                       7
<PAGE>
                     On April 25, 1997, a federal court in Greensboro, North
Carolina ruled that the FDA has statutory authority to regulate tobacco
products. The court upheld the FDA's rules restricting access to tobacco
products and regulating tobacco labeling. However, the court ruled that the FDA
does not have authority to regulate promotion and advertising of tobacco
products. The judge certified the case for interlocutory appeal to the United
States Fourth Circuit Court of Appeals, which subsequently ruled that the FDA
statute does not provide this authority. The FDA petitioned the Supreme Court of
the United States for a writ of certiorari. On April 26, 1999, the Supreme Court
granted the writ. The hearing before the Supreme Court was held on December 1,
1999. On March 21, 2000, the Supreme Court affirmed the Fourth Circuit's
decision, ruling that the FDA has no authority over tobacco products.

                     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
5 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.

                     The district court set a schedule for the receipt and
disposition of cross motions for summary judgement. The parties filed their
motions on February 13, 1998. The cross motions were argued in June 1998. The
district court has not acted with regard to such motions.

                     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. However, the regulations have been
stayed pending appeal, which is scheduled to be heard on April 7, 2000. 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 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 RYO cigarette papers, there can be no assurance
that federal, state or local regulations will not be enacted which will seek to
regulate RYO 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 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 only industry signatories to the MSA have been 23 cigarette


                                       8
<PAGE>
manufacturers and/or distributors and the only signatory to the STMSA has been
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
injunction relief against certain tobacco products manufacturers and others and,
in return, the industry signatories have agreed to certain marketing
restrictions and regulations as well as certain payment obligations. The Company
does not currently intend to participate in either settlement. There can be no
assurance as to whether entering into one or both settlement agreements or
choosing not to do so would have a material adverse effect on the Company's
financial position, results of operations or cash flows.

                     In furtherance of the MSA, many states have enacted
statutes requiring companies not participating in the MSA to deposit, on an
annual basis, into qualified banks escrow account funds based on the number of
cigarettes or cigarette equivalents, i.e., the pounds of RYO 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 judgment to that state plaintiff
in the event of a judgment against the Company.

EXCISE TAXES

                     Tobacco products and RYO 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.

                     Effective January 1, 2000, the excise tax on RYO cigarette
paper is $.0106 per fifty papers, the tax on cigarette tubes is $.0213 per fifty
tubes, and the tax on RYO tobacco is $.9567 per pound. Future enactment of
increases in excise taxes could have a material adverse effect on the Company's
business. The Company is unable to predict the likelihood of the passage or the
enactment of future increases in excise taxes. Tobacco products and RYO
cigarette papers are also subject to certain state and local taxes. Budget
deficit concerns at the state level continue to exert pressure to increase
tobacco excise taxes. From time to time, the imposition of state and local taxes
has had limited impact on the National Tobacco's sales regionally. Any enactment
of new state excise taxes or increase in existing excise taxes is likely to have
an increasingly adverse effect on regional sales.

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 RYO cigarette
paper business, NAOC entered into three long-term distribution and licensing
agreements with Bollore with respect to sales of RYO 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,


                                       9
<PAGE>
the "Distribution Agreements"). Under the Distribution Agreements, Bollore has
granted NAOC the exclusive right to purchase RYO 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 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 RYO cigarette papers.

                     According to NAOC's Distribution Agreements with Bollore,
NAOC, under normal conditions, must purchase the finished product only from
Bollore. Conversely, Bollore is required by such agreements to provide NAOC 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 or unwilling to perform its obligations under 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
promoting in the countries identified above RYO cigarette paper or RYO 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 became effective 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 1999 by a factor of 4.6 times
in the U.S.; such minimum purchases are not applicable with respect to the Other
Countries Distribution Agreement until the last three years of the initial term
of such agreement) of RYO 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,


                                       10
<PAGE>
directly or indirectly, RYO cigarette paper or RYO 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, 1999, 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 are owned.

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

                     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, 1999.

                                                 Square                Owned or
     Location                Principal Use       Feet                  Leased
     --------                -------------       ----                  ------

     New York, NY            Corporate           10,351                Leased
                             headquarters

     Louisville, KY          Loose leaf         600,000                Owned(1)
                             chewing tobacco
                             manufacturing,
                             R&D, warehousing
                             and distribution



Item 3.        Legal Proceedings

                     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 purports 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.


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

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


                                       11
<PAGE>
                     Plaintiffs claim 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 claim that the defendants violated California Unfair
Competition Act, Business & Professions Code 17200, et 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 damages 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 would expect the case to
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 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 RYO 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 RYO cigarette papers by covering up
the ZIG-ZAG brand name and advertising material with advertisements for Republic
Tobacco's RYO cigarette 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 and NAOC 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


                                       12
<PAGE>
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 RYO 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 RYO 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. With respect to the claims set forth in the
Illinois Complaint, the Company has 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. The Company
intends to vigorously defend the Illinois Complaint.

                     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.

                     Discovery is continuing in the case.

                     West Virginia Complaints. On October 6, 1998 the Company
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. Phillip Morris
Incorporated, et al. (Civil Action Nos. 98-C-2401). While the Company 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. The Company was named in only six
of the cases, five of which alleged consumption prior to the existence of the
Company of products bearing the trademarks currently owned by the Company. The
remaining case alleges lung cancer as the injury. The Company has been dismissed
from the first five cases, and intends to vigorously defend the remaining
action.

                     On November 13, 1998, the Company 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. Phillip Morris Incorporated et al.
(Civil Action Nos. 98-C-2696 to 98-C-2713). While the Company 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,


                                       13
<PAGE>
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 of 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. The Company was not named in any additional claims. Currently then
as previously stated, the Company is named in one case in West Virginia, which
alleges that lung cancer was caused by consuming the Company's chewing tobacco
products.

                     On September 24, 1999, the Company 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 the Company's (and, prior
to the formation of the Company, 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 various counts have been filed and fully briefed. The hearing on the
motion is currently scheduled for April 28, 2000.

                     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 issued by the
previous Massachusetts Attorney General affecting point of sale and certain
advertising issues with respect to tobacco products, which were to become
effective August 1, 1999, have been 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. The regulations, however, have been stayed pending appeal,


                                       14
<PAGE>
which is scheduled to be heard on April 7, 2000. 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 August 1995, the FDA published proposed rules for
regulation of tobacco and tobacco products, including smokeless tobacco.
Following a year of comment and revision, in August 1996 the FDA promulgated
final rules, which were scheduled to take effect on August 1997, except for a
portion of the rules prohibiting the sale of tobacco to persons under 18, which
had already become effective. The FDA's regulations would restrict access to
tobacco and tobacco products, regulate tobacco labeling, and limit promotion and
advertising of tobacco.

                     On April 25, 1997, a federal court in Greensboro, North
Carolina ruled that the FDA has statutory authority to regulate tobacco
products. The court upheld the FDA's rules restricting access to tobacco
products and regulating tobacco labeling. However, the court ruled that the FDA
does not have authority to regulate promotion and advertising of tobacco
products. The judge certified the case for interlocutory appeal to the United
States Fourth Circuit Court of Appeals, which subsequently ruled that the FDA
statue does not provide this authority. The FDA petitioned the Supreme Court of
the United States for a writ of certiorari. On April 26, 1999, the Supreme Court
granted the writ. The hearing before the Supreme Court was held on December 1,
1999. On March 21, 2000, the Supreme Court affirmed the Fourth Circuit's
decision, ruling that the FDA has no authority over tobacco products.

                     In Bollore, S.A. v. Import Warehouses, 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 are currently negotiating settlements
with one group of defendants. A full trial, to obtain permanent injunctive
relief and damages, is currently scheduled for September 2000 for all other
defendants. Management believes that successful prosecution of this litigation,
either by settlement or otherwise, will have a favorable impact on its RYO
cigarette paper business.

                     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.




                                       15
<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 29,
2000, 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 Company's
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 10, 2000, National Tobacco announced that it
had reached an agreement to sell certain smokeless tobacco assets to Swedish
Match. Accordingly, the financial results for the smokeless tobacco segment are
treated as discontinued operations for all periods presented herein.
Consequently, revenues, operating costs and expenses, and other non-operating
results for these businesses are excluded from the Company's results from
continuing operations. The financial results of these businesses are presented
in the Company's consolidated statements of operations in a single line item
entitled "income from discontinued operations." The net assets of the
discontinued segment, which consist primarily of inventories of $40.3 million
and intangible assets of $29.0 million, each of which are to be sold, are
included in the consolidated balance sheets and related footnotes. See further
discussions in notes 18 and 20 to the consolidated financial statements.

                     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.


                                       16
<PAGE>
<TABLE>
<CAPTION>
                                                                       The Company                    |        The Predecessor
                                                 ---------------------------------------------------- | ----------------------------
                                                       Year Ended December 31,                        |
                                                 ------------------------------------    Period from  | Period from      Year Ended
                                                                                          5/17/96 to  |  1/1/96 to      December 31,
                                                   1999          1998         1997(1)      12/31/96   |   5/16/96          1995
                                                 --------      --------     ----------   -----------  | ------------   -------------
<S>                                            <C>           <C>           <C>           <C>          |  <C>              <C>
STATEMENT OF OPERATIONS DATA:                                                                         |
  Net Sales...................................   $48,647       $ 42,278      $ 30,643      $     --   |   $     --       $      --
                                                                                                      |
  Income (loss) from continuing operations                                                            |
    (net of preferred stock dividends of                                                              |
    $5,361 in 1999, $4,751 in 1998 and                                                                |
    $2,268 in 1997) applicable to common                                                              |
    shares....................................   (10,415)       (11,567)        2,240            --   |         --              --
                                                                                                      |
  Income from discontinued operations.........     6,649          7,823         2,906           383   |      1,132           2,505
                                                                                                      |
  Net Income/(Loss) applicable to common                                                              |
    Shares(2).................................    (3,766)        (3,744)       (1,975)          383   |      1,132           2,505
                                                                                                      |
  Basic earnings per common share:                                                                    |
    Income/(Loss) from continuing                                                                     |
    operations................................   ($19.72)       ($21.90)        $4.24            --   |         --              --
    Income from discontinued operations.......     12.59          14.81          5.50            --   |         --              --
    Extraordinary loss........................        --             --        (13.48)           --   |         --              --
                                                --------       --------      --------                 |
                                                                                                      |
    Net Loss applicable to common shares......    ($7.13)        ($7.09)       ($3.74)           --   |         --              --
                                                ========       ========      ========                 |
                                                                                                      |
  Diluted earnings per common share:                                                                  |
    Income/(Loss) from continuing                                                                     |
      operations..............................   ($19.72)       ($21.90)        $3.67            --   |         --              --
    Income from discontinued operations.......     12.59          14.81          4.76            --   |         --              --
    Extraordinary loss........................        --             --        (11.66)           --   |         --              --
                                                --------       --------      --------                 |
                                                                                                      |
    Net Loss applicable to common shares......    ($7.13)        ($7.09)       ($3.23)           --   |         --              --
                                                ========       ========      ========                 |
                                                                                                      |
BALANCE SHEET DATA (AT END OF PERIOD):                                                                |
  Total assets................................   243,602        260,307       273,083        96,553   |     81,887          80,517
  Total debt, including current                                                                       |
  maturities..................................   195,864        215,586       230,000        70,696   |     43,388          48,782
  Mandatorily redeemable preferred                                                                    |
  stock.......................................    44,693         39,332        34,581            --   |         --              --
OTHER DATA:                                                                                           |
  Adjusted EBITDA(3)..........................    37,689         38,503        32,668        10,885   |      4,810          13,939

</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, 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 operating income plus 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 (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.



                                       17
<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      Year Ended
                                                                                      5/17/96 to  |  1/1/96 to      December 31,
                                               1999          1998         1997         12/31/96   |   5/16/96          1995
                                             --------      --------     ---------    -----------  | ------------   -------------
<S>                                        <C>           <C>           <C>           <C>          |  <C>              <C>
Loss from continuing operations            $   (5,054)    $ (6,816)     $ (2,613)            --   |          --              --
Income from discontinued operations             6,649        7,823         2,906            383   |       1,132           2,505
                                           -----------   ----------    ----------    -----------  |  -----------    ------------
                                                                                                  |
Net income .............................        1,595        1,007           293            383   |       1,132           2,505
   Interest expense, net................       23,488       24,927        18,361          6,398   |       2,453           7,239
   Income tax expense...................        3,813        3,213           852             --   |          --              --
   Depreciation.........................        1,923        1,687         1,619          1,034   |         454           1,073
   Amortization.........................        5,490        5,490         3,213            504   |         365             973
   Other (income) expense...............          (16)         (46)          (34)          (117)  |          (5)          1,336
                                                                                                  |
    Financial advisory fee expense......           --           --            --             --   |         114             300
   Unfunded pension obligation..........          594           --            --             --   |          --              --
                                                                                                  |
   LIFO adjustment......................          175          904          (129)         2,619   |         187             (53)
                                                                                                  |
   Stock option compensation expense....           70          819           900             --   |          --              --
                                                                                                  |
   Postretirement expense...............          557          502           472             64   |         110             443
                                                                                                  |
   Cumulative effective of accounting                                                             |
      change............................           --           --            --             --   |          --             123
                                                                                                  |
                                                                                                  |
   Extraordinary loss, net of income                                                              |
      tax benefit.......................           --           --         7,121             --   |          --              --
                                           -----------   ----------    ----------    -----------  |  -----------    ------------
                                                                                                  |
Adjusted EBITDA.........................     $ 37,689     $ 38,503      $ 32,668       $ 10,885   |    $  4,810        $ 13,939
                                           ===========   ==========    ==========    ===========  |  ===========    ============
</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, 1999, 1998 and 1997. 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 proposed disposition of selected
smokeless tobacco assets (dollars in thousands):

<TABLE>
<CAPTION>
                                                                                Year Ended December 31,
                                            -------------------------------------------------------------------------------------
                                                       1999                         1998                          1997
                                            ---------------------------   -------------------------   ---------------------------
<S>                                         <C>                           <C>                         <C>
Net Sales...............................       $  48,647         100.0%     $ 42,278        100.0%       $ 30,643         100.0%
Cost of sales...........................          15,028          30.9        12,546         29.7           9,485          30.9
                                            -------------    ----------   ------------    ---------   -------------    ----------

Gross Profit............................          33,619          69.1        29,732         70.3          21,158          69.1

Selling, general and
   administrative expenses..............          10,965          22.5         8,748         20.7           1,763           5.8


Amortization of goodwill................           4,691           9.7         4,691         11.1           2,410           7.9
                                            -------------    ----------   ------------    ---------   -------------    ----------

Operating income........................          17,963          36.9        16,293         38.5          16,985          55.4

Interest expense & financing costs, net.          23,710          48.7        25,164         59.5          13,605          44.4

Other income............................               4            --            --           --               2            --
                                            -------------    ----------   ------------    ---------   -------------    ----------

Income/(Loss) from continuing operations
before income tax benefit...............          (5,743)        (11.8)       (8,871)       (21.0)          3,382          11.0

Income tax benefit from continuing
operations..............................            (689)         (1.4)       (2,055)        (4.9)         (1,126)         (3.7)
                                            -------------    ----------   ------------    ---------   -------------    ----------

Income/(Loss) from continuing
operations..............................          (5,054)        (10.4)       (6,816)       (16.1)          4,508          14.7

Income from discontinued operations.....           6,649          13.7         7,823         18.5           2,906           9.5
                                            -------------    ----------   ------------    ---------   -------------    ----------


Income before extraordinary loss........           1,595           3.3         1,007          2.4           7,414          24.2

Extraordinary loss......................              --            --            --           --           7,121          23.2
                                            -------------    ----------   ------------    ---------   -------------    ----------

Net income..............................        $  1,595           3.3%     $  1,007          2.4%       $    293           1.0%
                                            =============    ==========   ============    =========   =============    ==========
</TABLE>

                                       18
<PAGE>
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 $48.7 million, an increase of 15.1% or $6.4 million from the prior year.
This increase was due primarily to increased sales of the expanded Make-Your-Own
product line, which consists of smoking tobaccos and accessory products.

                     Gross Profits. For the year ended December 31, 1999, gross
profit increased 13.1% to $33.6 million from $29.7 million. Gross profit margin
decreased to 69.1% from 70.3%. The decrease in gross profit margin was due to a
change in product mix in connection with the full introduction 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 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 substantial
currency fluctuation in its agreement with NAOC. For the year ended December 31,
1999, currency rates were favorable due to the strength of the U.S. dollar
against the French franc. The Company was able to hedge its currency risk by
utilizing short-term forward currency contracts. In the event that the French
franc strengthens against the U.S. dollar, the Company will reassess its
currency strategy.

                     Selling, General and Administrative Expenses. Selling,
general and administrative expenses for the year ended December 31, 1999
increased 25.4% to $11.0 million from the prior year's $8.7 million. This
increase was due primarily to an increase in marketing and sales incentives
related, in part, to the MYO product launch.

                     Amortization of Goodwill. Amortization of goodwill for the
year ended December 31, 1999 remained unchanged at $4.7 million as compared to
the prior year.

                     Interest Expense and Financing Costs. Interest expense and
financing costs decreased to $23.7 million for the year ended December 31, 1999
from $25.2 million for the prior year. This decrease was the result of a lower
average term loan balance.

                     Income Tax Benefit. Income tax benefit decreased to $0.7
million for the year ended December 31, 1999 from $2.1 million for the prior
year.

                     Income from Discontinued Operations. Income from
discontinued operations decreased $1.2 million or 15.0% to $6.6 million for the
year ended December 31,1999 compared to the prior year. This was due primarily
to a $2.4 million or 7.8% decrease in gross profit, reflecting an 11.5% volume
decrease, which was partially offset by manufacturers' price increases during
1999. Selling, general and administrative expenses decreased $0.5 million and
income tax expense decreased $0.8 million from the previous year.

                     Net Income. Due to the factors described above, net income
increased $0.6 million to $1.6 million compared to the prior year.


                                       19
<PAGE>
 COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31, 1997

                     Net Sales. For the year ended December 31, 1998, net sales
were $42.3 million, an increase of 38.0% or $11.6 million, from the prior year.
On June 25, 1997, the RYO segment was acquired and its operating results have
been included thereafter.

                     Gross Profits. Gross profit for the year ended December 31,
1998 was $29.7 million, an increase of $8.6 million or 40.5% from the prior
year, and the gross profit margin increased to 70.3% from 69.1%.

                     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,
1998, currency rates were favorable due to the strength of the U.S. dollar
against the French franc. The Company was able to favorably hedge its currency
risk by utilizing short-term forward currency contracts. In the event that the
French franc strengthens against the U.S. dollar, the Company will reassess its
currency strategy.

                     Selling, General and Administrative Expenses. Selling,
general and administrative expenses for the year ended December 31, 1998
increased to $8.7 million from the prior year's $1.8 million, due to the June
acquisition of the RYO segment. Selling, general and administrative expenses
were allocated to both continuing and discontinued operations for the year ended
December 31, 1998, but not for the year ended December 31, 1997, thus, it is not
practical or relevant to compare such expenses by segment.

                     Amortization of Goodwill. Amortization of goodwill for the
year ended December 31, 1998 increased $2.3 million or 94.7% from the prior year
due to the RYO acquisition in June. Substantially all of the increase was a
result of having a full year's amortization in 1998 compared to only a partial
year in 1997.

                     Interest Expense and Financing Costs. Interest expense and
financing costs increased to $25.2 million for the year ended December 31, 1998
from $13.6 million for the prior year. This increase was due to having a full
year's interest expense in 1998 compared to only a partial year in 1997,
subsequent to the Acquisition and related recapitalization.

                     Income Tax Benefit. Income tax benefit increased to $2.1
million for the year ended December 31, 1998 from $1.1 million for the prior
year.

                     Income from Discontinued Operations. Income from
Discontinued Operations increased $4.9 million to $7.8 million for the year
ended December 31, 1998. Gross profit decreased $4.5 million primarily due to a
LIFO Inventory adjustment of $1.4 million and the implementation of a cents-off
pricing strategy. In addition, selling, general and administrative expenses
decreased $7.7 million due to the fact that such expenses were allocated to both
continuing and discontinued operations in 1998. Interest expense decreased $5.1
million due to the acquisition and related recapitalization in 1997 and income
tax expense increased $3.3 million.


                                       20
<PAGE>
                     Extraordinary Loss. The Company recorded an extraordinary
loss of $7.l million (net of income tax benefit of $4.4 million) for the year
ended December 31, 1997, which was associated with the write-off of deferred
financing costs and the debt discount due to the recapitalization of the Company
on June 25, 1997.

                     Net Income. Due to the factors described above, net income
for the year ended December 31, 1998 was $1.0 million compared to $0.3 million
for the prior year.

LIQUIDITY AND CAPITAL REQUIREMENTS

                     Working capital was $37.0 million at December 31, 1999
compared to $42.0 million at December 31, 1998. This decrease was primarily the
result of a decrease in inventory of $5.0 million due to the Company's efforts
in managing inventory levels. The Company funds its seasonal working capital
requirements through its operating cash flows, and, if needed, bank borrowings.
As of December 31, 1999, the Company had an undrawn availability of $24 million
under its committed $25 million revolving credit facility.

                     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
sales activity. The Company also believes that NAOC maintains adequate
inventories 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 greater than that of inflation and believes that it
will be able to do so in the foreseeable future. In addition, the Company has
been able to maintain a stable variable cost structure for its smokeless tobacco
products due in part to its procurement and reformulation activities.

                     For 1999, the Company spent $770,000 in capital
expenditures. Given its current operation, the Company believes that its annual
capital expenditure requirements for 2000 will be approximately $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.

                     Pursuant to the proposed asset sale, the Company will
receive gross proceeds of $165 million and estimated after tax proceeds of $120
million. The Company intends to immediately repay its Senior Secured Term
Facility and will review and evaluate various alternatives for the use of the
remaining funds, such as capital investments, acquisitions and further
reductions of indebtedness.

YEAR 2000 PROJECT

                     During fiscal 1997, the Company assessed the steps
necessary to address matters related to "Year 2000" issues. This assessment
included a review of all of the Company's hardware and software requirements.
The Company developed and implemented a strategy for attaining "Year 2000"
compliance for its internal systems, which included modifying existing software,


                                       21
<PAGE>
purchasing new software and acquiring new hardware. To date, the Company has not
experienced any problems with the Year 2000 issue.

RECENT ACCOUNTING PRONOUNCEMENTS

                     In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments and hedging
activities. The Company will adopt this statement in the Company's first quarter
2001 reporting, as described below.

                     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 plans to adopt SFAS No. 133 as of
January 1, 2001. This adoption is not expected 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 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, 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 will be dependent on business, financial, and other factors beyond the
Company's control, including, among others, the proposed asset sale, 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, wholesale ordering patterns, product
liability litigation and changes in tobacco products regulation.

                     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 or National Westminster Bank plc. The Company
does not speculate on the future direction of interest rates. As of December 31,
1999, approximately $40.9 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.


                                       22
<PAGE>
                     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, 1999, NAOC did not have any outstanding commitment under forward
currency contracts.

Item 8.      Financial Statements and Supplementary Data

                     The Company's Consolidated Financial Statements and Notes
to Consolidated Financial Statements, and the report of PricewaterhouseCoopers
LLP, independent 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
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.








                                       23
<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>
<CAPTION>
Name                                          Age        Position
----                                          ---        --------
<S>                                         <C>        <C>
Thomas F. Helms, Jr.....................      59         Chief Executive Officer, President and Chairman of the Board
David I. Brunson........................      49         Executive  Vice  President--Finance  and  Administration, Chief Financial
                                                         Officer, Treasurer, Secretary  and Director
Jack Africk.............................      71         Director
Leonard D. Pickett......................      44         Director
Arnold Sheiffer.........................      67         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 and a member of the
Company's Executive Committee since December 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.


                                       24
<PAGE>
                     Jack Africk. Jack Africk has been a Director since October
1997. In December 1998 he resigned from his positions as President and Chief
Operating Officer of the Company and each of its subsidiaries (other than IFT),
having held those positions since January 1998. 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 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 Chairman of the Board of Evolution Partners and as a
Director of Tanger Factory Outlets and Crown Central Petroleum.

                     Leonard D. Pickett. Leonard Pickett has served as a
Director of the Company since January 31, 2000. Since January 1997 Mr. Pickett
has been the President and Chief Executive Officer of Crosman Corporation. For
more than five years prior to joining Crosman Corporation, Mr. Pickett was
President of Pexco Holdings, Inc. and Chairman of Worldwide Sports and
Recreation, Inc., holding companies with interests in various businesses. Mr.
Pickett is a C.P.A., having began his career with Deloitte and Touche.

                     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. Mr. Sheiffer has been a Director of Spanish Broadcasting
System, Inc. since 1994 and a Managing Director of Shenkman Capital Management,
Inc. since 1995. From 1990 to 1994, he was President and Chief Operating Officer
of Katz Media Corp., and prior to that, Managing Partner of A. Sheiffer and
Company, Certified Public Accountants. He currently is Chairman and Chief
Executive Officer of SmartRoute Systems, Inc., a nationwide provider of real
time traffic.

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
ability 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. Messrs. Helms and Brunson have served as directors
of the Company since June 17, 1997 following the formation of the Company. Mr.
Scheiffer has served as a director since June 25, 1997, the date the Acquisition
was consummated. Mr. Africk has served as a director since October 1997. Mr. Kim
S. Fennebresque, a director since October 1997, served as a director until his
resignation in December 1999. Mr. Pickett was elected by the Board of Directors
of the Company to serve as a director in January 2000. 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.

                     None of the present directors is a director of any company
with a class of securities registered pursuant to Section 12 of the Securities
Exchange Act of 1934 or subject to the requirements of Section 15(d) of that Act
or any company registered as an investment company under the Investment Company
Act of 1940, except as indicated above. No family relationships exist between
any director and executive officer of the Company.


                                       25
<PAGE>
COMMITTEES OF THE BOARD

                     In 1999, the Board of Directors initially appointed four
committees: an Executive Committee, an Audit Committee, a Compensation
Committee, and an Administration Committee. With the decision to reduce the size
of the Company's Board of Directors to five directors, the Board decided to
disband the Executive Committee effective March 31, 1999. The members of the
Audit and Compensation Committees for 1999 were Messrs. Fennebresque, until his
resignation, and Sheiffer. The sole member of the Administration Committee,
which administers the Company's 1997 Share Incentive Plan, was Thomas F. Helms,
Jr.

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, 1997, 1998 and 1999 (each
person appearing in the table is referred to as a "Named Executive"):

                           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. .................................       1999              $525,000             $0          $48,320 (1)
      Chief Executive Officer and President                  1998               441,108        175,000          163,799 (2)
                                                             1997               343,172         79,372           37,901 (3)

David I. Brunson......................................       1999               354,231        300,000           18,793 (4)
      Executive Vice President--Finance and                  1998               333,339        450,000           13,980 (5)
      Administration and Chief Financial Officer             1997               200,099             --           62,253 (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 $6,403 to a defined contribution plan.

(2)     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.

(3)     Includes insurance premiums of $33,151 paid by the Company with respect
        to term life insurance, contributions by the Company of $4,750 to a
        defined contribution plan.

(4)     Includes insurance premiums of $12,930 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.

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

(6)     Includes insurance premiums of $9,180 paid by the Company with respect
        to term life insurance and payment of $37,333 pursuant to an employment
        contract.


                                       26
<PAGE>
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. 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, Thomas F. Helms,
Jr., President and Chief Executive Officer of the Company, 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. issued 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 January
24, 1999, 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, employees or consultants 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. In addition to
compensation he receives as a consultant, Jack Africk receives additional
compensation of $25,000 in his capacity as a member of the Company's Board of
Directors. During 1999 and in addition to his compensation as a director, Kim S.
Fennebresque also received compensation of $25,000 in his capacity as Chairman
of the Company's Audit and Compensation Committees and compensation of $12,500
for his services as an ad hoc member of the Executive Committee until March 31,
1999, the date this committee was disbanded.

EMPLOYMENT AND CONSULTING AGREEMENTS

THOMAS F. HELMS JR.

                     Thomas F. Helms, Jr., Chief Executive Officer of the
Company, has an employment agreement with the Company (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


                                       27
<PAGE>
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 $365,000, 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
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.

                     On December 6, 1999, Mr. Brunson also reached an agreement
with Mr. Helms that upon the closing of a divestiture, either in whole or in
part, of National Tobacco, Mr. Brunson would receive a cash bonus equal to
one-percent (1%) of the total transaction value.


                                       28
<PAGE>
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.

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>
  $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.


                                       29
<PAGE>
                     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., 12 years; and David I. Brunson, 2 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
Directors, acting on advice of the Compensation Committee, to make discretionary
bonus payments to one or more participants in the Executive Plan. The Management
Plan provides certain members of senior management with the opportunity to
receive bonus pay based on the Company's annual EBITDA performance as well as
individual performance of participants, subject to approval of Executive
Management, acting on advice of the Compensation Committee, to make
discretionary bonus payments. Under the Discretionary Bonus Plan, the Executive
Committee 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.

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


                                       30
<PAGE>
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.

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


                                       31
<PAGE>
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.

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


                                       32
<PAGE>
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.


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)(c)......................      478,911                    90.7%                80.9%
        Helms Management Corp.
    David I. Brunson(d)..............................      304,478                    54.5                 48.9
    Herbert Morris(b)................................       37,990                     7.2                  6.4
        Flowing Velvet Productions, Inc.
        3 Points of View
        Warwick, New York 10990
    Maurice R. Langston(b)...........................       37,038                     7.0                  6.3
        Langston Enterprises, Inc.
    Alan R. Minsterketter(b).........................       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
    Leonard D. Pickett...............................           --                      --                   --
    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)     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.

(c)     Helms Management Corp. 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 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


                                       33
<PAGE>
        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."

(d)     Includes 2,250 shares of Common Stock, 30,928 shares subject to
        currently exercisable stock options and 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.

(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


                                       34
<PAGE>
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.

Item 13.       Certain Relationships and Related Transactions

                     On March 24, 1998, Mr. Brunson 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.

                     See "Compensation Committee Interlocks and Insider
Participation."













                                       35
<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


<TABLE>
<CAPTION>
NORTH ATLANTIC TRADING COMPANY, INC.                                                                                PAGE

AUDITED CONSOLIDATED FINANCIAL STATEMENTS
<S>                                                                                                               <C>
Report of Independent Accountants.............................................................................      F-1
Consolidated Balance Sheets as of December 31, 1999 and 1998..................................................      F-2
Consolidated Statements of Operations for the
      years ended December 31, 1999, 1998, and 1997...........................................................      F-3
Consolidated Statements of Cash Flows for the
      years ended December 31, 1999, 1998, and 1997.                                                                F-4
Consolidated Statements of Changes in Stockholders' Deficit for the
      years ended December 31, 1999, 1998, and 1997...........................................................      F-5
Notes to Consolidated Financial Statements....................................................................      F-6

</TABLE>

                               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.




                                       36
<PAGE>
                                INDEX TO EXHIBITS

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

2.1*         --   Asset Purchase Agreement, dated February 10, 2000, between
                  National Tobacco Company, L.P. and Swedish Match North America
                  Inc.

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).


                                       37
<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.

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).

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).


                                       38
<PAGE>
EXHIBIT
NUMBER            DESCRIPTION
------            -----------

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.

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).

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).


                                       39
<PAGE>
EXHIBIT
NUMBER            DESCRIPTION
------            -----------

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).

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).


                                       40
<PAGE>
EXHIBIT
NUMBER            DESCRIPTION
------            -----------

10.15        --   Credit Agreement, dated as of June 25, 1997, among North
                  Atlantic Trading Company, Inc., the various lending
                  institutions referenced therein, Gleacher NatWest, Inc., as
                  arranging agent, and National Westminster Bank plc, as
                  administrative agent (incorporated herein by reference to
                  Exhibit 10.21 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        --   Subsidiary Guaranty, dated as of June 25, 1997, made by North
                  Atlantic Operating Company, Inc., National Tobacco Finance
                  Corporation, and National Tobacco Company, L.P. in favor of
                  National Westminster Bank plc, as administrative agent for
                  certain lending institutions (incorporated herein by reference
                  to Exhibit 10.22 to Amendment No. 1 to Registration Statement
                  (Reg. No. 333-31931) on Form S-4 filed with the Commission on
                  September 3, 1997).

10.17        --   Security Agreement, dated as of June 25, 1997, among North
                  Atlantic Trading Company, Inc., North Atlantic Operating
                  Company, Inc., National Tobacco Finance Corporation, National
                  Tobacco Company, L.P., and National Westminster Bank plc, as
                  collateral agent for certain secured creditors (incorporated
                  herein by reference to Exhibit 10.23 to Amendment No. 1 to
                  Registration Statement (Reg. No. 333-31931) on Form S-4 filed
                  with the Commission on September 3, 1997).

10.18        --   Pledge Agreement, dated as of June 25, 1997, made by North
                  Atlantic Trading Company, Inc., North Atlantic Operating
                  Company, Inc., National Tobacco Finance Corporation, and
                  National Tobacco Company, L.P., in favor of National
                  Westminster Bank plc, as collateral agent for certain secured
                  creditors (incorporated herein by reference to Exhibit 10.24
                  to Amendment No. 1 to Registration Statement (Reg. No.
                  333-31931) on Form S-4 filed with the Commission on September
                  3, 1997).

10.19++      --   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).

10.20++      --   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).

10.21++      --   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).

10.22+       --   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).


                                       41
<PAGE>
EXHIBIT
NUMBER            DESCRIPTION
------            -----------

10.23        --   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).

10.24        --   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).

10.25++      --   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).

10.26        --   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).

10.27        --   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).

10.28        --   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).

10.29        --   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).

10.30        --   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).

10.31        --   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).

10.32        --   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).


                                       42
<PAGE>
EXHIBIT
NUMBER            DESCRIPTION
------            -----------

10.33++*     --   Letter Agreement dated December 6, 1999, between North
                  Atlantic Trading Company, Inc. and David I. Brunson.

10.34++*     --   Letter Agreement, dated September 24, 1999, between North
                  Atlantic Trading Company, Inc. and Jack Africk.

10.35++*     --   North Atlantic Trading Company, Inc. 1999 Executive Incentive
                  Plan.

10.36++*     --   North Atlantic Trading Company, Inc. 1999 Management Bonus
                  Plan

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).

27 *         --   Financial Data Schedules.


                               * 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.







                                       43
<PAGE>
                                   SIGNATURES

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


Date: March 29, 2000
                                    NORTH ATLANTIC TRADING COMPANY, INC.

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


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

<TABLE>
<CAPTION>
SIGNATURE                                TITLE                                        DATE
---------                                -----                                        ----
<S>                                     <C>                                          <C>
 /s/    Thomas F. Helms, Jr.             Chairman of the Board                        March 29, 2000
------------------------------------     and Chief Executive Officer
        Thomas F. Helms, Jr.             (Principal Executive Officer)



 /s/    David I. Brunson                 Director, Executive Vice President           March 29, 2000
------------------------------------     Finance and Administration, Chief
        David I. Brunson                 Financial Officer
                                         (Principal Financial and Accounting
                                         Officer)



 /s/    Jack Africk                      Director                                     March 29, 2000
------------------------------------
        Jack Africk



 /s/    Leonard D. Pickett               Director                                     March 29, 2000
------------------------------------
        Leonard D. Pickett



 /s/    Arnold Sheiffer                  Director                                     March 29, 2000
------------------------------------
        Arnold Sheiffer

</TABLE>

                                       44
<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, 1999 and 1998 and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. 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, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.



/s/ PriceWaterhouseCoopers LLP



February 11, 2000




                                      F-1
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC AND SUBSIDIARIES
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
    ASSETS                                                                                 1999               1998
                                                                                     -----------------  -----------------
<S>                                                                                  <C>                <C>
Current assets:
Cash                                                                                        $   2,885          $   2,817
Accounts receivable                                                                             4,984              5,486
Inventories                                                                                    53,499             58,487
Income taxes receivable                                                                           175                  -
Other current assets                                                                            1,688              1,274
                                                                                     -----------------  -----------------

Total current assets                                                                           63,231             68,064

Property, plant and equipment, net                                                              5,878              7,031
Deferred income taxes                                                                          29,718             32,937
Deferred financing costs                                                                        8,956             11,232
Goodwill, net                                                                                 134,537            140,027
Other assets                                                                                    1,283              1,016
                                                                                     -----------------  -----------------

Total assets                                                                                $ 243,603          $ 260,307
                                                                                     =================  =================

                               LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
Accounts payable                                                                             $    314           $    458
Accrued expenses                                                                                3,176              3,696
Deferred income taxes                                                                           9,718              8,903
Current portion of notes payable and long-term debt                                            13,002             12,983
                                                                                     -----------------  -----------------

Total current liabilities                                                                      26,210             26,040

Notes payable and long-term debt                                                              182,862            202,603
Other long-term liabilities                                                                     8,851              7,700
                                                                                     -----------------  -----------------

Total liabilities                                                                             217,923            236,343
                                                                                     -----------------  -----------------

Preferred stock, net of unamortized discount of $1,259 in 1999 and $1,400 in
1998; mandatory redemption value of $45,700 in 1999 and $40,500
in 1998                                                                                        44,693             39,332
                                                                                     -----------------  -----------------

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                                                                      9,078              9,020
Loans to stockholders for stock purchases                                                        (184)              (247)
Accumulated deficit                                                                           (27,912)           (24,146)
                                                                                     -----------------  -----------------

Total stockholders' deficit                                                                   (19,013)           (15,368)
                                                                                     -----------------  -----------------

     Total liabilities and stockholders' deficit                                            $ 243,603          $ 260,307
                                                                                     =================  =================
</TABLE>

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


                                      F-2
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                      1999                 1998                  1997
                                                                ------------------   ------------------   -------------------
<S>                                                             <C>                  <C>                  <C>
Net sales                                                               $  48,647            $  42,278             $  30,643
Cost of sales                                                              15,028               12,546                 9,485
                                                                ------------------   ------------------   -------------------

Gross profit                                                               33,619               29,732                21,158

Selling, general and administrative expenses                               10,965                8,748                 1,763
Amortization of Goodwill                                                    4,691                4,691                 2,410
                                                                ------------------   ------------------   -------------------

Operating income                                                           17,963               16,293                16,985

Interest expense and financing costs                                       23,710               25,164                13,605
Other income                                                                    4                    -                     2
                                                                ------------------   ------------------   -------------------

Income (loss) from continuing operations
before income tax benefit                                                  (5,743)              (8,871)                3,382

Income tax benefit from continuing operations                                (689)              (2,055)               (1,126)
                                                                ------------------   ------------------   -------------------

Income (loss) from continuing operations                                   (5,054)              (6,816)                4,508

Income from discontinued operations, net of income
tax expense of $4,502, $5,268 and $1,978                                    6,649                7,823                 2,906
                                                                ------------------   ------------------   -------------------

Income before extraordinary loss                                            1,595                1,007                 7,414

Extraordinary loss, net of income tax benefit of $4,365                         -                    -                 7,121
                                                                ------------------   ------------------   -------------------

Net income                                                                  1,595                1,007                   293

Preferred stock dividends                                                   5,361                4,751                 2,268
                                                                ------------------   ------------------   -------------------

Net loss applicable to common shares                                    $  (3,766)           $  (3,744)            $  (1,975)
                                                                ==================   ==================   ===================

Basic earnings per common share:
Income (loss) from continuing operations                                $  (19.72)           $  (21.90)             $   4.24
Income from discontinued operations                                         12.59                14.81                  5.50
Extraordinary loss                                                              -                    -                (13.48)
                                                                ------------------   ------------------   -------------------

Net loss                                                                $   (7.13)           $   (7.09)            $   (3.74)
                                                                ==================   ==================   ===================

Diluted earnings per common share:
Income (loss) from continuing operations                                $  (19.72)           $  (21.90)             $   3.67
Income from discontinued operations                                         12.59                14.81                  4.76
Extraordinary loss                                                              -                    -                (11.66)
                                                                ------------------   ------------------   -------------------

Net loss                                                                $   (7.13)           $   (7.09)            $   (3.23)
                                                                ==================   ==================   ===================

Weighted average common shares outstanding:
Basic                                                                     528,241              528,241               528,241
Diluted                                                                   528,241              528,241               610,911

</TABLE>

                                      F-3
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
                                                                           1999               1998               1997
                                                                     -----------------  -----------------   ----------------
<S>                                                                  <C>                <C>                 <C>
Cash flows from operating activities:
Net income                                                                 $    1,595         $    1,007          $     293
Adjustments to reconcile net income to net
cash provided by operating activities:
Extraordinary loss, net of income tax benefit of $4,365                             -                  -              7,121
Depreciation                                                                    1,923              1,687              1,619
Amortization of goodwill                                                        5,490              5,490              3,213
Amortization of deferred financing costs and debt discount                      2,276              2,274              2,104
Change in accrued pension liabilities                                             594                190                167
Change in accrued postretirement liabilities                                      557                502                472
Compensation expense                                                               70                819                900
Deferred income taxes                                                           4,034              3,336               (922)
Changes in operating assets and liabilities:
Accounts receivable                                                               502               (853)              (264)
Inventories                                                                     4,988             (2,377)            (1,135)
Other current assets                                                             (414)                47              3,565
Income tax receivable                                                            (175)             5,326              1,144
Other assets                                                                     (267)              (775)               (50)
Accounts payable                                                                 (144)              (201)               896
Borrowings under inventory financing agreement                                      -                  -              6,565
Payments on borrowings under inventory financing agreement                          -                  -            (10,622)
Accrued expenses and other                                                       (533)            (2,770)            (2,543)
                                                                     -----------------  -----------------   ----------------

Net cash provided by operating activities                                      20,496             13,702             12,523
                                                                     -----------------  -----------------   ----------------

Cash flows from investing activities:
Acquisition of business, net of cash acquired of $597                               -                  -           (156,818)
Capital expenditures, net                                                        (770)              (467)              (704)
                                                                     -----------------  -----------------   ----------------

Net cash used in investing activities                                            (770)              (467)          (157,522)
                                                                     -----------------  -----------------   ----------------

Cash flows from financing activities:
Payments on senior term loans                                                 (19,721)           (14,414)           (50,750)
Proceeds from term loans                                                            -                  -             85,000
Proceeds from senior notes                                                          -                  -            155,000
Payments on revolving loans                                                         -                  -             (1,550)
Proceeds from revolving loans                                                       -                  -              1,550
Proceeds from subordinated notes payable                                            -                  -                576
Payments on subordinated notes payable                                              -                  -            (21,082)
Payments on inventory financing agreements                                          -                  -            (12,904)
Payments of deferred financing costs                                                -                  -            (13,917)
Payment on capital lease                                                            -                  -                 (9)
Proceeds from issuance of preferred stock and warrants                              -                  -             34,000
Redemption of warrants                                                              -                  -            (27,000)
Increase in preferred interest                                                      -                  -                198
Redemption of preferred interest                                                    -                  -             (2,935)
Capital contributions                                                               -                  -                712
Net loans to stockholders for stock purchases                                      63                (91)               (11)
                                                                     -----------------  -----------------   ----------------

Net cash provided by (used in) financing activities                           (19,658)           (14,505)           146,878
                                                                     -----------------  -----------------   ----------------

Net increase (decrease) in cash                                                    68             (1,270)             1,879
Cash, beginning of period                                                       2,817              4,087              2,208
                                                                     -----------------  -----------------   ----------------

Cash, end of period                                                        $    2,885         $    2,817         $    4,087
                                                                     =================  =================   ================

Supplemental disclosures of cash flow information:
Cash paid during the period for interest                                   $   21,563         $   23,126         $   16,730
                                                                     =================  =================   ================

Cash paid during the period for income taxes                                        -           $     75          $     193
                                                                     =================  =================   ================

</TABLE>
                        The accompanying notes are an integral part of the
consolidated financial statements.


                                      F-4
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
--------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
                                                                                       LOANS TO
                                       Common        Additional                      Stockholders                          Total
                                       Stock,         Paid-In       Contributed       for Stock        Accumulated     Stockholders'
                                       VOTING         CAPITAL         EQUITY          PURCHASES          DEFICIT          DEFICIT
                                   ------------  -------------  ---------------  ----------------  ---------------  ----------------
<S>                                <C>           <C>            <C>              <C>               <C>              <C>
Beginning balance, January 1, 1997           -      $   8,195       $    4,492        $     (145)       $     383        $   12,925
Distribution to warrant holders              -         (8,195)               -                 -          (18,810)          (27,005)
Issuance of common stock in exchang
for membership interest                $     5          4,492           (4,492)                -                -                 5
Issuance of common stock                     -            712                -                 -                -               712
Issuance of warrants                         -          2,410                -                 -                -             2,410
Compensation expense                         -            702                -                 -                -               702
Net loans to stockholders for
  stock purchases                            -              -                -               (11)       -                       (11)
Preferred stock dividend                     -              -                -                 -           (2,268)           (2,268)
Net income                                   -              -                -                 -              293               293
                                   ------------  -------------  ---------------  ----------------  ---------------  ----------------

Ending balance, December 31, 1997            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)
                                   ============  =============  ===============  ================  ===============  ================

</TABLE>


                                      F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


 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 roll-your-own operating segments. The smokeless
        tobacco segment, which the Company has agreed to sell and has presented
        as a discontinued operation in these financial statements as described
        in Note 20, manufactures and distributes smokeless tobacco products
        under the Beech-Nut, Durango, Trophy and Havana Blossom brand names. The
        roll-your-own segment imports and distributes cigarette rolling papers,
        tobacco and related accessories 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
        Predecessor).

        Certain members of management of the Predecessor 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,
        National Tobacco Company, L.P. (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. This acquisition was accounted for using the
        purchase method of accounting under which the purchase price of $162.6
        million was allocated to the net tangible assets of $45.3 million, with
        the excess of $117.3 million recorded as goodwill which is being
        amortized over 25 years. The results of operations of NAOC have been
        included in the Company's consolidated statement of operations since the
        date of acquisition.


                                      F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
--------------------------------------------------------------------------------

 1.     BASIS OF PRESENTATION, CONTINUED:

        As described in Note 8, on June 25, 1997 the Corporation obtained new
        financing in the form of $155.0 million in 11% Senior Notes due 2004,
        $34.0 million in 12% Senior Payment-in-Kind (PIK) Preferred Stock, and
        $85.8 million under a new credit agreement. The proceeds of such
        financing were used to repay all of the outstanding debt of the Holding
        Company and the Partnership, finance the acquisition of NATC described
        above, repay outstanding debt and other assumed liabilities of NATC, and
        pay the transaction costs associated with the financing and acquisition.



 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 shipment of product to the customer.

        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.

        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.



                                     F-7
<PAGE>
 2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

        GOODWILL, CONTINUED: The Company periodically reviews the
        appropriateness of the remaining life of its intangible assets
        considering whether any events have occurred or conditions have
        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: Prior to June 25, 1997, the Holding Company and the
        Predecessor were a limited liability company and a partnership,
        respectively; therefore, no provision for income taxes was recorded
        since earnings or losses were reported by the partners or members on
        their individual income tax returns.

        On June 25, 1997, the Company was reorganized as a corporation subject
        to federal and state income taxes. Accordingly, on June 25, 1997 the
        Company began recording 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 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 accounts for compensation expense
        related to the stock options described in Note 12 under the provisions
        of Statement of Financial Accounting Standards (SFAS) No. 123,
        "Accounting for Stock-Based Compensation."

        In the fourth quarter of 1997 the Company changed its method for
        measuring stock compensation costs from the intrinsic value based method
        to the fair value based method which is the preferred method under SFAS
        No. 123. Under the intrinsic method, compensation cost for stock options
        is measured as the excess, if any, of the market value of the Company's
        stock at the measurement date over the exercise price. The fair value
        based method requires compensation cost for stock options to be
        recognized based on the fair value of stock options granted. This change
        did not have a material effect on the Company's results of operations
        for 1997 or the results of operations for any interim quarter during
        1997.


                                      F-8
<PAGE>
 2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

        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 roll-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 labeling requirements, limitations on 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 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 only industry signatories to
        the MSA have been 23 cigarette manufacturers and/or distributors and the
        only signatory to the STMSA has been UST Inc. In the Company's opinion,
        the fundamental basis for each agreement is the states' consents to
        withdraw all claims resulting from their litigation asserting various
        claims for monetary, equitable and injunction relief against certain
        tobacco products manufacturers and others and, in return, the industry
        signatories have agreed to certain marketing restrictions and
        regulations as well as certain payment obligations. The Company does not
        currently intend to participate in either settlement. There can be no
        assurance as to whether entering into one or both settlement agreements
        or choosing not to do so would have a material adverse effect on the
        Company's financial position, results of operations or cash flows.


                                     F-9
<PAGE>
 2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

        In furtherance of the MSA, many states have enacted or plan to enact
        statutes requiring companies, such as the Company, not participating in
        the MSA to deposit, on an annual basis, into bank escrow accounts funds
        based on the number of cigarettes or cigarette equivalents, i.e., the
        pounds of roll-your-own 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 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, 1999, the
        Company has recorded approximately $159,000 as an other non-current
        asset which will be deposited into a qualifying escrow account during
        2000 as required. 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 judgment to that state
        plaintiff, in the event of 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, 1999 and 1998, the Company
        had bank deposits in excess of federally insured limits of approximately
        $3.3 million and $2.9 million, respectively.

        The Company sells its products to distributors and retail establishments
        throughout the United States. The Company's largest customer accounted
        for 14.4% and 10.1% of its smokeless tobacco revenues and 8.4% and 8.2%
        of its roll-your-own revenues in 1999 and 1998, 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.


                                      F-10
<PAGE>
 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
        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 $0.8 million and $0.2 million for the years
        ended December 31, 1999 and 1998, respectively.

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


<TABLE>
<CAPTION>
                                                         1999                 1998
                                                   ------------------   ------------------
<S>                                                <C>                  <C>
    Raw materials and work in process                       $  1,704             $  1,960
    Leaf tobacco                                              17,028               19,679
    Finished goods - tobacco                                   2,631                3,074
    Finished goods - cigarette papers                          3,854                6,315
    Finished goods - make your own                             1,074                  155
    Other                                                        460                  381
                                                   ------------------   ------------------

                                                              26,751               31,564
    LIFO reserve                                              26,748               26,923
                                                   ------------------   ------------------

                                                           $  53,499            $  58,487
                                                   ==================   ==================
</TABLE>

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


                                      F-11
<PAGE>
 5.     PROPERTY, PLANT AND EQUIPMENT:

        Property, plant and equipment at December 31 consists of (in thousands):
<TABLE>
<CAPTION>
                                                                                                  1999                 1998
                                                                                          -------------------  -------------------
<S>                                                                                      <C>                   <C>
    Land                                                                                             $   654              $   654
    Buildings and improvements                                                                         3,546                3,338
    Machinery and equipment                                                                            6,087                5,470
    Furniture and fixtures                                                                             1,854                1,909
                                                                                          -------------------  -------------------

                                                                                                      12,141               11,371

    Accumulated depreciation                                                                          (6,263)              (4,340)
                                                                                          -------------------  -------------------

                                                                                                    $  5,878             $  7,031
                                                                                          ===================  ===================

 6.     GOODWILL:

        Goodwill at December 31 consists of (in thousands):

                                                                                                  1999                 1998
                                                                                            ------------------   ------------------

    Partnership goodwill, net of accumulated amortization of $2,902
    and $2,106 at December 31, 1999 and 1998, respectively                                          $  29,047            $  29,846

    NAOC goodwill, net of accumulated amortization of $11,793
    and $7,081 at December 31, 1999 and 1998, respectively                                            105,490              110,181
                                                                                            ------------------   ------------------

                                                                                                    $ 134,537            $ 140,027
                                                                                           ===================  ===================

 7.     DEFERRED FINANCING COSTS:

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

                                                                                                 1999                 1998
                                                                                          -------------------  -------------------

    Deferred financing costs, net of accumulated amortization of
    $5,684 and $3,408 at December 31, 1999 and 1998,
    respectively                                                                                    $  8,956            $  11,232
                                                                                          ===================  ===================

</TABLE>

                                       F-12
<PAGE>
 8.     NOTES PAYABLE AND LONG-TERM DEBT:

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

<TABLE>
<CAPTION>
                                                                                                 1999                 1998
                                                                                          -------------------  -------------------
<S>                                                                                      <C>                  <C>
    Senior notes                                                                                   $ 155,000            $ 155,000
    Term borrowings under credit agreement                                                            40,864               60,586
                                                                                          -------------------  -------------------

                                                                                                     195,864              215,586
    Less current portion                                                                              13,002               12,983
                                                                                          -------------------  -------------------

                                                                                                   $ 182,862            $ 202,603
                                                                                          ===================  ===================
</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 June 25, 1997, the Corporation entered into a credit agreement (the
        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 million, including a letter of credit sublimit of
        $10.0 million. The borrowings under the term facility are subject to
        quarterly principal payments over the five-year period through the
        maturity date of June 25, 2002, while the revolver may be repaid and
        reborrowed as necessary, with any unpaid amounts due and payable upon
        its termination date of June 25, 2002.

        Borrowings under the term facility and revolver bear interest per annum
        at variable rates based on prime, federal funds or LIBOR rates at the
        Corporation's option. The interest rate on borrowings under the term
        facility ranged from 9.00% to 9.13% at December 31, 1999. In addition,
        the Corporation must pay a quarterly commitment fee of 0.5% per annum of
        the unused portion of the revolver.


                                       F-13
<PAGE>
 8.     NOTES PAYABLE AND LONG-TERM DEBT, CONTINUED:

        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 includes covenants which require the Corporation to meet
        certain financial tests, including minimum interest coverage, maximum
        leverage ratio and fixed charges coverage.

        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, 2000                           $ 13,002
    Through December 31, 2001                             16,717
    Through December 31, 2002                             11,145
    Through December 31, 2003                                  -
    Through December 31, 2004                            155,000
                                                  ---------------
                                                       $ 195,864
                                                  ===============

 9.     INCOME TAXES:

        The Company and the Predecessor were a limited liability company and a
        partnership, respectively, for federal and state income tax purposes
        through June 25, 1997 and, accordingly, did not incur any income taxes
        prior to such date. Upon the occurrence of the transactions on June 25,
        1997 as described in Note 1, the Company became a taxable corporation
        and recorded a one-time income tax benefit of $3.6 million in the
        statement of operations for the six-month period ended June 30, 1997.
        This provision was necessary to record the Company's deferred tax assets
        and liabilities of $5.7 million and $2.1 million, respectively, which
        had not previously been recorded due to its nontaxable status.

        The income tax provision (benefit) for the year ended December 31, 1999,
        1998 and 1997 has been allocated as follows (in thousands):

<TABLE>
<CAPTION>
                                     1999                 1998                 1997
                              -------------------   ------------------   ------------------
<S>                           <C>                   <C>                  <C>
    Continuing operations             $     (689)         $    (2,055)         $    (1,126)
    Discontinued operations                4,502                5,268                1,978
                              -------------------   ------------------   ------------------

                                      $    3,813           $    3,213            $     852
                              ===================   ==================   ==================
</TABLE>


                                      F-14
<PAGE>
 9.     INCOME TAXES, CONTINUED:

        The income tax provision from continuing operations for the years ended
        December 31, 1999, 1998 and 1997 consists of the following components
        (in thousands):

<TABLE>
<CAPTION>
                                            1999              1998             1997
                                       ---------------   ----------------  --------------
<S>                                    <C>               <C>               <C>
    Current:
    Federal                                         -                  -               -
    State and local                                 -           $    200         $   300
                                       ---------------   ----------------  --------------

                                                    -                200             300
                                       ---------------   ----------------  --------------

    Deferred:
    Federal                                 $   3,609              2,943           3,675
    State and local                               204                 70             432
                                       ---------------   ----------------  --------------

                                                3,813              3,013           4,107
                                       ---------------   ----------------  --------------
    Initial set-up of deferred taxes:
      Federal                                       -                  -          (3,181)
      State and local                               -                  -            (374)
                                       ---------------   ----------------  --------------

                                                    -                  -          (3,555)
                                       ---------------   ----------------  --------------

                                            $   3,813          $   3,213         $   852
                                       ===============   ================  ==============
</TABLE>

        Deferred tax assets and liabilities at December 31, 1999 and 1998
        consist of (in thousands).

<TABLE>
<CAPTION>
                                                                          1999                                1998
                                                           ----------------------------------  ----------------------------------
                                                               Assets          Liabilities         Assets          Liabilities
                                                           ----------------  ----------------  ----------------  ----------------
<S>                                                        <C>               <C>               <C>               <C>
    Inventory                                                            -          $  9,718                 -          $  8,903
    Property, plant and equipment                                  $   237                 -           $   458                 -
    Goodwill                                                        20,361                 -            23,553                 -
    Accrued pension and postretirement costs                         3,116                 -             2,914                 -
    NOL carryforward                                                 4,948                 -             5,179                 -
    Other                                                            1,056                 -               833                 -
                                                           ----------------  ----------------  ----------------  ----------------

    Deferred income taxes                                         $ 29,718          $  9,718          $ 32,937          $  8,903
                                                           ================  ================  ================  ================
</TABLE>



                                      F-15
<PAGE>
 9.     INCOME TAXES, CONTINUED:

        At December 31, 1999, the Company had NOL carryforwards for income tax
        purposes of $13,020 which expire in the years beginning in 2012.

        The Company has determined that at December 31, 1999 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, 1999, 1998 and 1997 is as
        follows:

<TABLE>
<CAPTION>
                                                                       1999                  1998                1997
                                                                  ----------------      ----------------    ----------------
<S>                                                               <C>                   <C>                 <C>
Federal statutory rate                                                       35.0 %                35.0 %              35.0 %
State taxes                                                                     -                   3.0                 2.3
Initial set-up of deferred taxes                                                -                     -               (43.0)
Goodwill amortization                                                        29.2                  39.5                10.2
Other                                                                         3.6                  (1.4)                5.8
                                                                  --------------------  -------------------------------------

Effective income tax rate                                                    67.8 %                76.1 %              10.3 %
                                                                  ====================  ==================   =================
</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.

        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
        postretirement health care plan is contributory, with retiree
        contributions adjusted annually; the life insurance plan is
        noncontributory.



                                       F-16
<PAGE>
10.     PENSION AND POSTRETIREMENT BENEFIT PLANS, CONTINUED:

        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, 1999, and a statement of the funded status as
        of December 31 (in thousands):

<TABLE>
<CAPTION>
                                                                 PENSION BENEFITS                   POSTRETIREMENT BENEFITS
                                                        ------------------------------------  ------------------------------------
                                                              1999               1998               1999               1998
                                                        -----------------  -----------------  -----------------  -----------------
<S>                                                     <C>                <C>                <C>                <C>
    Reconciliation of benefit obligation:
    Benefit obligation at January 1                            $   8,887          $   7,478          $   5,126          $   5,283
    Service cost                                                     651                541                335                304
    Interest cost                                                    631                554                348                317
    Actuarial loss (gain)                                            296                653               (645)              (664)
    Benefit  paid                                                   (355)              (339)              (120)              (114)
                                                        -----------------  -----------------  -----------------  -----------------

    Benefit obligation at December 31                          $  10,110          $   8,887          $   5,044          $   5,126
                                                        =================  =================  =================  =================

    Reconciliation of fair value of plan assets:
    Fair value of plan assets at January 1                     $   8,138          $   6,738                  -                  -
    Actual return on plan assets                                     865              1,364                  -                  -
    Employer contributions                                             -                375                  -                  -
    Benefit  paid                                                   (355)              (339)                 -                  -
                                                        -----------------  -----------------  -----------------  -----------------

    Fair value of plan assets at December 31                   $   8,648          $   8,138                  -                  -
                                                        =================  =================  =================  =================

    Funded status:
    Funded status at December 31                               $  (1,462)          $   (749)         $  (5,044)         $  (5,126)
    Unrecognized prior service cost                                    9                 10                  -                  -
    Unrecognized net (gain) loss                                  (1,181)            (1,301)            (1,142)              (502)
                                                        -----------------  -----------------  -----------------  -----------------

    Accrued benefit cost                                       $  (2,634)         $  (2,040)         $  (6,186)         $  (5,628)
                                                        =================  =================  =================  =================


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


                                                                 PENSION BENEFITS                   POSTRETIREMENT BENEFITS
                                                        ------------------------------------  ------------------------------------
                                                              1999               1998               1999               1998
                                                        -----------------  -----------------  -----------------  -----------------

    Accrued benefit cost at January 1                          $  (2,040)         $  (1,850)         $  (5,628)         $  (5,126)
    Net periodic benefit cost                                       (594)              (564)              (678)              (616)
    Contributions                                                      -                374                120                114
                                                        -----------------  -----------------  -----------------  -----------------

    Accrued benefit cost at December 31                        $  (2,634)         $  (2,040)         $  (6,186)         $  (5,628)
                                                        =================  =================  =================  =================
</TABLE>


                                       F-17
<PAGE>
10.     PENSION AND POSTRETIREMENT BENEFIT PLANS, CONTINUED:

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

<TABLE>
<CAPTION>
                                                   PENSION BENEFITS                               POSTRETIREMENT BENEFITS
                                           -----------------------------------------   -----------------------------------------
                                              1999           1998          1997           1999          1998           1997
                                           ------------  -------------  ------------   ------------  ------------   ------------
<S>                                        <C>           <C>            <C>            <C>           <C>            <C>
    Service cost                                $  651         $  541        $  544         $  335        $  304         $  269
    Interest cost                                  631            554           491            348           317            334
    Expected return on plan assets                (676)          (508)       (1,135)             -             -              -
    Amortization of gains and losses               (12)           (23)          733             (5)           (5)             -
                                           ------------  -------------  ------------   ------------  ------------   ------------

    Net periodic benefit cost                   $  594         $  564        $  633         $  678        $  616         $  603
                                           ============  =============  ============   ============  ============   ============


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

                                                PENSION BENEFITS                              POSTRETIREMENT BENEFITS
                                           -----------------------------------------  -----------------------------------------
                                              1999           1998          1997          1999           1998          1997
                                           ------------  -------------  ------------  ------------   ------------  ------------

    Discount rate                                 7.0%           7.0%          7.5%          8.0%           7.0%          7.0%
    Expected return on plan assets                8.5%           8.5%          7.5%             -              -             -
    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, 1999 and 1998 was 8.5% and
        9%, respectively, and for participants age 65 and over the rate was 7.5%
        and 8%, respectively. The health care cost trend rate was assumed to
        decline gradually to 5% for pre-age 65 and for post-age 65 costs over 27
        years.

        Assumed health care cost trend rates 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>
                                                                                     1999              1998              1997
                                                                               -----------------  ----------------  ---------------
<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                                                                           27,000            23,000           23,000

</TABLE>

                                       F-18
<PAGE>
10.     PENSION AND POSTRETIREMENT BENEFIT PLANS, CONTINUED:

        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, $0.2 million and $0.2 million for the years
        ended December 31, 1999, 1998 and 1997, respectively.



11.     MANDATORILY REDEEMABLE PREFERRED STOCK:

        On December 31, 1999 and 1998, the Company had authorized 12 million
        shares of 12% Senior Payment-In-Kind Preferred Stock (the Preferred
        Stock) of which 1.83 million shares and 1.62 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 $45.7 million and $40.5 million at
        December 31, 1999 and 1998, 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 paid in
        cash. Preferred stock dividends, including the interest accretion
        described below, for the years ended December 31, 1999, 1998 and 1997
        were $5.4 million, $4.8 million, and $2.4 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 for the years ended December
        31, 1999, 1998 and 1997 was $0.2 million, $0.2 million and $0.1 million,
        respectively.


                                       F-19
<PAGE>
11.     MANDATORILY REDEEMABLE PREFERRED STOCK, CONTINUED:

        Prior to June 15, 2000, the Company may, subject to certain
        restrictions, redeem up to 35% of the Preferred Stock out of 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,
        2001 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:

        On June 25, 1997, the Company implemented 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, 1999, 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. 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, 1997                         46,894           $   18.19          $   26.51

    Granted                                               14,962               18.19              26.51
    Exercised                                                  -                   -                  -
    Forfeited                                             (7,096)             (18.19)            (26.51)
                                                 ----------------   -----------------  -----------------

    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
                                                 ================   =================  =================
</TABLE>


                                       F-20
<PAGE>
12.     SHARE INCENTIVE PLAN, CONTINUED:

        Of the stock options outstanding on December 31, 1999, 54,760 were
        exercisable, with an additional 5,000 becoming exercisable at a rate of
        25% per year from 2000 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 $70,000, $819,000 and
        $900,000 ($43,000, $508,000 and $558,000 net of deferred income tax
        benefit) has been recognized in the statements of operations for the
        years ended December 31, 1999, 1998 and 1997, respectively.





                                       F-21
<PAGE>
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, 1999
                                                                    ---------------------------------------------------------------
                                                                          Income                Shares               Per Share
                                                                       (Numerator)           (Denomimator)            Amount
                                                                    -------------------  ----------------------  ------------------
<S>                                                                 <C>                  <C>                     <C>
    Loss from continuing operations                                         $   (5,054)
    Less: Preferred stock dividends                                             (5,361)
                                                                    -------------------

    Basic and diluted:
      Loss from continuing operations available
           to common stockholders                                           $  (10,415)           $    528,241          $   (19.72)
                                                                    ===================   =====================   =================


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

    Loss from continuing operations                                         $   (6,816)
    Less: Preferred stock dividends                                             (4,751)
                                                                    -------------------

    Basic and diluted:
      Loss from continuing operations available
           to common stockholders                                           $  (11,567)                528,241          $   (21.90)
                                                                    ===================   =====================   =================


        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.

                                                                                FOR THE YEAR ENDED DECEMBER 31, 1997
                                                                     ------------------------------------------------------------
                                                                           Income              Shares              Per Share
                                                                        (Numerator)          (Denomimator)          Amount
                                                                     -------------------  ------------------   ------------------

Income from continuing operations                                            $    4,508
Less: Preferred stock dividends                                                  (2,268)
                                                                     -------------------

Basic:
    Income from continuing operations
available to common stockholders                                                  2,240             528,241            $    4.24
                                                                                                               ==================

Effect of dilutive securities:
Warrants                                                                              -              63,490
Stock options                                                                         -              19,180
                                                                     -------------------  ------------------

Diluted:
Income available to common stockholders
and assumed conversions                                                      $    2,240             610,911            $    3.67
                                                                    ===================   =====================   =================
</TABLE>

                                       F-22
<PAGE>
14.     EXTRAORDINARY LOSS:

        Upon the repayment of the Company's debt on June 25, 1997 as described
        in Note 1, the Company recorded an extraordinary loss of $7.1 million
        (net of tax benefit of $4.4 million) for the write-off of deferred
        financing costs of $4.4 million and debt discount of $7.1 million.



15.     FOURTH QUARTER ADJUSTMENT:

        The fourth quarter of 1999 includes an adjustment to increase the income
        tax provision by approximately $1,035,000 as a result of the year-end
        income tax computation.

        The fourth quarter of 1997 includes an adjustment of $8.7 million to
        increase the income tax benefit which results from the final
        determination by tax counsel in the fourth quarter of the income tax
        treatment of certain payments made related to the recapitalization which
        occurred in the second quarter of 1997.



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 purports 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 claim 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 claim that the defendants
        violated California Unfair Competition Act, Business & Professions Code
        17200, et 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.



                                       F-23
<PAGE>
16.     CONTINGENCIES, CONTINUED:

        The complaint seeks 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 seek an award of statutory
        penalties and damages 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 would expect the case to be refilled.

        KENTUCKY AND ILLINOIS COMPLAINTS. On July 15, 1998, North Atlantic
        Operating Company, Inc. ("NAOC"), a subsidiary of the Company, 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 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 RYO
        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 RYO cigarette papers by
        covering up the Zig-Zag brand name and advertising material with
        advertisements for Republic Tobacco's RYO cigarette 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
        and NAOC 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



                                       F-24
<PAGE>
16.     CONTINGENCIES, CONTINUED:

        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 RYO 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 RYO 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. 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. The
        Company intends to vigorously defend the Illinois Complaint.

        On April 9, 1999, the Court in the Illinois case 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.

        Discovery is continuing in the case.

        WEST VIRGINIA COMPLAINTS. On October 6, 1998 the Company 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. Phillip Morris
        Incorporated, et al. (Civil Action Nos. 98-C-2401). While the Company
        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. The Company was named in only six of the
        cases, five of which alleged consumption prior to the existence of the
        Company of products bearing the trademarks currently owned by the
        Company. The remaining case alleges lung cancer as the injury. The
        Company has been dismissed from the first five cases, and intends to
        vigorously defend the remaining action.


                                       F-25
<PAGE>
16.     CONTINGENCIES, CONTINUED:

        On November 13, 1998, the Company 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. Phillip Morris
        Incorporated et al. (Civil Action Nos. 98-C-2696 to 98-C-2713). While
        the Company 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 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. The Company was not named
        in any additional claims. Currently then, as previously stated, the
        Company is named in one case in West Virginia, which alleges that lung
        cancer was caused by consuming the Company's chewing tobacco products.


                                       F-26
<PAGE>
16.     CONTINGENCIES, CONTINUED:

        On September 24, 1999, the Company 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 the Company's
        (and, prior to the formation of the Company, Lorillard's) BEECHNUT brand
        and Pinkerton's REDMAN brand of loose-leaf chewing tobacco. Plaintiff
        asserts theories of liability in negligence, strict liability, breach of
        warranty, fraud and variations on fraud and misrepresentation. The case
        has been removed to federal court. Notices to dismiss various counts
        have been filed and fully briefed. The hearing on the Motion is
        currently scheduled for April 28, 2000.

        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.

        OTHER EVENTS. Regulations issued by the previous Massachusetts Attorney
        General affecting point of sale and certain advertising issues with
        respect to tobacco products, which were to become effective August 1,
        1999, had been 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. The regulations, however have been
        stayed pending appeal, which is scheduled to be heard on April 7, 2000.
        The Massachusetts regulations, among other things, restrict access to
        tobacco products. Historically, smokeless tobacco has 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 August 1995, the FDA published proposed rules for regulation of
        tobacco and tobacco products, including smokeless tobacco. Following a
        year of comment and revision, in August 1996 the FDA promulgated final
        rules, which were scheduled to take effect on August 1997, except for a
        portion of the rules prohibiting the sale of tobacco to persons under
        18, which have become effective already. The FDA's regulations would
        restrict access to tobacco and tobacco products, regulate tobacco
        labeling, and limit promotion and advertising of tobacco.


                                       F-27
<PAGE>
16.     CONTINGENCIES, CONTINUED:

        On April 25, 1997, a federal court in Greensboro, North Carolina ruled
        that the FDA has statutory authority to regulate tobacco products. The
        court upheld the FDA's rules restricting access to tobacco products and
        regulating tobacco labeling. However, the court ruled that the FDA does
        not have authority to regulate promotion and advertising of tobacco
        products. The judge certified the case for interlocutory appeal to the
        United States Fourth Circuit Court of Appeals, which subsequently ruled
        that the FDA statue does not provide this authority. The FDA petitioned
        the Supreme Court of the United States for a writ of certiorari. On
        April 26, 1999, the Supreme Court granted the writ. The hearing before
        the Supreme Court was held on December 1, 1999. On March 21, 2000 the
        Supreme Court affirmed the Fourth Circuit's decisions, ruling that the
        FDA has no authority over tobacco products.



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>
                                                                                  1999                 1998
                                                                            ------------------  -------------------
<S>                                                                         <C>                 <C>
    Noncurrent assets                                                               $ 229,453            $ 241,228
    Current liabilities                                                                20,861               19,965
    Noncurrent liabilities                                                            182,862              202,602
    Redeemable preferred stock                                                         44,693               39,332


                                                                                   YEAR ENDED DECEMBER 31,
                                                                            ---------------------------------------
                                                                                  1999                 1998
                                                                            ------------------  -------------------

    Equity in earnings of subsidiaries                                              $  27,069            $  13,707
    Income before extraordinary loss and preferred stock dividends                      1,564                4,549

</TABLE>


                                       F-28
<PAGE>
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, which the
        Company has agreed to sell and has presented as a discontinued operation
        in these financial statements as described in Note 20, manufactures
        smokeless tobacco products which are distributed primarily through
        wholesale and food distributors in the United States. The remaining
        Roll-Your-Own segment imports and distributes cigarette papers and
        related products 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." Elimination and
        Other includes the assets of the Company not assigned to segments and
        the elimination of intercompany accounts between segments. Operating
        results of the discontinued smokeless tobacco segment are presented in
        Note 20.

        The table below presents total asset information about reported segments
        for 1999, 1998 and 1997 (in thousands):

<TABLE>
<CAPTION>
                  SMOKELESS                                 ELIMINATIONS
                   Tobacco           Roll-Your-Own           and Other             Total
               -----------------  --------------------   -------------------  ----------------
<S>            <C>                <C>                    <C>                  <C>
1999                 $   81,483          $    208,539           $   (46,419)        $ 243,603

1998                     87,908               193,713               (21,314)          260,307

1997                     87,485               181,129                 4,469           273,083

</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 plans to adopt SFAS No.
        133 as of January 1, 2001. The adoption is not expected to have a
        material impact on the consolidated financial statements.




                                       F-29
<PAGE>
20.     SUBSEQUENT EVENT:

        On February 11, 2000, the Company entered into a definitive Asset
        Purchase Agreement with Swedish Match North American Inc. 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. The brands to be sold include
        Beech-nut; Durango; Trophy; and Havana Blossom. The purchase price for
        these assets is $165 million and will result in a gain of approximately
        $55 million, net of tax. In addition, the Company will continue to
        manufacture these brands for Swedish Match for a limited period of time
        following the sale under a transitional contract manufacturing
        arrangement. The transaction is subject to regulatory approval and other
        customary conditions and is expected to close shortly after such
        regulatory approval is given.

        The smokeless tobacco segment has been presented as a discontinued
        operation and, accordingly, the consolidated statements of operations
        have been restated to reflect discontinued operations accounting.
        Summarized results of operations of the discontinued segment are
        presented separately in the consolidated statements of operations and
        include an allocation, based on sales dollars, of common selling,
        general and administrative costs of the Company. Interest expense of the
        Company was not allocated to the results of operations of the
        discontinued segment. The net assets of the discontinued segment, which
        consist primarily of inventories of $40.3 million and intangible assets
        of $29.0 million which are to be sold, are included in the consolidated
        balance sheets and related footnotes. Operating results of the
        discontinued segment are as follows (in thousands):


<TABLE>
<CAPTION>
                                              1999                1998                 1997
                                       -------------------  ------------------  -------------------
<S>                                    <C>                  <C>                 <C>
    Net sales                                   $  45,814           $  50,803            $  53,787
    Income before income taxes                     11,151              13,092                4,884
    Net income from
          discontinued operations                   6,649               7,823                2,906

</TABLE>



                                       F-30

<PAGE>
                                  EXHIBIT INDEX

                                       TO

                      NORTH ATLANTIC TRADING COMPANY, INC.

                           ANNUAL REPORT ON FORM 10-K

                     FOR FISCAL YEAR ENDED DECEMBER 31, 1999


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

2.1*         --   Asset Purchase Agreement, dated February 10, 2000, between
                  National Tobacco Company, L.P. and Swedish Match North America
                  Inc.

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).

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

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).

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.

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.

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        --   Credit Agreement, dated as of June 25, 1997, among North
                  Atlantic Trading Company, Inc., the various lending
                  institutions referenced therein, Gleacher NatWest, Inc., as
                  arranging agent, and National Westminster Bank plc, as
                  administrative agent (incorporated herein by reference to
                  Exhibit 10.21 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        --   Subsidiary Guaranty, dated as of June 25, 1997, made by North
                  Atlantic Operating Company, Inc., National Tobacco Finance
                  Corporation, and National Tobacco Company, L.P. in favor of
                  National Westminster Bank plc, as administrative agent for
                  certain lending institutions (incorporated herein by reference
                  to Exhibit 10.22 to Amendment No. 1 to Registration Statement
                  (Reg. No. 333-31931) on Form S-4 filed with the Commission on
                  September 3, 1997).

10.17        --   Security Agreement, dated as of June 25, 1997, among North
                  Atlantic Trading Company, Inc., North Atlantic Operating
                  Company, Inc., National Tobacco Finance Corporation, National
                  Tobacco Company, L.P., and National Westminster Bank plc, as
                  collateral agent for certain secured creditors (incorporated
                  herein by reference to Exhibit 10.23 to Amendment No. 1 to
                  Registration Statement (Reg. No. 333-31931) on Form S-4 filed
                  with the Commission on September 3, 1997).

10.18        --   Pledge Agreement, dated as of June 25, 1997, made by North
                  Atlantic Trading Company, Inc., North Atlantic Operating
                  Company, Inc., National Tobacco Finance Corporation, and
                  National Tobacco Company, L.P., in favor of National
                  Westminster Bank plc, as collateral agent for certain secured
                  creditors (incorporated herein by reference to Exhibit 10.24
                  to Amendment No. 1 to Registration Statement (Reg. No.
                  333-31931) on Form S-4 filed with the Commission on September
                  3, 1997).

                                       5
<PAGE>
EXHIBIT
NUMBER            DESCRIPTION
------            -----------

10.19++      --   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).

10.20++      --   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).

10.21++      --   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).

10.22+       --   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).

10.23        --   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).

10.24        --   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).

10.25++      --   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).

10.26        --   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).

10.27        --   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).

                                       6
<PAGE>
EXHIBIT
NUMBER            DESCRIPTION
------            -----------

10.28        --   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).

10.29        --   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).

10.30        --   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).

10.31        --   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).

10.32        --   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).

10.33++*     --   Letter Agreement dated December 6, 1999, between North
                  Atlantic Trading Company, Inc. and David I. Brunson.

10.34++*     --   Letter Agreement, dated September 24, 1999, between North
                  Atlantic Trading Company, Inc. and Jack Africk.

10.35++*     --   North Atlantic Trading Company, Inc. 1999 Executive Incentive
                  Plan.

10.36++*     --   North Atlantic Trading Company, Inc. 1999 Management Bonus
                  Plan

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).

27 *         --   Financial Data Schedules.


                          * 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