<PAGE>   1

                                                                    Exhibit 99.4




                     BROOKE (OVERSEAS) LTD. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1997


<PAGE>   2


                     BROOKE (OVERSEAS) LTD. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                            Page
                                                                                                            ----
<S>                                                                                                         <C>
   Report of Independent Accountants...................................................................       2

   Consolidated Balance Sheets as of December 31, 1997 and December 31, 1996...........................       3

   Consolidated Statements of Operations for the years ended December 31, 1997,
         December 31, 1996 and December 31, 1995.......................................................       4

   Consolidated Statements of Stockholder's Equity (Deficit) for the years ended
         December 31, 1997, December 31, 1996 and December 31, 1995....................................       5

   Consolidated Statements of Cash Flows for the years ended December 31, 1997,
         December 31, 1996 and December 31, 1995.......................................................       6

   Notes to Consolidated Financial Statements..........................................................       7
</TABLE>


                                        1

<PAGE>   3



                     BROOKE (OVERSEAS) LTD. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
===================================================================================================

                                                                        December 31,   December 31,
                                                                            1997           1996
                                                                       ----------------------------
<S>                                                                     <C>             <C>      
ASSETS
Current assets:
  Cash and cash equivalents ......................................      $     968       $   1,875
  Accounts receivable - trade ....................................          1,584             166
  Inventories ....................................................          4,255           3,569
  Prepaid expenses ...............................................          9,290           2,640
                                                                        ---------       ---------
     Total current assets ........................................         16,097           8,250

Property, plant and equipment, at cost, less
      accumulated depreciation of $1,020 and $676 ................         29,122          59,607
Goodwill, net ....................................................          1,001           1,094
Deferred finance costs ...........................................                          2,805
Other ............................................................              2             540
                                                                        ---------       ---------
     Total assets ................................................      $  46,222       $  72,296
                                                                        =========       =========

LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
  Notes payable and current portion of long-term debt ............      $   5,000       $  21,658
  Accounts payable - trade .......................................          3,798          13,074
  Due to affiliates ..............................................         67,539          48,875
  Unearned revenue ...............................................              1           7,406
  Accrued taxes ..................................................         18,077           8,474
  Accrued interest ...............................................                            597
  Other accrued liabilities ......................................          8,397           2,692
                                                                        ---------       ---------
     Total current liabilities ...................................        102,812         102,776

Deferred gain ....................................................         25,498           1,494
Unearned revenue .................................................                          9,458
Other liabilities ................................................          2,000

Commitments and contingencies

Stockholder's equity (deficit):
  Common stock, par value $1 per share, 701,000 shares 
     authorized, issued and outstanding ..........................            701             701
  Additional paid-in-capital .....................................          5,600           3,400
  Deficit ........................................................        (90,389)        (45,533)
                                                                        ---------       ---------
     Total stockholder's equity (deficit) ........................        (84,088)        (41,432)
                                                                        ---------       ---------

     Total liabilities and stockholder's equity (deficit) ........      $  46,222       $  72,296
                                                                        =========       =========
</TABLE>


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

                                        3



<PAGE>   4
                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholder
of Brooke (Overseas) Ltd.


We have audited the accompanying consolidated balance sheets of Brooke
(Overseas) Ltd. and Subsidiaries (the "Company") as of December 31, 1997 and
1996 and the related consolidated statements of operations, stockholder's
equity (deficit) and cash flows for each of the three years in the period ended
December 31, 1997. 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 in accordance with generally accepted auditing
standards. 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Brooke
(Overseas) Ltd. and Subsidiaries at December 31, 1997 and 1996 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.



COOPERS & LYBRAND L.L.P.

Miami, Florida
April 8, 1998
<PAGE>   5


                     BROOKE (OVERSEAS) LTD. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
=======================================================================================

                                            December 31,   December 31,    December 31,
                                               1997           1996           1995
                                            -------------------------------------------
<S>                                         <C>            <C>            <C>     
Net sales* ...........................      $ 77,349       $ 56,835       $ 44,752
Cost of sales* .......................        63,819         52,799         34,304
                                            --------       --------       --------

Gross profit .........................        13,530          4,036         10,448
Operating, selling, administrative and
     general expenses ................         9,293         14,008          5,621
                                            --------       --------       --------

Operating income (loss) ..............         4,237         (9,972)         4,827

Other income (expense):
   Interest income ...................         1,508
   Interest expense ..................       (10,187)        (7,548)        (6,286)
   Gain on sale of BML ...............        27,055
   Gain on foreign currency exchange .            80          1,199            503
   Other, net ........................          (126)        (3,027)          (853)
                                            --------       --------       --------

Income (loss) before income taxes ....        22,567        (19,348)        (1,809)
Provision for income taxes ...........        11,868          1,454          1,669
                                            --------       --------       --------

Net income (loss) ....................      $ 10,699       $(20,802)      $ (3,478)
                                            ========       ========       ========
</TABLE>

    -----------------
         *Net sales and Cost of sales include excise taxes of $12,367, $7,700
         and $6,000 for the years ended December 31, 1997, 1996 and 1995,
         respectively.



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

                                        4


<PAGE>   6


                     BROOKE (OVERSEAS) LTD. AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
============================================================================================================================

                                                                                        Additional
                                                             Common Stock                Paid-in
                                                        Shares           Amount          Capital      Deficit         Total
                                                        ------           ------          -------      -------         -----
<S>                                                     <C>              <C>            <C>          <C>            <C>
Balance, December 31, 1994....................          701,000          $ 701          $            $(12,528)      $(11,827)

Net loss......................................                                                         (3,478)        (3,478)

Distributions to parent.......................                                                         (8,725)        (8,725)
                                                        -------          -----          -------      --------       --------

Balance, December 31, 1995....................          701,000            701                        (24,731)       (24,030)

Net loss......................................                                                        (20,802)       (20,802)

Capital contribution..........................                                            3,400                        3,400
                                                       --------          -----          -------      --------       --------

Balance, December 31, 1996....................          701,000            701            3,400       (45,533)       (41,432)

Net income....................................                                                         10,699         10,699

Distributions to parent.......................                                                        (55,555)       (55,555)

Capital contribution..........................                                            2,200                        2,200
                                                        -------          -----          -------      --------       --------

Balance, December 31, 1997....................          701,000          $ 701          $ 5,600      $(90,389)      $(84,088)
                                                        =======          =====          =======      ========       ========
</TABLE>




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

                                        5




<PAGE>   7


                     BROOKE (OVERSEAS) LTD. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
===========================================================================================================

                                                               December 31,   December 31,     December 31,
                                                                   1997          1996              1995
                                                               --------------------------------------------
<S>                                                             <C>            <C>              <C>      
Cash flows from operating activities:
  Net income (loss) .........................................   $ 10,699       $(20,802)        $ (3,478)
  Adjustments to reconcile net income (loss) to net cash
    provided by operating activities:
      Depreciation and amortization .........................        783          1,399              870
      Gain on sale of assets ................................    (27,055)
      Deferred taxes ........................................                     1,061          (1,061)
      Provision for doubtful accounts........................                                      (495)
      Provision for loss on inventory........................                                      (105)
      Provision for obsolete equipment.......................                                        47
  Changes in assets and liabilities (net of effect of               
      disposition):
      Accounts receivable ...................................     (1,418)           796              852
      Inventories ...........................................       (686)         2,364           (3,046)
      Accounts payable and accrued liabilities                     5,463         12,717            2,395
      Deferred gain .........................................     (2,985)
      Due to affiliates .....................................     30,404          7,606           15,716
      Unearned revenue ......................................                     9,227            4,728
      Other assets and liabilities, net......................     (2,093)         1,490           (6,123)
                                                                --------       --------         --------
Net cash provided by operating activities                         13,112         15,858           10,300
                                                                --------       --------         --------

Cash flows from investing activities:
      Capital expenditures ..................................    (20,680)       (29,860)         (16,755)
      Proceeds from sale of BML, net ........................     55,000
      Purchase of stock in Liggett-Ducat.....................        (25)        (2,829)            (435)
      Proceeds from sale of stock in Liggett-Ducat, net......                     2,100
      Proceeds from sale of option to purchase
        stock in Liggett-Ducat ..............................      2,200          3,400
                                                                --------       --------         --------
Net cash provided by (used in) investing activities               36,495        (27,189)         (17,190)
                                                                --------       --------         --------

Cash flows from financing activities:
      Proceeds from debt .............                            10,305         12,995           10,841
      Repayments of debt .............                            (5,345)        (1,329)          (1,044)
      Borrowings under credit facility                                            1,677              798
      Repayments on credit facility ..                                           (1,672)          (2,198)
      Distributions paid to parent ...                           (55,555)
                                                                --------       --------         --------
Net cash (used in) provided by financing activities              (50,595)        11,671            8,397
                                                                --------       --------         --------

Effect of exchange rate changes on cash
        and cash equivalents .........                                81           (125)            (395)
                                                                --------       --------         --------

Net (decrease) increase in cash and cash equivalents                (907)           215            1,112

Cash and cash equivalents, beginning of period                     1,875          1,660              548
                                                                --------       --------         --------
Cash and cash equivalents, end of period                        $    968       $  1,875         $  1,660
                                                                ========       ========         ========

Supplemental cash flow information:
  Cash payments during the period for:
      Interest .......................                          $  1,919       $  5,573         $  3,636
      Income taxes ...................                             1,280            393               58
</TABLE>


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

                                        6

<PAGE>   8




                     BROOKE (OVERSEAS) LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1.       ORGANIZATION

         Brooke (Overseas) Ltd. ("the Company"), a Delaware corporation, is a
         wholly-owned subsidiary of BGLS Inc. ("BGLS") and an indirect
         subsidiary of Brooke Group Ltd. ("Brooke"). Prior to October 1, 1993,
         Brooke and Ducat Factory were operating a Russian cigarette factory
         under a joint venture agreement (the "Joint Venture") in Moscow,
         Russia. On October 1, 1993, the parties to the Joint Venture agreed to
         form a Russian closed joint stock company, Liggett-Ducat Ltd.
         ("Liggett-Ducat"), an entity predominantly engaged in the manufacture
         of cigarettes. Brooke then transferred ownership of the stock it held
         of Liggett-Ducat to the Company. At December 31, 1997 and 1996, the
         Company owned 75% of the stock of Liggett-Ducat. The business of
         Liggett-Ducat included the cigarette operations, Liggett-Ducat Tobacco
         ("LDT"), a wholly-owned subsidiary engaged in the construction of a new
         cigarette factory, and, prior to December 1996, BrookeMil Ltd. ("BML"),
         a wholly-owned subsidiary engaged in construction of office buildings
         and property management in Moscow, Russia. In December 1996, the
         Company cancelled BML intercompany debt in exchange for 10,483 shares
         of newly issued BML common stock. These shares represent 99.1% of the
         outstanding shares of BML. (Refer to Note 3.)

         On July 5, 1996, Liggett Group Inc. ("Liggett"), a wholly-owned
         subsidiary of BGLS, purchased from the Company 140,000 shares (19.97%)
         of the tobacco operations of Liggett-Ducat for $2,100. Ten-year option
         agreements then in place enabled Liggett to increase its ownership in
         Liggett-Ducat to 95%. (Refer to Note 10.)

         On January 30, 1998, in connection with the restructuring of Liggett's
         long-term debt, Liggett agreed to transfer to the Company all of its
         shares of Liggett-Ducat and to cancel its option agreements to acquire
         additional shares of Liggett-Ducat. At January 30, 1998 the Company
         owned approximately 96% of the shares of common stock of Liggett-Ducat;
         however, holders of Liggett's debt were granted a security interest in
         16% of the stock of Liggett-Ducat or a successor entity held by the
         Company.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

             a)   Basis of Presentation:

                  The consolidated financial statements and accompanying notes
                  include the accounts of the Company and its subsidiaries.
                  Significant intercompany accounts and transactions have been
                  eliminated in consolidation.

             b)   Liquidity:

                  The Company has historically relied on Brooke and BGLS for
                  sources of financing. At December 31, 1997 and 1996, the
                  Company had a working capital deficiency of $86,715 and
                  $94,526, respectively, and a net capital deficiency of $84,088
                  and $41,432, respectively. On February 2, 1998, Brooke and
                  BGLS cancelled a note and interest which amounted to $20,384
                  at December 31, 1997. On February 5, 1998, Brooke made a
                  capital contribution of $9,000 to the Company, 


                                       7


<PAGE>   9


                     BROOKE (OVERSEAS) LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - (CONTINUED)


                  which was used to repay intercompany indebtedness to BGLS.
                  These contributions to capital reduced the net capital
                  deficiency and amounts due affiliates by $29,384. Management
                  believes that it will continue to receive financing from BGLS
                  as needed. In addition to a new factory under construction,
                  the Company has upgraded the present cigarette operations'
                  tobacco processing complex, increased production with over 14
                  billion units sold in 1997 as compared with 11.3 billion units
                  sold in 1996, and is continuing to implement cost-saving
                  measures. Liggett-Ducat plans to begin the manufacture and
                  marketing of western style cigarettes in late 1998. Management
                  believes that such activities will result in improved
                  operations and cash flow, but there can be no assurances in
                  this regard. (Refer to Note 13.)

             c)   Estimates and Assumptions:

                  The preparation of financial statements in conformity with
                  generally accepted accounting principles requires management
                  to make estimates and assumptions that affect the reported
                  amounts of assets and liabilities and disclosure of contingent
                  assets and liabilities and the reported amounts of revenues
                  and expenses. Actual results could differ from those
                  estimates.

             d)   Foreign Currency Translation:

                  The Company's Russian subsidiaries historically operate in a
                  highly inflationary economy and use the U.S. dollar as the
                  functional currency. Therefore, certain assets (principally
                  inventories and property, plant and equipment) are translated
                  at historical exchange rates with all other assets and
                  liabilities translated at year-end exchange rates and all
                  translation adjustments are reflected in the consolidated
                  statements of operations.

             e)   Cash and Cash Equivalents:

                  For purposes of the statements of cash flows, cash includes
                  cash on hand, cash on deposit in banks and cash equivalents,
                  comprised of short-term investments which have an original
                  maturity of 90 days or less. Interest on short-term
                  investments is recognized when earned.

             f)   Inventories:

                  Inventories are stated at the lower of cost or market. Cost is
                  determined on a first-in, first-out (FIFO) basis.

             g)   Property, Plant and Equipment:

                  Property, plant and equipment are stated at cost. Depreciation
                  has been calculated on the straight-line method based upon the
                  following useful lives: buildings - 20 years, factory
                  machinery and equipment - 10 years, office furniture and
                  equipment - 5 years, and computers and vehicles - 3 years.
                  Depreciation is not provided on construction-in-progress until
                  the related assets are placed in service.


                                       8


<PAGE>   10


                     BROOKE (OVERSEAS) LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - (CONTINUED)


                  Interest costs are capitalized in connection with the
                  construction of major facilities. Capitalized interest is
                  recorded as part of the asset to which it relates and is
                  amortized over the asset's estimated useful life. In 1997,
                  1996 and 1995, interest costs of $693, $6,157 and $1,004,
                  respectively, were capitalized.

                  The cost of major renewals and betterments are capitalized.
                  The cost and related accumulated depreciation of property,
                  plant and equipment are removed from the financial statements
                  upon retirement or other disposition and any resulting gain or
                  loss is reflected in the consolidated statements of
                  operations. Repairs and maintenance are charged to expense as
                  incurred.

             h)   Goodwill:

                  Goodwill is being amortized using the straight-line method
                  over ten years and relates to the purchase by the Company of
                  additional shares of Liggett-Ducat stock. Amortization expense
                  for the years ended December 31, 1997, 1996 and 1995 was $118,
                  $51 and $68, respectively.

             i)   Impairment of Long-Lived Assets:

                  Impairment losses on long-lived assets are recognized when
                  expected future cash flows are less than the assets' carrying
                  value. Accordingly, when indicators of impairment are present,
                  the Company evaluates the carrying value of property, plant
                  and equipment and intangibles in relation to the operating
                  performance and future undiscounted cash flows of the
                  underlying business. The Company adjusts the net book value of
                  the underlying assets by the excess of the assets' carrying
                  values over the sum of expected discounted future cash flows.

             j)   Deferred Finance Costs:

                  Deferred finance costs consist of the discounts on lease
                  prepayments which are being amortized over the life of the
                  leases and the fees incurred in obtaining a bank loan which
                  are being amortized over the term of the loan.

             k)   Revenue Recognition:

                  Sales, net of sales returns and discounts are recognized upon
                  the shipment of finished goods to customers. Rental income is
                  recognized ratably over the life of the lease.

             l)   Income Taxes:

                  Applicable income and deferred taxes have been provided for
                  based on tax rates applicable to the Company in the United
                  States and Russia. A valuation allowance is provided against
                  Russian deferred tax assets when it is 


                                       9


<PAGE>   11


                     BROOKE (OVERSEAS) LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - (CONTINUED)



                  deemed more likely than not that some portion or all of the
                  deferred tax assets will not be realized.

             m)   Concentration of Credit and Other Risks:

                  The Company sells its products primarily to companies in the
                  wholesale distribution and retail industries in the Russian
                  Federation. Two distributors account for 24.9% and 22.0% of
                  sales in 1997. Prepayment for goods and services is a
                  customary business practice in Russia and the Company receives
                  payment in advance for the majority of its sales. Although the
                  Company does not require collateral and, as a consequence, is
                  exposed to credit risk with respect to its tobacco operations,
                  the Company does perform ongoing credit evaluations of its
                  customers and believes that its trade accounts receivable risk
                  exposure is limited. At December 31, 1997, 1996 and 1995, the
                  Company had approximately $9,290, $2,141 and $2,500,
                  respectively, in prepayments made to suppliers of raw
                  materials.

                  The Company maintains its cash deposits with United States,
                  various foreign and Russian banks. Management assesses the
                  financial condition of the institutions on an on-going basis.

                  The performance of Liggett-Ducat's cigarette operations in
                  Russia is affected by uncertainties in Russia which may
                  include, among others, political or diplomatic developments,
                  regional tensions, currency repatriation restrictions, foreign
                  exchange fluctuations, inflation, and an undeveloped system of
                  commercial laws and legislative reform relating to foreign
                  ownership in Russia.

3.       SALE OF BROOKEMIL

         On January 31, 1997, the Company sold its 99.1% of the outstanding
         shares of BML to New Valley Corporation ("New Valley") for $21,500 in
         cash and a promissory note of $33,500, collateralized by the BML
         shares. The note, with an annual interest rate of 9%, was paid in full
         in 1997. The consideration received exceeded the carrying value of the
         Company's investment in BML by $52,500. The Company recognized a gain
         on the sale in 1997 in the amount of $25,500. The remaining $27,000 was
         deferred, reflecting recognition that the Company's parent, BGLS,
         retains an interest in BML through its 42% equity ownership in New
         Valley, and, further, that a portion of the property sold (the site of
         the third phase of the Ducat Place real estate project being developed
         by BML, which is currently used by Liggett-Ducat for its existing
         cigarette factory) is subject to a put option held by New Valley. The
         option allows New Valley to put this site back to the Company at the
         greater of the appraised fair value of the property at the date of
         exercise or $13,600, during the period Liggett-Ducat operates the
         factory on such site. The Company distributed the $21,500 cash proceeds
         and the proceeds from the $33,500 promissory note received from the
         sale of BML to BGLS.

         On April 18, 1997, BML sold one of its office buildings, Ducat Place I,
         to a third party. Accordingly, the Company recognized approximately
         $1,490 of the deferred gain. At December 31, 1997, the balance of the
         deferred gain was approximately $25,500.



                                       10


<PAGE>   12



                     BROOKE (OVERSEAS) LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - (CONTINUED)


         In connection with the sale of the BML shares, certain specified
         liabilities aggregating $40,800, including a Russian bank loan with a
         balance of $20,418, remained with BML. The bank loan was paid in full
         during the third quarter, 1997. Further, the Company, Brooke and BGLS
         each contributed to the capital of BML, through cancellation of all
         indebtedness of BML to each such entity, the aggregate amount of which
         was $19,275 including accrued interest thereon. In addition,
         Liggett-Ducat entered into a Use Agreement with BML whereby
         Liggett-Ducat is permitted to continue to utilize the existing factory
         site on the same basis as in the past which includes obligations for
         costs involved in carrying the site. The Use Agreement is terminable by
         BML on 270 days' prior notice.

4.       NON-MONETARY TRANSACTIONS

         During 1997, 1996 and 1995, certain supplies and inventory purchase
         transactions were made whereby payment for such transactions was
         facilitated by the Company's customers who forwarded payment on the
         Company's behalf to raw material suppliers. Such transactions amounted
         to approximately $4,753, $3,040 and $8,200 in 1997, 1996 and 1995,
         respectively. Sales and purchases were priced at what management
         believes are normal sales price for cigarettes and the normal market
         price for tobacco and other raw materials.

5.       INVENTORIES

         Inventories consist of:

<TABLE>
<CAPTION>
                                               December 31,       December 31,
                                                   1997               1996
                                             ---------------------------------
<S>                                          <C>                  <C>  
Finished goods...........................         $                  $
Work-in-process..........................             50                 53
Raw materials............................          3,284              2,664
Replacement parts and supplies...........            921                852
                                                  ------             ------
                                                  $4,255             $3,569
                                                  ======             ======
</TABLE>

Purchase commitments are for quantities not in excess of anticipated
requirements and are at prices, including carrying costs, established at the
date of the commitment. At December 31, 1997, the Company had leaf tobacco
purchase commitments of approximately $27,800.



                                       11


<PAGE>   13


                     BROOKE (OVERSEAS) LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - (CONTINUED)



6.       PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment consists of:

<TABLE>
<CAPTION>
                                               December 31,         December 31,
                                                   1997                1996
                                             ----------------------------------
<S>                                          <C>                     <C>       
Buildings................................         $                  $ 8,064
Factory machinery and equipment..........          10,864              4,419
Computers and software...................             293                289
Office furniture and equipment...........             272                129
Vehicles.................................             534                416
Construction-in-progress.................          18,179             46,966
                                                  -------            -------
                                                   30,142             60,283
Less accumulated depreciation............          (1,020)              (676)
                                                  -------            ------- 
                                                  $29,122            $59,607
                                                  =======            =======
</TABLE>

         The amounts provided for depreciation for the years ended December 31,
         1997, 1996 and 1995 were $641, $469 and $352, respectively.

         On December 29, 1995, Liggett-Ducat relinquished its 59.4% ownership in
         a joint real estate venture, Neftecominvest Ltd., in exchange for 100%
         ownership of a partially constructed manufacturing facility owned by
         the venture. Liggett-Ducat is developing this facility, located on the
         outskirts of Moscow, into a new cigarette factory. In connection with
         this exchange, a 49-year land lease was renegotiated in 1996 for the
         site on which the factory is being constructed. Liggett-Ducat's cost
         basis in the joint real estate venture of $2,675 was transferred to its
         basis in the new cigarette factory.

         Further, Liggett-Ducat has entered into a construction contract for the
         new factory. The remaining liability under that contract at December
         31, 1997 is approximately $11,500. Equipment purchase agreements in
         place at December 31, 1997 total $26,955 of which $22,950 will be
         financed by the manufacturers. In February 1998, additional equipment
         for the new factory was purchased for $7,400 of which $5,841 will be
         financed by the manufacturers. Brooke has guaranteed this obligation.

         Subsequent Event:

         In February 1998, New Valley and Apollo Real Estate Investment Fund
         III, L.P. organized Western Realty Development LLC ("Western Realty")
         to make real estate and other investments in Russia. Among other
         things, Western Realty agreed to acquire for $20,000, a 30% profits
         interest in a company organized by the Company, which will, among
         things, acquire an interest in the new factory discussed above.

7.       EMPLOYEE BENEFITS

         The Company complies with Russian Federation regulations covering
         pensions, education, day care, medical and other benefits to employees.
         These items are funded as a percentage of gross wages and are paid on a
         current basis. Medical clinic and day 


                                       12


<PAGE>   14


                     BROOKE (OVERSEAS) LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - (CONTINUED)


         care facilities are provided on site and related costs are expensed as
         incurred. All Russian citizen employees are required to participate in
         the pension fund. The total expense for these programs recognized in
         1997, 1996 and 1995 was approximately $2,638, $860 and $1,050,
         respectively.

8.       NOTES PAYABLE, CREDIT FACILITIES AND LONG-TERM DEBT

         Current and long-term debt consist of the following:

<TABLE>
<CAPTION> 
                                                   December 31,          December 31,
                                                      1997                  1996
                                               -------------------------------------
<S>                                            <C>                       <C>
Revolving credit facilities..............            $5,000               $
Bank loan................................                                  20,418
Deferred financing fees..................                                   1,240
                                                     ------               -------
                                                      5,000                21,658
Less:

Current maturities.......................             5,000                21,658
                                                     ------               -------
Amount due after one year................            $                    $
                                                     ======               =======
</TABLE>

         In connection with the sale of its BML shares to New Valley, certain
         specified liabilities aggregating $40,800 remained with BML, including
         a Russian bank loan with a balance of $20,418, which was paid in full
         during the third quarter, 1997.

         At December 31, 1997, Liggett-Ducat had two 6-month credit facilities
         open with a Russian bank. The first, for $2,000, expires on April 30,
         1998, initially bore an interest rate of 21%, subsequently raised to
         28% on December 2, 1997. The second, for $3,000, expires on May 16,
         1998, initially bore an interest rate of 25%, subsequently raised to
         28% on December 2, 1997.

9.       COMMITMENTS

         The following is a schedule of the Company's future minimum rental
         payments required under operating leases with noncancelable lease terms
         in excess of one year as of December 31, 1997:

<TABLE>
<CAPTION>

Year ending December 31:
<S>                                              <C>   
1998......................................       $  440
1999......................................           82
2000......................................           82
2001......................................           82
2002......................................           81
Thereafter................................        2,155
                                                 ------
                                                 $2,922
                                                 ======     
</TABLE>

         Lease commitments for 2002 and thereafter relate primarily to the
         remaining 45 years of a land lease and 23 years of an equipment lease.



                                       13


<PAGE>   15


                     BROOKE (OVERSEAS) LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - (CONTINUED)


         The Company's rental expense for the years ended December 31, 1997,
         1996 and 1995 was $375, $1,026 and $1,107, respectively.

10.      STOCK OF LIGGETT-DUCAT

         During the second quarter of 1996, the Company further increased its
         ownership of Liggett-Ducat through the purchase of an additional
         142,558 shares for approximately $2,143. In July 1996, the Company sold
         140,000 shares (19.97%) of Liggett-Ducat's tobacco operations to
         Liggett for $2,100. Liggett also acquired a ten-year option to buy up
         to an additional 292,407 shares for $3,400, which has been accounted
         for as a capital contribution, thereby entitling Liggett to increase
         its interest in Liggett-Ducat to approximately 62%. The option fee
         would be credited against the purchase price. As part of the same
         transaction, Liggett acquired on March 13, 1997 for $2,200 another
         ten-year option from the Company on the same terms to purchase the
         remaining shares, approximately 33%, of Liggett-Ducat owned by the
         Company.

         In 1997 and 1996, the Company purchased 1,666 and 46,337 additional
         shares of Liggett-Ducat stock from other shareholders for $25 and $695,
         respectively. At December 31, 1997, the Company owned 75.3% of the
         stock of Liggett-Ducat and Liggett owned 19.97%. In connection with
         1996 purchases of Liggett-Ducat common stock, the Company recorded
         goodwill in the amount of $729. Unamortized goodwill is $1,001 and
         $1,094 at December 31, 1997 and 1996, respectively.

         On January 30, 1998, in connection with the restructuring of Liggett's
         long-term debt, Liggett agreed to transfer to the Company all of its
         shares and to cancel its option agreements to acquire additional
         shares. At January 30, 1998, the Company owned approximately 96% of the
         shares of common stock of Liggett-Ducat.

11.      RELATED PARTY TRANSACTIONS

         The Company has obtained funding through a revolving credit facility
         with Brooke and BGLS at an annual interest rate of 20% to cover certain
         expenses including the cost of certain administrative services and
         personnel, tobacco and material purchases and upgrades of factory
         equipment. In addition, Brooke and BGLS have advanced funds to BML for
         its real estate developments projects. Amounts due to Brooke and BGLS
         under this facility at December 31, 1997 and 1996 were $68,437 and
         $48,875 including interest of $19,367 and $12,725, respectively. In
         January and February 1998, Brooke and BGLS contributed $29,384 to the
         Company, reducing the liability to $39,053. (Refer to Note 2(b).)

         On March 2, 1995, the Company dividended to Brooke certain notes
         receivable of the Company from Liggett-Ducat and BML in the amount of
         $8,725, including interest.

         On July 2, 1996, the Company repaid portions of outstanding loans to
         BGLS in principal amount of $3,679 together with accrued interest of
         $1,521.



                                       14


<PAGE>   16


                     BROOKE (OVERSEAS) LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - (CONTINUED)


         During 1996, indebtedness relating to the real estate development
         business including the loan agreement between a Russian bank and
         Liggett-Ducat (refer to Note 8) and intercompany indebtedness in the
         amount of $3,586 together with accrued interest of $1,270 was assigned
         by Liggett-Ducat to BML.

         Liggett has provided certain administrative and technical support to
         Liggett-Ducat. Liggett's expenses associated with these activities were
         $0, $76 and $229 for the years ended December 31, 1997, 1996 and 1995,
         respectively.

         On April 3, 1996, the Company entered into a stock purchase agreement
         (the "purchase agreement") with the former chairman of Liggett-Ducat.
         Under the purchase agreement, the Company acquired the 84,540 shares
         for $15 per share ($1,268). The stock purchase price was paid in
         installments during 1996 and the shares of Liggett-Ducat stock
         collateralizing the installment payments were released, ratably, as
         payments were made.

         Concurrently, the Company entered into a consulting and non-compete
         agreement with the former chairman for services through December 31,
         1998. Under the terms of the agreements, the Company will pay him
         approximately $5,232 over five years. At December 31, 1997, 43,285
         shares of Liggett-Ducat stock collateralizing the Company's obligations
         under the agreements had been released to the Company and 41,255 shares
         of Liggett-Ducat stock remain as collateral under the terms of the
         agreements.

         On June 14, 1996, the Company entered into a second stock purchase
         agreement with the former General Director (the "Director") of the
         cigarette manufacturing operations. Under this purchase agreement, the
         Company acquired the 58,018 shares held by the Director for
         approximately $15 per share ($875). The stock purchase price was paid
         in installments during 1996.

         Concurrently, the Company entered into a consulting and non-compete
         agreement with the Director for services through December 31, 1998.
         Under the terms of the agreement, the Company paid the Director
         approximately $1,000 during 1997 and will pay him $1,000 during 1998.
         Also, Liggett-Ducat extended the Director's employment agreement with
         Liggett-Ducat until December 31, 1998 at $175 annually. At December 31,
         1997, 39,893 shares of Liggett-Ducat stock collateralizing the
         Company's obligations under the agreements had been released; 18,125
         shares of Liggett-Ducat stock remain as collateral under the terms of
         the agreements.

12.      INCOME TAXES

         The provision for income taxes relates to income taxes payable in
         United States and Russian jurisdictions.



                                       15


<PAGE>   17


                     BROOKE (OVERSEAS) LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - (CONTINUED)



         The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
                                    1997          1996          1995
                                    ----          ----          ----
     <S>                           <C>           <C>            <C>   
     Current...............        $11,868       $  393         $2,730
     Deferred..............                       1,061         (1,061)
                                   -------       ------         ------ 

                                   $11,868       $1,454         $1,669
                                   =======       ======         ======
</TABLE>

         Deferred taxes have been recognized for significant temporary
         differences arising between the financial statement and tax basis of
         assets and liabilities. The principal items giving rise to temporary
         differences relate to management fees and interest expense incurred
         during 1997 and 1996 which are not deductible for Russian tax purposes
         until paid. The tax effect of these temporary differences and net
         deferred taxes recorded as of December 31, 1997 and 1996 are summarized
         as follows:

<TABLE>
<CAPTION>
                                          1997              1996
                                          ----              ----
<S>                                      <C>               <C>   
Deferred tax assets.............         $2,151            $1,566
Deferred tax liability..........                             (305)
                                         ------            ------ 
Net deferred tax asset..........          2,151             1,261
Valuation allowance.............         (2,151)           (1,261)
                                         ------             ----- 
Net deferred taxes..............         $                 $
                                         ======            ======
</TABLE>


         In 1996, Russian tax authorities assessed Liggett-Ducat $7,600 for
         outstanding tax liabilities relating to 1995. The liability is payable
         in two parts, 50% within 2-1/2 years, the remaining 50% over the
         succeeding five years. At December 31, 1997, the remaining liability
         was $4,405.

13.      CONTINGENCIES

         BGLS has pledged its ownership interest in the Company's common stock
         as collateral in connection with the issuance of BGLS' 15.75% Senior
         Secured Notes ("BGLS Notes") due 2001.

         On March 2, 1998, BGLS entered into an agreement with AIF II, L.P. and
         an affiliated investment manager on behalf of a managed account
         (together, the "Apollo Holders"), who hold approximately 41.8% of the
         BGLS Notes in which the Apollo Holders agreed to defer the payment of
         interest on the BGLS Notes held by them, commencing with the interest
         payment that was due July 31, 1997, which they had previously agreed to
         defer, through the interest payment due July 31, 2000. The deferred
         interest payments will be payable at final maturity of the BGLS Notes
         on January 31, 2001 or upon an event of default under the Indenture for
         the BGLS Notes. In connection with the agreement, the Company pledged
         50.1% of a subsidiary formed to hold the Company's shares of
         Liggett-Ducat to collateralize the BGLS Notes held by the Apollo
         Holders.


                                       16



<PAGE>   18


                     BROOKE (OVERSEAS) LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
         (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - (CONTINUED)


         The performance of Liggett-Ducat's cigarette operations in Russia is
         affected by uncertainties in Russia which may include, among others,
         political or diplomatic developments, regional tensions, currency
         repatriation restrictions, foreign exchange fluctuations, inflation,
         and an undeveloped system of commercial laws and legislative reform
         relating to foreign ownership in Russia.


                                       17

<PAGE>   19
         GEIGER, ET AL. V. THE AMERICAN TOBACCO COMPANY, ET AL., Index No.
10657/97, Supreme Court, Queens County, New York (case filed on January 12,
1997). This personal injury class action is brought on behalf of plaintiff and
all similarly situated injured smokers resident in New York. The case was
certified as a class action on May 1, 1997, and currently is stayed pending
appeal.

         NWANZE, ET AL. V. PHILIP MORRIS, ET AL., Case No. 97-CIV-7344, USDC,
Southern District of New York (case filed on October 17, 1997). This action is
brought on behalf of all prisoners nationwide that have been injured by exposure
to environmental tobacco smoke. No motion for class certification has been
brought by plaintiff.

         WOODS, DELISA, ET AL. V. THE AMERICAN TOBACCO COMPANY, ET AL., Case No.
97-CVS-7869, General Court of Justice, Superior Ct. Div., North Carolina (case
filed on July 10, 1997).  This personal injury action is brought on behalf of
plaintiff and all similarly situated injured smokers resident in North Carolina.

         CHAMBERLAIN, ET AL. V. THE AMERICAN TOBACCO COMPANY, Case No.
1:96CV2005, USDC, Northern District of Ohio (case filed on August 20, 1997).
This "addiction-as-injury" putative class action is brought on behalf of
plaintiff and all similarly situated addicted smokers resident in Ohio. To date,
no motion for class certification has been filed by plaintiff.

         BARNES, ET AL. V. THE AMERICAN TOBACCO COMPANY, ET AL., Case No.
96-5903, USDC, Eastern District of Pennsylvania (case filed on August 8, 1996).
This "addiction-as-injury" putative class action is brought on behalf of
plaintiff and all similarly situated addicted smokers resident in Pennsylvania.
The district court decertified the class in this case on October 17, 1997.

         AKSAMIT, ET AL. V. BROWN & WILLIAMSON, ET AL., Case No. 6:97-3636-21,
SC, USDC, Dist. of South Carolina, Greenville Division (case filed on November
24, 1997). This "addiction-as-injury" putative class action is brought on behalf
of plaintiff and all similarly situated addicted smokers resident in South
Carolina. To date, no motion for class certification has been filed by
plaintiff.

         NEWBORN, ET AL. V. BROWN & WILLIAMSON, ET AL., Case No. 97-2938 GV,
USDC, Western District of Tennessee (case filed on October 1, 1997). This
personal injury class action is brought on behalf of plaintiff and all similarly
situated injured smokers resident in Tennessee. No motion for class
certification has been brought by plaintiff.

         MASON, ET AL. V. THE AMERICAN TOBACCO COMPANY, ET AL., Case No.
7-97CV-293-X, USDC, Northern District of Texas (case filed on December 23,
1997). This "addiction-as-injury" putative class action is brought on behalf of
plaintiff and all similarly situated addicted smokers resident in Texas. To
date, no motion for class certification has been filed by plaintiff.




                                      -4-
<PAGE>   20
         HERRERA, ET AL. V. THE AMERICAN TOBACCO COMPANY, ET AL., Case No.
2:98-CV-00126, USDC, District of Utah (case filed on January 28, 1998). This
personal injury class action is brought on behalf of plaintiff and all similarly
situated injured smokers resident in Utah. No motion for class certification has
been brought by plaintiff.

         JACKSON ET AL. V. PHILIP MORRIS INC., Case No. 980901634PI, 3rd
Judicial Court, Salt Lake City County, Utah (case filed on March 10, 1998). This
personal injury class action is brought on behalf of plaintiff and all similarly
situated injured smokers resident in Utah. No motion for class certification has
been brought by plaintiff.

         INGLE, ET AL. V. PHILIP MORRIS, ET AL., Case No. 97-C-21-S, Circuit
Court of McDowell County, West Virginia (case filed on February 4, 1997). This
personal injury class action is brought on behalf of plaintiff and all similarly
situated injured smokers resident in West Virginia. No motion for class
certification has been brought by plaintiff.

         MCCUNE, ET AL. V. THE AMERICAN TOBACCO COMPANY, ET AL., Case No.
97-C-204, Circuit Court of Kanawha County, West Virginia (case filed on January
30, 1997). This "addiction-as-injury" putative class action is brought on behalf
of plaintiff and all similarly situated addicted smokers resident in West
Virginia. To date, no motion for class certification has been filed by
plaintiff.

         WALKER, ET AL. V. LIGGETT GROUP INC., ET AL., Case No. 2:97-0102, USDC,
Southern District of West Virginia (case filed on February 12, 1997). Nationwide
class certified and limited fund class action settlement preliminarily approved
with respect to Liggett and Brooke Group on May 15, 1997. Class decertified and
preliminary approval of settlement withdrawn by order of district court on
August 5, 1997, which order currently is on appeal to the Fourth Circuit.

         INSOLIA, ET AL. V. PHILIP MORRIS, ET AL., Case No. 97-CV-230-J, Rock
County Circuit Court, Wisconsin (case filed on April 4, 1997). This personal
injury class action is brought on behalf of plaintiff and all similarly situated
injured smokers resident in Wisconsin. No motion for class certification has
been brought by plaintiff.


                                      -5-
<PAGE>   21

OTHER REIMBURSEMENT ACTIONS

         CITY OF BIRMINGHAM, ET AL. V. THE AMERICAN TOBACCO CO., ET AL., Case
No. CV97-081, Greene County, Alabama, Circuit Court (case filed on 5/28/97).
City of Birmingham seeks to recover money damages resulting from payment by the
City to hospitals and other medical providers on behalf of their employees for
tobacco-related disease and death. The City's amended complaint was dismissed by
the court on March 4, 1998, holding that, under the common law of Alabama, the
City lacked standing to recover damages from alleged third-party tortfeasors for
amounts paid on behalf of the plaintiffs' injured employees. The court has,
however, permitted the City to amend its complaint to bring a claim under an
Alabama statute which, the court held, provided a limited authority to recover
such damages under certain circumstances.

         COUNTY OF LOS ANGELES V. R.J.REYNOLDS, ET AL., Case No. 707651,
Superior Court of San Diego (case filed on 8/5/97). County seeks to obtain
declaratory and equitable relief and restitution as well as to recover money
damages resulting from payment by the County for tobacco-related medical
treatment for its citizens and health insurance for its employees.

         ELLIS, ON BEHALF OF THE GENERAL PUBLIC V. R.J. REYNOLDS, ET AL., Case
No. 00706458, Superior Court of San Diego (case filed on 12/13/96). Plaintiffs,
two individuals, seek equitable and injunctive relief for damages incurred by
the State of California in paying for the expenses of indigent smokers.

         COUNTY OF COOK V. PHILIP MORRIS, ET AL., Case No. 97L04550, Circuit
Court, Cook County (case filed on 7/21/97). County of Cook seeks to obtain
declaratory and equitable relief and restitution as well as to recover money
damages resulting from payment by the County for tobacco-related medical
treatment for its citizens and health insurance for its employees.

         CITY OF NEW YORK, ET AL. V. THE TOBACCO INSTITUTE, ET AL., Case No.
97-CIV-0904, Supreme Court of New York, New York County (case filed on
10/17/96).  City of New York seeks to obtain declaratory and equitable relief
and restitution as well as to recover money damages resulting from payment by
the City for tobacco-related medical treatment for its citizens and health
insurance for its employees.

         STATE OF TENNESSEE V. THE AMERICAN TOBACCO CO., ET AL., Case No.
12,263, Monroe County Chancery Court (case filed on 5/7/97). Individual seeks
equitable and injunctive relief for damages incurred by the State of Tennessee
in paying for the expenses of indigent smokers.

         THE CROW CREEK SIOUX TRIBE V. THE AMERICAN TOBACCO COMPANY, ET AL.,
Case No. CV 97-09-082, Tribal Court of The Crow Creek Sioux Tribe (case filed on
9/26/97). Indian tribe seeks equitable and injunctive relief for damages
incurred by the tribe in paying for the expenses of indigent smokers.

         THE REPUBLIC OF MARSHALL ISLANDS V. THE AMERICAN TOBACCO CO., ET AL.,
Case No. 1997-261, Republic of the Marshall Islands, The High Court (case filed
on 10/30/97). Republic seeks equitable and injunctive relief for damages
incurred by the Republic in paying for the expenses of indigent smokers.


                                      -6-
<PAGE>   22
         SCREEN ACTORS GUILD - PRODUCERS HEALTH PLAN, ET AL. V. PHILIP MORRIS,
ET AL., Case No. DC181603, Superior Court of Los Angeles County (case filed on
11/20/97). Health and Welfare Trust Fund seeks injunctive relief and economic
reimbursement to recover moneys expended by Fund to provide medical treatment to
its participants and benefactors suffering from smoking-related illnesses.

         STATIONARY ENGINEERS LOCAL 39 HEALTH & WELFARE TRUST FUND V. PHILIP
MORRIS, ET AL., Case No. C-97-1519-DLJ, USDC, Northern District of California
(case filed on 4/25/97). Health and Welfare Trust Fund seeks injunctive relief
and economic reimbursement to recover moneys expended by Fund to provide medical
treatment to its participants and benefactors suffering from smoking-related
illnesses.

         STEAMFITTERS LOCAL UNION NO. 614 HEALTH AND WELFARE FUND V. PHILIP
MORRIS, ET AL., Case No. 92260-2, Circuit Court for 30th Judicial District at
Memphis (case filed on 1/7/98). Union Health and Welfare Fund seeks injunctive
relief and economic reimbursement to recover moneys expended by Fund to provide
medical treatment to its participants and benefactors suffering from
smoking-related illnesses.

         TEXAS CARPENTERS HEALTH BENEFIT FUND, ET AL. V. PHILIP MORRIS, ET AL.,
Case No. 1:97C0625, USDC, Eastern District of Texas (case filed on 11/7/97).
Health and Welfare Trust Fund seeks injunctive relief and economic reimbursement
to recover moneys expended by Fund to provide medical treatment to its
participants and benefactors suffering from smoking-related illnesses.

         NORTHWEST LABORERS-EMPLOYERS HEALTH & SECURITY TRUST FUND, ET AL. V.
PHILIP MORRIS, ET AL., Case No. C97-849-WD, WA, USDC, Western District (case
filed on 6/26/97). Health and Welfare Trust Fund seeks economic reimbursement to
recover moneys expended by Fund to provide medical treatment to its participants
and benefactors suffering from smoking-related illnesses.

         IRON WORKERS LOCAL UNION NO.17 INSURANCE FUND, ET AL. V. PHILIP MORRIS,
ET AL., Case No. 1:97CV 1422, USDC, Northern District of Ohio, Eastern Div.
(case filed on 5/20/97). Union Insurance Trust Fund seeks economic reimbursement
to recover moneys expended by Fund to provide medical treatment to its
participants and benefactors suffering from smoking-related illnesses.

         STEAMFITTERS LOCAL UNION NO. 420 WELFARE FUND, ET AL. V. PHILIP MORRIS,
INC, ET AL., Case No. 97-CV-5344, USDC, Eastern District of Pennsylvania (case
filed on 10/7/97). Union Health and Welfare Fund seeks injunctive relief and
economic reimbursement to recover moneys expended by Fund to provide medical
treatment to its participants and benefactors suffering from smoking-related
illnesses.




                                   -7-

<PAGE>   23
         RHODE ISLAND LABORERS' HEALTH & WELFARE FUND V. THE AMERICAN TOBACCO
COMPANY, ET AL., Case No. 97-500L, USDC, District of Rhode Island (case filed on
10/24/97). Union Health and Welfare Fund seeks injunctive relief and economic
reimbursement to recover moneys expended by Fund to provide medical treatment to
its participants and benefactors suffering from smoking-related illnesses.

         TEAMSTERS UNION NO. 142, ET AL. V. PHILIP MORRIS, ET AL., Case No.
71C019709CP01281, USDC, Northern District of Indiana (case filed on 9/15/97).
Union seeks injunctive relief and economic reimbursement to recover moneys
expended by Union Fund to provide medical treatment to its participants and
benefactors suffering from smoking-related illnesses.

         KENTUCKY LABORERS DISTRICT COUNCIL HEALTH & WELFARE TRUST FUND V.
PHILIP MORRIS, ET AL., Case No.3-97-394, USDC, Western District of Kentucky
(case filed on 6/20/97). Health and Welfare Trust Fund seeks injunctive relief
and economic reimbursement to recover moneys expended by Trust Fund to provide
medical treatment to its participants and benefactors suffering from
smoking-related illnesses.

         ARK-LA-MISS LABORERS WELFARE FUND, ET AL. V. PHILIP MORRIS, ET AL.,
Case No. 97-1944, USDC, Eastern District of Louisiana (case filed on 6/20/97).
Welfare Fund seeks injunctive relief and economic reimbursement to recover
moneys expended by Fund to provide medical treatment to its participants and
benefactors suffering from smoking-related illnesses.

         NEW JERSEY CARPENTERS HEALTH FUND, ET AL. V. PHILIP MORRIS, ET AL.,
Case No. 97-3421, USDC, District of New Jersey (case filed on 10/7/97). Health
Fund seeks injunctive relief and economic reimbursement to recover moneys
expended by Fund to provide medical treatment to its participants and
benefactors suffering from smoking-related illnesses.

         LABORERS' LOCAL 17 HEALTH BENEFIT FUND, ET AL. V. PHILIP MORRIS, ET
AL., Case No. 97-CIV-4550, USDC, Southern District of New York (case filed on
7/17/97). Health Fund seeks injunctive relief and economic reimbursement to
recover moneys expended by Fund to provide medical treatment to its participants
and benefactors suffering from smoking-related illnesses.

         OPERATING ENGINEERS LOCAL 12 HEALTH AND WELFARE TRUST V. THE AMERICAN
TOBACCO COMPANY, ET AL., Case No. CV-97-7620 TJH, USDC, Central District of
California (case filed on 11/6/97). Health and Welfare Fund seeks injunctive
relief and economic reimbursement to recover moneys expended by Fund to provide
pmedical treatment to its participants and benefactors suffering from
smoking-related illnesses.


                                      -8-
<PAGE>   24
         CONNECTICUT PIPE TRADES HEALTH FUND, ET AL. V. PHILIP MORRIS, ET AL.,
Case No. 397CV01305CT, USDC, District of Connecticut (case filed on 7/17/97).
Health Fund seeks injunctive relief and economic reimbursement to recover moneys
expended by Fund to provide medical treatment to its participants and
benefactors suffering from smoking-related illnesses.

         SOUTHEAST FLORIDA LABORERS DISTRICT COUNCIL HEALTH AND WELFARE TRUST
FUND V. PHILIP MORRIS, ET AL., Case No. 97-8715 Circuit Court, Dade County (case
filed 10/7/97). Health and Welfare Trust Fund seeks injunctive relief and
economic reimbursement to recover moneys expended by Fund to provide medical
treatment to its participants and benefactors suffering from smoking-related
illnesses.

         CENTRAL ILLINOIS LABORERS HEALTH & WELFARE TRUST FUND, ET AL. V. PHILIP
MORRIS, ET AL., Case No. 97-L516, USDC, Southern District of Illinois (case
filed on 5/22/97). Laborers' Union Health Fund seeks injunctive relief and
economic reimbursement to recover moneys expended by Fund to provide medical
treatment to its participants and benefactors suffering from smoking-related
illnesses.

         LABORERS' AND OPERATING ENGINEERS UTILITY AGREEMENT V. PHILIP MORRIS,
ET AL., Case No. CIV97-1406 PHX, USDC, District of Arizona (case filed on
7/29/97). Union Health and Welfare Fund seeks injunctive relief and economic
reimbursement to recover moneys expended by Fund to provide medical treatment to
its participants and benefactors suffering from smoking-related illnesses.

         ARKANSAS CARPENTERS HEALTH & WELFARE FUND V. PHILIP MORRIS, ET AL.,
Case No. LR-C-97-0754, USDC, Eastern District of Arkansas (case filed on
9/4/97). Union's Health and Welfare Fund seeks injunctive relief and economic
reimbursement to recover moneys expended by Fund to provide medical treatment to
its participants and benefactors suffering from smoking-related illnesses.

         WEST VIRGINIA LABORERS' PENSION TRUST FUND V. PHILIP MORRIS, ET AL.,
Case No. 397-0708, USDC, Southern District of West Virginia (case filed on
8/27/97). Laborers' Health and Welfare Trust Fund seeks injunctive relief and
economic reimbursement to recover moneys expended by Fund to provide medical
treatment to its participants and benefactors suffering from smoking-related
illnesses.

         WEST VIRGINIA - OHIO VALLEY AREA I.B.E.W., ET AL. V. LIGGETT GROUP
INC., ET AL., Case No. 97-C-2135, USDC, Southern District of West Virginia (case
filed on 9/19/97). 

                                      -9-

<PAGE>   25
and Welfare Trust Fund seeks injunctive relief and economic reimbursement to
recover moneys expended by Fund to provide medical treatment to its participants
and benefactors suffering from smoking-related illnesses.

         MASSACHUSETTS LABORERS' HEALTH & WELFARE FUND, ET AL. V. PHILIP MORRIS,
ET AL., Case No. C.A. 97-2892G, Superior Court, Suffolk County (case filed on
6/2/97). Health and Welfare Trust Fund seeks injunctive relief and economic
reimbursement to recover moneys expended by Fund to provide medical treatment to
its participants and benefactors suffering from smoking-related illnesses.

         B.A.C. LOCAL NO. 32 INSURANCE TRUST FUND, ET AL. V. PHILIP MORRIS, ET
AL., Case No. 97-75675MI, USDC, Eastern District of Michigan (case filed on
11/18/97). Health Trust Fund seeks injunctive relief and economic reimbursement
to recover moneys expended by Fund to provide medical treatment to its
participants and benefactors suffering from smoking-related illnesses.

         OPERATING ENGINEERS LOCAL 324 HEALTH CARE FUND, ET AL. V. PHILIP
MORRIS, INC., ET AL., Case No. 598--CV-60020, Circuit Court, Wayne County (case
filed on 3/9/98). Health and Welfare Trust Fund seeks injunctive relief and
economic reimbursement to recover moneys expended by Fund to provide medical
treatment to its participants and benefactors suffering from smoking-related
illnesses.

         NEW MEXICO AND WEST TEXAS MULTI-CRAFT HEALTH AND WELFARE TRUST FUND, ET
AL. V. PHILIP MORRIS, ET AL., Case No. CV97 0009118NM, Second Judicial District
Court, Bernalillo County (case filed on 1/29/98). Health Fund seeks injunctive
relief and economic reimbursement to recover moneys expended by Fund to provide
medical treatment to its participants and benefactors suffering from
smoking-related illnesses.

         OREGON LABORERS-EMPLOYERS HEALTH & WELFARE TRUST FUND, ET AL. V. PHILIP
MORRIS, ET AL., Case No. 97-1051-HA, USDC, District of Oregon (case filed on
6/18/97). Health and Welfare Trust Fund seeks injunctive relief and economic
reimbursement to recover moneys expended by Fund to provide medical treatment to
its participants and benefactors suffering from smoking-related illnesses.

         CENTRAL STATES JOINT BOARD HEALTH & WELFARE FUND V. PHILIP MORRIS, ET
AL., Case No. 97L12855, USDC, Northern District of Illinois (case filed on
10/30/97). Health and Welfare Trust Fund seeks injunctive relief and economic
reimbursement to recover moneys expended by Fund to provide medical treatment to
its participants and benefactors suffering from smoking-related illnesses.


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<PAGE>   26
     INTERNATIONAL BROTHERHOOD OF TEAMSTERS, LOCAL 734 HEALTH & WELFARE TRUST
FUND V. PHILIP MORRIS, ET AL., Case No. 97L12852, USDC, Northern District of
Illinois (case filed on 10/30/97). Health and Welfare Trust Fund seeks
injunctive relief and economic reimbursement to recover moneys expended by Fund
to provide medical treatment to its participants and benefactors suffering from
smoking-related illnesses.

     SEAFARERS WELFARE PLAN AND UNITED INDUSTRIAL WORKERS WELFARE PLAN V. PHILIP
MORRIS, ET AL., Case No. MJG-97-2127MD, USDC, District of Maryland (case filed
on 8/8/97). Welfare Plan seeks injunctive relief and economic reimbursement to
recover moneys expended by Plan to provide medical treatment to its participants
and benefactors suffering from smoking-related illnesses.

     CARPENTERS & JOINERS WELFARE FUND, ET AL. V. PHILIP MORRIS, ET AL., Case
No. 60,633-001, USDC, District of Minnesota (case filed on 12/31/97). Health and
Welfare Trust Plan seeks injunctive relief and economic reimbursement to recover
moneys expended by Fund to provide medical treatment to its participants and
benefactors suffering from smoking-related illnesses.

United Federation of Teachers Welfare Fund, et al. v. Philip Morris, et al.,
Case No. 97-CIV-4676, USDC, Southern District of New York (case filed on
7/17/97). Health and Welfare Trust Fund seeks injunctive relief and economic
reimbursement to recover moneys expended by Fund to provide medical treatment
to its participants and benefactors suffering from smoking-related illnesses.

United Food and Commercial Workers Unions, et al. v. Philip Morris, et al.,
Case No. CV-97-1340, Circuit Court of Tuscaloosa, Alabama (case filed on
11/13/97). Health and Welfare Trust Fund seeks injunctive relief and economic
reimbursement to recover moneys expended by Fund to provide medical treatment
to its participants and benefactors suffering from smoking-related illnesses.

Day Care Council-Local 205 D.C. 1707 Welfare Fund v. Philip Morris, et al.,
Case No. 97-CIV-606240, USDC, Southern District of New York (case filed on
12/4/97). Health and Welfare Trust Fund seeks injunctive relief and economic
reimbursement to recover moneys expended by Fund to provide medical treatment
to its participants and benefactors suffering from smoking-related illnesses.

Eastern States Health and Welfare Fund, et al., v. Philip Morris, et al., Case
No. 97-CIV-7346, USDC, Southern District of New York (case filed on 7/28/97).
Health and Welfare Trust Fund seeks injunctive relief and economic reimbursement
to recover moneys expended by Fund to provided medical treatment to its
participants and benefactors suffering from smoking-related illnesses.

IBEW Local 25 Health and Benefit Fund v. Philip Morris, et al., Case No.
97-CIV-9400, USDC, Southern District of New York (case filed on 11/25/97).
Health and Welfare Trust Fund seeks injunctive relief and economic
reimbursement to recover moneys expended by Fund to provide medical treatment
to its participants and benefactors suffering from smoking-related illnesses.

IBEW Local 363 Welfare Fund v. Philip Morris, et al., Case No. 97-CIV-9396,
USDC, Southern District of New York (case filed on 11/25/97). Health and Welfare
Trust Fund seeks injunctive relief and economic reimbursement to recover moneys
expended by Fund to provide medical treatment to its participants and
benefactors suffering from smoking-related illnesses.

Local 1199 Home Care Industry Benefit Fund v. Philip Morris, et al., Case No.
97-606249, USDC, Southern District of New York (case filed on 12/4/97). Health
and Welfare Trust Fund seeks injunctive relief and economic reimbursement to
recover moneys expended by Fund to provide medical treatment to its
participants and benefactors suffering from smoking-related illnesses.

Local 1199 National Benefit Fund for Health & Human Services Employees v.
Philip Morris, et al., Case No. 97-606-241, USDC, Southern District of New
York (case filed on 12/4/97). Health and Welfare Trust Fund seeks injunctive
relief and economic reimbursement to recover moneys expended by Fund to provide
medical treatment to its participants and benefactors suffering from
smoking-related illnesses.

Local 138, 138A & 138B International Union of Operating Engineers Welfare Fund
v. Philip Morris, et al., Case No. 97-CIV-9402, USDC, Southern District of New
York (case filed on 11/25/97). Health and Welfare Trust Fund seeks injunctive
relief and economic reimbursement to recover moneys expended by Fund to provide
medical treatment to its participants and benefactors suffering from
smoking-related illnesses.

Local 840 International Brotherhood of Teamsters Health & Insurance Fund v.
Philip Morris, et. al., Case No. 97-CIV-9398, USDC, Southern District of New
York (case filed on 11/25/97). Health and Welfare Trust Fund seeks injunctive
relief and economic reimbursement to recover moneys expended by Fund to provide
medical treatment to its participants and benefactors suffering from
smoking-related illnesses.

Long Island Regional Council of Carpenters Welfare Local 840 International
Brotherhood of Teamsters Health & Insurance Fund v. Philip Morris, et al., Case
No. 97-CIV-9397, USDC, Southern District of New York (case filed on 11/25/97).
Health and Welfare Trust Fund seeks injunctive relief and economic
reimbursement to recover moneys expended by Fund to provide medical treatment
to its participants and benefactors suffering from smoking-related illnesses.

Puerto Rican ILGWU Health & Welfare Fund v. Philip Morris, et al., Case No.
97-CIV-8462, USDC, Southern District of New York (case filed on 11/25/97).
Health and Welfare Trust Fund seeks injunctive relief and economic
reimbursement to recover moneys expended by Fund to provide medical treatment
to its participants and benefactors suffering from smoking-related illnesses.

     RAYMARK INDUSTRIES, INC. V. BROWN & WILLIAMSON, ET AL., Case No.
1:97-CV-2711-RCF, Circuit Court of the Fourth Judicial Circuit, Duval County
(case filed on 11/5/97). Asbestos company seeks reimbursement for damages paid
to asbestos victims for medical and other relief, which damages allegedly are
attributable to the tobacco companies.

     FIBREBOARD CORPORATION, ET AL. V. THE AMERICAN TOBACCO COMPANY, ET AL.,
Case No. 791919-8, CA, Superior Court of Alameda (case filed on 11/10/97).
Asbestos company seeks reimbursement for damages paid to asbestos victims for
medical and other relief, which damages allegedly are attributable to the
tobacco companies.


Keene Creditors Trust v. Brown & Williamson Tobacco Corp., et al., Case no. 
606479/97, Supreme Court of New York, New York County (case filed on 12/19/97).
Asbestos company seeks reimbursement for damages paid to asbestos victims for
medical and other relief, which damages allegedly are attributable to the
tobacco companies.


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