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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K/A

                                (Amendment No. 2)

                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

(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, 2004

                                       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 333-115587

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


              Delaware                                 20-0709285
  (State or other jurisdiction of                   (I.R.S. Employer
   incorporation or organization)                  Identification No.)

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

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|.

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

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

As of March 29, 2005, the only class of voting or non-voting common equity
issued and outstanding was the Registrant's Voting Common Stock, par value $.01
per share. There is no trading market for the Voting Common Stock. As of March
29, 2005, 588,578 shares of the Registrant's Voting Common Stock, par value $.01
per share were outstanding.

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<PAGE>
                                Explanatory Note


This Form 10-K/A amends and restates North Atlantic Holding Company, Inc.'s (the
"Company") Form 10-K for the year ended December 31, 2004 filed on March 31,
2005, as amended by the Form 10-K/A filed on April 4, 2005 (collectively, the
"Original Annual Report"). The Company has restated its previously issued
financial statements, as of and for the year ended December 31, 2004 to reflect
the correction of errors related to the calculation of the deferred income tax
valuation. During the fourth quarter of 2004, the Company and its subsidiaries
provided a full valuation allowance against its net deferred tax assets.
Following a review of the Company's deferred tax assets and deferred tax
liabilities, the Company determined that in calculating the valuation allowance,
deferred tax liabilities relating to inventories and tax-deductible goodwill had
been inappropriately netted against certain deferred tax assets. It cannot be
determined that the temporary differences related to inventories and goodwill
will reverse during the time period in which the Company's temporary differences
related to its deferred tax assets are expected to reverse or expire. Therefore,
these deferred tax liabilities should not have been utilized to reduce the
amount of the valuation allowance against deferred tax assets. This resulted in
an understatement of the valuation allowance in the amount of these deferred tax
liabilities of $9.8 million and an understatement of income tax expense of $9.8
million as of and for the year ended December 31, 2004. The correction of this
understatement has the effect of increasing deferred tax liabilities, increasing
accumulated deficit and decreasing net income, with no effect on net cash flows,
as of and for the year ended December 31, 2004.


The Items of the Original Annual Report which are amended and restated are as
follows: Item 1 Business (only the paragraph titled "Maintain lean, low cost
culture" in the "Business Strategy" section); Item 6 Selected Financial Data;
Item 7 Management's Discussion and Analysis of Financial Condition and Results
of Operations; Item 8 Financial Statements and Supplementary Data (including the
Report of Independent Registered Public Accounting Firm, Consolidated Balance
Sheet, Consolidated Statements of Net Earnings, Consolidated Statements of
Shareholders' Equity, Consolidated Statements of Cash Flows, Notes to
Consolidated Financial Statements (Notes 1, 4, 13, 18, and 20)) and Item 9A
Controls and Procedures. Further, this Form 10-K/A contains new Exhibits 31.1,
31.2, 32.1 and 32.2, dated the date of the filing of this Form 10-K/A.


The remaining Items contained within this Form 10-K/A consist of all other Items
originally contained in the Original Annual Report. This Form 10-K/A does not
reflect events occurring after the filing of the Original Annual Report, nor
modify or update those disclosures in any way other than as required to reflect
the effects of the restatement.

<PAGE>
                      North Atlantic Holding Company, Inc.
                          2004 Form 10-K Annual Report

                                TABLE OF CONTENTS

<TABLE>
<S>     <C>                                                                                                  <C>


                                                                                                                     Page
                                                                                                                    -------

                                     PART I


Item 1.  Business                                                                                                      1

Item 2.  Properties                                                                                                   15

Item 3.  Legal Proceedings                                                                                            16

Item 4.  Submission of Matters to a Vote of Security Holders                                                          19

                                     PART II


Item 5.  Market for Registrant's Common Equity, Related Stockholder
          Matters and Issuer Purchases of Equity Securities                                                           19


Item 6.  Selected Financial Data                                                                                      21

Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations                        22

Item 7A. Quantitative and Qualitative Disclosures About Market Risk                                                   31

Item 8.  Financial Statements and Supplementary Data                                                                  31

Item 9.  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure                         31

Item 9A. Controls and Procedures                                                                                      31

Item 9B. Other Information                                                                                            31

                                    PART III


Item 10. Directors and Executive Officers of the Registrant                                                           32

Item 11. Executive Compensation                                                                                       35

Item 12. Security Ownership of Certain Beneficial Owners and Management
          and Related Stockholder Matters                                                                             42


Item 13. Certain Relationships and Related Transactions                                                               44

Item 14. Principal Accountant Fees and Services                                                                       46

                                     PART IV


Item 15. Exhibits and Financial Statement Schedules                                                                   47


SIGNATURES                                                                                                            60
</TABLE>

                                       ii
<PAGE>
                                     PART I

ITEM 1.    BUSINESS
           --------

OVERVIEW

           North Atlantic Holding Company, Inc. (the "Company") is a holding
company which owns North Atlantic Trading Company, Inc. ("NATC") and its
subsidiaries, National Tobacco Company, L.P. ("NTC"), North Atlantic Operating
Company, Inc. ("NAOC"), North Atlantic Cigarette Company, Inc. ("NACC"),
National Tobacco Finance Corporation and its recently acquired subsidiaries,
Fred Stoker & Sons, Inc., RBJ Sales, Inc. and Stoker, Inc. (collectively,
"Stoker"). Except where the context otherwise requires, references to the
Company include the Company and its subsidiaries. NTC is the third largest
manufacturer and marketer of loose leaf chewing tobacco in the United States,
selling its products under the Beech-Nut(R), Trophy(R), Havana Blossom(R),
Durango(R), Stoker(TM), Our Pride(TM) , and other brand names. NAOC is the
largest importer and distributor in the United States of premium cigarette
papers and related products, which are sold under the ZIG-ZAG(R) brand name
pursuant to an exclusive long-term distribution agreement with Bollore, S.A.
NAOC also manufactures and distributes Make-Your-Own ("MYO") cigarette tobaccos
under the ZIG-ZAG(R), Stoker No. 2(TM), Old Hillside(TM), and other brand names,
pursuant to its trademarks. NACC markets and distributes ZIG-ZAG Premium
Cigarettes.

EVOLUTION OF THE COMPANY

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

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

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

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

           Effective as of February 9, 2004, NATC consummated a holding company
reorganization, whereby the Company became the parent company of NATC. The
holding company reorganization was consummated in part to allow the Company to
issue senior discount notes in connection with NATC's refinancing of its
existing debt and preferred stock, as more fully discussed below.

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

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

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

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

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

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

BUSINESS STRATEGY

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

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

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

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

           Grow sales of the Company's new ZIG-ZAG Premium Cigarette. During
September 2003, the Company began a highly focused launch of its new premium
manufactured cigarette under the ZIG-ZAG Premium Cigarette brand in Dallas, Los
Angeles, Miami and Seattle. By leveraging its well-developed brand equity, the
Company believes it can successfully market and increase the sales of this new
premium product in the largest and most profitable segment of the cigarette
industry. In 2004 the Company expanded distribution of its cigarette into
Colorado, Montana, Georgia and Nevada.


                                       2
<PAGE>
           Maintain lean, low cost culture. The Company's most significant cost
of goods sold, other than federal excise taxes, are tobacco and packaging. The
Company rigorously monitors these costs and has relationships with multiple
suppliers to maintain competitive pricing. The Company operates an efficient
manufacturing operation that requires a modest level of capital expenditures.
The Company maintains a lean corporate staff and an operating company culture
that seeks to minimize the overhead costs associated with its vertically
integrated tobacco operations. The Company believes that the application of its
efficient management and manufacturing processes to the recently acquired Stoker
operations will generate significant short-term and ongoing cost savings.

INDUSTRY AND MARKETS

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

Smokeless Tobacco

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

          o    Moist Snuff: Moist snuff made from dark, air-cured tobacco that
               is aged, flavored, finely ground and packaged in 1 ounce round
               fiber or plastic cans.

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

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

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

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

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

           According to information provided by the Smokeless Tobacco Council,
manufacturers' sales for the smokeless tobacco market increased to $2.268
billion in 2003 from $1.7 billion in 1995, representing an 8-year compound
annual growth rate of 1%. The increase in sales is primarily related to an
increase in manufacturers' sales of moist snuff, which grew to $1.88 billion in
2003 from $1.3 billion in 1995, representing a compound annual growth rate of
5.1%. In contrast to the growth of moist snuff sales, there has been a decline
in manufacturers' sales of chewing tobacco products, including loose leaf
chewing tobacco.

           Loose leaf chewing tobacco, although a mature product category,
remains popular in the Southeast, Southwest and rural Northeast and North
Central regions of the United States. Consistent with a general trend in the
tobacco industry, however, unit volumes of loose leaf chewing tobacco products
have been declining and decreased at a compound annual decline rate of 4% from
1995 to 2003. Manufacturers and marketers of loose leaf chewing tobacco products
have partially offset the impact of this decline with increases in the prices of
loose leaf chewing tobacco products. While there has been an overall decline in
volume, the Company estimates that the volume of sales of the large-sized,
value-oriented category of loose leaf chewing tobacco products has grown.
Large-sized, value-oriented loose leaf chewing tobacco products are packaged in
8 oz. or 16 oz. bag sizes (as compared to the 3 oz. bag size in which other
loose leaf chewing tobacco products are usually sold) and are generally sold at
a lower price per ounce of product than other loose leaf chewing tobacco
products.


                                       3
<PAGE>
           The Company estimates it has a current share of approximately 16.5%
of the loose leaf chewing tobacco market. The other three principal competitors
in the loose leaf chewing tobacco product category, together with the Company,
represented nearly all of the loose leaf chewing tobacco category in the United
States in 2004. The Company's market share and those of its principal
competitors in the loose leaf chewing tobacco products market have remained
relatively consistent over the past five years, with Swedish Match North
America, Inc. holding an approximate 43% market share; Conwood Corporation, an
approximate 33% market share; and Swisher International, Inc., an approximate 6%
market share.

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

MYO Products

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

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

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

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

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

           MYO tobacco and related products. If viewed as a part of a total
cigarette market, which includes both manufactured cigarettes and MYO tobacco
and related products, the Company believes that on a cigarette-equivalent basis,
aggregate MYO tobacco and related products sales would have represented an
estimated U.S. market share of 0.7% in 1998 and 1.65% in 2003, doubling its
share of the market. Based on MSA calculations, this would equate to an
estimated 3.5 billion cigarette equivalents sold in 1998, increasing to an
estimated 6.0 billion cigarette equivalents sold in 2003 in the United States.

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

           The other principal U.S. competitors in the MYO tobacco and related
products market are Republic Tobacco, L.P., and its TOP Tobacco, L.P.
subsidiary, which markets the Top(R) brand; and Lane Limited, a subsidiary of
Reynolds America, which markets the Bugler(R) and Kite(R) brands. Many other
companies also compete in this market, such as, Peter Stokkebye International
A/S, which markets the Bali Shag(R) brand, and Santa Fe Natural Tobacco Company
Inc., a Division of Reynolds America, which markets the Natural America
Spirit(R) brand.


                                       4
<PAGE>
           MYO tobacco and related products are typically sold through mass
merchandisers, chain and independent convenience stores, tobacco outlets, food
stores and chain and independent drug stores. Some retailers purchase MYO
tobacco and related products direct from manufacturers although most purchase
through wholesale distributors.

Manufactured Cigarettes

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

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

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

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

           In order to fund their payment obligations under the MSA, major
cigarette manufacturers have instituted a series of price increases from 1997
through 2004. The average wholesale list price charged for a carton of premium
cigarettes has increased at a 17.5% compound annual growth rate from 1997 to
2004.

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

           In general, premium brands contain higher-quality raw materials and
packaging and are sold at a higher price point than the generally less
established brands in the other tiers. Most of the premium brands are sold by
four major cigarette manufacturers, which include Philip Morris USA, Inc., R.J.
Reynolds Tobacco Company, Brown & Williamson Tobacco Corporation and Lorillard
Tobacco Company. These brands historically had considerable funds spent in their
support through marketing and advertising, as well as through discounts, coupons
and buy-downs. In September 2003, the Company launched its ZIG-ZAG Premium
Cigarette to compete in the premium segment. The Company believes current brand
switching trends among adult consumers highlight the opportunity for additional
well-known premium entrants.

           The discount categories are defined primarily by price. Tier 2
cigarettes are generally less well-recognized brands, sold nationally by major
cigarette manufacturers, marketed at lower retail prices. Tier 3 cigarettes are
sold at even lower retail prices, have less distribution, in general, than Tier
2 brands and are generally manufactured by SPMs. Tier 4 cigarettes are sold by
smaller companies, many of whom are NPMs, and are sold at the lowest retail
prices. Manufacturers of Tier 4 cigarettes are fragmented geographically. In the
last 12 months, Reynolds American, an OPM, has increased its private label brand
competition in the Tier 4 segment.


                                       5
<PAGE>
           The premium category continues to make up the largest share of
overall U.S. cigarette sales volumes, with a 73% market share in 2003. Of that
amount, over 95% are related to sales of the top three major cigarette
manufacturers. The discount category (Tiers 2 - 4) had an approximate 27% market
share.

           Overall industry volumes have decreased at a compound annual rate of
2.4% from 1995 to 2003. Competition is primarily based on brand recognition,
consumer loyalty, distribution, retail display and promotion, quality and price.
Meaningful market share shifts among the major manufacturers require significant
discounting and other marketing expenses, however, the MSA contains provisions
limiting the ability of OPMs and SPMs to market and advertise cigarettes.

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

PRODUCTS

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

Loose Leaf Chewing Tobacco

           Loose leaf chewing tobacco is made from aged, air-cured tobacco,
which is processed and flavored and then packaged in foil pouches. Loose leaf
chewing tobacco products can be broadly characterized as either full-flavored or
mild. According to Company estimates, in 2003, full-flavored products accounted
for approximately 75% of the loose leaf volume and mild flavored products
comprised an estimated 25%. The Company sells its loose leaf chewing tobacco
products under the Beech-Nut, Trophy, Havana Blossom and Durango brand names.
The Beech-Nut brands are available in two flavors: Regular and Wintergreen.
Beech-Nut Regular is a full-flavored product, which the Company believes is
ranked third in market share in both the full-flavored loose leaf chewing
tobacco category, and in the overall loose leaf chewing tobacco market.
Beech-Nut Wintergreen was introduced in 1979 and has the largest market share of
any premium flavored loose leaf brand. The Trophy brand was introduced into the
mild product category in 1992. The Company's Havana Blossom brand is a regional
brand, sold primarily in West Virginia, Pennsylvania and Ohio. The Durango
brand, which was introduced in March 1998, is a nationally distributed value
brand.

           The Company acquired additional brands (with a total of 18 distinct
styles and flavors) of loose leaf chewing tobacco as a result of the Stoker
acquisition. These brands include Tennessee Chew, Our Pride and Fred's Choice.
The Stoker brands appeal to value-conscious consumers. The Company believes the
Stoker brands are the market leaders in the value-oriented category of the loose
leaf chewing tobacco market. The Stoker brands are principally sold in 8 oz. and
16 oz. value-oriented packages as opposed to the industry standard of 3 oz.
packages.

MYO Products

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


                                       6
<PAGE>
           The Company sells its premium cigarette papers under the ZIG-ZAG
brand. Although premium cigarette papers are sold in a variety of different
widths and styles, the Company's primary styles are its standard width ZIG-ZAG
White and ZIG-ZAG 1 1/4 sized French Orange premium cigarette papers. Other
premium paper products sold under the ZIG-ZAG name are Kutcorners, which are
designed for easier hand-rolling; -- 1 1/2 sized; king-sized; and double-wide.

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

Premium Cigarettes

           During September 2003, the Company introduced a new, premium
manufactured cigarette under the ZIG-ZAG brand in the cities of Dallas, Los
Angeles, Miami and Seattle. The cigarette is now also marketed and sold in
Georgia, Nevada, Montana and Colorado. The Company currently offers both
king-size full flavor and light versions of ZIG-ZAG Premium Cigarettes.

Other Products

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

SALES AND MARKETING

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

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

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

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

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

           The Company's largest customers, COD Company and the McLane Company,
accounted for approximately 18.25% and 8.64%, respectively, of its net sales in
2004. The loss of either of these customers could have a material adverse effect
on the results of operations, financial position and cash flows of the Company.
The Company does not believe that the loss of any other customer would have a
material effect on the results of operations, financial position or cash flows
of the Company either in the intermediate or long term.


                                       7
<PAGE>
DISTRIBUTION AGREEMENTS

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

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

           Pursuant to the Distribution Agreements, export duties, insurance and
shipping costs are the responsibility of Bollore and import duties and excise
taxes are the responsibility of NAOC. Bollore's terms of sale are 45 days from
the bill of lading date and its invoices are payable in Euros. The Distribution
Agreements reduce catastrophic foreign exchange risk by providing that Bollore
will bear certain exchange rate risks at levels fixed through 2004, which terms
have been extended through 2009.

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

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

           Each of the Distribution Agreements was entered into on November 30,
1992. Each of the U.S. Distribution Agreement and the Canada Distribution
Agreement was for an initial twenty year term commencing on the date of such
agreement and will be renewed automatically for successive twenty year terms
unless terminated in accordance with the provisions of such agreement. Each of
the Distribution Agreements permits Bollore to terminate such agreement (i) if
certain minimum purchases (which, in the case of the U.S. Distribution Agreement
and the Canada Distribution Agreement were significantly exceeded in 2004) of
premium cigarette paper booklets have not been made by the Company for resale in
the jurisdiction covered by such agreement within a calendar year; (ii) if the
Company assigns such agreement without the consent of Bollore (other than
certain permissible assignments to wholly owned subsidiaries of the Company);
(iii) upon a change of control of NAOC or any parent of NAOC without the consent
of Bollore; (iv) upon certain acquisitions of equity securities of NAOC or any
parent of NAOC by a competitor of NAOC or certain investments by significant
stockholders of the Company in a competitor of NAOC; and (v) certain material
breaches, including NAOC's agreement not to promote, directly or indirectly,
premium cigarette paper or premium cigarette paper booklets of a competitor.
Additionally, the Canada Distribution Agreement is terminable by either NAOC or
Bollore upon the termination of the U.S. Distribution Agreement.

PATENTS, TRADEMARKS AND TRADE SECRETS

           The Company has numerous registered trademarks relating to its loose
leaf chewing tobacco and MYO tobacco products, including the trademarks for its
Beech-Nut, Trophy, Havana Blossom, Durango and Tennessee Chew products. The
Company is applying for registration of its Fred's Choice, Old Hillside, Our
Pride and Stoker's Number 2 trademarks. The registered trademarks, which are
significant to the Company's business, expire periodically and are renewable for
additional 20-year terms upon expiration. Flavor and blend formulae trade
secrets relating to NTC's and NAOC's tobacco products, which are key assets of
their businesses, are maintained under strict secrecy. The ZIG-ZAG trade name
and trademark for premium cigarette papers and related products are owned by
Bollore and have been exclusively licensed to NAOC in the United States and
Canada. NAOC owns the ZIG-ZAG trademark with respect to tobacco products. The
Company's catalog business is operated under the Fred Stoker & Sons, Inc. name.


                                       8
<PAGE>
RAW MATERIALS, PRODUCT SUPPLY AND INVENTORY MANAGEMENT

Loose Leaf Chewing Tobacco

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

           In addition to raw tobacco, NTC's loose leaf chewing tobacco products
include food grade flavorings, all of which have been approved by the Food and
Drug Administration and/or other federal agencies. NTC is not dependent upon any
single supplier for those raw materials or for the supply of its packaging
materials.

           NTC generally maintains up to a two-month supply of finished loose
leaf chewing tobacco. This supply is maintained at the Louisville facility and
in four regional bonded public warehouses to facilitate distribution.

MYO Products

           Pursuant to NAOC's Distribution Agreements with Bollore, NAOC must
purchase its premium cigarette papers, cigarette tubes and cigarette injecting
machines from Bollore, subject to Bollore fulfilling its obligations under these
agreements. If Bollore is unable or unwilling to perform its obligations or
ceases its cigarette paper manufacturing operation, in each case as set forth in
the Distribution Agreements, NAOC may seek third-party suppliers and continue
the use of the ZIG-ZAG trademark. To ensure that NAOC has a steady supply of
premium cigarette paper products as well as each style of cigarette tubes and
injectors, Bollore is required to maintain, at its expense, a two-month supply
of inventory in a public warehouse in the United States. See "--Distribution
Agreements."

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

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

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

Premium Cigarettes

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

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


                                       9
<PAGE>
MANUFACTURING

           The Company's subsidiaries manufacture their loose leaf chewing
tobacco products at their manufacturing facility in Louisville, Kentucky. They
also contract for the manufacture of their premium cigarette papers, cigarette
tubes, rolling and injector machines, MYO smoking tobaccos and ZIG-ZAG Premium
Cigarettes. In the case of its MYO smoking tobacco products, the subsidiaries
complete the processing of and packaging of these products at their
manufacturing facility in Louisville. The Company consolidated its manufacturing
operations into its Louisville manufacturing facility in 2004, eliminating its
manufacturing facility in Dresden Tennessee. The Company believes that its
production capabilities, quality control procedures, research and development
activities and overall facilities and equipment are adequate for its projected
operations.

Production and Quality Control

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

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

Research and Development

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

           Approximately $539,000, $577,000 and $521,000 was spent on research
and development and quality control efforts for the years 2002, 2003 and 2004,
respectively.

Facilities

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

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

Competition

           The Company, through NTC and Stoker, is the third largest
manufacturer and marketer of loose leaf chewing tobacco in the United States.
The other three principal competitors in the loose leaf chewing tobacco segment,
which, together with the Company, generate approximately 98% of this segment's
sales, are Swedish Match North America, Inc., Conwood Corporation and Swisher
International Group Inc. Management believes that moist snuff products are used
interchangeably with loose leaf products by many consumers and, as a result, US
Smokeless Tobacco Company, the largest manufacturer of moist snuff (and of all
smokeless tobacco products when taken as a whole) is also a significant
competitor. As indicated above under "Industry and Markets," sales of moist
snuff have grown over the past decade while sales of loose leaf have declined
during that same period. In addition, the Company's three principal competitors
in the loose leaf chewing tobacco segment also manufacture and market moist
snuff.

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


                                       10
<PAGE>
           The Company's principal competitors in the MYO segment are Republic
Tobacco, L.P., in conjunction with its TOP Tobacco, L.P. subsidiary, and Lane
Ltd, a division of Reynolds America, Inc., the third largest cigarette company
in the United States. Many other companies also compete in this segment,
including Peter Stokebye International A/S, and Santa Fe Natural Tobacco, a
Division of Reynolds America Inc. These competitors, unlike the Company, all are
granted "protected share" under the cigarette MSA which allows them to avoid a
substantial amount of their payment obligations under that agreement. The
Company does not have protected share and therefore is at an economic
disadvantage with respect to those competitors. (See "State Attorney General
Settlement Agreements".)

           The Company's primary competitors in the manufactured cigarette
market are the three "majors": Philip Morris USA, Inc., the brands of which
accounted for approximately 50% of all cigarette sales in the United States in
2004; R.J. Reynolds Tobacco Company Inc.; and Lorillard Tobacco Company, as well
as Vector Group Ltd. (the parent company of Liggett Group Inc.).

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

EMPLOYEES

           As of March 15, 2005, the Company, through its subsidiaries, employed
a total of 296 full-time employees. With the exception of 100 manufacturing
employees, none of the Company's employees are represented by unions. The
unionized employees are covered by three collective bargaining agreements. Two
of these agreements, covering 98 employees, will expire in January 2008. The
other agreement, covering two employees, will expire in April 2008.

REGULATION

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

           Producers of tobacco products are subject to regulation in the United
States at federal, state and local levels. Together with changing public
attitudes towards tobacco consumption, the constant expansion of regulations,
including increases in various taxes, requirements that tobacco products be
displayed "behind-the-counter" and public smoking restrictions, has been a major
cause of the overall decline in the consumption of tobacco products since the
early 1970's. Moreover, the future trend is toward increasing regulation of the
tobacco industry.

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

           In 2004, Congress passed a federal buyout program for tobacco
farmers. The costs associated with the quota buy-out will be borne by all
importers and domestic manufacturers selling any form of tobacco product sold in
the US. The buy-out provides for a $10 billion payment to farmers over a 10 year
period, with payments based on a calculation of assessed market share in each
tobacco product segment. Payments under the buyout scheme will be assessed
quarterly on manufacturers beginning March 31, 2005 and ending March 31, 2015.
The buyout initial assessment on individual manufacturers will be received
during the first half of 2005, and at that time the Company will be in a
position to provide better guidance on the financial implications of this
program.


                                       11
<PAGE>
           In recent years, a variety of bills relating to tobacco issues have
been introduced in the U.S. Congress, including bills that would (i) prohibit
the advertising and promotion of all tobacco products and/or restrict or
eliminate the tax deductibility of such advertising expenses; (ii) increase
labeling requirements on tobacco products to include, among other things,
additional warnings and lists of additives and toxins; (iii) modify federal
preemption of state laws to allow state courts to hold tobacco manufacturers
liable under common law or state statutes; (iv) shift regulatory control of
tobacco products and advertisements from the Federal Trade Commission to the
Food and Drug Administration; (v) increase tobacco excise taxes; and (vi)
require tobacco companies to pay for health care costs incurred by the federal
government in connection with tobacco related diseases. Hearings have been held
on certain of these proposals; however, to date, none of such proposals have
been enacted by Congress. Future enactment of such proposals or similar bills,
depending upon their content, could have a material adverse effect on the
results of operations or financial condition of the Company.

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

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

STATE ATTORNEY GENERAL SETTLEMENT AGREEMENTS

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

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

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

Required Payments

           The MSA required the four OPMs to make a series of initial payments
over five years totaling $13.2 billion. The last of these five payments was paid
on January 10, 2003. The MSA also requires annual industry payments for
participating manufacturers which were $8.0 billion in 2004, but will increase
to $8.13 billion in 2008, and to $9.0 billion in 2017 and thereafter in
perpetuity. Ten additional payments of $861 million are due annually beginning
in April 2008. All payments are to be allocated among the OPMs on the basis of
relative national market share and most are subject to adjustments, including
but not limited to, adjustments for inflation, volume, loss of market share to
SPM's and NPM's, operating income, and payments to the four Non-MSA States.

National Public Education Fund

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


                                       12
<PAGE>
MSA Fees and Litigation Costs

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

Inflation Adjustment

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

Volume Adjustment

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

Subsequent Participating Manufacturers

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

Non-Participating Manufacturers

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

           The Company was not a party to the state litigation against the OPMs.
The Company has chosen to participate as an escrow compliant NPM. As of December
31, 2004, the Company had deposited approximately $9.4 million into an escrow
fund to maintain state-by-state compliance.

           Under the escrow statutes, NPMs pay the lesser of the rates stated in
the statutes or the amount that the NPM would have paid had it been a
hypothetical SPM under the MSA. Recent legislation adopted in some 42 states has
eliminated the share provision of the escrow state that allowed an NPM to
recover any overpayment it may have made under the NPM allocable share formula.
Since the payment calculations (to a state as an SPM or to an escrow account as
an NPM) had been different, the payment to escrow could have been smaller on a
unit basis than the payment to the MSA would be, depending on the state in which
the NPM marketed its cigarettes. As a result of this change in the legislation,
an NPM must now escrow an amount almost equivalent to the amount a similarly
situated SPM must pay under the MSA payment formula.

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


                                       13
<PAGE>
           As a condition of maintaining annual OPM and SPM payments, the state
Attorneys General have an obligation to diligently enforce the state obligations
provisions of the MSA and the State Statute, and have been taking increased
action to ensure compliance by all NPMs. As a result, the Company expects that
there may be further consolidation among smaller Tier 4 manufacturers, who lack
efficient manufacturing operations, wide distribution, or the resources to meet
the higher state escrow obligation required by the allocable share amendment
change to the escrow statute.

           In 2004, Michigan, Utah and Alaska passed new legislation that places
additional payment obligations on NPM products sold in these states. In addition
to making escrow payments, NPM's must now make an additional advance payment on
cigarette and MYO sales based on anticipated cigarette or MYO sales in the
state. These `equity assessment' payments range from $3.50 to $5.00 per carton
of manufactured cigarettes, and $1.22 to $1.50 per pound of MYO tobacco. Such
equity assessments limit the ability of NPM's to compete against OPM's and SPM's
that are not required to make these additional payments in these states. The
Michigan statute is currently subject to a NPM legal challenge from Carolina
Tobacco Company. The Company currently sells MYO products in the above states.

Growers Trust

           As part of the MSA, the OPMs agreed to work with U.S. tobacco growers
to address the possible adverse economic impact of the MSA on growers. As a
result, the OPMs agreed to participate in funding a $5.2 billion trust fund to
be administered by a trustee, in conjunction with a certification entity from
each of the tobacco growing communities in 14 states. The trust agreement was
dissolved in 2004 as a result of the adoption by Congress of the federal tobacco
quota buyout program. The trust agreement had provided for a schedule of
aggregate annual payments, subject to various adjustments, that were payable in
quarterly installments each year from 1999 through 2010.

Payment Obligations in Non-MSA States

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

           In 2003, the State of Minnesota enacted a new statute requiring
non-signatory companies to the Minnesota tobacco settlement to pay an `equity
assessment' on all cigarette products sold in the State. The statute does not
extend to MYO products, and is currently subject to a legal challenge by the
Council of Independent Tobacco Manufacturers of America. The Company does not
currently sell manufactured cigarette products in the state.

Recent Developments

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

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

           On January 6, 2004, the United States Court of Appeals for the Second
Circuit issued an opinion in which it concluded, under the allegations in that
case, that the MSA and associated escrow legislation could be construed as an
output cartel and that it would not be protected under the Noerr-Pennington
doctrine. The case was remanded to the district court for further proceedings.
Freedom Holdings Inc. v. Spitzer, 357 F.3d 205, rehearing denied, 363F.3d 149
(2d Cir. 2004). The District Court held hearings and issued a ruling, holding on
a motion for a preliminary injunction that the MSA was not an illegal cartel,
but that certain New York legislation extending the reach of the MSA was illegal
under the antitrust laws. Identical statutes have been passed in many of the MSA
states. New York State elected not to appeal that ruling. The plaintiffs in
Freedom Holdings have appealed, seeking a ruling that the MSA is illegal under
the antitrust laws. That appeal is pending.


                                       14
<PAGE>
           If the Second Circuit's analysis prevails over the Third Circuit's,
and the facts as alleged in the Freedom Holdings are proven, those provisions of
the MSA that give rise to the output cartel would be declared illegal. Due to
other provisions of the MSA, the major manufacturers would be required to enter
into a new settlement with the states. Management believes, although no
assurance can be given, the Company and its subsidiaries would benefit since (i)
it would have maintained its favorable business development options, (ii) it
would likely receive a refund of its escrow funds, and (iii) it would not likely
have to escrow funds going forward. However, should the Third Circuit's analysis
prevail over the Second Circuit, the Company will not be adversely affected
since the Third Circuit's analysis merely maintains the status quo.

EXCISE TAXES

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

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

           Cigarettes are also subject to substantial and increasing excise
taxes. On January 1, 2002, the federal excise tax included in the price of
cigarettes increased by $2.50 to $19.50 per thousand cigarettes (or $0.39 per
pack of 20 cigarettes). Additional excise taxes, which are levied upon and paid
by the distributors, are also in effect in the 50 states, the District of
Columbia and many municipalities. Various states have proposed, and certain
states have recently passed, increases in their state tobacco excise taxes. The
state taxes generally range from $.025 to $2.55 per package of 20 cigarettes.
Future enactment of increases in federal excise taxes on the Company's ZIG-ZAG
Premium Cigarettes could adversely affect demand for them and have a material
adverse effect on the Company's results of operations, financial position and
cash flows. In addition, further increases in state and local excise taxes could
affect demand for the Company's cigarettes. The Company is unable to predict the
likelihood of passage or magnitude of future increases in excise taxes.

ENVIRONMENTAL REGULATIONS

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

OTHER

           Additional information in response to Item 1 can be found in Note 23
(Segment Information) to the Consolidated Financial Statements.

ITEM 2.    PROPERTIES
           ----------

           As of December 31, 2004, the Company operated manufacturing,
distribution, office and warehouse space in the United States with a total floor
area of approximately 751,351 square feet. Of this footage, approximately
600,000 square feet are owned and 151,351 square feet are leased.

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


                                       15
<PAGE>
           The following table describes the principal properties of the Company
as of December 31, 2004:

<TABLE>
<C>                           <C>                             <C>                          <C>

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

New York, NY                   Corporate headquarters                     10,351                         Leased

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

Dresden, TN                    Catalog distribution facility              76,000                         Leased
</TABLE>

ITEM 3.    LEGAL PROCEEDINGS
           -----------------

LITIGATION WITH REPUBLIC TOBACCO

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

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

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

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

           On July 8, 2003, following a four-day trial, an Illinois jury
returned a verdict in favor of Republic on the defamation claims of $8.4 million
in general damages and $10.2 million in punitive damages, for a total damage
award of $18.6 million. NATC recorded an $18.8 million charge during the second
quarter 2003 relating to this transaction. NATC filed post-trial motions for a
new trial and, in the alternative, for a reduction of the awards. On August 1,
2003, NATC posted a judgment bond in the amount of $18.8 million with the U.S.
District Court. This was accomplished by obtaining a $19.0 million senior
secured term loan pursuant to a July 31, 2003 amendment to NATC's existing
credit facility. On November 20, 2003, the court ruled that the awards were
excessive and reduced the awards by approximately 60%, with the award of
compensatory damages being reduced to $3.36 million and the award of punitive
damages being reduced to $4.08 million, for a total of $7.44 million. On
December 18, 2003, Republic accepted these reduced awards. NATC reversed $11.16
million during the fourth quarter 2003 due to this court ruling.


                                       16
<PAGE>
           On January 8, 2004, NATC appealed the final judgment, including the
finding of liability in this case as well as the amount of the award. On January
22, 2004, Republic filed a general notice of cross appeal and argued in its
appellate briefs that the judgment should be affirmed and also asserted, in its
cross-appeal, that the original judgment should be reinstated despite its
acceptance of the District Court's order reducing the judgment amount.

           On September 1, 2004, the Court of Appeals issued its ruling
affirming the finding of liability against NATC for defamation, but reducing the
amount of the damage award to $3.0 million. The Court of Appeals also affirmed
the dismissal of NATC's antitrust claim against Republic and the dismissal of
Republic's motion to re-instate the original jury award of $18.8 million. As a
result of these rulings, in October 2004 NATC received approximately $4.5
million relating to the cash bond it had posted with the Court in 2003. This
amount was included in Other income during 2004.

           NATC has also applied to the Court of Appeals for an order awarding
NATC approximately $1.0 million for the difference in the expense of the
original bond of $18.8 million and the subsequent reduced bond of $7.0 million,
on the one hand, and the lesser expense NATC would have incurred to bond the
final $3.0 million judgment, on the other hand. On November 30, 2004, the Court
of Appeals ruled that the application for costs should be directed to the
District Court. On December 17, 2004, NATC filed this motion with the District
Court. That motion has been fully briefed and the parties are waiting for the
Court to rule.

LITIGATION RELATED TO COUNTERFEITING

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

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

           NATC entered into a settlement with the defendants, the principal
terms of which included a cash payment, an agreed permanent injunction, the
withdrawal of the defendants' appeal of the civil contempt order, an agreed
judgment of $11.0 million from the civil contempt order and an agreement to
forbear from enforcing that $11.0 million money judgment until such time in the
future that the defendants violate the terms of the permanent injunction. Two of
the defendants, Tarek Makki and Adham Makki, also agreed to provide complete
information concerning the counterfeiting conspiracy as well as information on
other parties engaged in the purchase and distribution of infringing ZIG-ZAG
premium cigarette papers.

           On February 17, 2004, NATC and Bollore filed a motion in the U.S.
District Court for the Northern District of Texas, which had issued the original
injunctions against the infringing defendants, seeking, with respect to
respondents Adham Makki, Tarek Makki and Ali Makki, to have the $11.0 million
judgment released from the forbearance agreement and to have the named
respondents held in contempt of court. The motion alleged that the three
respondents had trafficked in counterfeit ZIG-ZAG cigarette papers after the
execution of the settlement, citing evidence that all three had been charged in
the United States District Court for the Eastern District of Michigan with
criminal violations of the United States counterfeiting laws by trafficking in
counterfeit ZIG-ZAG cigarette papers, which trafficking occurred after the
settlement agreement.

           On April 13, 2004, the Court entered an order (the "Contempt 2
Order"), finding Ali Mackie, Tarek Makki, Adham Mackie and their companies Best
Price Wholesale (the "Makki Defendants") and Harmony Brands LLC in civil
contempt, freezing all of their assets, releasing the July 12, 2002 Final
Judgment of $11.0 million from the forbearance agreement as to the Makki
Defendants, and again referring the matter to the United States Attorney for
Criminal Prosecution. Subsequent to the entry of the Contempt 2 Order, the
Company settled with defendant Harmony Brands and its members for the amount of
$750,000 and the entry of a permanent injunction. The Company is seeking to
execute on the outstanding $11.0 million judgment against the remaining Makki
Defendants and those efforts are currently underway.


                                       17
<PAGE>
           Pursuant to the U.S. Distribution Agreement and a related agreement
between Bollore and NATC, any collections on the judgments issued in the Bollore
v. Import Warehouse case are to be divided evenly between Bollore and NATC after
the payment of all expenses.

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

           On July 1, 2004, the Court issued an Order awarding approximately
$2.5 million in damages to NATC for the damages incurred by the Company as a
result of the Import Warehouse Defendants' civil contempt. On July 15, 2004, the
Court entered a Final Judgment in that amount for which defendants Import
Warehouse, Inc. and Ravi Bhatia are jointly and severally liable. After NATC and
Bollore commenced collection proceedings, Import Warehouse paid NATC and Bollore
an amount equal to the entire judgment plus the expenses incurred in collection.
Accordingly, approximately $1.2 million has been recorded in Other income during
2004. The Import Warehouse Defendants filed a notice of appeal on July 24, 2004.
No briefing schedule has been established.

LITIGATION RELATED TO ALLEGED PERSONAL INJURY

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

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

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

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

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


                                       18
<PAGE>
           The claims against NTC in the various consolidated West Virginia
actions include negligence, strict liability, fraud in differing forms,
conspiracy, breach of warranty and violations of the West Virginia consumer
protection and antitrust acts. The complaints in the West Virginia cases request
unspecified compensatory and punitive damages.

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

           The trial court has now vacated the initial trial plan in its
entirety because of concerns that its provisions violated the dictates of the
United States Supreme Court's decision in State Farm Mutual Automobile Insurance
Company v. Campbell, 538 U.S. 408 (2003). A new trial plan has not yet been
implemented with regard to the consolidated claims against the cigarette
manufacturer defendants. The West Virginia Supreme Court has accepted review of
the case management order and the plaintiffs filed the brief on March 24, 2005.
The claims against the smokeless tobacco manufacturer defendants remain severed
and indefinitely stayed.

           Minnesota Complaint. On September 24, 1999, NTC was served with a
complaint in a case entitled Tuttle v. Lorillard Tobacco Company, et al. (Case
No. C2-99-7105), brought in Minnesota. The other manufacturing defendants are
Lorillard and The Pinkerton Tobacco Company. The Complaint alleges that
plaintiff's decedent was injured as a result of using NTC's (and, prior to the
formation of NTC, Lorillard's) Beech-Nut brand and Pinkerton's Red Man brand of
loose-leaf chewing tobacco. Plaintiff asserts theories of liability, breach of
warranty, fraud, and variations on fraud and misrepresentation. Plaintiff
specifically requests in its complaint an amount of damages in excess of fifty
thousand dollars ($50,000) along with costs, disbursements and attorneys' fees,
and ". . . an order prohibiting defendants from disseminating in Minnesota
further misleading advertising and making further untrue, deceptive
and/misleading statements about the health effects and/or addictive nature of
smokeless tobacco products. . . ." After discovery, summary judgment motions
were filed on behalf of all defendants. On March 3, 2003, the Court granted
defendants' motions, dismissing all claims against all defendants and the Court
has since denied the plaintiff's motion for reconsideration. Plaintiff has
appealed the dismissal. Briefing has been completed. Oral argument before the
Court of Appeals was held on February 11, 2004. On July 30, 2004, the Court of
Appeals affirmed the dismissal of all of the claims.

           The Company may, from time to time, have claims from and make
settlements with former officers or employees.

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

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

      None.


                                     PART II

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

           There is no established public trading market for the Company's
Voting Common Stock, par value $.01 per share.

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


                                       19
<PAGE>
           In connection with the refinancing of the NATC's existing debt and
preferred stock on February 17, 2004 (as described under Part I, Item 1,
"Business-Recent Events" above and in Part I, Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" below), the
Company offered and sold $97.0 million aggregate principal amount at maturity
(March 1, 2014) of senior discount notes. Interest on these notes will become
payable semiannually in cash, at the rate of 12-1/4% per annum, commencing March
1, 2008. As the Company is a holding company with no operations or material
assets other than the capital stock of NATC, its ability to make payments on
such notes is dependent on the distribution of funds (through loans, dividends
or otherwise) from NATC. It is currently contemplated that NATC will declare and
pay dividends to fund the Company's interest payment obligations under its
notes.

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





                                       20
<PAGE>
ITEM 6.    SELECTED FINANCIAL DATA
           -----------------------

<TABLE>
<CAPTION>

                                                                        Year Ended December 31,
                                              ------------------------------------------------------------------------------------
                                                  2004
                                               As Restated,
                                                   (6)             2003             2002              2001              2000
                                               -------------   -------------    -------------     -------------       ------------
                                                           (amounts in thousands, except per share amounts)

<S>                                           <C>             <C>              <C>              <C>                 <C>
STATEMENT OF OPERATIONS DATA:

Net sales(1), (4)                              $    115,320    $    101,593     $     94,425      $     89,622        $    90,365
Net income (loss)(2), (3), (4), (5)                 (34,922)         (6,241)           5,485            (1,364)            (3,200)
Net income (loss) applicable to common
   shares(2), (3)                                   (36,535)        (13,516)           3,904            (8,109)            (9,205)
Basic earnings per common share:
            Income (loss)                            (63.23)   $     (25.59)    $       7.39      $     (15.35)       $    (16.96)
            Cumulative effect of change in
               accounting principle                      --              --               --                --              (0.47)
                                               -------------   -------------    -------------     -------------       ------------
            Net income (loss) applicable to
               common shares                   $     (63.23)   $     (25.59)    $       7.39      $     (15.35)       $    (17.43)
                                               =============   =============    =============     =============       ============
Diluted earnings per common share:

            Income (loss)                      $     (63.23)   $     (25.59)    $       5.87      $     (15.35)       $    (16.96)
            Cumulative effect of change in
               accounting principle                      --              --               --                --              (0.47)
            Net income (loss) applicable to
               common shares                   $     (63.23)   $     (25.59)    $       5.87           ($15.35)           ($17.43)
                                               =============   =============    =============     =============       ============
            Common stock cash dividends per
               share                           $       8.20    $         --     $         --     $          --         $       --
                                               =============   =============    =============     =============       ============

BALANCE SHEET DATA (AT END OF PERIOD):

      Total assets                             $    232,398    $    243,644     $    213,594     $     216,663         $  227,757
                                               =============   =============    =============     =============       ============
      Total debt, including current
         maturities                                 281,122         191,986          160,500           167,500           180,000
                                               =============   =============    =============     =============       ============

      Mandatorily redeemable preferred stock            --           65,080           57,805            57,443            50,698
                                               =============   =============    =============     =============       ============
</TABLE>

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

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

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

(4)  Net income (loss) and net income applicable to common shares for the year
     ended December 31, 2004, includes income of $4.5 million relating to the
     Republic judgment.

(5)  Includes federal excise taxes of $3,251, $1,899, $1,684, $1,241 and $1,310
     for the years ended December 31, 2004, 2003, 2002, 2001 and 2000,
     respectively.

(6)  For an explanation, see the Explanatory Note on page (i).


                                       21
<PAGE>
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           ---------------------------------------------------------------
           RESULTS OF OPERATIONS
           ---------------------

RESTATEMENT
-----------

           During the fourth quarter of 2004, the Company and its subsidiaries
provided a full valuation allowance against its net deferred tax assets.
Following a review of the Company's deferred tax assets and deferred tax
liabilities, the Company determined that in calculating the valuation allowance,
deferred tax liabilities relating to inventories and tax-deductible goodwill had
been inappropriately netted against certain deferred tax assets. It cannot be
determined that the temporary differences related to inventories and goodwill
will reverse during the time period in which the Company's temporary differences
related to its deferred tax assets are expected to reverse or expire. Therefore,
these deferred tax liabilities should not have been utilized to reduce the
amount of the valuation allowance against deferred tax assets. This resulted in
an understatement of the valuation allowance in the amount of these deferred tax
liabilities of $9.8 million and an understatement of income tax expense of $9.8
million as of and for the year ended December 31, 2004. The correction of this
understatement has the effect of increasing deferred tax liabilities, increasing
accumulated deficit and decreasing net income, with no effect on net cash flows,
as of and for the year ended December 31, 2004. All amounts have been restated
to reflect this change.

GENERAL
-------

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

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

           The Company's principal operating expenses include the cost of raw
materials used to manufacture its products; the cost of finished products, which
are purchased goods; direct labor; federal excise taxes and tobacco quota buyout
payments; manufacturing overhead; and selling, general and administrative
expenses, which includes sales and marketing related expenses, legal expenses
and compensation expenses, including benefits costs of salaried personnel. In
2002, the Company ceased the amortization of goodwill in accordance with FASB
Statement 142, Goodwill and Other Intangible Assets ("Statement 142") and
consequently, beginning in 2002, amortization of goodwill no longer constitutes
one of the Company's principal operating expenses. The Company's other principal
expenses include interest expense and amortization of deferred financing costs
and other expenses, the last of which has arisen during the last several years
and has during 2001 and 2002 primarily represented the legal, investigative and
related costs associated with the Texas and California Infringing Products
Litigations instituted by the Company against alleged counterfeiters of ZIG-ZAG
premium cigarette papers and during 2003 and 2004 primarily represented the
Republic litigation judgment and subsequent reduction, respectively.

           The following factors have affected the Company's results during the
period of 2000 to 2004:

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

          o    The impact of increased manufactured cigarette prices. Management
               believes such price increases have resulted in higher MYO
               cigarette sales. During the period of 2001 to 2004, a number of
               states increased their excise taxes on cigarettes. Management
               expects this trend to continue as more states seek additional
               sources of revenue to combat significant budget deficits.

          o    The continuing downward trend of loose leaf chewing tobacco
               consumption. This is a result of an aging consumer base coupled
               with an increasing trend of consumers switching to moist snuff
               due to changing demographics. Management believes that the switch
               to moist snuff has been caused, in part, by the recent
               availability of discount moist snuff products being priced at the


                                       22
<PAGE>
               same levels or lower than loose leaf products. However,
               management believes that the current rate of switching has slowed
               significantly as those consumers who found the moist snuff
               product more attractive have already switched, leaving a loyal
               base of higher use consumers in the loose leaf category.
               Historically, increased prices for loose leaf products have
               largely offset this downward trend in consumption. Management
               expects this pricing trend to continue and, as a result, the
               Company expects that this segment's contribution to the Company's
               earnings will remain relatively constant and stable for the
               foreseeable future.

          o    The impact of currency fluctuations. Currency movements and
               suppliers' price increases relating to premium cigarette papers,
               cigarette tubes and cigarette injector machines are the primary
               factors affecting cost of sales. Those products are purchased
               from Bollore on terms of net 45 days and are payable in Euros.
               Thus, the Company bears certain foreign exchange risks for its
               inventory purchases. To minimize this risk, the Company has in
               the past and may in the future choose to utilize short-term
               forward currency contracts, through which the Company secures
               Euros in order to provide payment for its monthly purchases of
               inventory. In 2004, as the Euro continued to increase in value in
               comparison to the U.S. dollar, the Company experienced an
               increase in cost of goods sold.

          o    The impact of marketing and promotional initiatives.
               Historically, based upon the timing of the Company's marketing
               and promotional initiatives, the Company has experienced
               significant variability in its month-to-month results.
               Promotional activity significantly increases net sales in the
               month in which it is initiated, while net sales are adversely
               impacted in the month after a promotion.

           The following factors also affected the Company's results in 2004:

          o    Stoker acquisition. On November 17, 2003, NATC consummated the
               acquisition of Stoker, Inc. Through the acquisition, NATC
               acquired the Stoker family of brands and the related business
               operations, including the equipment used to manufacture and
               package Stoker products. The purchase price for the Stoker
               acquisition was $22.5 million in cash and was financed with
               borrowings under the Tranche B term loan in NATC's existing
               senior credit facility. As a result of the Stoker acquisition,
               the Company's net sales, cost of goods sold and other operating
               results are expected to increase significantly. It is the
               Company's intention to consolidate all production and packaging
               of its and Stoker's smokeless tobacco and MYO products into a
               single location. This consolidation is expected to be completed
               during 2005 and to result in significant tangible synergies as
               excess production capacity will be utilized with modest
               incremental costs and as personnel redundancies will be
               eliminated.

          o    Launch of ZIG-ZAG Premium Cigarettes. During 2004, the Company
               incurred approximately $5.0 million of expenses associated with
               the start-up of the ZIG-ZAG Premium Cigarette business. No
               meaningful revenues from these products were generated during
               this period and these expenses are considered non-recurring as
               they are deemed by management to be start-up costs.

RESULTS OF OPERATIONS
---------------------

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

SUMMARY

           The table and discussion set forth below relates to the consolidated
results of operations and financial condition of the Company for the years ended
December 31, 2004, 2003 and 2002.

<TABLE>
<CAPTION>

                                                                         YEAR ENDED DECEMBER 31,
                                              ------------------------------------------------------------------------------------
                                                         2004
                                                      AS RESTATED                   2003                             2002
                                              ---------------------------  ----------------------------  ---------------------------
                                                                           (AMOUNTS IN THOUSANDS)

<S>                                          <C>            <C>           <C>             <C>          <C>            <C>
Net sales                                     $    115,320     100.0%       $    101,593     100.0%      $    94,425     100.0%
Cost of sales                                       58,617      50.8              48,616      47.9            40,973      43.4
                                              ------------- -------------   ------------- -------------  ------------- -------------

Gross profit                                        56,703      49.2              52,977      52.1            53,452      56.6
Selling, general and administrative expenses        37,031      32.1              32,589      32.1            24,065      25.5
Amortization expense                                   462       0.4                  67        --                --         --
                                              ------------- -------------   ------------- -------------  ------------- -------------

Operating income                                    19,210      16.7              20,321      20.0            29,387      31.1
Interest expense, net, and deferred financing
   costs                                            31,283      27.1              19,122      18.8            18,744      19.8
Other expense (income)                              (4,361)     (3.8)             11,129      10.9             1,944       2.1
                                              ------------- -------------   ------------- -------------  ------------- -------------

Income (loss) from continuing operations
   before income tax expense                        (7,712)     (6.6)             (9,930)     (9.7)            8,699       9.2
Income tax expense (benefit)                        27,210      23.6              (3,689)     (3.6)            3,214       3.4
                                              ------------- -------------   ------------- -------------  ------------- -------------
Net income (loss)                             $    (34,922)    (30.3%)      $     (6,241)     (6.1%)     $     5,485       5.8%
                                              ============= =============   ============= =============  ============= =============
</TABLE>

                                       23
<PAGE>
COMPARISON OF YEAR ENDED DECEMBER 31, 2004 TO YEAR ENDED DECEMBER 31, 2003

           Net Sales. For 2004, net sales were $115.3 million, an increase of
$13.7 million or 13.5% from the prior year. Net sales of the smokeless tobacco
segment increased from $36.7 million to $46.2 million or 25.9% from the prior
year reflecting the acquisition of Stoker and an approximate 5% price increase
during 2004. Of the $9.5 million increase, the acquisition of Stoker increased
sales by $9.2 million for the smokeless segment. Overall poundage increased
35.8% from the prior year. Net sales continue to be adversely impacted by
competitive pressures, including increased discounting from other loose leaf
competitors, growth of the moist snuff value brands and increased discounting
activity by moist snuff manufacturers.

           Net sales of the MYO segment decreased from $64.7 million to $63.5
million or 1.9% from the prior year. This was due to a decrease of $6.8 million
in sales of premium cigarette papers, due to the efforts of the Company's
customers to reduce overall trade inventories; an increase of $4.8 million in
sales of the expanded MYO smoking tobacco and related products line, including
sales by Stoker which, in management's opinion, resulted from increases in
prices and taxes of manufactured cigarettes; and an increase of $0.8 million in
premium cigarette paper sales to Canada. Of the $4.8 million increase in the MYO
smoking tobacco and related products line, $6.3 million related to the sales of
Stoker brands. All of these factors were partially offset by an increase in
customer incentives, both to expand the distribution in the MYO area and to
enhance recovery from counterfeiting activity. The Company attributes its
continuing recovery from counterfeiting activity to the litigation instituted by
the Company against alleged counterfeiters as discussed under Part I, Item 3,
"Legal Proceedings" above.

           Gross Profits. For 2004, gross profit increased 7.0% to $56.7 million
from $53.0 million for the prior year while gross margins decreased to 49.2%
from 52.2%.

           Gross profit of the smokeless tobacco segment increased to $20.8
million in 2004 from $17.1 million for the prior year, or 21.6%, relating to the
Stoker acquisition. Gross margin of this segment decreased to 45.0% of net sales
in 2004 from 46.5% of net sales for the prior year. This decrease is attributed
primarily to sales of the lower margin Stoker brands.

           Gross profit of the MYO segment decreased 8.4% to $32.8 million from
$35.8 million in 2003 due to higher cost of goods with respect to MYO premium
cigarette papers resulting from a stronger Euro in comparison to the U.S. dollar
partially offset by the increase in sales relating to the Stoker acquisition.
The gross margin decreased from 55.3% of net sales in 2003 to 51.7% due to the
impact of the stronger Euro in comparison to the U.S. dollar and to changes in
product mix (greater growth in lower margin products).

           Currency. Currency movements and suppliers' price increases relating
to premium cigarette papers, cigarette tubes and cigarette injector machines are
the primary factors affecting cost of sales. Those products are purchased from
Bollore on terms of net 45 days and are payable in Euros. Thus, NAOC bears
certain foreign exchange risks for its inventory purchases. To minimize this
risk, NAOC may choose to utilize short-term forward currency contracts, through
which NAOC secures Euros in order to provide payment for its monthly purchases
of inventory. For 2005, the Company projects that the strong Euro against the
U.S. dollar will again result in an increase in cost of goods sold. No forward
contracts were utilized in 2004.

           Selling, General and Administrative Expenses. Selling, general and
administrative expenses for 2004 increased 13.5% to $37.0 million from the prior
year's $32.6 million. This increase was due primarily to Stoker expenses of $3.3
million; start-up expenses of NACC's premium cigarette business of $2.2 million;
recruitment expenses of $0.4 million; legal/litigation/lobbying of $0.4 million;
Sales/Marketing expenses of $0.2 million; professional fees of $0.1 million;
partially offset by a reduction in compensation and related expenses of $2.2
million.

           Amortization Expense. Amortization of goodwill was eliminated
effective January 1, 2002. Amortization expense totaling $0.4 million for the
year ending December 31, 2004 related to the intangible assets acquired from
Stoker.

           Net Interest Expense and Amortization of Deferred Financing Costs.
Interest expense and amortization of deferred financing costs increased to $31.3
million in 2004 from $19.1 million for the prior year. This increase was the
result of the refinancing of the Company's debt.


                                       24
<PAGE>
           Other Expense (Income). Other income of $4.4 million in 2004
represents principally $4.5 million associated with the reduction in the
judgment rendered against the Company in connection with the litigation with
Republic Tobacco, Inc as described in Part I, Item 3, "Legal Proceedings" above.
Other expense of $11.1 million in 2003 primarily represents $7.4 million
associated with the judgment rendered against the Company in connection with the
litigation with Republic Tobacco, Inc. and $3.3 million associated with the
termination of the Star Cigarette Asset Purchase Agreement.

           Income Tax Expense (Benefit). Income tax expense was $27.2 million
for 2004, reflecting the net loss of the Company and the recording of the
valuation reserve relating to the realization of the net deferred taxes of $29.7
million. Income tax benefit was $3.7 million in 2003.

           Net Income (Loss). Due to the factors described above, the Company
incurred a net loss of $34.9 million for 2004 compared to $6.2 million for 2003.

COMPARISON OF YEAR ENDED DECEMBER 31, 2003 TO YEAR ENDED DECEMBER 31, 2002

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

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

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

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

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

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

           Selling, General and Administrative Expenses. Selling, general and
administrative expenses for 2003 increased 35.3% to $32.6 million from the prior
year's $24.1 million. This increase was due primarily to the start up expenses
of NACC's premium cigarette business of $2.9 million, increased compensation and
related expenses of $3.3 million (including increased pension expense of $0.2
million), increased legal/litigation expenses of $0.7 million, increased
travel/entertainment expenses of $0.5 million, increased Sales/Marketing
expenses of $0.6 million and Stoker expenses of $0.5 million.

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

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


                                       25
<PAGE>
           Other Expense. Other expense increased to $11.1 million in 2003 from
$1.9 million for the prior year. Other expense consisted primarily of $7.4
million associated with the judgment rendered against the Company in connection
with the litigation with Republic Tobacco, Inc. and $3.3 million associated with
the termination of the Star Cigarette Asset Purchase Agreement.

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

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

LIQUIDITY AND CAPITAL REQUIREMENTS

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

           Working capital was $16.8 million at December 31, 2004 compared to
$34.4 million at December 31, 2003. This decrease was the result of decreased
accounts receivable of $2.5 million, decreased inventories of $4.3 million,
increased accounts payable and accrued expenses of $5.8 million, an increase in
the revolving credit facility of $8.2 million offset by increased other current
asset of $2.3 million, increased net deferred tax liabilities of $1.1 million
and higher cash balance of $2.0 million. The Company contributed $1.7 million to
its defined benefit plans in 2004. As of December 31, 2004, NATC had an undrawn
availability of $35.5 million under the revolving credit portion of its New
Credit Agreement. On January 19, 2005, the amount of such facility was reduced
from $50 million to $35 million.

           During 2004, the Company had $3.3 million in capital expenditures.
The Company believes that its capital expenditure requirements for 2005 will be
approximately $2.0 million. Management believes that it will be able to fund its
capital expenditure requirements from operating cash flows and, if needed,
borrowings under its New Credit Agreement.

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

           At December 31, 2003, NATC was operating under a Loan Agreement (the
"Loan Agreement"), dated December 31, 2000, with Bank One, Kentucky, N.A. as
Agent (the "Agent"), and the banks named therein, which provided for a $25.0
million term loan and a $10.0 million revolving credit facility. The Term Loan
was payable in eight (8) quarterly installments of $3.125 million each plus
accrued interest, which commenced on March 31, 2001. Both the term loan and the
revolving credit facility matured on December 31, 2002, at which time the term
loan was paid in full. On December 31, 2002, NATC entered into an Amended Loan
Agreement (the "Amended Loan Agreement") with Bank One in which the revolving
credit facility was increased to $20 million and extended to December 31, 2003.
During 2003, the Amended Loan Agreement was amended to reduce the revolving
credit facility to $15.0 million and to extend the maturity to March 31, 2004.
The unused portion of revolving credit facility at December 31, 2003 was $8.7
million. All terms of the original Loan Agreement remained in place except for
the replacement of a Fixed Charge Coverage Covenant with an Interest Coverage
Covenant. NATC's obligations under the Loan Agreement were guaranteed by
National Tobacco, NAOC and NTFC. In addition, NATC's obligations were
collateralized by all of the NATC's assets and NATC's equity in its
subsidiaries. The interest rate on borrowings under the Amended Loan Agreement
was based, at the Company's option, on either LIBOR or the prime rate as
announced by the Agent from time to time. At December 31, 2003, the Notes
Payable outstanding under the Tranche B term loan portion consisted of $7.7
million incurred to finance the posting of a $7.7 million judgment bond
(including accrued interest and fees) in connection with the litigation with
Republic Tobacco (See Note 21, Contingencies, to the Consolidated Financial
Statements contained herein) and $23.0 million to finance the acquisition of
Stoker (See Note 5, Acquisition of Business, to the Consolidated Financial
Statements contained herein). At December 31, 2003, the interest rate on
borrowings under the Amended Loan Agreement was 5.15%.

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


                                       26
<PAGE>
           On December 31, 2003, the Notes and Notes Payable, as described
above, were reclassified as noncurrent liabilities in the Consolidated Balance
Sheet, reflecting NATC's intention and ability to refinance the Amended Loan
Agreement and Senior Notes as described below.

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

           The New Senior Notes are senior unsecured obligations of NATC, mature
on March 1, 2012 and are guaranteed on a senior unsecured basis by all of NATC's
existing and certain of its future subsidiaries. The New Senior Notes bear
interest at the rate of 9 1/4% per annum from the date of issuance, or from the
most recent date to which interest has been paid or provided for, and interest
is payable semiannually on March 1 and September 1 of each year. NATC is not be
required to make mandatory redemptions or sinking fund payments prior to the
maturity of the Notes. NATC or the Company may, from time to time, seek to
retire all or a portion of the New Senior Notes through cash purchases and/or
exchanges for other securities in open market purchases, privately negotiated
transactions or otherwise.

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


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

        2008                                   104.625%

        2009                                   102.313%

        2010 and thereafter                    100.000%

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

           In addition, at any time prior to March 1, 2007, NATC may, at its
option, redeem up to 35% of the aggregate principal amount of the New Senior
Notes with the net cash proceeds of one or more equity offerings by the Company
or NATC, subject to certain conditions, at a redemption price equal to 109.250%
of the principal amount thereof, plus accrued and unpaid interest thereon, if
any, to the date of redemption.

           The New Senior Notes limit the incurrence of additional indebtedness,
the payment of dividends, entering into transactions with affiliates, asset
sales, or other encumbrances on assets, and other matters. At December 31, 2004,
NATC was in compliance with all provisions of the New Senior Notes.

           In connection with the refinancing, NATC also amended and restated
the existing credit facility, resulting in a new $50.0 million (reducing to
$40.0 million in August 2005) senior revolving credit facility with Bank One,
N.A. as agent (the "Agent Bank") and La Salle Bank, National Association. The
new credit agreement (the "New Credit Agreement") governing the new senior
revolving credit facility includes a letter of credit sublimit of $25.0 million
and terminates three years from the closing date. NATC will use the new senior
revolving credit facility for working capital and general corporate purposes. On
January 19, 2005, the New Credit Agreement was amended to reduce the revolving
credit facility to $35.0 million.

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

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


                                       27
<PAGE>
           Under the New Credit Agreement, NATC is required to pay the lenders
an annual commitment fee in variable amounts ranging from 0.50% to 0.65% of the
difference between the commitment amount and the average usage of the facility,
payable on a quarterly basis. NATC is also required to pay to the lenders letter
of credit fees equal to 3.00% per annum multiplied by the maximum amount
available from time to time to be drawn under such letter of credit issued under
the New Credit Agreement and to the lender issuing a letter of credit a fronting
fee of 0.125% per annum multiplied by the aggregate face amount of letters of
credit outstanding during a fiscal quarter plus other customary administrative,
amendment, payment and negotiation charges in connection with such letters of
credit.

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

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

           As of December 31, 2004, NATC would have failed to meet its original
required minimum fixed charge coverage ratio for the period then ended due to
its operating results in 2004. This would have represented an event of default
under the terms of NATC's New Credit Agreement. This covenant, however, was
eliminated pursuant to the March 30, 2005 amendment to NATC's New Credit
Agreement.

           On March 30, 2005, the New Credit Agreement was amended. This
amendment modifies the fixed charge coverage ratio covenant, which now only
applies to quarters ending June 30, 2005 and thereafter, and the minimum
consolidated adjusted EBITDA covenant, which now only applies to quarters ending
from June 30, 2004 through March 31, 2005. The fixed charge coverage ratio
definition was also amended to include any future cash equity contributions to
NATC. In addition, the amendment changes the New Credit Agreement maturity date
from February 28, 2007 to January 31, 2006.

           Concurrently with the offering of the New Senior Notes, the Company
issued $97.0 million aggregate principal amount at maturity ($60.0 million in
gross proceeds) of its senior unsecured discount notes due 2014 (the "Senior
Discount Notes"). Proceeds of approximately $53.8 million from this issuance
were used to make a capital contribution to NATC. The accreted value of these
notes is $66.6 million at December 31, 2004. The Senior Discount Notes are the
Company's senior obligations and are unsecured, ranking equally in right of
payment to all of the Company's future unsubordinated obligations and senior in
right of payment to any obligations that are by their terms subordinated to the
Senior Discount Notes, and will be effectively subordinated to any secured
obligations of the Company to the extent of the assets securing those
obligations. The Senior Discount Notes are not guaranteed by NATC or any of its
subsidiaries and are structurally subordinated to all of NATC and its
subsidiaries' obligations, including the New Senior Notes. The Company or NATC
may from time to time seek to retire all or a portion of the Senior Discount
Notes through cash purchases and/or exchanges for other securities in open
market purchases, privately negotiated transactions, or otherwise.

           On and after March 1, 2009, the Senior Discount Notes will be
redeemable, at the Company's option, in whole at any time or in part from time
to time, upon not less than 30 nor more than 60 days prior notice at the
following redemption prices (expressed in percentages of principal amount at
maturity), if redeemed during the 12-month period commencing March 1 of the
years set forth below, plus accrued and unpaid interest to the redemption date
(subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date):


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

        2009                                     106.125%
        2010                                     104.083%
        2011                                     102.042%
        2012 and thereafter                      100.000%

           In addition, prior to March 1, 2009, the Company may redeem the
Senior Discount Notes, at its option, in whole at any time or in part from time
to time, upon not less than 30 nor more than 60 days prior notice at a
redemption price equal to 100% of the accreted value of the Senior Discount
Notes redeemed plus a "make-whole" premium based on U.S. Treasury rates as of,
and accrued and unpaid interest to, the applicable redemption date.


                                       28
<PAGE>
           Further, at any time prior to March 1, 2007, the Company may, at its
option, redeem up to 35% of the aggregate principal amount at maturity of the
Senior Discount Notes with the net cash proceeds of one or more equity offerings
by the Company, subject to certain conditions, at a redemption price equal to
112.250% of the accreted value thereof, plus accrued and unpaid interest
thereon, if any, to the date of redemption.

           The Senior Discount Notes limit the incurrence of additional
indebtedness, the payment of dividends, entering into transactions with
affiliates, asset sales, engaging in mergers or acquisitions, creating liens and
other encumbrances on assets, and other matters.

           The Company is dependent on NATC's cash flows to service its debt.
The amount of cash interest to be paid during the next five years is as follows:
$0 in each of 2005, 2006, 2007 and March 1, 2008; $5,941 payable on September 1,
2008 and $5,941 payable on each of March 1 and September 1 thereafter until
maturity.

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

           As discussed in "Item. 1 Business - State Attorney General Settlement
Agreements," in order to be in compliance with the MSA and subsequent states'
statutes, the Company is required to fund an escrow account with each of the
settling states based on the number of cigarettes or cigarette equivalents
(i.e., the pounds of MYO smoking tobacco) sold in such state. Funding of the
escrow deposit by the Company in 2004 was $4.1 million in respect of sales of
MYO smoking products in 2003. The Company estimates the total payments will be
$3.7 million in 2005 due to a decrease of sales of MYO smoking products in 2004.

           The following table summarizes the Company's contractual obligations
at December 31, 2004 after giving effect to the refinancing of the Company's
existing debt and preferred stock (in thousands):

<TABLE>
<CAPTION>

CONTRACTUAL OBLIGATIONS                                TOTAL      LESS THAN 1 YEAR    1-3 YEARS      4-5 YEARS   AFTER 5 YEARS
-----------------------                                -----      ----------------    ---------      ---------   -------------
<S>                                             <C>              <C>              <C>            <C>            <C>
Senior Discount Notes                               $    97,000   $          --     $        --    $        --    $     97,000

Senior notes                                            200,000              --              --             --         200,000

Interest on senior notes                                157,250          18,500          55,500         37,000          46,250

New Credit Agreement                                     14,500          14,500              --             --              --

Purchase obligations                                      2,368           2,368              --             --              --

Operating leases                                          5,592           1,213           2,581            637           1,161

Non-competition agreement                                   564             300             264             --              --
                                                    ------------   ------------     ------------   ------------   ------------
                                                    $   477,274    $     36,881     $    58,345    $    37,637    $    344,411
</TABLE>
           Looking forward, due to the lower than anticipated operating
performance of the Company's core business and increased net expenses resulting
from the Company's developmental activities relating to Zig-Zag Premium
Cigarettes, the Company currently anticipates that NATC will not likely meet the
fixed charge coverage ratio test contained in the New Credit Agreement for the
rolling four quarter periods ending June 30, 2005 and thereafter without the
contribution of additional equity into NATC. In the event that such covenant is
breached, NATC would be in default under the New Credit Agreement, pursuant to
which the lenders would have all rights and remedies available to them at that
time, including the right to accelerate payment of all obligations thereunder.
Such acceleration would trigger an event of default under the indentures
governing the New Senior Notes and the Senior Discount Notes, allowing an
acceleration of the obligations thereunder. In the event of an acceleration of
NATC's obligations under either the New Credit Agreement or New Senior Notes, or
an acceleration of the Company's obligations under the Senior Discount Notes,
neither NATC nor the Company would be able to satisfy their respective
obligations and would likely be required to seek protection from their creditors
under applicable laws. The Company is wholly dependent on NATC to service its
debt and other obligations. Although there can be no assurance, the Company
believes that it will be able to successfully negotiate new senior secured
financing on reasonably acceptable terms, refinance out the existing lenders and
avoid a default under the New Credit Agreement.



                                       29
<PAGE>
           The Company believes that its operating cash flows, together with
borrowings under the New Credit Agreement, subject to its ability to be in
compliance with the covenants thereunder or to obtain waivers or amendments of
such covenants or its ability to refinance the New Credit Agreement, should be
adequate to satisfy its reasonably foreseeable operating capital requirements.

INFLATION

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

CRITICAL ACCOUNTING POLICIES

           The Company believes the accounting policies below represent its
critical accounting policies due to the estimation process involved in each. See
Note 4, in the Consolidated Financial Statements, for a detailed discussion of
the Company's accounting policies.

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

           Goodwill and Other Intangible Assets - The Company has adopted
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS No. 142").

           Under SFAS No. 142, goodwill is no longer to be amortized but
reviewed for impairment annually or more frequently if certain indicators arise,
using a two-step approach. The net goodwill balances attributable to each of the
Company's reporting units are tested for impairment by comparing the fair value
of each reporting unit to its carrying value as of December 31 each year. Fair
value was determined by using the valuation technique of calculating the present
value of estimated expected future cash flows (using a discount rate
commensurate with the risks involved) with consideration given to multiples of
operating results The Company has reported that no impairment of goodwill has
been incurred as of December 31, 2004.

           Taxes - The Company has provided a valuation allowance to reduce its
net deferred income tax assets since it is management's judgment that it is not
"more likely than not" to be able to realize these benefits before they expire.
Accordingly, an adjustment to the net deferred income tax assets has been
charged to earnings for the year ending December 31, 2004.

           Contingencies - Note 21 of the Consolidated Financial Statements
contained herein discusses various litigation matters that impact the Company.
No loss or gain contingencies have been recorded for these matters because
Management believes that it is not probable that a loss has been incurred or an
asset realized. Future events may result in different conclusions, which could
have a material impact, either positively or negatively, on the results of
operations or financial condition of the Company.

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

           Pension and Postretirement Benefits Obligations - Pension and
postretirement benefits obligations accounting is intended to reflect the
recognition of future benefit costs over covered employees' approximate service
periods based on the terms of the plans and the investment and funding decisions
made by the Company. The Company is required to make assumptions regarding such
variables as the expected long-term rate of return on plan assets and the
discount rate applied to determine service costs and interest cost to arrive at
pension income or expense for the year. As of December 31, 2004 and 2003, the
Company used expected long-term rates of return on pension plan assets of 8.5%.
The postretirement plan has no assets. The Company analyzed the rates of returns
on assets used and determined that this rate is reasonable based upon the plans'
historical performance relative to the overall markets and mix of assets. The
Company will continue to assess the expected long-term rate of return on plan


                                       30
<PAGE>
assets assumptions for each plan based on relevant market conditions and will
make adjustments to the assumptions as appropriate. As of December 31, 2004, the
Company used discount rates of 5.5% and 5.75% for the pension and postretirement
plans, respectively. As of December 31, 2003, the Company used 6.25% for the
pension and postretirement plans, respectively. The decrease in the discount
rate used in the current year correlates with a decline in interest rates on
noncallable, high quality bonds over the past year. The Company bases its
discount rate used for postretirement benefits on Moody's Aa bond index plus an
adjustment upward to the next quarter percentage point. See Note 14 to the
Consolidated Financial Statements for the full list of assumptions for the
pension and postretirement plans.

FORWARD-LOOKING STATEMENTS

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

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

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
           ----------------------------------------------------------

           Interest Rate Sensitivity. The Company has exposure to interest rate
volatility primarily relating to interest rate changes applicable to revolving
loans under its New Credit Agreement. The Company's credit facility bears
interest at rates which vary with changes in LIBOR or the prime rate. As of
December 31, 2004, $14.5 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. A 1%
change in the interest rate would change pre-tax income by approximately $0.15
million per year.

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

           NAOC regularly reviews its foreign currency risk and its hedging
programs and may as part of that review determine at any time to change its
hedging policy. As of December 31, 2004, NAOC had no outstanding forward
currency contracts.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
           -------------------------------------------

           The Company's Consolidated Financial Statements and Notes to
Consolidated Financial Statements, and the report of PricewaterhouseCoopers LLP,
independent registered public accounting firm, with respect thereto, referred to
in the Index to Financial Statements of the Company contained in Item 15(a),
appear on pages F-1 through F-32 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.


                                       31
<PAGE>
ITEM 9A.      CONTROLS AND PROCEDURES

Disclosure Controls and Procedures
----------------------------------

           The Company's management, with the participation of the Company's
principal executive and principal financial officers, has evaluated the
effectiveness of the Company's disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), as of December 31, 2004. In connection with the
restatement described in Note 1 to the Company's consolidated financial
statements, management determined that there was a material weakness in the
Company's internal control over financial reporting as of December 31, 2004, as
more fully described below. Based on their evaluation, the Company's principal
executive and principal financial officers concluded that the Company's
disclosure controls and procedures were not effective as of December 31, 2004
because of the material weakness discussed below.

Restatement of Previously Issued Consolidated Financial Statements
------------------------------------------------------------------

           During the fourth quarter of 2004, the Company and its subsidiaries
provided a full valuation allowance against its net deferred tax assets.
Following a review of the Company's deferred tax assets and deferred tax
liabilities, the Company determined that in calculating the valuation allowance,
deferred tax liabilities relating to inventories and tax-deductible goodwill had
been inappropriately netted against certain deferred tax assets. It cannot be
determined that the temporary differences related to inventories and goodwill
will reverse during the time period in which the Company's temporary differences
related to its deferred tax assets are expected to reverse or expire. Therefore,
these deferred tax liabilities should not have been utilized to reduce the
amount of the valuation allowance against deferred tax assets. This resulted in
an understatement of the valuation allowance in the amount of the deferred tax
liabilities of $9.8 million and an understatement of income tax expense of $9.8
million as of and for the year ended December 31, 2004. The correction of this
understatement has the effect of increasing deferred tax liabilities, increasing
accumulated deficit and decreasing net income, with no effect on net cash flows,
as of and for the year ended December 31, 2004.

           The Company evaluated the materiality of the correction on its
consolidated financial statements using the guidelines of Staff Accounting
Bulletin No. 99, "Materiality" and concluded that the effects of the corrections
were material to its consolidated financial statements as of and for the year
ended December 31, 2004. As a result, the Company concluded that it will restate
such previously issued consolidated financial statements to recognize the impact
of the correction.

Internal Control Over Financial Reporting
-----------------------------------------

           The Company has determined that, as of December 31, 2004, it had a
deficiency in internal controls over the valuation of deferred income tax
assets. Specifically, the Company did not have adequate controls over the
accounting for and the review and approval of income tax related financial
statement accounts requiring a significant degree of technical knowledge related
to deferred tax assets and liabilities. As a result of the ineffective review,
an error in the deferred tax valuation allowance was not detected prior to the
issuance of the 2004 consolidated financial statements. This control deficiency
resulted in the restatement of the Company's 2004 annual consolidated financial
statements. In addition, unless effectively remediated, this control deficiency
could result in a misstatement to deferred tax valuation allowance that could
result in a material misstatement to the annual or interim financial statements.
Accordingly, management determined that this control deficiency constitutes a
material weakness. A material weakness is a control deficiency, or combination
of control deficiencies, that results in a more than remote likelihood that a
material misstatement of the annual or interim financial statements will not be
prevented or detected.

Management's Remediation Plan
-----------------------------

           The Company is in the process of determining the remedial steps
necessary to eliminate the material weakness relating to financial disclosure
controls that resulted in the restatement and intends to engage the services of
consultants with appropriate levels of income tax accounting knowledge to assist
in the review of complex tax matters.



                                       32
<PAGE>
Changes in Internal Control
---------------------------

           Other than the changes discussed above, there has been no change in
the Company's internal control over financial reporting (as defined in Rules
13a-15(f) and 15-d-15(f) under the Exchange Act) that occurred during the
Company's quarter ended December 31, 2004, that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting. However, subsequent to August 11, 2005, the Company is in
the process of determining the remedial steps necessary to eliminate the
material weakness relating to financial disclosure controls that resulted in the
restatement and intends to engage the services of consultants with appropriate
levels of income tax accounti8ng knowledge to assist in the review of complex
tax matters.



ITEM 9B.   OTHER INFORMATION

           None.









                                       33
<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" below.

<TABLE>
<C>                           <C>      <C>

Name                              Age    Position
----                              ---    --------
Thomas F. Helms, Jr.              64     Chief Executive Officer, President and Chairman of the Board

Douglas P. Rosefsky               36     Chief Financial Officer

Jack Africk*                      76     Director

Marc S. Cooper*                   44     Director

Geoffrey J. F. Gorman*            48     Director

James W. Dobbins                  45     Senior Vice President--General Counsel and Secretary

Robert A. Milliken, Jr.           48     President and Chief Operating Officer - National Tobacco Company, L.P.

James M. Murray                   44     Senior Vice President--Sales & Marketing - National Tobacco Company, L.P.

Lawrence S. Wexler                52     President and Chief Operating Officer - North Atlantic Cigarette Company, Inc.

*  Audit committee members.
</TABLE>

           Thomas F. Helms, Jr. Thomas F. Helms, Jr. has been Chief Executive
Officer and Chairman of the Board of NATC since June 1997 and President of NATC
since January 19, 2005. He is also the Chairman of the Board of Directors, Chief
Executive Officer, President, and a Director of the Company; the President as
well as a Director of NTC; the President and a Director of NACC; the President
of National Tobacco Finance Corporation; the Chairman of the Board of Directors,
President, Chief Executive Officer, and a Director of NAOC; the Chairman,
President, and a Director of Stoker; the Chairman, President, and a Director of
Fred Stoker & Sons, Inc.; and the Chairman, President and a Director of RBJ
Sales, Inc. In 1988, Mr. Helms formed National Tobacco Company, L.P., which
acquired certain loose leaf chewing tobacco assets of Lorillard, Inc. Mr. Helms
also served as President and Chief Executive Officer of Culbro Corporation's
smokeless tobacco division from 1983 until shortly prior to its sale to American
Maize-Products Company in March 1986. From 1979 to 1982, Mr. Helms was General
Manager of the Etherea Cosmetics and Designer Fragrances Division of Revlon,
Inc. From 1964 to 1979, Mr. Helms was employed in marketing and sales positions
in various divisions of Revlon, Inc.

           Douglas P. Rosefsky. Douglas P. Rosefsky became the Chief Financial
Officer on January 19, 2005. He is also a Managing Director of Alvarez & Marsal,
LLC. Mr. Rosefsky became a Director of Alvarez & Marsal in November 2000, and a
Managing Director in September 2003. Mr. Rosefsky has worked in a variety of
management and advisory services roles in several industries, most recently,
from November 2003 until August 2004, as an advisor and Chief Executive Officer
of DLT Solutions, Inc., a leading technology solutions provider to the
government with $300 million in annual revenues. From January 2003 to August
2003, Mr. Rosefsky acted as Chief Restructuring Officer and Chief Financial
Officer of Kleinert's Buster Brown, a leading designer, manufacturer and
retailer of children's apparel. From April 2001 until January 2003, Mr. Rosefsky
served as Senior Vice President - Finance and Co-Head of International of
Warnaco Inc., a global retail and apparel company based in New York. From
January 2001 until August 2001, Mr. Rosefsky served as Financial Advisor,
Communications Corporation of America, and between January 2000 and December
2000, as Vice President - Finance of Charter Behavioral Health Corporation. Mr.
Rosefsky formerly held positions at JP Morgan Chase (Chase Securities, Inc.),
Hoffman-La Roche, and Andersen Consulting.

           Jack Africk. Jack Africk has been a Director of the Company since
October 1997 and has been serving as a consultant to it since January 1999. From
January through December 1998 he served as President and Chief Operating Officer
of the Company. From 1996 to June 1997, he was Chief Executive Officer of NATC
Holdings USA, Inc. Prior to that time, from 1993 to 1996, Mr. Africk was a
consultant and Director of NATC Holdings USA, Inc. Mr. Africk is a former Vice
Chairman of UST Inc. ("UST"). From 1979 until 1993, Mr. Africk held various
positions with UST, including Vice Chairman and Executive Vice President, as
well as positions with subsidiary organizations including President of an
international division, and President and Chief Executive Officer of United
States Tobacco Company. Mr. Africk also currently serves as a Director of Tanger
Factory Outlets, a NYSE real estate investment trust that owns and operates
factory outlet centers, and Crown Central Petroleum, an operator of refineries,
gasoline stations and convenience stores.

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


                                       34
<PAGE>
           Geoffrey J. F. Gorman. Geoffrey Gorman has served as a Director of
the Company since April 2002. He is the Managing Partner of Private Equity
Partners, LLC. Since 1985, he has organized and led leveraged acquisitions and
private equity investments. Mr. Gorman has served as a Chairman of the Board of
Directors of Protein Genetics, Inc., Southern Dental Corporation, Waterbury
Companies, Inc. and Compass Plastics & Technologies, Inc. Mr. Gorman has also
served as a member of the board of directors of Swanson Manufacturers, Inc.,
Golden State Vintners, Inc., The Company Store, Inc., Avanti Petroleum, Inc. and
Koala Springs International Corporation. Mr. Gorman currently serves as Chairman
of the Board of Advisors of Santa Maria Foods Corporation and as a member of the
board of directors of Winnfield Funeral Homes and Life Insurance Company. Prior
to 1996, Mr. Gorman was a partner at Ardshiel, Inc., an investment bank.

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

           Robert A. Milliken, Jr. Robert A. Milliken, Jr. has been the
President and Chief Operating Officer of NTC since April, 2002. From May, 1979
to June, 1995 he held numerous senior management positions with increasing
responsibility with Arco Products Company and AMPM Mini Markets; from June 1995
to April 2001 he held positions of Vice President, Marketing for Sunoco which
included their A Plus retail convenience stores; Vice President, Retail Business
Unit for Amoco where he operated more than five hundred Amoco owned convenience
stores, then, subsequent to the BP Amoco merger, he became Vice President,
Convenience Retailing for BP Amoco responsible for all convenience store
activity in North America; and Vice President and General Manager of Irving Oil
and their branded Mainway retail convenience stores. During this period, Mr.
Milliken leveraged his significant tobacco category experience working with the
major tobacco manufacturers and wholesalers strategizing how to sustain and
optimize the tobacco category as the most significant contributor of convenience
store sales and profitability. Immediately prior to joining the Company, he was
Senior Vice President of Willard Bishop Consulting (WBC) in Illinois, a major
firm in providing leadership primarily to large national convenience store
chains. During his tenure at WBC, Mr. Milliken provided business consulting
services to candy and tobacco wholesalers as well as major chain retailers
within the convenience store, supermarket and drug store industries from April
2001 until March 2002.

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

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

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

ELECTION OF DIRECTORS

           Pursuant to the terms of an Amended and Restated Exchange and
Stockholders' Agreement, dated as of February 9, 2004, among the Company, NATC
and certain of the stockholders of the Company (the "Stockholders' Agreement"),
Mr. Helms has the right to vote a number of shares of common stock in respect of


                                       35
<PAGE>
the election of directors sufficient to elect all of the directors of the
Company. 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. The Company, in turn, votes all of the Common Stock of NATC and,
accordingly, has the right to elect all of its directors.

AUDIT COMMITTEE FINANCIAL EXPERT

           The Board of Directors has determined that Geoffrey J.F. Gorman
qualifies as an "audit committee financial expert" as such term is defined in
rules adopted by the Securities and Exchange Commission implementing
requirements of the Sarbanes-Oxley Act of 2002. The Board of Directors has
further determined that Mr. Gorman is "independent" as such term is defined in
the Securities Exchange Act of 1934 and the rules thereunder.

CODE OF BUSINESS CONDUCT AND ETHICS

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

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





                                       36
<PAGE>
ITEM 11.      EXECUTIVE COMPENSATION
              ----------------------

           The following table summarizes the compensation paid by the Company
as well as certain other compensation paid or accrued, to the executives listed
below for the fiscal years ended December 31, 2002, 2003 and 2004 (each person
appearing in the table is referred to as a "Named Executive Officer"):

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>

                                       ANNUAL COMPENSATION                      LONG-TERM COMPENSATION
                               --------------------------------------   ---------------------------------------
                                                                                 AWARDS               PAYOUTS
                                                                        ----------------------------  ---------
                                                            OTHER        RESTRICTED     SECURITIES
                                                            ANNUAL         STOCK        UNDERLYING      LTIP         ALL OTHER
NAME AND PRINCIPAL                                          COMPEN-       AWARDS(S)       OPTIONS/     PAYOUTS       COMPEN-
POSITION               YEAR     SALARY ($)    BONUS ($)     SATION ($)       ($)           SARS (#)      ($)         SATION ($)
------------------    ------   -----------    ---------     ----------   -----------    ------------   --------     ------------
<S>                 <C>       <C>           <C>          <C>           <C>            <C>            <C>         <C>
Thomas F. Helms,
   Jr.                 2004    $ 725,000     $ 750,000     $  50,000          --             --           --   $    132,669 (1)
      Chairman of      2003      725,000            --        50,000          --             --           --
         the Board     2002      725,000       400,000        50,000          --             --           --   $    130,499 (2)
         and
      Chief                                                                                                         106,705 (3)
         Executive
         Officer

David I. Brunson
      President,       2004      600,000       750,000        35,000          --             --           --         95,787 (4)
         Chief         2003      600,000            --        35,000          --             --           --
         Financial     2002      425,000       300,000        35,000          --             --           --         85,621 (5)
      Officer and
         Treasurer                                                                                                   94,005 (6)



Robert A.
   Milliken, Jr.       2004      362,788        70,000            --          --             --           --         75,349 (7)
      President        2003      350,000            --            --          --             --           --
         and Chief     2002      262,500            --                        --             --           --         25,462 (8)
      Operating
         Officer -                                                                                                  108,096 (9)
      National
         Tobacco
      Company, L.P.

Lawrence S. Wexler
      President        2004      350,000            --            --          --             --           --         33,358 (10)
         and Chief--   2003           --        50,000            --          --             --           --
      Operating        2002           --            --            --          --             --           --             --
         Officer
      North                                                                                                              --
         Atlantic
         Cigarette
      Company

James M. Murray
      Senior Vice      2004      227,346        43,000            --          --             --           --         21,281 (11)
         President--   2003      216,489            --            --          --             --           --
      Sales &          2002      205,000        35,000            --          --             --           --         16,731 (12)
         Marketing--
      National                                                                                                       15,731 (13)
         Tobacco
      Company, L.P.
</TABLE>
------------------------
(1)  Includes insurance premiums of $66,025 paid by the Company with respect to
     term life and disability insurance, contributions by the Company of $16,000
     to a defined contribution plan, an allowance for use of a Company provided
     vehicle of $27,839 and $22,805 for miscellaneous payments.


                                       37
<PAGE>
(2)  Includes insurance premiums of $63,711 paid by the Company with respect to
     term life and disability insurance, contributions by the Company of $14,000
     to a defined contribution plan, $50,000 as compensation for estate and tax
     planning activities and $2,788 for miscellaneous payments.

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

(4)  Includes insurance premiums of $12,390 paid by the Company with respect to
     term life and disability insurance, contributions by the Company of $16,000
     to a defined contribution plan, an allowance for use of a Company provided
     vehicle of $27,404 and $39,993 for miscellaneous payments. Mr. Brunson
     resigned as an officer of the Company effective January 19, 2005.

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

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

(7)  Includes insurance premiums of $6,000 paid by the Company with respect to
     term life insurance, contributions by the Company of $13,000 to a defined
     contribution plan, an allowance for use of a Company provided vehicle of
     $14,902 and $41,447 for miscellaneous payments.

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

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

(10) Includes insurance premiums of $3,000 paid by the Company with respect to
     term life insurance, contributions by the Company of $15,423 to a defined
     contribution plan, an allowance for use of a Company provided vehicle of
     $9,729, and $5,206 for miscellaneous payments.

(11) Includes contributions by the Company of $13,000 to a defined contribution
     plan and $8,281 for miscellaneous payments.

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

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

                      OPTION/SAR GRANTS IN LAST FISCAL YEAR

           Stock options relating to the Company common stock granted to the
Named Executive Officers below for the year ended December 31, 2004 are as
follows:

<TABLE>
<CAPTION>
                                                                                                 POTENTIAL REALIZABLE VALUE
                                                                                                  AT ASSUMED ANNUAL RATES
                                                                                                  OF STOCK APPRECIATION FOR
                                       INDIVIDUAL GRANTS                                                OPTION TERM
                               ---------------------------------                                  ---------------------------
                                 NUMBER OF          % OF TOTAL
                                SECURITIES         OPTIONS/SARS
                                UNDERLYING          GRANTED TO      EXERCISE OR
                               OPTIONS/SARS         EMPLOYEES IN    BASE PRICE     EXPIRATION
NAME                             GRANTED #          FISCAL YEAR      ($/SH)          DATE           5% ($)          10% ($)
----                             ---------          -----------      ------          ----           ------          -------

<S>                          <C>                 <C>              <C>           <C>            <C>            <C>
Robert A. Milliken, Jr.               2,085            14.8%        $  62.00      05/11/2014      $ 200,535       $ 304,806

Lawrence S. Wexler                   10,000            71.0%           62.00      08/02/2014        961,800       1,461,900
                              --------------
Total                                12,085
                              ==============

</TABLE>


                                       38
<PAGE>
             AGGREGATED OPTION/SAR EXERCISES DURING LAST FISCAL YEAR
                      AND FISCAL YEAR-END OPTION/SAR VALUES

           The following table sets forth certain information with respect to
the exercise of options to purchase the Company's common stock during 2004, and
the unexercised options held and the value thereof at December 31, 2004, for
each of the Named Executive Officers.

<TABLE>
<CAPTION>

                                                             NUMBER OF SECURITIES          VALUE OF UNEXERCISED
                                                            UNDERLYING UNEXERCISED          IN-THE-MONEY OPTION
                                SHARES         VALUE      OPTIONS AT FISCAL YEAR END       AT FISCAL YEAR END
                              ACQUIRED ON     REALIZED    ----------------------------    -------------------------
NAME                          EXERCISE (#)      ($)        EXERCISABLE  UNEXERCISABLE    EXERCISABLE  UNEXERCISABLE
----                          ------------      ---        -----------  -------------    -----------  -------------
<S>                          <C>            <C>          <C>            <C>             <C>            <C>
Thomas F. Helms, Jr.               --           --            --               --                --         --


David I. Brunson                   --           --           37,249           3,775     $  1,717,578        --


Robert A. Milliken, Jr.            --           --            5,664           4,336               --        --


Lawrence S. Wexler                 --           --            1,603           8,397               --        --


James M. Murray                    --           --            3,056             944     $    104,020        --
</TABLE>

                            LONG TERM INCENTIVE PLAN

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

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

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

COMPENSATION OF DIRECTORS

           Generally, directors who do not receive compensation as officers or
employees of the Company or any of its affiliates will be paid an annual
retainer fee of $25,000, plus reasonable out-of-pocket expenses, for their
services on the Board and its committees. Geoffrey Gorman will receive an
additional $25,000 for serving as Chairman of the Audit Committee. For services
provided to the Company in 2005 beyond those typically provided by corporate
directors, the outside directors will be compensated $1,500 per day.

EMPLOYMENT AGREEMENTS

THOMAS F. HELMS JR.

           Thomas F. Helms, Jr., Chief Executive Officer of the Company, is
party to an employment agreement with the Company, dated May 17, 1996 (the
"Helms Employment Agreement"). Pursuant to the Helms Employment Agreement, Mr.
Helms was to receive an annual base salary of $300,000, which is reviewed
annually, plus a bonus in accordance with the Company's 1999 Executive Plan. In
2004, Mr. Helms' salary was $725,000. The Helms Employment Agreement provides
for a three-year term, renewable annually, and is terminable at will except with
respect to severance. In addition, Mr. Helms receives various other benefits,
including life insurance and health, hospitalization, use of a company car,
disability and pension benefits and other perquisites. The Helms Employment
Agreement includes a non-compete provision for a minimum of twelve months
following the termination of Mr. Helms's employment as well as for any period
during which severance is paid to Mr. Helms. Mr. Helms is entitled to twelve
months' severance and a continuation of benefits following a termination of his
employment by the Company without cause, provided in such event that the bonus
received shall be only for the year in which the termination occurred and shall
be prorated.

DAVID I. BRUNSON (RESIGNED JANUARY 19, 2005)

           David I. Brunson, the former President, Chief Financial Officer and
Treasurer of the Company, entered into an amended and restated employment
agreement with the Company on April 30, 1998 which was subsequently amended on
November 21, 2002 (as so amended, the "Brunson Employment Agreement"). Pursuant
to the Brunson Employment Agreement, Mr. Brunson received an annual base salary
of $600,000, which was reviewed annually, plus a bonus in accordance with the
Company's 1999 Executive Plan. The Brunson Employment Agreement provides for a


                                       39
<PAGE>
rolling two-year term such that in the event Mr. Brunson resigns for good reason
or is terminated without cause, he is entitled to receive a severance payment in
the amount of $425,000 per year, and a pro rated bonus (based on the highest
earned bonus under the Executive Bonus Plan paid to Mr. Brunson during the
preceding two years) for the remainder of the term of employment. The Brunson
Employment Agreement was effectively terminated with his resignation on January
19, 2005. Pursuant to the Brunson Employment Agreement, the Company is required
to make certain severance payments to Mr. Brunson, including $425,000, which was
paid within ten business days after January 19, 2005, and an additional $425,000
payable within the next 12 months. In addition, Mr. Brunson may become entitled
to a bonus payment of up to $725,000 relating to synergies achieved in the
integration of the business of Stoker, Inc. that was acquired by the Company in
2003. Pursuant to the Brunson Employment Agreement, after the last severance
payment is made, Mr. Brunson will have an option to require the Company to
repurchase all or a portion of his shares of Parent at their fair market value.
The Company will not be obligated to repurchase these shares if, upon or after
the payment, it would be in default under any instrument, agreement or law by
which it is bound; in this case, the repurchase may be deferred until it can be
completed without such default. Similarly, the Company has an option to
repurchase Mr. Brunson's shares at their fair market value. In the event the
Company and Mr. Brunson are unable to agree upon the fair market value of these
shares, an independent investment banking firm will be selected to determine
such fair market value, in accordance with the procedure provided for by the
Brunson Employment Agreement. If neither Mr. Brunson nor the Company exercise
their respective options by the earliest of the fifth anniversary of the
termination of Mr. Brunson's employment or the date on which the Company
refinances, or uses proceeds derived from refinancing, certain of its
obligations, the Company will be required to repurchase Mr. Brunson's shares on
such date unless Mr. Brunson waives his right to require the Company to purchase
his shares. During the first quarter of 2005, the Company expects to record
approximately $1.1 million relating to the resignation of Mr. Brunson. Any
options or shares of restricted stock granted to Mr. Brunson vest in full as of
the date of such termination.

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

           Pursuant to a non-qualified stock option agreement, Mr. Brunson was
granted options to purchase 30,928 shares of Common Stock of Parent. One-third
of these options vested as of the closing of the 1997 Acquisition and one-third
of these options vested on each of April 23, 1998 and April 23, 1999. In
connection with the exercise of such options and subject to certain limitations,
including a requirement that Mr. Brunson shall not leave, resign or be
terminated for cause, the Company has agreed to pay Mr. Brunson an amount equal
to the sum of (i) the difference between ordinary income and long-term capital
gain tax liability for reportable income resulting from any exercise of the
options, plus (ii) a "gross-up" to compensate for the additional ordinary income
tax liability resulting from the payment of such amount.

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

ROBERT A. MILLIKEN, JR.

           Robert A. Milliken, Jr., President and Chief Operating Officer of
NTC, is party to an employment agreement with NATC dated March 28, 2002 (the
"Milliken Employment Agreement") pursuant to which Mr. Milliken receives a base
annual salary of $350,000, plus a bonus in accordance with the Company's
Management Bonus Plan (as defined). The Milliken Employment Agreement provides
for a rolling twelve month term, such that in the event of termination of Mr.
Milliken's employment by the Company without cause, Mr. Milliken is entitled to
receive his then current annual salary, plus an amount equal to his bonus in the
prior year. The Milliken Employment Agreement also provides for club membership
dues and disability insurance, use of a company car, as well as a stock option
to purchase 10,000 shares of the common stock of Parent at an exercise price of
$62.00 per share.

LAWRENCE S. WEXLER

           Lawrence S. Wexler, the President and Chief Operating Officer of
NACC, has an employment agreement, dated December 1, 2003 (the "Wexler
Agreement") with NACC, pursuant to which he receives a base annual salary of
$350,000, plus a bonus in accordance with the Company's Management Bonus Plan.
The agreement also provides for severance benefits of one year's salary, and
certain bonuses. In addition, the agreement provides for certain other benefits
during his employment, such as options to purchase 10,000 shares of Parent's
common stock at an exercise price of $62.00 per share, use of a company car,
reimbursement for some club membership dues, and reimbursement for life and
disability insurance.


                                       40
<PAGE>
JAMES M. MURRAY

           James M. Murray, Senior Vice President--Sales and Marketing of NTC,
has an employment agreement, dated December 1, 2003 (the "Murray Agreement"),
with NTC pursuant to which he receives a base annual salary of $215,300, plus a
bonus in accordance with the Company's Management Bonus Plan. The agreement also
provides for a rolling twelve month term, such that in the event of termination
of Mr. Murray by the Company without cause, Mr. Murray is entitled to receive
his then current annual salary. The Murray Agreement also provides for certain
benefits in the event that Mr. Murray is relocated to the Louisville, Kentucky
facility, such as, use of a company vehicle and a club membership, as well as
stock options to purchase 2,000 shares of Parent's common stock at an exercise
price of $9.99 per share and 2,000 shares at an exercise price of $62.00 per
share.

JAMES W. DOBBINS

           James W. Dobbins, Senior Vice President, General Counsel and
Secretary of the Company, has an employment agreement with NATC, dated November
21, 2002 (the "Dobbins Agreement"), pursuant to which Mr. Dobbins is paid
$227,500, subject to annual review by the Board of Directors, is included in the
Management Bonus Plan, and is granted additional benefits such as life
insurance, stock options and reimbursement for a club membership as well as
stock options to purchase 2,000 shares of the common stock of Parent at an
exercise price of $9.99 per share and 2,000 shares at an exercise price of
$62.00 per share. The Dobbins Agreement provides for a rolling twelve month
term, such that in the event of termination of Mr. Dobbins' employment by the
Company without cause, Mr. Dobbins is entitled to receive his then current
annual salary plus an amount equal to his bonus in the prior year.

RETIREMENT PLAN

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

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

<TABLE>
<CAPTION>
                                                                  ANNUAL BENEFITS AT RETIREMENT WITH
                                                                     YEARS OF CREDITED SERVICE(1)
                                             ------------------------------------------------------------------------------
AVERAGE COMPENSATION                              10           15            20           25            30            35
--------------------                             ----         ----          ----         ----          ----          ----

<S>                                     <C>             <C>         <C>             <C>          <C>           <C>
$125,000                                      $  15,000   $  22,500    $  30,000     $  37,500     $  45,000     $  52,500
  150,000                                        18,000      27,000        36,000       45,000        54,000        63,000
  175,000                                        21,000      31,500        42,000       52,500        63,000        73,500
  200,000                                        24,000      36,000        48,000       60,000        72,000        84,000
  225,000                                        27,000      40,500        54,000       67,500        81,000        94,500
  250,000                                        30,000      45,000        60,000       75,000        90,000       105,000
  300,000                                        36,000      54,000        72,000       90,000       108,000       126,000
  400,000                                        48,000      72,000        96,000      120,000       144,000       168,000
  450,000                                        54,000      81,000       108,000      135,000       162,000       189,000
  500,000                                        60,000      90,000       120,000      150,000       180,000       210,000
</TABLE>

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

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

           A participant in the Retirement Plan becomes fully vested prior to
normal retirement at age 65 upon the completion of five years of service.
Benefits are also provided under the Retirement Plan in the event of early
retirement at or after age 55 and the completion of at least ten years of
service (or special early retirement after completion of 30 years of service)
and in the event of retirement for disability after completion of five years of
service. The amount of the contribution, payment, or accrual with respect to a
specified person is not and cannot readily be separately or individually
calculated by the actuaries for the Retirement Plan. Benefits under the
Retirement Plan are based upon application of a formula to the specified average
compensation and years of credited service at normal retirement age.
Compensation covered by the Retirement Plan consists of the average annual
salary during any five consecutive calendar years in the last ten years of an
employee's service, which affords the highest salary, or, if employed for less
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 Executive
Officers are as follows: Thomas F. Helms, Jr., 17 years; David I. Brunson, 8
years; Robert A. Milliken, Jr., 2 years; Lawrence S. Wexler, 1 year; and James
M. Murray, 5 years.


                                       41
<PAGE>
BONUS PLANS

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

1997 SHARE INCENTIVE PLAN

           The Board of Directors of the Company has adopted, and the Company's
stockholders have approved, the North Atlantic Trading Company, Inc. 1997 Share
Incentive Plan (the "1997 Incentive Plan"), which, as a result of the 2004
reorganization, now relates to the shares of the Company Common Stock.

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

Shares Available

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

Administration

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

Eligibility for Participation

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


                                       42
<PAGE>
Stock Options

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

Stock Appreciation Rights (SARs)

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

Stock Awards

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

Performance Awards

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

Stock Units

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


                                       43
<PAGE>
Other Terms of Benefits

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

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

2002 Share Incentive Plan

           In November 2002, the Board of Directors of NATC adopted the North
Atlantic Trading Company, Inc. 2002 Share Incentive Plan (the "2002 Plan"),
which, as a result of the 2004 reorganization, now relates to the shares of the
Company Common Stock. The 2002 Plan has terms that are substantially identical
to the terms of the 1997 Share Incentive Plan. The Company has reserved 50,000
shares of Common Stock for benefits under the 2002 Plan. A nearly identical plan
that had been approved by the Board of Directors in 2001 (the "North Atlantic
Trading Company, Inc. 2001 Share Incentive Plan") and under which no awards had
been granted, was terminated by the Board of Directors in connection with the
adoption of the 2002 Share Incentive Plan.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
           ------------------------------------------------------------------
           RELATED STOCKHOLDER MATTERS
           ---------------------------

           The table below sets forth certain information regarding the
beneficial ownership of common stock of the Company as of March 15, 2005, by (i)
each person or entity who beneficially owns five percent or more of the common
stock, (ii) each of the Company's directors and Named Executive Officers and
(iii) all of the Company's directors and executive officers as a group. Unless
otherwise indicated, each beneficial owner's address is c/o North Atlantic
Holding 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)                                                 461,285              78.4%             74.2%
   Helms Management Corp.
David I. Brunson(c)                                                      49,810               7.8               7.4

Herbert Morris(d)                                                        35,479               6.0               5.7
   Flowing Velvet Products, Inc.
   3 Points of View
   Warwick, New York 10990

Maurice R. Langston(d)                                                   34,590               5.9               5.6
   Langston Enterprises, Inc.
Alan R. Minsterketter(d)                                                 25,788               4.4               4.1
   Alan M. Inc.
Jack Africk(e)                                                           19,810               3.3               3.1

Marc S. Cooper(f)                                                            --                  *                 *
   Peter J. Solomon Company Limited
Geoffrey J.F. Gorman                                                         --                  *                 *

Lawrence S. Wexler(g)                                                     2,500                 *                 *

Robert A. Milliken, Jr.(h)                                                5,937               1.0%              1.0%

James M. Murray(i)                                                        3,000               1.0%                *

Directors and Executive Officers as a Group                             490,684              79.4%             79.5%
   (9 persons)
---------------------
*    Less than 1%.

</TABLE>

                                       44
<PAGE>
(a)  The percentages assume, in the column entitled "Before Exercise of
     Warrants," that none of the outstanding warrants (i) to purchase an
     aggregate of 16,091 shares of the Company's common stock at an exercise
     price of $.01 per share issued in connection with NATC's recapitalization
     in 1997, (ii) to purchase an aggregate of 3,000 shares of the Company's
     common stock at an exercise price of $40.00 per share, issued in 2003 to
     Peter J. Solomon Company Limited, and (iii) to purchase an aggregate of
     14,721 shares of the Company's common stock at an exercise price of $62.00
     per share, issued to Guggenheim Investment Management, LLC, are exercised.
     The percentages assume, in the column entitled "After Exercise of
     Warrants," that all of such warrants are exercised.

(b)  Helms Management Corp., all of the voting capital stock of which is owned
     by Mr. Helms, who serves as its President, and all of the non-voting
     capital stock of which is owned by a trust established by Mr. Helms for the
     benefit of his children, owns 251,033 shares of the Company's common stock,
     which represents approximately 42.1% of the outstanding shares, including
     currently exercisable options and assuming that none of the outstanding
     warrants are exercised, or 37.5% of the outstanding shares, including
     currently exercisable options and assuming that all such warrants are
     exercised. Because of Mr. Helms' ability to vote an additional 137,033
     shares of the Company's common stock held by members of the the Company's
     management in respect of the election of its directors pursuant to the
     Stockholders' Agreement, he may be deemed to be the beneficial owner of
     such additional shares. See "--Stockholders' Agreement." In connection with
     the transfer of 37,740 shares of the Company's common stock held by certain
     stockholders, the transferees of such shares granted Mr. Helms the right to
     vote such shares with respect to any and all matters submitted to a vote of
     the Company's stockholders and, consequently, Mr. Helms may be deemed to be
     the beneficial owner of such shares. In addition, Mr. Helms may be deemed
     the beneficial owner of 35,479 shares that are subject to a voting
     agreement between Helms Management Corp. and Flowing Velvet Products, Inc.,
     and an additional 5,000 shares held by an outside investor that are subject
     to the voting agreement. See "--Voting Agreements."

(c)  Includes (i) 2,250 shares of Parent's common stock owned by Mr. Brunson,
     (ii) 41,024 shares subject to currently exercisable stock options held by
     Mr. Brunson. In addition, Mr. Brunson has the right to acquire 6,536 shares
     currently owned by Helms Management Corp.

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

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

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

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

(h)  Mr. Milliken, Jr. holds 3,488 shares subject to currently exercisable stock
     options plus an additional 1,979 shares which will vest as of April 1,
     2005.

(i)  Mr. Murray holds 3,000 shares subject to currently exercisable stock
     options.

                  PARENT'S EQUITY COMPENSATION PLAN INFORMATION

<TABLE>
<CAPTION>
                                                                                                      NUMBER OF SECURITIES
                                                                                                     REMAINING AVAILABLE FOR
                                         NUMBER OF SECURITIES TO BE                                   FUTURE ISSUANCE UNDER
                                           ISSUED UPON EXERCISE OF    WEIGHTED-AVERAGE EXERCISE     EQUITY COMPENSATION PLANS
                                             OUTSTANDING OPTIONS,   PRICE OF OUTSTANDING OPTIONS,     (EXCLUDING SECURITIES
PLAN CATEGORY                               WARRANTS AND RIGHTS         WARRANTS AND RIGHTS          REFLECTED IN COLUMN (A))
------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                         <C>                            <C>
                                                     (A)                         (B)                        (C)

Equity compensation plans approved by
   security holders (1)                               140,168         $            39.16                      6,000
Equity compensation plans not approved by
   security holders                                        --                         --
Total                                                 140,168         $            39.16                      6,000
</TABLE>

(1)  Relates to the 1997 Share Incentive Plan and 2002 Share Incentive Plan,
     which are described in Item II above.


                                       45
<PAGE>
STOCKHOLDERS' AGREEMENT

           The Company, NATC 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 "Directors and Executive
Officers of the Registrant--Election of Directors." Pursuant to the
Stockholder's Agreement, Mr. Helms has the right to vote a number of shares of
common stock in respect of the election of directors sufficient to elect all the
Company's directors. The Stockholders' Agreement also sets forth certain
restrictions on the transfer of shares of the Company's common stock by existing
stockholders and on the acquisition by existing stockholders of investments in
competitors of Bollore. In addition, the Stockholders' Agreement provides the
existing stockholders with certain "tag-along" rights to participate ratably in
sales of the Company's common stock to third parties and requires existing
stockholders to participate ratably in certain sales of the Company's common
stock to third parties. Subject to the terms of all applicable debt agreements
of the Company and its subsidiaries, 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, the Company also has the right to
repurchase the shares of its common stock held by members of management if their
employment terminates, in the event of certain bankruptcy proceedings relating
to such persons or upon an involuntary transfer of their shares by court order
or otherwise in each case at the fair market value of such shares. The Company
became a party to the Stockholders' Agreement concurrently with the closing of
the offering of the notes.

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

VOTING AGREEMENTS

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

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
           ----------------------------------------------

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

           On April 26, 1988 and on December 15, 1988, Mr. Thomas F. Helms, Jr.,
Chief Executive Officer of the Company, borrowed $75,000 and $45,000,
respectively, in connection with the purchase of a portion of his partnership
interest in NTC and executed two separate notes, payable to NATC. On April 14,
1998, Helms Management Corp., a corporation in which Mr. Helms owns all of the
voting capital stock and a trust established by Mr. Helms for the benefit of his
children which owns all of the non-voting capital stock, issued a promissory
note to NATC in the aggregate principal amount of $886,686, representing the
principal on the notes discussed above, plus an additional loan by NATC in the
amount of $766,686 to cover certain income tax liabilities of Helms Management
Corp. resulting from NATC's conversion from a limited liability company to a "C"
corporation in connection with the Acquisition. Upon execution of the $886,686
note, the prior notes issued by Mr. Helms were cancelled. On March 31, 2002,
Helms Management Corp. issued a promissory note to NATC in the amount of
$958,499 and the prior note was cancelled. The current note bears interest at
the rate of 5.0% per annum and has a final maturity on March 31, 2008. On
January 4, 1999, Mr. Helms issued a promissory note to NATC, in the principal
amount of $150,000, for an additional loan by NATC to cover certain tax
liabilities of Helms Management Corp. resulting from the above-mentioned LLC
conversion. On April 20, 2001 and on November 12, 2001, additional loans, each
in the amount of $150,000, were made to Mr. Helms on the same terms as the
existing loans. On March 31, 2002, Mr. Helms issued a promissory note to NATC in
the principal amount of $475,071 representing the principal amounts on the notes
discussed above, plus accrued interest of $25,071 and the prior notes were
cancelled. The current note bears interest at the rate of 5.0% per annum and has
a final maturity on March 31, 2008.


                                       46
<PAGE>
           Kent Helms and Thomas F. Helms, III, sons of Thomas F. Helms, Jr.,
are employed by the Company. During 2004, Kent Helms, Interim Business Team
Leader, received aggregate compensation of $84,419 and Thomas F. Helms, III,
Business Team Leader, received aggregate compensation of $126,864 for services
in such capacities. Pursuant to a policy adopted by the Board of Directors,
their compensation is subject to the approval of, and was approved by, the
directors who are not members of management.

           Jack Africk, the former President and Chief Operating Officer of the
Company, terminated his employment agreement with NATC effective December 31,
1998, but continues to serve as a member of the Company's Board of Directors. In
connection with Mr. Africk's resignation from employment, he and the Company
entered into a consulting agreement (the "Africk Consulting Agreement") pursuant
to which, Mr. Africk provides consulting services to the Company on an as needed
basis at the rate of $75,000 per annum. The Africk Consulting Agreement is
subject to annual renewals and has been renewed through 2005. For 2002, Mr.
Africk received $75,000 pursuant to the terms of the Africk Consulting Agreement
and an additional $50,000 for consulting services that exceeded the extent of
services contemplated by the Africk Consulting Agreement. For 2004, Mr. Africk's
compensation under his agreement was $100,000 and he received an additional
$52,000 for consulting services relating to the sales and distribution of the
Company's products. For 2005, Mr. Africk's consulting fee is $75,000.

           On November 8, 2002, the Company also entered into an agreement with
Marketing Solutions USA, a company controlled by Mr. Africk, under which
Marketing Solutions USA represents the Company with a specific customer, and
receives a percentage commission. The agreement commenced January 1, 2003 and
terminated on December 31, 2003. In 2004, a similar agreement was entered into
for which Mr. Africk received payment of $51,935. The Company intends to enter
into a similar contract with Mr. Africk for 2005.

           Marc S. Cooper is a Managing Director of Peter J. Solomon Company
Limited ("PJSC"), an investment banking and financial advisory firm. In June
2001, the Company engaged PJSC to render general financial and strategic
advisory services through May 1, 2004. As compensation therefor, the Company
issued to PJSC, as a one time retainer fee, warrants to purchase 3,000 shares of
Common Stock at an exercise price of $40.00 per share, and agreed to reimburse
PJSC for out-of-pocket expenses incurred in connection with its provision of
services.

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

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

           On January 20, 2005, the Company and NATC (collectively, the
"Companies") engaged the management consulting firm of Alvarez & Marsal ("A&M")
to assist in the development of an assessment of the Companies' operations and
to identify the potential for performance improvement and cost reduction
opportunities. In connection with such engagement, the Companies and A&M entered
into an Engagement Letter Agreement, dated January 19, 2005 (the "Letter
Agreement"). Pursuant to the Letter Agreement, A&M agreed to make available to
the Companies financial services of Douglas P. Rosefsky, its managing director,
which services, upon the Companies' request, will include serving as Chief
Financial Officer of the Companies, as well as the services of an additional A&M
professional as an assistant to Mr. Rosefsky, and, upon the Companies' request,
as Director-Finance of the Companies (the "Additional Professional").

           Under the terms of the Letter Agreement, the Companies will pay
$100,000 per month to A&M for the services of Mr. Rosefsky, and $50,000 per
month for the services of the Additional Professional. The Companies will also
compensate A&M for certain reasonable out-of-pocket expenses. The Letter
Agreement may be terminated by either party without cause upon thirty days'
prior written notice during the first ninety days after the date of the Letter
Agreement, and upon fifteen days' prior written notice thereafter, provided that
after thirty days from the date of the Letter Agreement, the Companies may
terminate the engagement of the Additional Professional by giving fifteen days'
prior written notice to A&M. The Companies agreed to indemnify Mr. Rosefsky and
the Additional Professional to the same extent as the most favorable
indemnification it extends to any of its officers or directors.

           In addition, on January 19, 2005, the Companies and A&M entered into
the Indemnification Agreement (the "Indemnification Agreement"), pursuant to
which the Companies agreed to indemnify A&M and its agents against losses in
connection with A&M's performance under the Letter Agreement.


                                       47
<PAGE>
ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES
           --------------------------------------

           The following summarizes the fees paid to the Company's principal
accountant, PricewaterhouseCoopers for professional services to the Company and
NATC in 2004 and NATC in 2003:

<TABLE>
<S>                   <C>                    <C>              <C>                  <C>                       <C>

1) AUDIT FEES
-------------

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

                          2003                                                         2004
 --------------------------------------------------------        --------------------------------------------------------

 $                                                605,653        $                                               309,722

2) AUDIT-RELATED FEES
---------------------

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

                          2003                                                         2004
 --------------------------------------------------------        --------------------------------------------------------
 $                                                122,013        $                                                48,600

3) TAX FEES
-----------

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

                          2003                                                         2004
 --------------------------------------------------------        --------------------------------------------------------
 $                                                 42,200        $                                               150,982

4) ALL OTHER FEES
-----------------

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

                          2003                                                         2004
 --------------------------------------------------------        --------------------------------------------------------
  $                                                    0         $                                               164,850

</TABLE>

5) AUDIT COMMITTEE DISCLOSURES
------------------------------

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

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

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

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

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

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

The Policies & Procedures also require that the principal accountants prepare
and submit an Annual Audit Plan outlining the audit strategy, scope and a
schedule of fees for each audit service performed. All audit and non-audit
services were approved by the Audit Committee, in accordance with the Policies &
Procedures described above, for fiscal years 2003 and 2004.


                                       48
<PAGE>
PART IV

ITEM 15.   EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
           ------------------------------------------

           (a)(1) Financial Statements

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

<TABLE>
<C>                                                                            <C>
                                                                                     PAGE
                                                                                    ------

Report of Independent Registered Public Accounting Firm                               F-1


Consolidated Balance Sheets as of December 31, 2004 and 2003                          F-2


Consolidated Statements of Operations and Comprehensive Income (Loss) for the
years ended December 31, 2004, 2003, and 2002.                                        F-3


Consolidated Statements of Comprehensive Income (Loss) for the years ended
December 31, 2004, 2003, and 2002                                                     F-4


Consolidated Statements of Cash Flows for the years ended December 31, 2004,
2003, and 2002                                                                        F-5


Consolidated Statements of Changes in Stockholders' Deficit for the years ended
December 31, 2004, 2003, and 2002.                                                    F-6


Notes to Consolidated Financial Statements                                            F-7

     (a)(2) Financial Statement Schedules:

</TABLE>

                                       49
<PAGE>
The required information is given in the consolidated financial statements or
notes thereto.

      (a)(3) Exhibits



Exhibit
Number              Description
---------           -----------

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

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

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

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

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

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

  3.1(a)  --        Certificate of Incorporation of North Atlantic Holding
                    Company, Inc., filed January 28, 2004 (incorporated herein
                    by reference to Exhibit 3.1(a) to the Registrant's Annual
                    Report on Form 10-K for the fiscal year ended December 31,
                    2004 filed with the Securities and Exchange Commission on
                    March 31, 2005).

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

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

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


                                       50
<PAGE>
Exhibit
Number              Description
---------           -----------

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

3.1(f)   --         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 by NATC with the Commission on
                    September 3, 1997).

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

3.1(h)   --         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 by NATC with the Commission on
                    September 3, 1997).

3.1(i)   --         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 NATC's Annual
                    Report on Form 10-K for the fiscal year ended December 31,
                    1997).

3.1(j)   --         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 NATC's Annual Report on Form 10-K for the
                    fiscal year ended December 31, 1997).

3.2(a)   --         Bylaws of North Atlantic Holding Company, Inc (incorporated
                    herein by reference to Exhibit 3.2(a) to the Registrant's
                    Annual Report on Form 10-K for the fiscal year ended
                    December 31, 2004 filed with the Securities and Exchange
                    Commission on March 31, 2005).

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

3.2(c)   --         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 by NATC with the Commission on July 23, 1997).


                                       51
<PAGE>
Exhibit
Number              Description
---------           -----------

3.2(d)    --        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 by NATC
                    with the Commission on July 23, 1997).

3.2(e)    --        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 by NATC with the Commission on
                    September 3, 1997).

3.2(f)    --        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 by NATC
                    with the Commission on September 3, 1997).

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

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

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

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

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

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


                                       52
<PAGE>
Exhibit
Number              Description
---------           -----------

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

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

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

4.8       --        Indenture, dated as of February 17, 2004, among North
                    Atlantic Holding Company, Inc. and Wells Fargo Bank
                    Minnesota, National Association, a national banking
                    association, as Trustee (incorporated herein by reference to
                    Exhibit 4.12 to the Registrant's Registration Statement
                    (Reg. No. 333-115587) on Form S-4 filed with the Commission
                    on May 17, 2004).

4.9       --        Registration Rights Agreement, dated February 17, 2004, by
                    and among North Atlantic Holding Company, Inc., Citigroup
                    Global Markets Inc. and RBC Capital Markets Corporation
                    (incorporated herein by reference to Exhibit 4.13 to the
                    Registrant's Registration Statement (Reg. No. 333-115587) on
                    Form S-4 filed with the Commission on May 17, 2004).

4.10      --        Indenture, dated as of February 17, 2004, among North
                    Atlantic Trading Company, Inc., the Guarantors listed on the
                    signature pages thereto and Wells Fargo Bank Minnesota,
                    National Association, a national banking association, as
                    Trustee (incorporated herein by reference to Exhibit 4.10 to
                    the NATC's Annual Report on Form 10-K for the fiscal year
                    ended December 31, 2003).

4.11      --        Registration Rights Agreement, dated as of February 17,
                    2004, by and among North Atlantic Trading Company, Inc., the
                    Guarantors listed on the signature pages thereto, Citigroup
                    Global Markets Inc. and RBC Capital Markets Corporation
                    (incorporated herein by reference to Exhibit 4.11 to the
                    NATC's Annual Report on Form 10-K for the fiscal year ended
                    December 31, 2003).

9.1       --        Amended and Restated Exchange and Stockholders' Agreement,
                    dated as of February 9, 2004, by and among North Atlantic
                    Holding Company, Inc., North Atlantic Trading Company, Inc.
                    and those stockholders listed therein (incorporated herein
                    by reference to Exhibit 9.1 to the NATC's Annual Report on
                    Form 10-K for the fiscal year ended December 31, 2003).


                                       53
<PAGE>
Exhibit
Number              Description
---------           -----------

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 by NATC 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 by NATC
                    with the Commission on September 17, 1997).

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

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

10.5+    --         Restated Amendment, dated as of June 25, 1997, between
                    Bollore Technologies, S.A. and North Atlantic Operating
                    Company, Inc. (incorporated herein by reference to Exhibit
                    10.5 to Amendment No. 2 to Registration Statement (Reg. No.
                    333-31931) on Form S-4 filed by NATC with the Commission on
                    September 17, 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 by NATC with the Commission on September 3, 1997).


                                       54
<PAGE>
Exhibit
Number              Description
---------           -----------

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

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

10.10++    --       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 by NATC with the Commission
                    on September 3, 1997).

10.11++    --       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 by NATC
                    with the Commission on September 3, 1997).

10.12++    --       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 NATC's Annual Report on Form 10-K for the
                    fiscal year ended December 31, 1997).

10.13++    --       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 by NATC with the Commission on
                    September 3, 1997).

10.14++    --       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 by NATC with the Commission on
                    September 3, 1997).


                                       55
<PAGE>
Exhibit
Number              Description
---------           -----------

10.15++    --       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 NATC's Annual Report on
                    Form 10-K for the fiscal year ended December 31, 1997).

10.16++    --       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 NATC's Annual Report on Form 10-K for
                    the fiscal year ended December 31, 1997).

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

10.18      --       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 NATC's Annual Report on
                    Form 10-K for the fiscal year ended December 31, 1997).

10.19++    --       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 NATC's Report on 10-Q for the fiscal
                    quarter ended June 30, 1998).

10.20++    --       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 NATC's Quarterly Report on
                    10-Q for the fiscal quarter ended June 30, 1998).

10.21      --       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
                    NATC's Quarterly Report on 10-Q for the fiscal quarter ended
                    March 31, 1998).

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

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

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


                                       56
<PAGE>
Exhibit
Number              Description
---------           -----------

10.25      --       Amended and Restated Loan Agreement, dated as of February
                    17, 2004, by and among Bank One, NA, LaSalle Bank National
                    Association, North Atlantic Trading Company, Inc., North
                    Atlantic Holding Company, Inc., the subsidiaries of North
                    Atlantic Trading Company, Inc. named therein and the lenders
                    party thereto (incorporated herein by reference to Exhibit
                    10.26 to the NATC's Annual Report on Form 10-K for the
                    fiscal year ended December 31, 2003).

10.26      --       Amended and Restated Security Agreement, dated as of
                    February 17, 2004, among North Atlantic Trading Company,
                    Inc., National Tobacco Company, L.P., North Atlantic
                    Operating Company, Inc., National Tobacco Finance
                    Corporation, Stoker, Inc., RBJ Sales, Inc., Fred Stoker &
                    Sons, Inc., North Atlantic Cigarette Company, Inc. and Bank
                    One, N.A., as agent on behalf of itself and other banks
                    (incorporated herein by reference to Exhibit 10.27 to the
                    NATC's Annual Report on Form 10-K for the fiscal year ended
                    December 31, 2003).

10.27      --       Amended and Restated Guaranty Agreement, dated as of
                    February 17, 2004, among National Tobacco Company, L.P.,
                    North Atlantic Operating Company, Inc., National Tobacco
                    Finance Corporation, Stoker, Inc., RBJ Sales, Inc., Fred
                    Stoker & Sons, Inc., North Atlantic Cigarette Company, Inc.
                    and Bank One, N.A., as agent on behalf of itself and other
                    banks (incorporated herein by reference to Exhibit 10.28 to
                    the NATC's Annual Report on Form 10-K for the fiscal year
                    ended December 31, 2003).

10.28      --       Amended and Restated Pledge Agreement, dated as of February
                    17, 2004, among and North Atlantic Trading Company, Inc.,
                    National Tobacco Company, L.P., North Atlantic Operating
                    Company, Inc., National Tobacco Finance Corporation, Stoker,
                    Inc., RBJ Sales, Inc., Fred Stoker & Sons, Inc., North
                    Atlantic Cigarette Company, Inc. and Bank One, N.A., as
                    agent on behalf of itself and other banks (incorporated
                    herein by reference to Exhibit 10.29 to the NATC's Annual
                    Report on Form 10-K for the fiscal year ended December 31,
                    2003).

10.29      --       2005 A Amendment to the Amended and Restated Loan Agreement,
                    made and entered into as of February 17, 2004, by and among
                    Bank One, NA as the Agent Bank, Bank One and LaSalle Bank,
                    National Association, the Company, certain of its
                    subsidiaries and North Atlantic Holding Company, Inc.
                    (incorporated herein by reference to Exhibit 99.2 to the
                    NATC's Current Report on Form 8-K filed on January 21,
                    2005).

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

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


                                       57
<PAGE>
Exhibit
Number              Description
---------           -----------

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

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

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

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

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

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

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

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

10.40++    --       2002 Share Incentive Plan (incorporated herein by reference
                    to Exhibit 10.42 to the NATC's Annual Report on Form 10-K
                    for the fiscal year ended December 31, 2002).

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


                                       58
<PAGE>
Exhibit
Number              Description
---------           -----------

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

10.43      --       2003A Amendment to Loan Documents, dated as of July 31,
                    2003, by and among North Atlantic Trading Company, Inc.,
                    National Tobacco Company, L.P., North Atlantic Operating
                    Company, Inc., National Tobacco Finance Corporation, Bank
                    One, NA, successor to Bank One, Kentucky N.A., as agent bank
                    and the various lending institutions named therein,
                    Guggenheim Investment Management, LLC, as agent for the
                    Class B Lenders named therein (incorporated herein by
                    reference to Exhibit 10.1 to the NATC's Quarterly Report on
                    Form 10-Q for the fiscal quarter ended June 30, 2003).

10.44      --       2003B Amendment to Loan Documents dated as of November 17,
                    2003, among North Atlantic Trading Company, Inc., National
                    Tobacco Company, L.P., North Atlantic Operating Company,
                    Inc., National Tobacco Finance Corporation, Stoker, Inc.,
                    RBJ Sales, Inc. and Fred Stoker & Sons, Inc., the Banks
                    defined therein, Bank One, NA, as agent for the Banks
                    ("Agent Bank"), the Class B Lenders as defined therein and
                    Guggenheim Investment Management, LLC, as agent for Class B
                    Lenders ("Class B Loan Agent") (incorporated herein by
                    reference to Exhibit 10.1 to the NATC's Current Report on
                    Form 8-K filed on November 24, 2003).

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

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

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


                                       59
<PAGE>
Exhibit
Number              Description
---------           -----------

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

10.49      --       2003C Amendment to Loan Documents dated as of December 23,
                    2003, by and among the Banks as defined therein, Bank One,
                    NA, as agent bank on behalf of the Banks, the Class B
                    Lenders as defined therein, Guggenheim Investment
                    Management, LLC, as agent on behalf of the Class B Lenders,
                    North Atlantic Trading Company, Inc. and the Subsidiaries as
                    defined therein (incorporated herein by reference to Exhibit
                    10.1 to the NATC's Current Report on Form 8-K filed on
                    December 24, 2003).

10.50++    --       Employment Agreement, dated December 1, 2003, between
                    Lawrence S. Wexler and North Atlantic Cigarette Company,
                    Inc. (incorporated herein by reference to Exhibit 10.52 to
                    the NATC's Annual Report on Form 10-K for the fiscal year
                    ended December 31, 2003).

10.51      --       Assignment and Assumption Agreement, dated as of February 9,
                    2004, between North Atlantic Trading Company, Inc. and North
                    Atlantic Holding Company, Inc. (incorporated herein by
                    reference to Exhibit 10.53 to the NATC's Annual Report on
                    Form 10-K for the fiscal year ended December 31, 2003).

10.52++    --       Letter Agreement, dated as of January 19, 2005, between
                    Alvarez & Marsal, LLC, North Atlantic Trading Company, Inc.
                    and North Atlantic Holding Company, Inc. (incorporated
                    herein by reference to Exhibit 10.52 to the Registrant's
                    Annual Report on Form 10-K for the fiscal year ended
                    December 31, 2004 filed with the Securities and Exchange
                    Commission on March 31, 2005).

10.53++    --       Letter Agreement, dated as of October 3, 2003, between Jack
                    Africk and North Atlantic Trading Company, Inc. (extending
                    Consulting Agreement) (incorporated herein by reference to
                    Exhibit 10.53 to the Registrant's Annual Report on Form 10-K
                    for the fiscal year ended December 31, 2004 filed with the
                    Securities and Exchange Commission on March 31, 2005).

10.54++    --       Letter Agreement, dated as of October 12, 2004, between Jack
                    Africk and North Atlantic Trading Company, Inc. (extending
                    and amending Consulting Agreement) (incorporated herein by
                    reference to Exhibit 10.54 to the Registrant's Annual Report
                    on Form 10-K for the fiscal year ended December 31, 2004
                    filed with the Securities and Exchange Commission on March
                    31, 2005).

10.55      --       2005B Amendment to the Amended and Restated Loan Agreement
                    dated March 30, 2005 by and among JP Morgan Chase Bank, N.A.
                    ("Morgan"), as successor to Bank One, NA, as Agent Bank,
                    Morgan and LaSalle Bank, National Association, the Company
                    and certain of its subsidiaries (incorporated herein by
                    reference to Exhibit 10.55 to the Registrant's Annual Report
                    on Form 10-K for the fiscal year ended December 31, 2004
                    filed with the Securities and Exchange Commission on March
                    31, 2005).

21         --       Subsidiaries of North Atlantic Holding Company, Inc.
                    (incorporated herein by reference to Exhibit 21 to the
                    Registrant's Annual Report on Form 10-K for the fiscal year
                    ended December 31, 2004 filed with the Securities and
                    Exchange Commission on March 31, 2005).

31.1*      --       Certification by the Chief Executive Officer

31.2*      --       Certification by the Chief Financial Officer

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


                                       60
<PAGE>
Exhibit
Number              Description
---------           -----------

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

*    Filed herewith.

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

++   Management contracts or compensatory plan or arrangement.











                                       61
<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: August 19, 2005



                                        NORTH ATLANTIC HOLDING COMPANY, INC.


                                        By: /s/ Douglas P. Rosefsky
                                            ------------------------------------
                                            Douglas P. Rosefsky
                                            Chief Executive Officer









                                       62
<PAGE>
                                    CONTENTS


<TABLE>
<C>                                                                            <C>
                                                                                     PAGE
                                                                                    ------

Report of Independent Registered Public Accounting Firm                               F-1


Consolidated Balance Sheets as of December 31, 2004 and 2003                          F-2


Consolidated Statements of Operations and Comprehensive Income (Loss) for the
years ended December 31, 2004, 2003, and 2002.                                        F-3


Consolidated Statements of Comprehensive Income (Loss) for the years ended
December 31, 2004, 2003, and 2002                                                     F-4


Consolidated Statements of Cash Flows for the years ended December 31, 2004,
2003, and 2002                                                                        F-5


Consolidated Statements of Changes in Stockholders' Deficit for the years ended
December 31, 2004, 2003, and 2002.                                                    F-6


Notes to Consolidated Financial Statements                                            F-7

</TABLE>


<PAGE>
             Report of Independent Registered Public Accounting Firm

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

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, comprehensive income (loss), cash flows,
and changes in stockholders' deficit, after the restatement described in Note 1,
present fairly in all material respects, the financial position of North
Atlantic Holding Company, Inc. and its subsidiaries at December 31, 2004 and
2003, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2004 in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 3 to the
financial statements, it is probable that, absent obtaining additional capital
investment, a waiver or a refinancing, the Company will fail to meet a financial
covenant requirement for its revolving debt agreement due to its financial
performance. Not meeting this requirement would permit the lenders to demand
immediate repayment in full, which would then permit holders of the Company's
New Senior Notes to also demand immediate repayment. This matter raises
substantial doubt about the Company's ability to continue as a going concern.
Management's plans as to these matters are also described in the notes to the
financial statements. The financial statements do not include any adjustments
that might result from the outcome of the uncertainty.

As described in Note 1, the Company has restated its previously issued 2004
consolidated financial statements.

/s/ PricewaterhouseCoopers LLP
Louisville, Kentucky

March 31, 2005, except for the matter disclosed in Note 1, as to which the date
is August 11, 2005



                                      F-1
<PAGE>
NORTH ATLANTIC HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2004 and 2003
(dollars in thousands except share data)

<TABLE>
<CAPTION>
                                                                                                    2004
                                                                                                AS RESTATED,
                                                                                                   NOTE 1         2003
                                                                                                ------------- -------------
<S>                                                                                     <C>                <C>
                                            ASSETS

Current assets:

      Cash                                                                                      $     2,347   $       304
      Accounts receivable, net of allowances of $284 and $367
       in 2004 and 2003, respectively                                                                 7,839        10,384
      Inventories                                                                                    37,959        42,257
      Income taxes receivable                                                                            --           910
      Other current assets                                                                            5,861         3,594
                                                                                                ------------- -------------
            Total current assets                                                                     54,006        57,449

Property, plant and equipment, net                                                                   10,771         8,310
Deferred income taxes                                                                                    --         22,549
Deferred financing costs, net                                                                        13,105         5,163
Goodwill                                                                                            128,697       128,659
Other intangible assets, net                                                                         10,293        10,851
Other assets                                                                                         15,526        10,663
                                                                                                ------------- -------------
            Total assets                                                                        $   232,398   $   243,644
                                                                                                ============= =============
                             LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
      Accounts payable                                                                          $     7,005   $     5,275
      Accrued expenses                                                                                4,642         6,039
      Accrued interest expense                                                                        6,274           757
      Deferred income taxes                                                                           4,801         4,654
      Revolving credit facility                                                                      14,500         6,300
                                                                                                ------------- -------------
            Total current liabilities                                                                37,222        23,025

Notes payable and long-term debt                                                                    266,622       185,686
Deferred income taxes                                                                                 5,005         1,141
Postretirement benefits                                                                               6,061         9,333
Pension benefits and other long-term liabilities                                                      4,013         5,946
                                                                                                ------------- -------------
            Total liabilities                                                                       318,923       225,131
                                                                                                ------------- -------------
Commitments and contingencies
Preferred stock, mandatory redemption value of $0 and
$65,080 in 2004 and 2003, respectively, issued and outstanding
shares, 2,941,513.08 in 2003                                                                             --         65,080
                                                                                                ------------- -------------

Stockholders' deficit:
      Common stock, voting, $.01 par value; 2004; authorized,
       issued and outstanding shares, 10; $01 par value; 2003;
       authorized shares, 750,000; issued and outstanding shares, 528,241                                 6             5
      Common stock, nonvoting, $01 par value; authorized shares,
       750,000; issued and outstanding shares, -0-                                                       --            --
Additional paid-in capital                                                                            5,291         9,663
Loans to stockholders for stock purchases                                                               (99)         (168)
Accumulated other comprehensive loss                                                                 (1,351)       (1,229)
Accumulated deficit                                                                                 (90,372)      (54,838)
                                                                                                ------------- -------------
            Total stockholders' deficit                                                             (86,525)      (46,567)
                                                                                                ------------- --------------
            Total liabilities and stockholders' deficit                                         $   232,398   $    243,644
                                                                                                ============= ==============
</TABLE>

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


                                      F-2
<PAGE>
NORTH ATLANTIC HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 2004, 2003 and 2002
(dollars in thousands except share data)

<TABLE>
<CAPTION>
                                                                                      2004
                                                                                  AS RESTATED,
                                                                                     NOTE 1          2003           2002
                                                                                  ------------- ------------- -------------
<S>                                                                            <C>             <C>          <C>
Net sales                                                                        $    115,320   $   101,593   $    94,425
Cost of Sales                                                                          58,617        48,616        40,973
                                                                                  ------------- ------------- -------------
      Gross profit                                                                     56,703        52,977        53,452
Selling, general and administrative expenses                                           37,031        32,589        24,065
Amortization expense                                                                      462            67            --
                                                                                  ------------- ------------- -------------
      Operating income                                                                 19,210        20,321        29,387
Interest expense and financing costs                                                   31,283        19,122        18,744
Other expense (income)                                                                 (4,361)       11,129         1,944
                                                                                  ------------- ------------- -------------
      Income (loss) before income taxes                                                (7,712)       (9,930)        8,699
Income tax expense (benefit)                                                           27,210        (3,689)        3,214
                                                                                  ------------- ------------- -------------
      Net income (loss)                                                               (34,922)       (6,241)        5,485
Preferred stock dividends                                                              (1,613)       (7,275)       (6,976)
Net gain on restructuring of preferred stock                                               --             --        5,395
                                                                                  ------------- ------------- -------------
      Net income (loss) applicable to common shares                               $   (36,535)  $   (13,516)  $     3,904
                                                                                  ============= ============= =============


                                                                                      2004
                                                                                  As Restated,
                                                                                     Note 1          2003           2002
                                                                                  ------------- ------------- -------------
Basic earnings per common share:
      Net income (loss)                                                           $    (60.44)  $    (11.82)  $     10.38
      Preferred stock dividends                                                         (2.79)       (13.77)       (13.20)
      Net gain on restructuring of preferred stock                                         --             --        10.21
                                                                                  ------------- ------------- -------------
      Net income (loss) applicable to common shares                               $    (63.23)  $    (25.59)  $      7.39
                                                                                  ============= ============= =============
Diluted earnings per common share:
      Net income (loss)                                                           $    (60.44)  $    (11.82)  $      8.25
      Preferred stock dividends                                                         (2.79)       (13.77)       (10.49)
      Net gain on restructuring of preferred stock                                         --            --          8.11
                                                                                  ------------- ------------- -------------
      Net income (loss) applicable to common shares                               $    (63.23)  $    (25.59)  $       5.87
                                                                                  ============= ============= =============
Common stock dividends                                                            $    (4,884)  $        --   $         --
                                                                                  ============= ============= =============
Basic and Diluted earnings per common share
      Common stock dividends                                                      $     (8.45)  $        --   $         --
                                                                                  ============= ============= =============
Weighted average common shares outstanding:

      Basic                                                                           577,795       528,241       528,241
      Diluted                                                                         577,795       528,241       664,939
</TABLE>

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


                                      F-3
<PAGE>
NORTH ATLANTIC HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
for the years ended December 31, 2004, 2003 and 2002
(dollars in thousands except share data)

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

<TABLE>
<CAPTION>
                                                                                      2004
                                                                                  AS RESTATED,
                                                                                     NOTE 1          2003         2002
                                                                                  ------------- ------------- -------------

<S>                                                                             <C>            <C>           <C>
Net Income (loss)                                                                 $   (34,922)  $   (6,241)   $    5,485
Other comprehensive income, net of tax benefit:
Minimum pension liability, net of tax                                                    (122)        (104)         (909)
                                                                                  ------------- ------------- -------------

Comprehensive income (loss)                                                       $   (35,044)  $   (6,345)   $    4,576
                                                                                  ============= ============= =============
</TABLE>




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






                                      F-4
<PAGE>
NORTH ATLANTIC HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 2004, 2003 and 2002
(dollars in thousands)

<TABLE>
<CAPTION>
                                                                                      2004
                                                                                  AS RESTATED,
                                                                                     NOTE 1          2003         2002
                                                                                  ------------- ------------- -------------
<S>                                                                             <C>             <C>           <C>
Cash flows from operating activities:
      Net income (loss)                                                          $     (34,922) $     (6,241) $      5,485
      Adjustments to reconcile net income (loss) to net cash provided by
         (used in) operating activities:
            Depreciation                                                                   816           589           700
            Amortization expense                                                           462            67            --
            Amortization of deferred financing costs                                     1,949         1,386         1,386
            Amortization of interest on senior discount notes                            6,612            --            --
            Deferred income taxes                                                       26,560        (3,689)        2,738
            Stock compensation expense                                                     832           417           576
            Stock issued for non-cash services                                             681            --            --
            Changes in operating assets and liabilities:
                  Accounts receivable                                                    2,545        (1,827)       (1,979)
                  Inventories                                                            4,298         1,964         3,149
                  Income tax receivable                                                    910           (23)         (654)
                  Other current assets                                                  (2,267)          752        (1,755)
                  Other assets                                                          (4,766)       (1,309)         (985)
                  Accounts payable                                                       1,730         1,848           150
                  Accrued pension liabilities                                           (1,933)          366           495
                  Accrued postretirement liabilities                                    (3,272)       (1,509)          558
                  Accrued expenses and other                                             3,998         2,351        (1,479)
                                                                                  ------------- ------------- -------------
                        Net cash provided by (used in) operating activities              4,233        (4,858)        8,385
                                                                                  ------------- ------------- -------------
Cash flows from investing activities:
      Capital expenditures                                                              (3,277)       (1,561)         (625)
      Purchase of Stoker, Inc. (net of cash acquired $1,672 see Note 5)                    (38)      (21,650)           --
                                                                                  ------------- ------------- -------------
                        Net cash provided by (used in) investing activities             (3,315)      (23,211)         (625)
                                                                                  ------------- ------------- -------------

Cash flows from financing activities:
      Proceeds from revolving credit facility, net                                       8,200           800         5,500
      Proceeds from issuance of new senior notes                                       200,000            --            --
      Proceeds from issuance of new senior discount notes                               60,010            --            --
      Payment of old senior notes                                                     (155,000)           --            --
      Payment of financing costs                                                        (9,891)           --            --
      Payments on notes payable                                                        (30,686)           --            --
      Payments on senior term loans                                                         --            --       (12,500)
      Deferred financing costs incurred                                                     --        (3,907)           --
      Redemption of preferred stock                                                    (65,080)           --            --
      Preferred stock cash dividends                                                    (1,613)           --            --
      Common stock dividends                                                            (4,884)           --            --
      Principal from long-term borrowings                                                   --        42,000            --
      Principal payments on long-term borrowings                                            --       (11,314)           --
      Consent solicitation expenses                                                         --            --        (1,219)
      Net loans to stockholders for stock purchases                                         69           (11)           30
                                                                                  ------------- ------------- -------------
                        Net cash provided by (used in) financing activities              1,125        27,568        (8,189)
                                                                                  ------------- ------------- -------------
Net increase (decrease) in cash                                                          2,043          (501)         (429)
Cash, beginning of period                                                                  304           805         1,234
                                                                                  ------------- ------------- -------------
Cash, end of period                                                               $      2,347  $        304  $        805
                                                                                  ============= ============= =============
Supplemental disclosures of cash flow information:
      Cash paid during the period for interest                                    $     16,245  $     17,911  $     17,560
                                                                                  ============= ============= =============
      Cash paid during the period for income taxes                                $      1,297  $         --  $        283
                                                                                  ============= ============= =============
</TABLE>

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



                                      F-5
<PAGE>
 NORTH ATLANTIC HOLDING COMPANY, INC. AND SUBSIDIARIES
CHANGES IN STOCKHOLDERS' DEFICIT
for the years ended December 31, 2004, 2003 and 2002
(dollars in thousands)

<TABLE>
<CAPTION>
                                                                              LOANS TO        ACCUMULATED
                                                     COMMON     ADDITIONAL    STOCKHOLDERS      OTHER
                                                     STOCK,      PAID-IN      FOR STOCK      COMPREHENSIVE     ACCUMULATED
                                                     VOTING      CAPITAL      PURCHASES          LOSS           DEFICIT       TOTAL
                                                     ------      -------      ---------          ----           -------       -----

<S>                                             <C>           <C>           <C>            <C>            <C>            <C>
Beginning balance, January 1, 2002                 $      5    $   9,144     $    (187)        $   (216)    $  (45,226)   $ (36,480)
Stock compensation expense                                           102                                                        102
Net loans to stockholders for stock purchases                                       30                                           30

Amount related to minimum pension liability, net
   of tax of $344                                                                                  (909)                       (909)
Preferred stock dividend                                                                                        (6,976)      (6,976)
Net gain on restructuring of preferred stock                                                                     5,395        5,395
Net income                                                                                                       5,485        5,485
                                                   ---------   ----------    ----------         --------     ----------    ---------
Ending balance, December 31, 2002                         5        9,246          (157)          (1,125)       (41,322)     (33,353)
Stock compensation expense                                           417                                                        417
Net loans to stockholders for stock purchases                                      (11)                                         (11)
Amount related to minimum pension liability, net
   of tax of $64                                                                                   (104)                       (104)
Preferred stock dividend                                                                                        (7,275)      (7,275)
Net loss                                                                                                        (6,241)      (6,241)
                                                   ---------   ----------    ----------         --------     ----------    ---------
Ending balance, December 31, 2003                         5        9,663          (168)          (1,229)       (54,838)     (46,567)
Elimination of equity in NATC                                     (5,885)                                        5,885           --
Stock compensation expense                                           832                                                        832
Issuance of common stock                                  1          681                                                        682
Net loans to stockholders for stock purchases                                       69                                           69
Amount related to minimum pension liability net
   of tax of $74                                                                                   (122)                       (122)
Common stock dividend                                                                                           (4,884)      (4,884)
Preferred stock dividend                                                                                        (1,613)      (1,613)
Net loss, as restated, Note 1                                                                                  (34,922)     (34,922)
                                                   ---------   ----------    ----------         --------     ----------    ---------
Ending balance, December 31, 2004, as restated,
   Note 1                                          $      6    $     (99)    $   5,291         $ (1,351)    $  (90,372)   $ (86,525)
                                                   =========   ==========    ==========         ========     ==========    =========
</TABLE>

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


                                      F-6
<PAGE>
NORTH ATLANTIC HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 2004, 2003 and 2002
(dollars in thousands)

1.   RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS:


     The Company is restating its consolidated financial statements to correct
     an error in accounting for income taxes. During the fourth quarter of 2004,
     North Atlantic Holding Company, Inc. (the "Company") and its subsidiaries
     provided a full valuation allowance against its net deferred tax assets.
     Following a review of the Company's deferred tax assets and deferred tax
     liabilities, the Company determined that in calculating the valuation
     allowance, deferred tax liabilities relating to inventories and
     tax-deductible goodwill had been inappropriately netted against certain
     deferred tax assets. It cannot be determined that the temporary differences
     related to inventories and goodwill will reverse during the time period in
     which the Company's temporary differences related to its deferred tax
     assets are expected to reverse or expire. Therefore, these deferred tax
     liabilities should not have been utilized to reduce the amount of the
     valuation allowance against deferred tax assets. This resulted in an
     understatement of the valuation allowance in the amount of these deferred
     tax liabilities of $9.8 million and an understatement of income tax expense
     of $9.8 million as of and for the year ended December 31, 2004. The
     correction of this understatement has the effect of increasing deferred tax
     liabilities, increasing accumulated deficit and decreasing net income, with
     no effect on net cash flows, for the year ended December 31, 2004.

     The following tables represent the effect of the restatement on the
     Company's Consolidated Financial Statements as of December 31, 2004:

<TABLE>
<CAPTION>
                                                                      AS PREVIOUSLY
                 CONSOLIDATED BALANCE SHEET                             REPORTED        ADJUSTMENT       AS RESTATED
             --------------------------------------                      --------        ----------       -----------
<S>                                                             <C>                <C>               <C>
             Deferred income taxes - current                           $        -     $     4,801      $       4,801
             Deferred income taxes - non-current                       $        -     $     5,005      $       5,005
             Accumulated deficit                                       $  (80,566)    $    (9,806)     $     (90,372)


                                                                      AS PREVIOUSLY
                CONSOLIDATED STATEMENT OF OPERATIONS                    REPORTED        ADJUSTMENT        AS RESTATED
              ------------------------------------------                --------        ----------        -----------

             Income tax expense                                        $   17,404     $     9,806      $      27,210
             Net income (loss)                                         $  (25,116)    $    (9,806)     $     (34,922)
             Net income (loss) applicable to common shares             $  (26,729)    $    (9,806)     $     (36,535)
             Basis earnings per common share:
               Net income (loss)                                       $   (43.47)    $    (16.97)     $      (60.44)
               Net income (loss) applicable to common shares           $   (46.26)    $    (16.97)     $      (63.23)
             Diluted earnings per common share:
               Net income (loss)                                       $   (43.47)    $    (16.97)     $      (60.44)
               Net income (loss) applicable to common shares           $   (46.26)    $    (16.97)     $      (63.23)


                                                                      AS PREVIOUSLY
           CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)        REPORTED        ADJUSTMENT       AS RESTATED
           -----------------------------------------------------        --------        ----------       -----------


             Net income (loss)                                         $  (25,116)    $   (9,806)      $     (34,922)
             Comprehensive income (loss)                               $  (25,238)    $   (9,806)      $     (35,044)


                                                                      AS PREVIOUSLY
               CONSOLIDATED STATEMENT OF CASH FLOWS                     REPORTED        ADJUSTMENT        AS RESTATED
             ------------------------------------------                 --------        ----------        -----------

             Net income (loss)                                         $  (25,116)    $   (9,806)      $     (34,922)
             Deferred income taxes                                     $   16,754     $    9,806       $      26,560


                                                                      AS PREVIOUSLY
               CHANGES IN STOCKHOLDERS' DEFICIT                        REPORTED        ADJUSTMENT       AS RESTATED
             ----------------------------------------                   --------        ----------       -----------

             Net loss - Accumulated deficit                            $  (25,116)    $   (9,806)      $     (34,922)
             Ending balance - Accumulated deficit                      $  (80,566)    $   (9,806)      $     (90,372)
             Ending balance - Total                                    $  (76,719)    $   (9,806)      $     (86,525)
</TABLE>


                                      F-7
<PAGE>
2.   ORGANIZATION:

     The Company is a holding company which owns North Atlantic Trading Company,
     Inc. ("NATC") and its subsidiaries. Except where the context otherwise
     requires, references to the Company include the Company and its
     subsidiaries. The Company manufactures and distributes tobacco and related
     products through its smokeless tobacco, make-your-own, and premium
     manufactured cigarettes operating segments. The smokeless tobacco segment
     manufactures and distributes smokeless tobacco products under the
     Beech-Nut, Durango, Trophy, Havana Blossom, Stoker, Our Pride and other
     brand names. The make-your-own segment imports and distributes premium
     cigarette papers and related products, and manufactures smoking tobaccos
     under the Zig-Zag, Stoker No. 2, Old Hillside and other brand names. The
     premium cigarette segment contract manufactures and distributes premium
     manufactured cigarettes through wholesale distributors in selected areas of
     the United States.

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

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

     On May 19, 1997, certain members of management and holders of membership
     interests in the Holding Company formed NATC. On June 25, 1997, NATC
     acquired the membership interests in the Holding Company and the Holding
     Company transferred all of its assets to NATC, 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.
     which owned exclusive rights to market and distribute Zig-Zag premium
     cigarette papers in the United States and Canada and also owned outright
     the trademarks for tobacco products bearing the Zig-Zag name. NATC 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 Holdings, USA, Inc. NATC Holdings, USA, Inc. and its wholly-owned
     subsidiary were then merged into NAOC.

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

     On November 17, 2003, NATC purchased all of the common stock of Stoker,
     Inc. ("Stoker"). See Note 5, "Acquisition of Business". Stoker is the
     parent of the wholly-owned subsidiaries, Fred Stoker & Sons, Inc. and RBJ
     Sales, Inc.

     On February 9, 2004, NATC consummated a holding company reorganization
     whereby the Company became the parent company of NATC. The holding company
     reorganization was effected pursuant to an Agreement and Plan of Merger
     (the "Merger Agreement"), dated February 9, 2004, among NATC, the Company
     and NATC Merger Sub, Inc., a Delaware corporation and a direct wholly-owned
     subsidiary of the Company ("Merger Sub").

     Pursuant to the Merger Agreement, (i) Merger Sub was merged with and into
     NATC (the "Merger"), with NATC as the surviving corporation; (ii) NATC
     became a wholly-owned subsidiary of the Company; (iii) each of the 539,235
     issued and outstanding shares of voting common stock of NATC, par value
     $0.01 per share, was converted into the right to receive one share of
     common stock of the Company, par value $0.01 per share ("Company Common
     Stock"); (iv) each issued and outstanding share of common stock of Merger
     Sub was converted into one issued and outstanding share of common stock of
     NATC, and (v) all of the issued and outstanding shares of Company Common
     Stock held by NATC were cancelled.

     Immediately after the Merger, (i) 539,235 shares of Company Common Stock
     were issued and outstanding; and (ii) ten (10) shares of NATC Common Stock
     were issued and outstanding.

     Subsequently, the Company issued 49,523 shares of Common Stock upon the
     exercise of certain warrants pursuant to a Warrant Agreement (the "Warrant
     Agreement"), dated June 25, 1997, between the Company (as assignee to
     NATC's rights and obligations under the Warrant Agreement) and The Bank of
     New York, as warrant agent (as successor to the United States Trust Company
     of New York). As of December 31, 2004, (i) 588,758 shares of Company Common
     Stock were issued and outstanding; and (ii) ten (10) shares of NATC Common
     Stock were issued and outstanding.


                                      F-8
<PAGE>
     On February 17, 2004, NATC consummated the refinancing of its existing debt
     and preferred stock and the Company issued senior discount notes in
     conjunction with the refinancing. The refinancing consisted principally of
     (1) the offering and sale of $200.0 million principal amount of 9 1/4%
     senior notes due 2012 by NATC (the "New Senior Notes"), (2) NATC entering
     into an amended and restated loan agreement that provides a $50.0 million
     senior secured revolving credit facility to NATC (the "New Credit
     Agreement") and (3) the concurrent offering and sale of $97.0 million
     aggregate principal amount at maturity of 12 1/4% senior discount notes due
     2014 of the Company (the "Senior Discount Notes"). Both the New Senior
     Notes and the Senior Discount Notes were offered pursuant to Rule l44A and
     Regulation S and subsequently registered under the Securities Act of 1933,
     as amended.

     Concurrently with the closing of the refinancing, NATC also called for the
     redemption all of its outstanding 11% senior notes due 2004 (the "Old
     Senior Notes"), in accordance with the terms of the indenture governing
     such notes, at the applicable redemption price of 100.0% of the principal
     amount thereof, plus interest accrued to the redemption date of April 2,
     2004. At December 31, 2003, NATC had outstanding $155.0 million aggregate
     principal amount of its 11% senior notes due 2004.

     The proceeds from the offering of the New Senior Notes, along with
     borrowings under the New Credit Agreement (see Note 12) and the proceeds
     from the concurrent offering of the Senior Discount Notes were used to (1)
     repay $36.6 million in outstanding borrowings under the existing senior
     credit facility (the "Old Senior Credit Facility"), including borrowings
     used to finance the cash purchase price for the acquisition of Stoker, Inc.
     (see Note 5), (2) redeem the Old Senior Notes, (3) redeem NATC's existing
     12% senior exchange payment-in-kind preferred stock on March 18, 2004, (4)
     pay a $5.0 million pro rata distribution to stockholders of the Company and
     make a distribution to certain holders of warrants of the Company, (5) make
     $2.1 million in incentive payments to certain key employees and outside
     directors, and (6) pay fees and expenses of $12.8 million incurred in
     connection with the offerings.

3.   LIQUIDITY:

     As discussed in the Notes Payable and Long-Term Debt footnote, NATC's New
     Credit Agreement requires NATC to meet certain financial tests, including a
     minimum fixed charge coverage ratio. Management's forecasts for 2005
     indicate that it is likely that NATC will fail to meet the minimum fixed
     charge coverage ratio covenant at June 30, 2005 without obtaining an
     additional capital investment, a waiver from its lenders, or a refinancing
     of such debt. Not meeting this requirement would permit the lenders to
     demand immediate repayment in full, which would then permit holders of
     NATC's New Senior Notes and the Company's Senior Discount Notes to also
     demand immediate repayment.

     Although there can be no assurance, the Company believes that it will be
     able to successfully negotiate new senior secured financing on reasonably
     acceptable terms, refinance out the existing lenders, and avoid a default
     under NATC's New Credit Agreement. Further, management has begun a process
     to review its core operations and identify and implement opportunities to
     significantly improve operational and financial performance and its
     internal cash generating capability.

4.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     Basis of Presentation: The financial statements of the Company include the
     results of operations, cash flows and changes in shareholders' equity of
     the Company, its NATC subsidiary and all other subsidiaries for all periods
     presented.

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

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


                                      F-9
<PAGE>
     SHIPPING COSTS: The Company records shipping costs incurred as a component
     of selling, general and administrative expenses. Shipping costs incurred
     were $3,419, $2,790, and $2,583 in 2004, 2003, and 2002, respectively.

     RESEARCH AND DEVELOPMENT COSTS: Research and development costs are expensed
     as incurred. These expenses, classified as selling and administrative
     expenses, were $521 in 2004, $577 in 2003, and $539 in 2002.

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

     INVENTORIES: Inventories are stated at the lower of cost or market. Cost is
     determined using the last-in, first-out ("LIFO") method for approximately
     96% of the inventories. Leaf tobacco is presented in current assets in
     accordance with standard industry practice, notwithstanding the fact that
     such tobaccos are carried longer than one year for the purpose of curing.

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

     GOODWILL AND OTHER INTANGIBLE ASSETS: The Company has adopted Statement of
     Financial Accounting Standards No. 142, "Goodwill and Other Intangible
     Assets" ("SFAS No. 142").

     Under SFAS No. 142, goodwill is no longer to be amortized but reviewed for
     impairment annually or more frequently if certain indicators arise, using a
     two-step approach. The net goodwill balances attributable to each of the
     Company's reporting units are tested for impairment by comparing the fair
     value of each reporting unit to its carrying value as of December 31 each
     year. Fair value was determined by using the valuation technique of
     calculating the present value of estimated expected future cash flows
     (using a discount rate commensurate with the risks involved) with
     consideration given to multiples of operating results. The Company has
     reported that no impairment of goodwill has been incurred as of December
     31, 2004.

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

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

     ADVERTISING AND PROMOTION: Advertising and promotion costs, including point
     of sale materials, are expensed as incurred and amounted to $3,147, $2,658,
     and $911 for the years ending December 31, 2004, 2003 and 2002,
     respectively.

     FINANCIAL INSTRUMENTS: The Company has adopted Statement of Financial
     Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
     Instruments and Hedging Activities". Forward contracts that qualify as
     hedges are adjusted to their fair value through other comprehensive income
     as determined by market prices on the measurement date. Gains and losses on
     these contracts are transferred from other comprehensive income into net
     income as the related inventories are sold. No forward contracts were
     utilized in 2004.

     STOCK-BASED COMPENSATION: The Company measures stock compensation costs
     related to the stock options described in Note 17 on the fair value based
     method which is the preferred method under the provisions of Statement of
     Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
     Compensation." The fair value based method requires compensation cost for
     stock options to be recognized based on the fair value of stock options
     granted.

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

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


                                      F-10
<PAGE>
     RISKS AND UNCERTAINTIES: Manufacturers and sellers of tobacco products are
     subject to regulation at the federal, state and local levels. Such
     regulations include, among others, labeling requirements, limitations on
     advertising, and prohibition of sales to minors. The trend in recent years
     has been toward increased 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 21, the Company was
     named as a defendant in such a lawsuit. There can be no assurance that the
     Company will not sustain losses in connection with such lawsuits and that
     such losses will not have a material adverse effect on the Company's
     financial position, results of operations or cash flows or that additional
     lawsuits will not be brought against the Company.

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

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

     The Company has chosen to open and fund an MSA escrow account as its means
     of compliance. It is management's opinion, due to the possibility of future
     federal or state regulations, though none have to date been enacted, that
     entering into one or both of the settlement agreements or establishing and
     maintaining an escrow account would not necessarily prevent future
     regulations from having a material adverse effect on the results of
     operations, financial position and cash flows of the Company.

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

     Pursuant to the MSA escrow account statutes, in order to be compliant with
     the MSA escrow requirements, the Company is required to deposit such funds
     for each calendar year into a qualifying escrow account by April 15 of the
     following year. As of December 31, 2004, the Company has recorded
     approximately $13,171 in Other assets. This amount is comprised of
     approximately $9,428 which represents amounts on deposit plus approximately
     $21 interest earned thereon and approximately $3,721 pertaining to amounts
     to be deposited by April 15, 2005 relating to 2004 sales. During 2004,
     approximately $4,228 was deposited into a qualifying escrow account. The
     Company is entitled to direct the investment of the escrow funds and is
     allowed to withdraw any appreciation, but cannot withdraw the principal for
     twenty-five years from the year of each annual deposit, except to withdraw
     funds deposited pursuant to an individual state's escrow statute to pay a
     final judgment to that state's plaintiffs in the event of such a judgment
     against the Company.


                                      F-11
<PAGE>
     USE OF ESTIMATES: The preparation of financial statements in conformity
     with generally accepted accounting principles requires management to make
     estimates and assumptions that affect the reported amounts of assets and
     liabilities, disclosure of contingent assets and liabilities as of the
     dates of the financial statements and the reported amounts of revenues and
     expenses during the reporting periods. Actual results could differ from
     those estimates. The Company's significant estimates include those
     affecting the valuation and useful lives of property, plant and equipment
     and goodwill and other intangible assets, assumptions used in determining
     pension and postretirement benefit obligations, accrued and deferred income
     taxes and litigation contingencies.

     CONCENTRATION OF CREDIT RISK: At December 31, 2004 and 2003, the Company
     had bank deposits, including MSA escrows, in excess of federally insured
     limits of approximately $11.9 million and $8.7 million, respectively.

     The Company sells its products to distributors and retail establishments
     throughout the United States. A single customer accounted for 16.5%, 19.9%
     and 13.1% of the Company's revenues in 2004, 2003 and 2002, respectively.
     The Company performs periodic credit evaluations of its customers and
     generally does not require collateral on trade receivables. As of December
     31, 2004, Cod Company, Inc., the Company's largest customer, accounted for
     12.7% of the outstanding accounts receivable balances. Historically, the
     Company has not experienced significant credit losses.

     ACCOUNTS RECEIVABLE: Accounts receivables are recognized at their net
     realizable value. All accounts receivable are trade related and are
     recorded at the invoiced amount and do not bear interest. The Company
     maintains allowances for doubtful accounts receivable for estimated
     uncollectible invoices resulting from the customer's inability to pay
     (bankruptcy, out of business, etc., i.e. "bad debts" which result in
     write-offs). The activity of allowance for doubtful accounts during 2004,
     2003 and 2002 is as follows (in thousands):

<TABLE>
<C>                                                            <C>              <C>             <C>

                                                                         2004          2003           2002
                                                                    ----------      ----------    ----------

Balance at beginning of period                                     $       367     $      448     $     350
Provision (reduction) for doubtful accounts                               (67)            122            96
Charge offs, net                                                          (16)           (202)            2
                                                                    ----------      ----------    ----------
Balance at end of period                                           $      284       $     367     $     448
                                                                    ==========      ==========    ==========
</TABLE>

     OTHER EXPENSE (INCOME): Other Income of $4.4 million in 2004 represents
     principally $4.5 million associated with the reduction in the judgment
     rendered against the Company in connection with the litigation with
     Republic Tobacco, Inc. as described in Note 21, "Contingency" under
     "Kentucky and Illinois Complaints." Other expense of $11.1 million in 2003
     represents $7.4 million associated with the judgment rendered against the
     Company in connection with the litigation with Republic Tobacco, Inc. and
     $3.3 million associated with the termination of the Star Cigarette Asset
     Purchase Agreement, as described in Note 24, "Terminated Asset Purchase
     Agreement". Other expense of $1.9 million in 2002 consists primarily of
     legal, investigative and related expenses with respect to the infringement
     activities involving Zig-Zag premium cigarette papers.

5.   ACQUISITION OF BUSINESS:

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

     The purchase price of $22.5 million in cash was financed with borrowings
     under the credit facility in existence at that time. The acquisition has
     been accounted for under the purchase method, and the results of Stoker
     have been included in the Company's consolidated results from the date of
     acquisition.

      The aggregate purchase price consists of (in thousands):


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


                                      F-12
<PAGE>
     The following summarizes the final purchase price of the assets acquired
     and liabilities assumed at the date of acquisition (in thousands):



Cash                                                  $      1,672
Accounts receivable                                            906
Inventories                                                  3,403
Property, plant and equipment                                2,180
Other intangible assets                                      9,922
Other assets and restricted escrow funds                     6,514
Accounts payable                                              (559)
Pension plan liability                                        (750)
Accrued expenses                                            (2,012)
Income taxes payable                                        (1,845)
Deferred income taxes                                       (1,249)
                                                      -------------
                                                            18,182
Goodwill                                                     5,140
                                                      -------------
Aggregate purchase price                              $     23,322
                                                      =============

     In connection with the other intangible assets relating to the Stoker
     acquisition, see Note 9.

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


                                                      2003            2002
                                                      ----            ----

Net sales                                      $     126,162    $    121,407

Net income (loss)                              $      (4,186)   $      7,795

Earnings per share -
      Basic                                    $       (7.92)   $      14.76
      Assuming dilution                        $       (7.92)   $      11.72

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

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

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

6.    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.

     LONG-TERM DEBT: The fair value of the Company's long-term debt is estimated
     based on the quoted market prices for the same or similar issues or on the
     current rates offered to the Company for debt of the same remaining
     maturities. As of December 31, 2004 and 2003, the fair market value of the
     Company's debt was $208.8 million and $155.0 million, respectively.


                                      F-13
<PAGE>
7.   INVENTORIES:

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

<TABLE>
<CAPTION>

                                                                    2004          2003
                                                                -----------   ----------

<S>                                                             <C>         <C>
Raw materials and work in process                               $    4,246   $    5,996
Leaf tobacco                                                         7,878        8,274
Finished goods - loose leaf tobacco                                  3,069        6,018
Finished goods - MYO products                                        8,539        6,323
Other                                                                2,163        1,350
                                                                -----------   ----------

                                                                    25,895       27,961
LIFO reserve                                                        12,064       14,296
                                                                -----------   ----------
                                                                $   37,959    $  42,257
                                                                ===========   ==========

     During 2004 and 2003, inventory quantities were reduced. This reduction
     resulted in a liquidation of LIFO inventory quantities carried at lower
     costs prevailing in prior years as compared with the cost of 2004 and 2003
     purchases, the effect of which increased cost of goods sold and decreased
     net income by approximately $1.7 million and $1.9 million, respectively.

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

     The Company recorded an inventory valuation allowance of $218 as of
     December 31, 2003.

8.   PROPERTY, PLANT AND EQUIPMENT:

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

                                                                 2004          2003
                                                              -----------   ----------

Land                                                          $      654    $     654
Buildings and improvements                                         4,282        4,363
Machinery and equipment                                           12,194        9,250
Furniture and fixtures                                             3,920        3,164
                                                              -----------   ----------
                                                                  21,050       17,431
Accumulated depreciation                                         (10,279)      (9,121)
                                                              -----------   ----------
                                                              $   10,771    $   8,310
                                                              ===========   ==========

9.   GOODWILL AND OTHER INTANGIBLE ASSETS:

      Goodwill at December 31 consists of (in thousands):


                                                                 2004             2003
                                                            --------------   --------------
NTC goodwill, net of accumulated amortization of $4,500
  at December 31, 2004 and 2003                             $     27,450    $      27,450

NAOC goodwill, net of accumulated amortization of $21,175
 at December 31, 2004 and 2003                                    96,107           96,107

Stoker goodwill (see Note 5)                                       5,140            5,102
                                                            --------------   --------------
                                                            $     128,697    $    128,659
                                                            ==============   ==============


                                                                                            PREMIUM
                                                                                           MANUFACURED
                                                               SMOKELESS      MYO           CIGARETTES        TOTAL
                                                             ------------    ------------  ------------   -------------

Balance as of January 1, 2004                                $    30,674     $    97,985   $        --    $    128,659
                                                             ------------    ------------  ------------   -------------
Goodwill addition                                                      1              37            --              38
                                                             ------------    ------------  ------------   -------------
Balance as of December 31, 2004                              $    30,675     $    98,022   $        --    $    128,697
                                                             ============    ============  ============   =============
</TABLE>

                                      F-14
<PAGE>
     The following table summarizes information about the Company's allocation
     of other intangible assets. Other intangibles, all of which relate to the
     purchase of Stoker, consist of (in thousands):

<TABLE>
<CAPTION>
                                                                                    AS OF DECEMBER 31, 2004
                                                                                  -----------------------------

                                                                                     GROSS
                                                                                   CARRYING       ACCUMULATED
                                                                                    AMOUNT       AMORTIZATION
                                                                                  ------------    ------------
<S>                                                                             <C>             <C>
Unamortized indefinite life intangible assets

      Trade names                                                                 $     8,500     $        --
      Formulas                                                                             51              --
                                                                                  ------------    ------------

Total                                                                             $     8,551     $        --
                                                                                  ============    ============
Amortized intangible assets:

      Customer list (useful life of 10 years)                                     $     1,400     $       157
      Non-compete agreement (useful life of 3 years)                                      900             401
                                                                                  ------------    ------------

Total                                                                             $     2,300     $       558
                                                                                  ============    ------------

     The Company amortizes the non-competition agreement over its life of 3
     years. Amortization expense for other intangibles was approximately $462
     for the year ending December 31, 2004. Estimated future amortization
     expense is $440 for the year ending December 31, 2005, $390 for the year
     ending December 31, 2006, and $140 for the years ending December 31, 2007,
     2008 and 2009.

10.  OTHER ASSETS:

     Other assets at December 31, 2004 and 2003 includes loans and accrued
     interest to the principal shareholder of $1,487 and $1,559, respectively,
     amounts related to the MSA escrow account of $13,171 and $8,282,
     respectively, and other miscellaneous deposits of $868 and $822,
     respectively.

11.  DEFERRED FINANCING COSTS:

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


                                                                                          2004           2003
                                                                                      ------------   ------------

   Deferred financing costs, net of accumulated amortization of $1,566
   and $8,917 at December 31, 2004 and 2003, respectively                             $     13,105   $      5,163
                                                                                      =============  =============

     During 2004, the Company recorded a write-off of deferred financing cost of
     approximately $1.6 million relating to the extinguishment of the Senior
     Notes.

12.  NOTES PAYABLE AND LONG-TERM DEBT:

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


                                                                                      2004              2003
                                                                                  -------------   -------------
Senior Discount Notes                                                             $     66,622    $          --
New Senior Notes                                                                       200,000               --
Old Senior Notes                                                                            --          155,000
Notes payable                                                                               --           30,686
                                                                                  -------------    -------------

                                                                                  $    266,622    $     185,686
                                                                                  =============   ==============
</TABLE>

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

     At December 31, 2003, NATC was operating under a Loan Agreement (the "Loan
     Agreement"), dated December 31, 2000, with Bank One, Kentucky, NA. as Agent
     (the "Agent"), and the banks named therein, which provided for a $25.0
     million term loan and a $10.0 million revolving credit facility. The Term
     Loan was payable in eight (8) quarterly installments of $3,125 million each
     plus accrued interest, which commenced on March 31, 2001. Both the term
     loan and the revolving credit facility matured on December 31, 2002, at
     which time the term loan was paid in full. On December 31, 2002, NATC


                                      F-15
<PAGE>
     entered into an Amended Loan Agreement (the "Amended Loan Agreement") with
     Bank One in which the revolving credit facility was increased to $20
     million and extended to December 31, 2003. During 2003, the Amended Loan
     Agreement was amended to reduce the revolving credit facility to $15.0
     million and to extend the maturity to March 31, 2004. The unused portion of
     revolving credit facility at December 31, 2003 amounted to $8.7 million.
     NATC paid a commitment fee of 0.50% per annum on a quarterly basis on the
     unused balance of the revolving credit facility. The outstanding amount
     relating to the revolving credit facility as of December 31, 2003 has been
     classified as a current liability in the Consolidated Balance Sheet. All
     terms of the original Loan Agreement remained in place except for the
     replacement of a Fixed Charge Coverage Covenant with an Interest Coverage
     Covenant. NATC's obligations under the Loan Agreement were guaranteed by
     National Tobacco, NAOC and NTFC. In addition, NATC's obligations were
     collateralized by all of NATC's assets and NATC's equity in its
     subsidiaries. The interest rate on borrowings under the Amended Loan
     Agreement was based, at NATC's option, on either LIBOR or the prime rate as
     announced by the Agent from time to time. At December 31, 2003, the Notes
     Payable outstanding under the Tranche B term loan portion consisted of $7.7
     million incurred to finance the posting of a $7.7 million judgment bond
     (including accrued interest and fees) in connection with the litigation
     with Republic Tobacco (See Note 21, Contingencies) and $23.0 million to
     finance the acquisition of Stoker (See Note 5, Acquisition of Business). As
     of December 31, 2003, the interest rate on borrowings under the Amended
     Loan Agreement was 5.15%.

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

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

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

     The New Senior Notes are senior unsecured obligations of NATC, mature on
     March 1, 2012 and are guaranteed jointly, severally, fully and
     unconditionally on a senior unsecured basis by all of NATC's existing and
     certain of its future subsidiaries. The New Senior Notes bear interest at
     the rate of 9 1/4% per annum from the date of issuance, or from the most
     recent date to which interest has been paid or provided for, and is payable
     semiannually on March 1 and September 1 of each year. NATC is not required
     to make mandatory redemptions or sinking fund payments prior to the
     maturity of the Notes. NATC or the Company may from time to time seek to
     retire all or a portion of the New Senior Notes through cash purchases
     and/or exchanges for other securities in open market purchases, privately
     negotiated transactions or otherwise.

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


                                      REDEMPTION
        YEAR                            PRICE
        -------------------          -------------
        2008                             104.625%

        2009                             102.313%

        2010 and thereafter              100.000%

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

     In addition, at any time prior to March 1, 2007, NATC may, at its option,
     redeem up to 35% of the aggregate principal amount of the Notes with the
     net cash proceeds of one or more equity offerings by NATC or the Company,
     at its option, subject to certain conditions, at a redemption price equal
     to 109.250% of the principal amount thereof, plus accrued and unpaid
     interest thereon, if any, to the date of redemption.


                                      F-16
<PAGE>
     The New Senior Notes limit the incurrence of additional indebtedness, the
     payment of dividends, entering transactions with affiliates, asset sales,
     or other encumbrances on our assets, and other matters. At December 31,
     2004, NATC was in compliance with all provisions of the New Senior Notes.

     In connection with the refinancing, NATC also amended and restated the
     existing credit facility, resulting in a new $50.0 million (reducing to
     $40.0 million in August 2005) senior revolving credit facility with Bank
     One, N.A. as agent (the "Agent Bank") and La Salle Bank, National
     Association. The credit agreement (the "New Credit Agreement") governing
     the new senior revolving credit facility includes a letter of credit
     sublimit of $25.0 million and terminates three years from the closing date.
     The Company will use the new senior revolving credit facility for working
     capital and general corporate purposes. On January 19, 2005, the New Credit
     Agreement was amended to reduce the revolving credit facility to $35.0
     million.

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

     Each advance under the New Credit Agreement will bear interest at variable
     rates based, at NATC's option, on either the prime rate plus 1% or LIBOR
     plus 3%. At December 31, 2004, the interest rate on borrowings under the
     New Credit Agreement was 5.18%. The New Credit Agreement provides for
     voluntary prepayment, subject to certain exceptions, of loans. In addition,
     without the prior written consent of the Agent Bank, NATC will not allow a
     Change in Control (as defined in the New Credit Agreement), the sale of any
     material part of its assets and the assets of its subsidiaries on a
     consolidated basis or, subject to certain exceptions, the issuance of
     equity or debt.

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

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

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

     As of December 31, 2004 NATC would have failed to meet its original
     required minimum fixed charge coverage ratio for the period then ended due
     to its operating results in 2004. This would have represented an event of
     default under the terms of NATC's New Credit Agreement. This covenant,
     however, was eliminated pursuant to the March 30, 2005 amendment to NATC's
     New Credit Agreement.

     On March 30, 2005, the New Credit Agreement was amended. This amendment
     modifies the fixed charge coverage ratio covenant, which now only applies
     to quarters ending June 30, 2005 and thereafter, and the minimum
     consolidated adjusted EBITDA covenant, which now only applies to quarters
     ending from June 30, 2004 through March 31, 2005. The fixed charge coverage
     ratio definition was also amended to include any future cash equity
     contributions to NATC. In addition, the amendment changes the New Credit
     Agreement maturity date from February 28, 2007 to January 31, 2006.

     Concurrently with the offering of the New Senior Notes, the Company issued
     $97.0 million aggregate principal amount at maturity ($60.0 million in
     gross proceeds) of its senior unsecured discount notes due 2014 (the
     "Senior Discount Notes"). Proceeds of approximately $53.8 million from this
     issuance was used to make a capital contribution to NATC. The accreted
     value of these notes is $66.6 million at December 31, 2004. The Senior


                                      F-17
<PAGE>
     Discount Notes are the Company's senior obligations and are unsecured,
     ranking equally in right of payment to all of the Company's future
     unsubordinated obligations and senior in right of payment to any
     obligations that are by their terms subordinated to the Senior Discount
     Notes, and will be effectively subordinated to any secured obligations of
     the Company to the extent of the assets securing those obligations. The
     Senior Discount Notes are not guaranteed by NATC or any of its subsidiaries
     and are structurally subordinated to all of NATC's and its subsidiaries'
     obligations, including the New Senior Notes. The Company or NATC may from
     time to time seek to retire all or a portion of the Senior Discount Notes
     through cash purchases and/or exchange for other securities in open market
     purchases, privately negotiated transactions, or otherwise.

     On and after March 1, 2009, the Senior Discount Notes will be redeemable,
     at the Company's option, in whole at any time or in part from time to time,
     upon not less than 30 nor more than 60 days prior notice at the following
     redemption prices (expressed in percentages of principal amount at
     maturity), if redeemed during the 12-month period commencing March 1 of the
     years set forth below, plus accrued and unpaid interest to the redemption
     date (subject to the right of holders of record on the relevant record date
     to receive interest due on the relevant interest payment date):


                                                REDEMPTION
        YEAR                                       PRICE
        --------------------                   --------------
        2009                                      106.125%
        2010                                      104.083%
        2011                                      102.042%
        2012 and thereafter                       100.000%

     In addition, prior to March 1, 2009, the Company may redeem the Senior
     Discount Notes, at its option, in whole at any time or in part from time to
     time, upon not less than 30 nor more than 60 days prior notice at a
     redemption price equal to 100% of the accreted value of the Senior Discount
     Notes redeemed plus a "make-whole" premium based on U.S. Treasury rates as
     of, and accrued and unpaid interest to, the applicable redemption date.

     Further, at any time prior to March 1, 2007, the Company may, at its
     option, redeem up to 35% of the aggregate principal amount at maturity of
     the Senior Discount Notes with the net cash proceeds of one or more equity
     offerings by the Company, subject to certain conditions, at a redemption
     price equal to 112.250% of the accreted value thereof, plus accrued and
     unpaid interest thereon, if any, to the date of redemption.

     The Senior Discount Notes limit the incurrence of additional indebtedness,
     the payment of dividends, entering into transactions with affiliates, asset
     sales, engaging in mergers or acquisitions, creating liens and other
     encumbrances on assets, and other matters.

     The Company is dependent on NATC's cash flows to service its debt. The
     amount of cash interest to be paid during the next five years is as
     follows: $0 in each of 2004, 2005, 2006, 2007 and March 1, 2008; $5,941
     payable on September 1, 2008 and $5,941 payable on each of March 1 and
     September 1 thereafter until maturity.

     Looking forward, due to the lower than anticipated operating performance of
     the Company's core business and increased net expenses resulting from the
     Company's developmental activities relating to Zig-Zag Premium Cigarettes,
     the Company currently anticipates that NATC will not likely meet the fixed
     charge coverage ratio test contained in the New Credit Agreement for the
     rolling four quarter periods ending June 30, 2005 and thereafter without
     the contribution of additional equity into NATC. In the event that such
     covenant is breached, NATC would be in default under the New Credit
     Agreement, pursuant to which the lenders would have all rights and remedies
     available to them at that time, including the right to accelerate payment
     of all obligations thereunder. Such acceleration would trigger an event of
     default under the indentures governing the New Senior Notes and the Senior
     Discount Notes, allowing an acceleration of the obligations thereunder. In
     the event of an acceleration of NATC's obligations under either the New
     Credit Agreement or New Senior Notes, or the Company's obligations under
     the Senior Discount Notes, neither NATC nor the Company would be able to
     satisfy their respective obligations and would likely be required to seek
     protection from their creditors under applicable laws. The Company is
     wholly dependent on NATC to service its debt and other obligations.
     Although there can be no assurance, the Company believes that it will be
     able to successfully negotiate new senior secured financing on reasonably
     acceptable terms, refinance out the existing lenders and avoid a default by
     NATC under the New Credit Agreement.


                                      F-18
<PAGE>
13    INCOME TAXES:

     The income tax provision (benefit) for the years ended December 31, 2004,
     2003, and 2002 consists of the following components (in thousands):

<TABLE>
<CAPTION>
                                                                                           2004
                                                                                        AS RESTATED,
                                                                                           NOTE 1       2003          2002
                                                                                        ------------ ------------ ------------
<S>                                                                                     <C>         <C>           <C>
Deferred

      Federal                                                                          $    25,380   $   (3,301)  $    2,876
      State and local                                                                        1,830         (388)         338
                                                                                        ------------ ------------ ------------
                                                                                       $    27,210   $   (3,689)  $    3,214
                                                                                        ============ ============ ============
</TABLE>

     Deferred tax assets and liabilities at December 31, 2004 and 2003 consist
     of (in thousands):

<TABLE>
<CAPTION>
                                                                          2004, AS RESTATED, NOTE 1              2003
                                                                        -----------------------------  ----------------------------
                                                                           ASSETS      LIABILITIES     LIABILITIES      ASSETS
                                                                        -------------   -------------  -------------  -------------
<S>                                                                   <C>             <C>            <C>            <C>
Inventory                                                               $        --    $     4,801     $        --   $     4,654
Property, plant and equipment                                                    --            979              --         1,141
Goodwill and other intangible assets                                          7,617          5,005          10,223         3,851
Accrued pension and postretirement costs                                      3,364             --           5,630            --
Minimum pension liability                                                       614             --             540            --
NOL carryforward                                                             16,599             --           8,051            --
Other                                                                         2,506             --           1,956            --
                                                                        -------------   -------------  -------------  -------------
Sub-total                                                                    30,700         10,785          26,400         9,646
Valuation allowance                                                         (29,721)            --              --            --
                                                                        -------------   -------------  -------------  -------------
Deferred income taxes                                                   $       979     $   10,785     $    26,400    $    9,646
                                                                        =============   =============  =============  =============
</TABLE>

     At December 31, 2004 the Company had NOL carryforwards for income tax
     purposes of approximately $37.3 million which expire in the years beginning
     in 2012.

     The Company has determined that at December 31, 2004, its ability to
     realize future benefits of net deferred tax assets does not meet the "more
     likely than not" criteria in SFAS No. 109, "Accounting for Income Taxes";
     therefore, a valuation allowance of $29.7 million has been recorded.

     Reconciliation of the federal statutory rate and the effective income tax
     rate for the years ended December 31, 2004, 2003, and 2002 is as follows:

<TABLE>
<CAPTION>
                                                                           2004
                                                                        AS RESTATED,
                                                                           NOTE 1       2003            2002
                                                                        ------------ ------------  ------------
<S>                                                                  <C>             <C>           <C>
Federal statutory rate                                                        35.0%        35.0%         35.0%
State taxes                                                                    3.5          3.5           3.0
Permanent differences                                                         (1.4)        (0.8%)         0.5%
Valuation                                                                   (389.9)          --            --
Other                                                                           --         (0.6)         (1.6)
                                                                        ------------ ------------  ------------
Effective income tax rate                                                   (352.8)%       37.1%         36.9%
                                                                        ============  ============ =============
</TABLE>

14.  PENSION AND POSTRETIREMENT BENEFIT PLANS:

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

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

     Effective December 31, 2003, the Company froze the defined benefit
     retirement plan for its salaried employees. Effective June 30, 2004 and
     July 31, 2004, the Company also froze the defined benefit retirement plan
     for the respective hourly employees of its three collective bargaining
     units.


                                      F-19
<PAGE>
     Effective September 30, 2004, the Company terminated its postretirement
     benefit plan for its salaried employees. Accordingly, the Company
     recognized a reduction in the postretirement benefit plan liability of
     $3,811.

     The following tables provide a reconciliation of the changes in the plans'
     benefit obligations and fair value of assets for the years ended December
     31, 2004 and 2003 and a statement of the funded status as of December 31
     (in thousands):

<TABLE>
<CAPTION>
                                                                                                       POSTRETIREMENT
                                                                            PENSION BENEFITS              BENEFITS
                                                                        ------------------------- -------------------------
                                                                           2004          2003          2004        2003
                                                                        ------------ ------------ ------------ ------------
<S>                                                                    <C>          <C>          <C>          <C>
Reconciliation of benefit obligation:

      Benefit obligation at January 1                                  $    15,298   $   12,737   $   14,298   $     9,351
      Service cost                                                             161          552          238           728
      Interest cost                                                            783          803          460           807
      Actuarial loss                                                           368        1,772        1,742         3,847
      Curtailment of salaried benefits                                      (1,386)          --       (7,843)           --
      Benefits paid                                                           (696)        (566)        (267)         (435)
                                                                        ------------ ------------ ------------ ------------
Benefit obligation at December 31                                      $    14,528   $   15,298   $    8,628   $    14,298
                                                                        ============ ============ ============ =============

Reconciliation of fair value of plan assets:

      Fair value of plan assets at January 1                           $     9,433   $    6,956   $       --            --
      Actual return on plan assets                                           1,268        1,643           --            --
      Employer contributions                                                 1,700        1,400          267           435
      Benefit paid                                                            (696)        (566)        (267)         (435)
                                                                        ------------ ------------ ------------ ------------
Fair value of plan assets at December 31                               $    11,705   $    9,433   $       --   $        --
                                                                        ============ ============ ============ ============

Funded status:

      Funded status at December 31                                     $    (2,823)  $   (5,865)  $   (8,628)  $   (14,318)
      Unrecognized prior service cost                                           --            6                         --
      Unrecognized net actuarial loss                                        1,476        3,032        2,567         4,985
                                                                        ------------ ------------ ------------ ------------
Net amount recognized                                                  $    (1,347)  $   (2,827)  $   (6,061)  $    (9,333)
                                                                        ============ ============ ============ ============
</TABLE>

     The asset allocation for the Company's defined benefit plans as of December
     31, 2004 and 2003, and the target allocation for 2005, by asset category,
     follows:

                                                         PERCENTAGE OF
                                        TARGET           PLAN ASSETS AT
                                      ALLOCATION           DECEMBER
                                     -------------   ---------------------
                                         2005           2004        2003
Asset category:
Equity securities                          70.0%        71.3%       67.0%
Debt Securities                            30.0%        28.7%       33.0%
Cash                                        0.0%         0.0%        0.0%
                                      -----------   ----------- -----------
Total                                     100.0%       100.0%      100.0%
                                      ===========   ----------- -----------

     Equity securities included no shares of the Company's common stock at
     December 31, 2004 or 2003.

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


                                      F-20
<PAGE>
     The following table provides the amounts recognized in the balance sheets
     as of December 31 (in thousands):

<TABLE>
<CAPTION>
                                                                                                     POSTRETIREMENT
                                                                              PENSION BENEFITS          BENEFITS
                                                                          ----------------------   ----------------------
                                                                               2004      2003          2004      2003
                                                                          ----------- -----------  ----------- -----------
<S>                                                                     <C>          <C>          <C>         <C>
Accrued benefit cost                                                      $   (1,347) $   (2,827)  $   (6,061) $   (9,333)
                                                                          ----------- -----------  ----------- -----------

Minimum pension liability                                                     (1,965)     (1,769)          --          --
Deferred tax asset                                                               614         540           --          --
Accumulated other comprehensive income                                         1,351       1,229           --          --
                                                                          ----------- -----------  ----------- -----------
Net amount recognized                                                     $   (1,347) $   (2,827)  $   (6,061) $   (9,333)
                                                                          =========== ===========  =========== ===========
</TABLE>

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

                                                               2004       2003      2002        2004       2003     2002
                                                           ----------  ---------  ---------   --------   -------- ---------
<S>                                                     <C>           <C>        <C>         <C>       <C>       <C>
Service cost                                               $    161    $   552    $    550    $   238   $   728   $    421
Interest cost                                                   782        803         803        460       808        473
Expected return on plan assets                                 (850)      (582)       (658)        --        --         --
Amortization of gains and losses                                121         85          --        133       408         --
Curtailment of salaried benefits                                 --         --          --     (3,811)       --         --
                                                           ----------  ---------  ---------   --------   -------- ---------
Net periodic benefit cost                                  $    214    $    858   $    695    $ (3,080)  $ 1,944  $    894
                                                           ==========  =========  =========   ========   ======== =========
</TABLE>

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

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

                                                               2004       2003      2002        2004       2003     2002
                                                           ----------  ---------  ---------   --------   -------- ---------
<S>                                                        <C>         <C>       <C>        <C>         <C>      <C>
Discount rate                                                  5.50%      5.50%     6.75%      5.75%     6.25%      6.75%
Expected return on plan assets                                 8.50%      8.50%     8.50%        --         --          --
Rate of compensation increase                                   N/A       4.00%     4.00%        --         --          --
</TABLE>

     For measurement purposes of the postretirement benefits, the assumed health
     care cost trend rate for participants under age 65 as of December 31, 2004,
     2003 and 2002 was 11.0%, 12.0% and 12.0%, respectively, and for
     participants age 65 and over the rate was 11.0%, 12.0% and 12.0%,
     respectively. The health care cost trend rate was assumed to decline
     gradually to 5.5% for pre-age 65 and for post-age 65 costs over 6 years.

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

<TABLE>
<C>                                                                       <C>           <C>         <C>
                                                                                 2004        2003        2002
                                                                                 ----        ----        ----
Effect on total of service and interest cost components
 of net periodic postretirement cost                                        $      123  $      269    $     3
Effect on the health care component of
 the accumulated postretirement benefit obligation                          $    1,100  $    2,280    $    49
</TABLE>


                                      F-21
<PAGE>
     The following benefit payments, which reflect expected future service, as
     appropriate, are expected to be paid:

                                   PENSION                 OTHER
                                   BENEFITS            POSTRETIREMENT
                                  U.S. PLANS         BENEFITS (U.S. PLANS)
                              ----------------      ----------------------
                                (IN THOUSANDS)          (IN THOUSANDS)

2005                          $             681         $        204
2006                                        736                  244
2007                                        766                  280
2008                                        811                  330
2009                                        861                  385
2010-2014                     $           5,083         $      2,851

     The Company's policy for the postretirement benefits plan is to make
     contributions equal to the benefits paid during the year. The Company
     expects to make $0.3 million of contributions to the plan in the year
     ending December 31, 2005.

     The Company also sponsors a voluntary 401(k) retirement savings plan.
     Eligible employees may elect to contribute up to 15% of their annual
     earnings subject to certain limitations. The Company match for the hourly
     employees is 100.0% of each eligible participant's contribution up to 6% of
     compensation for the plan year. The Company's matching for hourly employees
     is subject to a 3-year vesting schedule. The Company match for the salaried
     employees is 100.0% of each eligible participant's contribution up to 6% of
     compensation for the plan year. Company matching is immediate for salaried
     employees. Additional discretionary matching contributions by the Company
     are determined annually by the Board of Directors. Company matching
     contributions to this plan were approximately $0.5 million, $0.5 million
     and $0.4 million for each of the years ended December 31, 2004, 2003 and
     2002, respectively.

15.  LEASE COMMITMENTS:

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

     The following is a schedule of future minimum lease payments for operating
     leases that had initial or remaining non-cancelable lease terms in excess
     of one year as of December 31, 2004 (in thousands):


                                               OPERATING
                                                LEASES
                                             --------------
2005                                        $       1,213
2006                                                1,139
2007                                                  932
2008                                                  510
2009                                                  312
2010 and beyond                                     1,486
                                             --------------
Total minimum lease payments                $       5,592
                                             ==============

     Lease expense for the years ended December 31, 2004, 2003 and 2002 was
     $1,081, $840 and $786, respectively.

16.  MANDATORILY REDEEMABLE PREFERRED STOCK

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

     The amendments to the Preferred Stock, among other things: (i) accelerated
     the mandatory redemption date of the Preferred Stock from June 15, 2007 to
     June 15, 2005, which will require NATC to redeem the Preferred Stock at an
     earlier date, (ii) reduced the liquidation preference from $25.00 to $22.00
     per share, which will lower NATC's cost of redeeming the Preferred Stock
     and will lower the amount of dividends payable thereon (which dividends are
     equal to 12% of the liquidation preference per annum), (iii) eliminated any
     redemption premium, which will lower NATC's potential cost of redeeming the
     Preferred Stock prior to June 15, 2005, (iv) reduced the repurchase price
     that NATC must offer the holders of Preferred Stock upon a change of
     control from 101% to 100% of the liquidation preference, which will lower


                                      F-22
<PAGE>
     NATC's potential cost of any such repurchase obligation, (v) permitted
     future dividends to be paid through the issuance of additional shares of
     preferred stock, which will provide NATC with greater flexibility in
     financing its operations, and (vi) included a definition for the term
     "Permitted Investments", which definition was inadvertently omitted from
     the Certificate of Designation pursuant to which the Preferred Stock was
     created.

     As consideration for these amendments, NATC paid each registered holder of
     Preferred Stock that consented thereto $0.40 per share in cash. A total of
     approximately $985 in consent fees were paid. NATC paid an additional
     amount of approximately $236 in legal and other fees related to the Consent
     Solicitation. As a result of the Consent Solicitation NATC recognized a
     gain of $5.4 million.

     For the preferred stock dividend payments on September 15, 2002, December
     15, 2002, March 15, 2003, June 15, 2003, September 15, 2003 and December
     15, 2003, NATC chose to make this payment in kind. For the preferred stock
     dividend payment due on March 15, 2004 NATC chose to make this payment in
     cash.

     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.

     On March 18, 2004, in connection with the refinancing of its existing debt,
     NATC redeemed all outstanding shares of the preferred stock, at the
     applicable redemption price equal to the liquidation preference of the
     preferred stock ($22.00 per share), plus an amount in cash equal to all
     accumulated and unpaid dividends for a total of $65,080.

17.  SHARE INCENTIVE PLANS:

     The Company has two share incentive plans covering certain key employees
     which provide for the granting of options to purchase common stock of the
     Company and other stock related benefits. As of December 31, 2004, no
     benefits other than the stock options described below had been granted. The
     total number of shares available for granting under the plans is 111,856.
     Stock option activity is summarized below:

<TABLE>
<CAPTION>
                                                                    WEIGHTED        WEIGHTED
                                                                    AVERAGE         AVERAGE
                                                     INCENTIVE      EXERCISE       GRANT DATE
                                                      SHARES         PRICE         FAIR VALUE
                                                     -----------  -----------      -----------

<S>                                                <C>           <C>            <C>
Outstanding, December 31, 2002                       $   95,271   $     43.38     $     25.19
Granted                                                   2,500         90.00           22.75
Exercised                                                    --            --              --
Forfeited                                                (4,500)       (90.00)         (22.75)

Outstanding, December 31, 2003                           93,271         42.38           26.37

Granted                                                  14,085         62.00           20.95
Exercised                                                    --           --               --
Forfeited                                                (1,000)      (62.00)          (22.75)
                                                     -----------  -----------      -----------
Outstanding, December 31, 2004                          106,356        32.33            32.75
                                                     ===========  ===========      ===========
</TABLE>

     At December 31, 2004, the outstanding stock options' exercise price for
     61,856 options is $9.99 per share (reduced from $18.19 per share in August
     2004), all of which are exercisable. The outstanding stock options'
     exercise price for 44,500 options is $62.00 (reduced from $90.00 per share
     in August 2004), 19,690 of which are exercisable with the remaining 24,810
     becoming exercisable from 2005 through 2014. All stock options expire 10
     years from the grant date. The weighted average of the remaining lives of
     the outstanding stock options is approximately 7.3 years for the options
     with the $9.99 exercise price and 8.5 years for the options with the $62.00
     exercise price. The Company estimates that all of the stock options granted
     will be exercised and that the expected life of all stock options is five
     years from the date of grant. The weighted average fair value of the
     options was determined as the difference between the fair value of the
     common stock on the grant date and the present value of the exercise price
     over the expected life of five years at a risk free interest rate of 6%,
     with no assumed dividend yield.

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


                                      F-23
<PAGE>
     The Company has recorded compensation expense related to the options based
     on the provisions of SFAS No. 123 under which the fixed portion of such
     expense is determined as the fair value of the options on the date of grant
     and amortized over the vesting period. The variable portion of the
     compensation expense is measured on each reporting date with the expense
     amount adjusted for changes in the fair value of the Company's stock on
     that date. As the result of the reduction in exercise prices referred to
     above, the Company recognized additional compensation expense of $670.
     Compensation expense of approximately $832, $417 and $102 ($164, $258 and
     $63, net of deferred income tax benefit) has been recognized in the
     Statements of Operations for the years ended December 31, 2004, 2003 and
     2002, respectively.

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

<TABLE>
<CAPTION>

                                                                                   FOR THE YEAR ENDED DECEMBER 31, 2004
                                                                                -----------------------------------------------
                                                                                                                     PER
                                                                                   INCOME          SHARES           SHARE
                                                                                 (NUMERATOR)    (DENOMINATOR)       AMOUNT
                                                                                -------------- --------------   ---------------
<S>                                                                           <C>              <C>              <C>
Net loss                                                                        $     (34,922)

Less: Preferred stock dividends                                                        (1,613)
Basic and diluted:
      Net loss available to common stockholders                                 $     (36,535)        577,795    $      (63.23)
                                                                                ==============  ==============   ==============



                                                                                   FOR THE YEAR ENDED DECEMBER 31, 2003
                                                                                -----------------------------------------------
                                                                                                                    PER
                                                                                   INCOME          SHARES          SHARE
                                                                                 (NUMERATOR)    (DENOMINATOR)      AMOUNT
                                                                                -------------- --------------    --------------
Net income                                                                      $      (6,241)
Less: Preferred stock dividends                                                         7,275
                                                                                --------------

Basic:
      Net income available to common stockholders                               $     (13,516)        528,241    $      (25.59)
                                                                                ==============  ==============   ==============


                                                                                     FOR THE YEAR ENDED DECEMBER 31, 2002
                                                                                -----------------------------------------------
                                                                                                                     PER
                                                                                   INCOME          SHARES           SHARE
                                                                                 (NUMERATOR)    (DENOMINATOR)       AMOUNT
                                                                                -------------- --------------    ---------------
Net income                                                                      $       5,485
Less: Preferred stock dividends                                                        (6,976)
Plus: Net gain on restructuring of preferred stock                                      5,395
                                                                                --------------
Basic:
      Net loss available to common stockholders                                 $       3,904         528,241    $        7.39
                                                                                ==============  ==============   ==============
Diluted:
      Net loss available to common stockholders                                 $       3,904         664,939    $        5.87
                                                                                ==============  ==============   ==============
</TABLE>

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

19.  FOURTH QUARTER ADJUSTMENT:

     The fourth quarters of 2004, 2003 and 2002 included adjustments to increase
     the LIFO expense and decrease pre-tax income by approximately $2.1 million,
     $1.9 million and $0.4 million, respectively. The fourth quarter of 2004
     also included adjustments to decrease pension/postretirement benefit
     expense by approximately ($0.2) million. The fourth quarter of 2003 also
     included adjustments to increase the postretirement benefits expense by
     approximately $1.1 million, as a result of year-end actuarial computations.


                                      F-24
<PAGE>
20.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):

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

<TABLE>
<CAPTION>

                    -------------------------------------------------------------------------------------------
                                                             QUARTER
                    -------------------------------------------------------------------------------------------
                          1ST                2ND                3RD         4TH AS REPORTED    4TH AS RESTATED
                    ---------------     ---------------    ---------------  ---------------    ---------------
<S>                <C>                <C>                <C>              <C>                <C>
2004
Net sales           $    22,105         $    37,207        $   30,741       $      25,267      $     25,267
Gross profit              9,853              20,140            16,966               9,744             9,744
Net income (loss)        (7,945)                812             5,932             (25,528)          (35,334)
Basic net income
   (loss) per share      (14.70)               1.38             10.03              (43.17)           (59.75)
Diluted net income
   (loss) per share      (14.70)               1.11              8.25              (43.17)           (59.75)


2003

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

21.  CONTINGENCIES:

     LITIGATION WITH REPUBLIC TOBACCO

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

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

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

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


                                      F-25
<PAGE>
     On July 8, 2003, following a four-day trial, an Illinois jury returned a
     verdict in favor of Republic on the defamation claims of $8.4 million in
     general damages and $10.2 million in punitive damages, for a total damage
     award of $18.6 million. NATC recorded an $18.8 million charge during the
     second quarter 2003 relating to this transaction. NATC filed post-trial
     motions for a new trial and, in the alternative, for a reduction of the
     awards. On August 1, 2003, NATC posted a judgment bond in the amount of
     $18.8 million with the U.S. District Court. This was accomplished by
     obtaining a $19.0 million senior secured term loan pursuant to a July 31,
     2003 amendment to NATC's existing credit facility. On November 20, 2003,
     the court ruled that the awards were excessive and reduced the awards by
     approximately 60%, with the award of compensatory damages being reduced to
     $3.36 million and the award of punitive damages being reduced to $4.08
     million, for a total of $7.44 million. On December 18, 2003, Republic
     accepted these reduced awards. NATC reversed $11.16 million during the
     fourth quarter 2003 due to this court ruling.

     On January 8, 2004, NATC appealed the final judgment, including the finding
     of liability in this case as well as the amount of the award. On January
     22, 2004, Republic filed a general notice of cross appeal and argued in its
     appellate briefs that the judgment should be affirmed and also asserted, in
     its cross-appeal, that the original judgment should be reinstated despite
     its acceptance of the District Court's order reducing the judgment amount.

     On September 1, 2004, the Court of Appeals issued its ruling affirming the
     finding of liability against NATC for defamation, but reducing the amount
     of the damage award to $3.0 million. The Court of Appeals also affirmed the
     dismissal of NATC's antitrust claim against Republic and the dismissal of
     Republic's motion to re-instate the original jury award of $18.8 million.
     As a result of these rulings, in October 2004 NATC received approximately
     $4.5 million relating to the cash bond it had posted with the Court in
     2003. This amount was included in Other income during 2004.

     NATC has also applied to the Court of Appeals for an order awarding NATC
     approximately $1.0 million for the difference in the expense of the
     original bond of $18.8 million and the subsequent reduced bond of $7.0
     million, on the one hand, and the lesser expense NATC would have incurred
     to bond the final $3.0 million judgment, on the other hand. On November 30,
     2004, the Court of Appeals ruled that the application for costs should be
     directed to the District Court. On December 17, 2004, NATC filed this
     motion with the District Court. That motion has been fully briefed and the
     parties are waiting for the Court to rule.

     LITIGATION RELATED TO COUNTERFEITING

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

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

     NATC entered into a settlement with the defendants, the principal terms of
     which included a cash payment, an agreed permanent injunction, the
     withdrawal of the defendants' appeal of the civil contempt order, an agreed
     judgment of $11.0 million from the civil contempt order and an agreement to
     forbear from enforcing that $11.0 million money judgment until such time in
     the future that the defendants violate the terms of the permanent
     injunction. Two of the defendants, Tarek Makki and Adham Makki, also agreed
     to provide complete information concerning the counterfeiting conspiracy as
     well as information on other parties engaged in the purchase and
     distribution of infringing ZIG-ZAG premium cigarette papers.


                                      F-26
<PAGE>
     On February 17, 2004, NATC and Bollore filed a motion in the U.S. District
     Court for the Northern District of Texas, which had issued the original
     injunctions against the infringing defendants, seeking, with respect to
     respondents Adham Makki, Tarek Makki and Ali Makki, to have the $11.0
     million judgment released from the forbearance agreement and to have the
     named respondents held in contempt of court. The motion alleged that the
     three respondents had trafficked in counterfeit ZIG-ZAG cigarette papers
     after the execution of the settlement, citing evidence that all three had
     been charged in the United States District Court for the Eastern District
     of Michigan with criminal violations of the United States counterfeiting
     laws by trafficking in counterfeit ZIG-ZAG cigarette papers, which
     trafficking occurred after the settlement agreement.

     On April 13, 2004, the Court entered an order (the "Contempt 2 Order"),
     finding Ali Mackie, Tarek Makki, Adham Mackie and their companies Best
     Price Wholesale (the "Makki Defendants") and Harmony Brands LLC in civil
     contempt, freezing all of their assets, releasing the July 12, 2002 Final
     Judgment of $11.0 million from the forbearance agreement as to the Makki
     Defendants, and again referring the matter to the United States Attorney
     for Criminal Prosecution. Subsequent to the entry of the Contempt 2 Order,
     the Company settled with defendant Harmony Brands and its members for the
     amount of $750,000 and the entry of a permanent injunction. The Company is
     seeking to execute on the outstanding $11.0 million judgment against the
     remaining Makki Defendants and those efforts are currently underway.

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

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

     On July 1, 2004, the Court issued an Order awarding approximately $2.5
     million in damages to NATC for the damages incurred by the Company as a
     result of the Import Warehouse Defendants' civil contempt. On July 15,
     2004, the Court entered a Final Judgment in that amount for which
     defendants Import Warehouse, Inc. and Ravi Bhatia are jointly and severally
     liable. After NATC and Bollore commenced collection proceedings, Import
     Warehouse paid NATC and Bollore an amount equal to the entire judgment plus
     the expenses incurred in collection. Accordingly, approximately $1.2
     million has been recorded in Other income during 2004. The Import Warehouse
     Defendants filed a notice of appeal on July 24, 2004. No briefing schedule
     has been established.

     LITIGATION RELATED TO ALLEGED PERSONAL INJURY

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

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

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


                                      F-27
<PAGE>
     was allegedly used. Another alleges use that covers, in part, a period when
     NTC did not manufacture the product. On motion by cigarette company
     defendants, this claim was dismissed on February 11, 2004, for failure to
     follow the case management order. Of the remaining three, one alleges
     consumption of a competitor's chewing tobacco from 1966 to 2000 and NTC's
     Beech-Nut chewing tobacco from 1998 to 2000; another alleges a twenty-four
     year smoking history ending in 1995 and consumption of Beech-Nut chewing
     tobacco from 1990 to 1995; and the last alleges a thirty-five year smoking
     history ending in 2000, and consumption of NTC's Durango Ice chewing
     tobacco from 1990 to 2000 (although Durango Ice did not come onto the
     market until 1999).

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

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

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

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

     The trial court has now vacated the initial trial plan in its entirety
     because of concerns that its provisions violated the dictates of the United
     States Supreme Court's decision in State Farm Mutual Automobile Insurance
     Company v. Campbell, 538 U.S. 408 (2003). A new trial plan has not yet been
     implemented with regard to the consolidated claims against the cigarette
     manufacturer defendants. The West Virginia Supreme Court has accepted
     review of the case management order and the plaintiffs filed their brief on
     March 24, 2005. The claims against the smokeless tobacco manufacturer
     defendants remain servered and indefinitely stayed.

     Minnesota Complaint. On September 24, 1999, NTC was served with a complaint
     in a case entitled Tuttle v. Lorillard Tobacco Company, et al. (Case No.
     C2-99-7105), brought in Minnesota. The other manufacturing defendants are
     Lorillard and The Pinkerton Tobacco Company. The Complaint alleges that
     plaintiff's decedent was injured as a result of using NTC's (and, prior to
     the formation of NTC, Lorillard's) Beech-Nut brand and Pinkerton's Red Man
     brand of loose-leaf chewing tobacco. Plaintiff asserts theories of
     liability, breach of warranty, fraud, and variations on fraud and
     misrepresentation. Plaintiff specifically requests in its complaint an
     amount of damages in excess of fifty thousand dollars ($50,000) along with
     costs, disbursements and attorneys' fees, and ". . . an order prohibiting
     defendants from disseminating in Minnesota further misleading advertising
     and making further untrue, deceptive and/misleading statements about the
     health effects and/or addictive nature of smokeless tobacco products. . .
     ." After discovery, summary judgment motions were filed on behalf of all
     defendants. On March 3, 2003, the Court granted defendants' motions,
     dismissing all claims against all defendants and the Court has since denied
     the plaintiff's motion for reconsideration. Plaintiff has appealed the
     dismissal. Briefing has been completed. Oral argument before the Court of
     Appeals was held on February 11, 2004. On July 30, 2004, the Court of
     Appeals affirmed the dismissal of all of the claims.

     In addition to the above described legal proceedings, the Company is
     subject to other litigation in the ordinary course of its business. The
     Company does not believe that any of these other proceedings will have a
     material adverse effect on the results of operations, financial position or
     cash flows of the Company.

     OTHER EMPLOYMENT MATTERS

     The Company may, from time to time, have claims from and make settlements
     with former officers or employees.

     David I. Brunson, the former President, Chief Financial Officer and
     Treasurer of the Company, resigned from the Company effective January 19,
     2005, at which time his employment agreement with the Company (the "Brunson
     Employment Agreement") was effectively terminated. Pursuant to the Brunson
     Employment Agreement, the Company is required to make certain severance


                                      F-28
<PAGE>
     payments to Mr. Brunson, including $425,000, which was paid within ten
     business days after January 19, 2005, and an additional $425,000 payable
     within the next 12 months. In addition, Mr. Brunson may become entitled to
     a bonus payment of up to $725,000 relating to synergies achieved in the
     integration of the business of Stoker, Inc. that was acquired by the
     Company in 2003. Pursuant to the Brunson Employment Agreement, after the
     last severance payment is made, Mr. Brunson will have an option to require
     the Company to repurchase all or a portion of his shares of the Company at
     their fair market value. The Company will not be obligated to repurchase
     these shares if, upon or after the payment, it would be in default under
     any instrument, agreement or law by which it is bound; in this case, the
     repurchase may be deferred until it can be completed without such default.
     Similarly, the Company has an option to repurchase Mr. Brunson's shares at
     their fair market value. In the event the Company and Mr. Brunson are
     unable to agree upon the fair market value of these shares, an independent
     investment banking firm will be selected to determine such fair market
     value, in accordance with the procedure provided for by the Brunson
     Employment Agreement. If neither Mr. Brunson nor the Company exercise their
     respective options by the earliest of the fifth anniversary of the
     termination of Mr. Brunson's employment or the date on which the Company
     refinances, or uses proceeds derived from refinancing, certain of its
     obligations, the Company will be required to repurchase Mr. Brunson's
     shares on such date unless Mr. Brunson waives his right to require the
     Company to purchase his shares. During the first quarter of 2005, the
     Company expects to record approximately $1.1 million relating to the
     resignation of Mr. Brunson. Any options or shares of restricted stock
     granted to Mr. Brunson vest in full as of the date of such termination.

22.  PARENT-ONLY FINANCIAL INFORMATION:

     The Company is a holding company with no independent operations and no
     independent assets other than its investments in its subsidiaries and
     deferred financing costs related to its debt. The Company is dependent on
     NATC's cash flows to service the interest on the unsecured Senior Discount
     Notes. The amount of cash interest to be paid during the next five years is
     as follows: $0 in each of 2005, 2006, 2007; $5,941 in 2008 and $5,951
     payable on March 1 and September 1 thereafter until maturity. While there
     are certain restrictions on the ability of the Company to obtain funds from
     its subsidiaries, these specific provisions do not restrict the
     subsidiaries ability to fund the Company's interest requirements, assuming
     NATC has the ability to incur $1.00 of additional indebtedness pursuant to
     the terms of its New Senior Notes. Separate financial statements of the
     subsidiaries are not required and have not been included in these financial
     statements.

23.  SEGMENT INFORMATION:

     The Company has been historically organized on the basis of product lines
     which are comprised of three reportable segments. The smokeless tobacco
     segment manufactures smokeless tobacco products which are distributed
     primarily through wholesale and food distributors in the United States. The
     make-your-own segment imports and distributes premium cigarette papers,
     tobaccos and related products primarily through wholesale distributors in
     the United States. The premium cigarette segment distributes contract
     manufactured cigarettes through wholesale distributors in the United
     States.

     The accounting policies of the segments are the same as those described in
     the "Summary of Significant Accounting Policies." Segment data includes a
     charge allocating all corporate costs to each operating segment.
     Elimination and Other includes the assets of the Company not assigned to
     segments and the elimination of intercompany accounts between segments. The
     Company evaluates the performance of its segments based on earnings before
     interest, taxes, depreciation, amortization, certain non-cash charges and
     other income and expenses (Adjusted EBITDA).



                                      F-29
<PAGE>
     The table below presents financial information about reported segments for
     2004, 2003 and 2002 (in thousands):

<TABLE>
<CAPTION>
                                                                     PREMIUM
                                  SMOKELESS                         MANUFACTURED
2004                               TOBACCO      MAKE-YOUR-OWN       CIGARETTES          OTHER       ELIMINATIONS       TOTAL
-------------------------------    -------      -------------       ----------          -----       ------------       -----
<S>                             <C>         <C>               <C>               <C>              <C>               <C>
Net sales                       $    46,214   $    63,577        $       270        $     5,259      $        --    $    115,320
Operating income                      8,022        15,204             (4,830)               814               --          19,210
Adjusted EBITDA                       9,983        16,546             (4,815)             1,085               --          22,799
Assets                               62,172       275,713              2,788             27,370         (135,645)        232,398


2003
-------------------------------

Net sales                       $    36,697   $    64,677        $        64        $       155      $        --    $    101,593
Operating income                      4,601        18,533             (2,843)                30               --          20,321
Adjusted EBITDA                      10,404        20,143             (2,825)                32               --          27,754
Assets                               72,570       277,612              2,218                 --         (108,756)        243,644


2002
-------------------------------
Net sales                       $    35,732   $    58,693        $        --         $       --      $        --    $     94,425
Operating income                      5,966        23,421                 --                 --               --          29,387
Adjusted EBITDA                       9,904        25,214                 --                 --               --          35,118
Assets                               67,951       256,756                 --                 --         (111,113)        213,594
</TABLE>

     A reconciliation of Adjusted EBITDA to total consolidated operating income
     for 2004, 2003 and 2002 is as follows (in thousands):


                                             2004          2003         2002
                                         ------------  -----------  -----------

Adjusted EBITDA                         $    22,799    $   27,754   $   35,118
Depreciation expense                           (816)         (589)        (700)
Amortization expense                           (462)          (67)          --
Incentive Pay                                (2,107)           --           --
LIFO adjustment                              (2,232)       (3,459)      (3,878)
Stock option expense                           (838)         (417)        (576)
Pension/Postretirement expense                2,866        (2,901)        (577)
                                         ------------  -----------  -----------
Operating income                        $    19,210    $   20,321   $   29,387
                                         ============  ===========  ===========

24.  TERMINATED ASSET PURCHASE AGREEMENT:

     On February 18, 2003, NATC entered into an asset purchase agreement (the
     "Star Cigarette Asset Purchase Agreement") with Star Scientific, Inc.
     ("Star Scientific"), and Star Tobacco, Inc., a wholly-owned subsidiary of
     Star Scientific ("Star Tobacco" and, together with Star Scientific,
     "Star"). Pursuant to the Star Cigarette Asset Purchase Agreement, NATC was
     to purchase substantially all of the assets of Star relating to the
     manufacturing, marketing and distribution of four discount cigarette brands
     in the United States (the "Star Cigarette Assets"). The purchase price for
     the Star Cigarette Assets was to have been $80.0 million in cash, subject
     to certain closing adjustments and the assumption of certain liabilities
     related to the Star Cigarette Assets.

     On July 15, 2003, NATC and Star reached a mutual agreement to terminate the
     Star Cigarette Asset Purchase Agreement. Pursuant to the termination
     agreement, Star Scientific retained a $2.0 million earnest money deposit
     that had been placed into escrow by NATC and the parties executed releases
     of any liabilities arising out of the Star Cigarette Asset Purchase
     Agreement. NATC incurred $3.3 million of direct costs during 2003,
     including the $2.0 million earnest money deposit referred to above, in
     connection with this transaction. These costs are included in Other
     Expenses in the Condensed Consolidated Statements of Operations.

25.  NEW ACCOUNTING STANDARDS:

     In December 2004, the FASB issued SFAS No. 123R (Revised 2004), "Accounting
     for Stock Based Compensation" ("SFAS No. 123R"). SFAS No. 123R establishes
     standards for the accounting for transactions in which an entity exchanges
     its equity instruments for goods or services. It also addresses
     transactions in which an entity incurs liabilities in exchange for goods or
     services that are based on the fair value of the entity's equity
     instruments or that may be settled by the issuance of those equity
     instruments. SFAS No. 123R eliminates the alternative to use APB 25's
     intrinsic value method of accounting that was provided in SFAS No. 123 as
     originally issued. SFAS No. 123R requires entities to recognize the cost of
     employee services received in exchange for awards of equity instruments


                                      F-30
<PAGE>
     based on the grant-date fair value of those awards (with limited
     exceptions). That cost will be recognized over the period during which an
     employee is required to provide service in exchange for the award or the
     vesting period. No compensation cost is recognized for equity instruments
     for which employees do not render the requisite service. A public entity
     will initially measure the cost of liability based service awards based on
     their current fair value; the fair value of those awards will be remeasured
     subsequently at each reporting date through the settlement date. Changes in
     fair value during the requisite service period will be recognized as
     compensation cost over that period. The provisions of SFAS No. 123R shall
     become effective for the Company in the third quarter of 2005 and will
     apply to all awards granted after June 30, 2005 and to awards modified,
     repurchased, or cancelled after that date. The Company is evaluating SFAS
     No. 123R and believes it will not have a material effect on financial
     results of operations.

     In December 2003, the FASB issued revised Interpretation No. 46R,
     "Consolidation of Variable Interest Entities" ("FIN 46R"). FIN 46R provides
     guidance on how to identify a variable interest entity ("VIE") and
     determine when the assets, liabilities, non-controlling interest, and
     results of operations of a VIE need to be included in a company's
     consolidated financial statements. FIN 46R also requires additional
     disclosures by primary beneficiaries and other significant variable
     interest holders. Application of FIN 46R is required for interests in
     variable interest entities for years ending after December 15, 2003. The
     Company has determined that it has no variable interest entities.
     Application of FIN 46R is required for all other types of VIE's for periods
     ending after March 15, 2004. The application of FIN 46R had no effect on
     the Company's financial statements in 2004.

     In November 2004, the FASB issued SFAS No. 151, "Inventory Costs--an
     amendment of ARB No. 43, Chapter 4," to clarify the accounting for abnormal
     amounts of idle facility expense, freight, handling costs, and wasted
     material (spoilage). SFAS No. 151 requires that items be recognized as
     current-period charges regardless of whether they meet the criterion of "so
     abnormal" that was previously stated in ARB No. 43, Chapter 4. In addition,
     SFAS No. 151 requires that allocation of fixed production overheads to the
     costs of conversion be based on the normal capacity of the production
     facilities. The provisions of this statement shall be effective for
     inventory costs incurred during fiscal years beginning after June 15, 2005.
     The Company does not expect SFAS No. 151 to have a material impact on the
     Company's financial condition or results of operations.

     In December 2004, the FASB issued SFAS No. 152, "Accounting for Real Estate
     Time-Sharing Transactions--an amendment of FASB Statements No. 66 and 67."
     This Statement amends SFAS No. 66, "Accounting for Sales of Real Estate,"
     to reference the financial accounting and reporting guidance for real
     estate time-sharing transactions that is provided in American Institute of
     Certified Public Accountants ("AICPA") Statement of Position 04-2 ("SOP
     04-2"), "Accounting for Real Estate Time-Sharing Transactions." This
     Statement also amends SFAS No. 67, "Accounting for Costs and Initial Rental
     Operations of Real Estate Projects," to state that the guidance for (a)
     incidental operations and (b) costs incurred to sell real estate projects
     does not apply to real estate time-sharing transactions. The accounting for
     those operations and costs is subject to the guidance in SOP 04-2. The
     Accounting Standards Executive Committee of the AICPA issued SOP 04-2 to
     address the diversity in practice caused by a lack of guidance specific to
     real estate time-sharing transactions. SFAS No. 152 and SOP No. 04-2 will
     improve the accounting and reporting of those transactions. The guidance is
     effective for financial statements for fiscal years beginning after June
     15, 2005, with earlier application encouraged. The Company currently does
     not participate in any real estate time-sharing transactions.

     In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
     Assets - an amendment of APB Opinion No. 29," to eliminate the exception
     for nonmonetary exchanges of similar productive assets and replaces it with
     a general exception for exchanges of nonmonetary assets that do not have
     commercial substance. A nonmonetary exchange has commercial substance if
     the future cash flows of the entity are expected to change significantly as
     a result of the exchange. The guidance is effective for nonmonetary asset
     exchanges occurring in fiscal periods beginning after June 15, 2005. The
     Company does not expect SFAS No. 153 to have a material impact on the
     Company's financial condition or results of operations.

     In December 2004, the FASB issued two FASB Staff Positions ("FSP")
     regarding the accounting implications of the American Jobs Creation Act of
     2004 (the "Act"). The Act provides a deduction for income from qualified
     domestic production activities, which will be phased in from 2005 through
     2010. In return, the Act also provides for a two-year phase-out of the
     existing extra-territorial income exclusion ("ETI") for foreign sales.
     Under the guidance in FSP No. FAS 109-1, "Application of FASB Statement
     109, `Accounting for Income Taxes,' to the Tax Deduction on Qualified
     Production Activities Provided by the American Jobs Creation Act of 2004,"
     the deduction will be treated as a "special deduction" as described in FASB
     Statement No. 109. As such, the special deduction has no effect on deferred
     tax assets and liabilities existing at the enactment date and is not
     expected to have an impact on the Company's effective tax rate until fiscal
     year 2005. FSP No. FAS 109-2, "Accounting and Disclosure Guidance for the
     Foreign Earnings Repatriation Provision within the American Jobs Creation
     Act of 2004," is effective for 2004 and is disclosed in Note (11) "Income
     Taxes."


                                      F-31
<PAGE>
     In December 2003, the Medicare Prescription Drug, Improvement and
     Modernization Act of 2003 (the "Act"), which introduces a Medicare
     prescription drug benefit, as well as a federal subsidy to sponsors of
     retiree health care benefit plans that provide a benefit that is at least
     actuarially equivalent to the Medicare benefit, was enacted. In May 2004,
     the FASB issued Financial Staff Position No. 106-2, "Accounting and
     Disclosure Requirements Related to the Medicare Prescription Drug,
     Improvement and Modernization Act of 2003" ("FSP 106-2") to discuss certain
     accounting and disclosure issues raised by the Act. FSP 106-2 addresses
     accounting for the federal subsidy for the sponsors of single employer
     defined benefit postretirement healthcare plans and disclosure requirements
     for plans for which the employer has not yet been able to determine
     actuarial equivalency. In January 2005, the Centers for Medicare and
     Medicaid Services released the final regulations implementing the Medicare
     Prescription Drug, Improvement, and Modernization Act of 2003.

     The Company has not yet determined whether the prescription drug benefits
     provided under the postretirement plan are actuarially equivalent to the
     Medicare benefit as necessary to qualify for the subsidy. The reported net
     periodic benefit costs of the postretirement plan in the accompanying
     Financial Statements and Notes to the Financial Statements do not reflect
     the effect of the Act. While the Company may be eligible for benefits under
     the Act based on the prescription drug benefits provided in the
     postretirement plan, the Company does not believe such benefits will have a
     material impact on its financial statements.



                                      F-32
<PAGE>
Exhibit
Number              Description
---------           -----------

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

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

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

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

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

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

  3.1(a)  --        Certificate of Incorporation of North Atlantic Holding
                    Company, Inc., filed January 28, 2004 (incorporated herein
                    by reference to Exhibit 3.1(a) to the Registrant's Annual
                    Report on Form 10-K for the fiscal year ended December 31,
                    2004 filed with the Securities and Exchange Commission on
                    March 31, 2005) .


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

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

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



                                   Exhibit- 1
<PAGE>
Exhibit
Number              Description
---------           -----------

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

3.1(f)   --         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 by NATC with the Commission on
                    September 3, 1997).

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

3.1(h)   --         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 by NATC with the Commission on
                    September 3, 1997).

3.1(i)   --         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 NATC's Annual
                    Report on Form 10-K for the fiscal year ended December 31,
                    1997).

3.1(j)   --         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 NATC's Annual Report on Form 10-K for the
                    fiscal year ended December 31, 1997).

3.2(a)   --         Bylaws of North Atlantic Holding Company, Inc (incorporated
                    herein by reference to Exhibit 3.2(a) to the Registrant's
                    Annual Report on Form 10-K for the fiscal year ended
                    December 31, 2004 filed with the Securities and Exchange
                    Commission on March 31, 2005).

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

3.2(c)   --         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 by NATC with the Commission on July 23, 1997).


                                   Exhibit- 2
<PAGE>
Exhibit
Number              Description
---------           -----------

3.2(d)    --        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 by NATC
                    with the Commission on July 23, 1997).

3.2(e)    --        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 by NATC with the Commission on
                    September 3, 1997).

3.2(f)    --        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 by NATC
                    with the Commission on September 3, 1997).

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

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

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

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

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

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


                                   Exhibit- 3
<PAGE>
Exhibit
Number              Description
---------           -----------

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

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

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

4.8       --        Indenture, dated as of February 17, 2004, among North
                    Atlantic Holding Company, Inc. and Wells Fargo Bank
                    Minnesota, National Association, a national banking
                    association, as Trustee (incorporated herein by reference to
                    Exhibit 4.12 to the Registrant's Registration Statement
                    (Reg. No. 333-115587) on Form S-4 filed with the Commission
                    on May 17, 2004).

4.9       --        Registration Rights Agreement, dated February 17, 2004, by
                    and among North Atlantic Holding Company, Inc., Citigroup
                    Global Markets Inc. and RBC Capital Markets Corporation
                    (incorporated herein by reference to Exhibit 4.13 to the
                    Registrant's Registration Statement (Reg. No. 333-115587) on
                    Form S-4 filed with the Commission on May 17, 2004).

4.10      --        Indenture, dated as of February 17, 2004, among North
                    Atlantic Trading Company, Inc., the Guarantors listed on the
                    signature pages thereto and Wells Fargo Bank Minnesota,
                    National Association, a national banking association, as
                    Trustee (incorporated herein by reference to Exhibit 4.10 to
                    the NATC's Annual Report on Form 10-K for the fiscal year
                    ended December 31, 2003).

4.11      --        Registration Rights Agreement, dated as of February 17,
                    2004, by and among North Atlantic Trading Company, Inc., the
                    Guarantors listed on the signature pages thereto, Citigroup
                    Global Markets Inc. and RBC Capital Markets Corporation
                    (incorporated herein by reference to Exhibit 4.11 to the
                    NATC's Annual Report on Form 10-K for the fiscal year ended
                    December 31, 2003).

9.1       --        Amended and Restated Exchange and Stockholders' Agreement,
                    dated as of February 9, 2004, by and among North Atlantic
                    Holding Company, Inc., North Atlantic Trading Company, Inc.
                    and those stockholders listed therein (incorporated herein
                    by reference to Exhibit 9.1 to the NATC's Annual Report on
                    Form 10-K for the fiscal year ended December 31, 2003).


                                   Exhibit- 4
<PAGE>
Exhibit
Number              Description
---------           -----------

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 by NATC 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 by NATC
                    with the Commission on September 17, 1997).

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

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

10.5+    --         Restated Amendment, dated as of June 25, 1997, between
                    Bollore Technologies, S.A. and North Atlantic Operating
                    Company, Inc. (incorporated herein by reference to Exhibit
                    10.5 to Amendment No. 2 to Registration Statement (Reg. No.
                    333-31931) on Form S-4 filed by NATC with the Commission on
                    September 17, 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 by NATC with the Commission on September 3, 1997).



                                   Exhibit- 5
<PAGE>
Exhibit
Number              Description
---------           -----------

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

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

10.10++    --       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 by NATC with the Commission
                    on September 3, 1997).

10.11++    --       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 by NATC
                    with the Commission on September 3, 1997).

10.12++    --       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 NATC's Annual Report on Form 10-K for the
                    fiscal year ended December 31, 1997).

10.13++    --       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 by NATC with the Commission on
                    September 3, 1997).

10.14++    --       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 by NATC with the Commission on
                    September 3, 1997).


                                   Exhibit- 6
<PAGE>
Exhibit
Number              Description
---------           -----------

10.15++    --       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 NATC's Annual Report on
                    Form 10-K for the fiscal year ended December 31, 1997).

10.16++    --       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 NATC's Annual Report on Form 10-K for
                    the fiscal year ended December 31, 1997).

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

10.18      --       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 NATC's Annual Report on
                    Form 10-K for the fiscal year ended December 31, 1997).

10.19++    --       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 NATC's Report on 10-Q for the fiscal
                    quarter ended June 30, 1998).

10.20++    --       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 NATC's Quarterly Report on
                    10-Q for the fiscal quarter ended June 30, 1998).

10.21      --       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
                    NATC's Quarterly Report on 10-Q for the fiscal quarter ended
                    March 31, 1998).

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

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

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


                                   Exhibit- 7
<PAGE>
Exhibit
Number              Description
---------           -----------

10.25      --       Amended and Restated Loan Agreement, dated as of February
                    17, 2004, by and among Bank One, NA, LaSalle Bank National
                    Association, North Atlantic Trading Company, Inc., North
                    Atlantic Holding Company, Inc., the subsidiaries of North
                    Atlantic Trading Company, Inc. named therein and the lenders
                    party thereto (incorporated herein by reference to Exhibit
                    10.26 to the NATC's Annual Report on Form 10-K for the
                    fiscal year ended December 31, 2003).

10.26      --       Amended and Restated Security Agreement, dated as of
                    February 17, 2004, among North Atlantic Trading Company,
                    Inc., National Tobacco Company, L.P., North Atlantic
                    Operating Company, Inc., National Tobacco Finance
                    Corporation, Stoker, Inc., RBJ Sales, Inc., Fred Stoker &
                    Sons, Inc., North Atlantic Cigarette Company, Inc. and Bank
                    One, N.A., as agent on behalf of itself and other banks
                    (incorporated herein by reference to Exhibit 10.27 to the
                    NATC's Annual Report on Form 10-K for the fiscal year ended
                    December 31, 2003).

10.27      --       Amended and Restated Guaranty Agreement, dated as of
                    February 17, 2004, among National Tobacco Company, L.P.,
                    North Atlantic Operating Company, Inc., National Tobacco
                    Finance Corporation, Stoker, Inc., RBJ Sales, Inc., Fred
                    Stoker & Sons, Inc., North Atlantic Cigarette Company, Inc.
                    and Bank One, N.A., as agent on behalf of itself and other
                    banks (incorporated herein by reference to Exhibit 10.28 to
                    the NATC's Annual Report on Form 10-K for the fiscal year
                    ended December 31, 2003).

10.28      --       Amended and Restated Pledge Agreement, dated as of February
                    17, 2004, among and North Atlantic Trading Company, Inc.,
                    National Tobacco Company, L.P., North Atlantic Operating
                    Company, Inc., National Tobacco Finance Corporation, Stoker,
                    Inc., RBJ Sales, Inc., Fred Stoker & Sons, Inc., North
                    Atlantic Cigarette Company, Inc. and Bank One, N.A., as
                    agent on behalf of itself and other banks (incorporated
                    herein by reference to Exhibit 10.29 to the NATC's Annual
                    Report on Form 10-K for the fiscal year ended December 31,
                    2003).

10.29      --       2005 A Amendment to the Amended and Restated Loan Agreement,
                    made and entered into as of February 17, 2004, by and among
                    Bank One, NA as the Agent Bank, Bank One and LaSalle Bank,
                    National Association, the Company, certain of its
                    subsidiaries and North Atlantic Holding Company, Inc.
                    (incorporated herein by reference to Exhibit 99.2 to the
                    NATC's Current Report on Form 8-K filed on January 21,
                    2005).

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

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


                                   Exhibit- 8
<PAGE>
Exhibit
Number              Description
---------           -----------

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

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

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

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

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

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

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

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

10.40++    --       2002 Share Incentive Plan (incorporated herein by reference
                    to Exhibit 10.42 to the NATC's Annual Report on Form 10-K
                    for the fiscal year ended December 31, 2002).

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



                                   Exhibit- 9
<PAGE>
Exhibit
Number              Description
---------           -----------

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

10.43      --       2003A Amendment to Loan Documents, dated as of July 31,
                    2003, by and among North Atlantic Trading Company, Inc.,
                    National Tobacco Company, L.P., North Atlantic Operating
                    Company, Inc., National Tobacco Finance Corporation, Bank
                    One, NA, successor to Bank One, Kentucky N.A., as agent bank
                    and the various lending institutions named therein,
                    Guggenheim Investment Management, LLC, as agent for the
                    Class B Lenders named therein (incorporated herein by
                    reference to Exhibit 10.1 to the NATC's Quarterly Report on
                    Form 10-Q for the fiscal quarter ended June 30, 2003).

10.44      --       2003B Amendment to Loan Documents dated as of November 17,
                    2003, among North Atlantic Trading Company, Inc., National
                    Tobacco Company, L.P., North Atlantic Operating Company,
                    Inc., National Tobacco Finance Corporation, Stoker, Inc.,
                    RBJ Sales, Inc. and Fred Stoker & Sons, Inc., the Banks
                    defined therein, Bank One, NA, as agent for the Banks
                    ("Agent Bank"), the Class B Lenders as defined therein and
                    Guggenheim Investment Management, LLC, as agent for Class B
                    Lenders ("Class B Loan Agent") (incorporated herein by
                    reference to Exhibit 10.1 to the NATC's Current Report on
                    Form 8-K filed on November 24, 2003).

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

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

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


                                  Exhibit- 10
<PAGE>
Exhibit
Number              Description
---------           -----------

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

10.49      --       2003C Amendment to Loan Documents dated as of December 23,
                    2003, by and among the Banks as defined therein, Bank One,
                    NA, as agent bank on behalf of the Banks, the Class B
                    Lenders as defined therein, Guggenheim Investment
                    Management, LLC, as agent on behalf of the Class B Lenders,
                    North Atlantic Trading Company, Inc. and the Subsidiaries as
                    defined therein (incorporated herein by reference to Exhibit
                    10.1 to the NATC's Current Report on Form 8-K filed on
                    December 24, 2003).

10.50++    --       Employment Agreement, dated December 1, 2003, between
                    Lawrence S. Wexler and North Atlantic Cigarette Company,
                    Inc. (incorporated herein by reference to Exhibit 10.52 to
                    the NATC's Annual Report on Form 10-K for the fiscal year
                    ended December 31, 2003).

10.51      --       Assignment and Assumption Agreement, dated as of February 9,
                    2004, between North Atlantic Trading Company, Inc. and North
                    Atlantic Holding Company, Inc. (incorporated herein by
                    reference to Exhibit 10.53 to the NATC's Annual Report on
                    Form 10-K for the fiscal year ended December 31, 2003).

10.52++    --       Letter Agreement, dated as of January 19, 2005, between
                    Alvarez & Marsal, LLC, North Atlantic Trading Company, Inc.
                    and North Atlantic Holding Company, Inc. (incorporated
                    herein by reference to Exhibit 10.52 to the Registrant's
                    Annual Report on Form 10-K for the fiscal year ended
                    December 31, 2004 filed with the Securities and Exchange
                    Commission on March 31, 2005).

10.53++    --       Letter Agreement, dated as of October 3, 2003, between Jack
                    Africk and North Atlantic Trading Company, Inc. (extending
                    Consulting Agreement) (incorporated herein by reference to
                    Exhibit 10.53 to the Registrant's Annual Report on Form 10-K
                    for the fiscal year ended December 31, 2004 filed with the
                    Securities and Exchange Commission on March 31, 2005).

10.54++    --       Letter Agreement, dated as of October 12, 2004, between Jack
                    Africk and North Atlantic Trading Company, Inc. (extending
                    and amending Consulting Agreement) (incorporated herein by
                    reference to Exhibit 10.54 to the Registrant's Annual Report
                    on Form 10-K for the fiscal year ended December 31, 2004
                    filed with the Securities and Exchange Commission on March
                    31, 2005).

10.55      --       2005B Amendment to the Amended and Restated Loan Agreement
                    dated March 30, 2005 by and among JP Morgan Chase Bank, N.A.
                    ("Morgan"), as successor to Bank One, NA, as Agent Bank,
                    Morgan and LaSalle Bank, National Association, the Company
                    and certain of its subsidiaries (incorporated herein by
                    reference to Exhibit 10.55 to the Registrant's Annual Report
                    on Form 10-K for the fiscal year ended December 31, 2004
                    filed with the Securities and Exchange Commission on March
                    31, 2005).

21         --       Subsidiaries of North Atlantic Holding Company, Inc.
                    (incorporated herein by reference to Exhibit 21 to the
                    Registrant's Annual Report on Form 10-K for the fiscal year
                    ended December 31, 2004 filed with the Securities and
                    Exchange Commission on March 31, 2005).

31.1*      --       Certification by the Chief Executive Officer

31.2*      --       Certification by the Chief Financial Officer

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


                                  Exhibit- 11
<PAGE>
Number              Description
---------           -----------

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

*    Filed herewith.

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

++   Management contracts or compensatory plan or arrangement.











                                  Exhibit- 12