CULBRO CORP, 10-K, 1995-04-12

CULBRO CORP
10-K, 1995-04-12
TOBACCO PRODUCTS

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
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FORM 10-K

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

For the fiscal year ended December 3, 1994
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

Commission file number 1-1210
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CULBRO CORPORATION
(Exact name of registrant as specified in its charter)

NEW YORK 13-0762310
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

387 Park Avenue South, New York, New York 10016-8899
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(Address of principal executive offices) (Zip Code)

(Registrant's Telephone Number, Including Area Code) (212) 561-8700
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Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange
Title of each class on which registered
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Common Stock, $1 par value New York Stock Exchange, Inc.

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 [ ]

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

State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing:
$29,000,000 approximately, based on the closing sales price on the New York
Stock Exchange on February 20, 1995.

Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: Common Stock:
4,308,513 shares as of February 20, 1995.

The following documents, or portions thereof as indicated in the following
report, are incorporated by reference in the Parts of Form 10-K indicated:

Part Document
---- --------

I Annual Report to Shareholders for the fiscal year ended December 3,
1994
II Annual Report to Shareholders for the fiscal year ended December 3,
1994
III Proxy Statement in connection with the 1995 Annual Meeting of
Shareholders
IV Annual Report to Shareholders for the fiscal year ended December 3,
1994 (such Annual Report is referred to hereinafter as the "Annual
Report")

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PART I

ITEM 1 - BUSINESS

Culbro Corporation and its subsidiaries (the "Corporation") comprise a
diversified consumer and industrial products company. The Corporation engages
in four principal lines of business: (1) Consumer Products, comprised of the
manufacturing and marketing of cigars and the growing, processing and selling of
cigar wrapper tobacco; (2) Nursery Products, growing for sale container and
field grown nursery products principally to nursery mass merchandisers, and
owning and operating wholesale sales and service centers; (3) Industrial
Products, which consists of the manufacturing and marketing of packaging and
labeling systems which include plastic shrink film labels and tamper-evident
seals and the production of packaging and labeling machinery to apply them; and
(4) Real Estate, owning, building and managing commercial and industrial
properties and developing residential subdivisions on real estate owned by the
Corporation in Connecticut and Massachusetts, and owning and managing its
headquarters building at 387 Park Avenue South in New York City.

The approximate net sales and other revenue, operating profit and
identifiable assets attributable to each reportable segment of the Corporation
in each of the last three fiscal periods are set forth in Note 10 to the
Consolidated Financial Statements.

EQUITY INVESTMENTS

On April 25, 1994, The Eli Witt Company ("Eli Witt") acquired the net
assets of the six Southern distribution facilities of NCC L.P. in exchange for
595,000 newly issued common shares of Eli Witt. The six facilities, designated
as NCC South, comprised a portion of the overall distribution business of NCC L.
P. Prior to this acquisition, the Corporation owned 85% of the outstanding
common stock of Eli Witt and the former shareholders of Certified Grocers of
Florida, Inc. ("Certified Grocers") held 15% which they received in connection
with Eli Witt's acquisition of Certified Grocers in 1993. In a transaction
executed simultaneously with Eli Witt's acquisition of the net assets of NCC
South, the Corporation sold 400,000 shares of its Eli Witt common stock to MS
Distribution, Inc. ("MSD"), a former limited partner of NCC and an affiliate of
the Morgan Stanley Leveraged Equity Fund II L.P., and issued a $15 million
subordinated note to MSD. The Corporation received proceeds of $12 million and
entered into an agreement with MSD to exchange, in 1998, the subordinated note
for the $15 million face value Eli Witt Series B Preferred Stock held by the
Corporation. As a result of these transactions, MSD owns shares totalling
approximately 38% of the outstanding common stock of Eli Witt.

As a result of Eli Witt's issuance of additional common stock in connection
with the acquisition and the concurrent sale by the Corporation of certain of
its Eli Witt common stock holdings in the transaction, the Corporation's
ownership of Eli Witt's outstanding common stock was reduced from 85% to 50.1%.
In connection with these transactions, the Corporation entered into a
Shareholders Agreement with MSD. This Agreement contains certain governance
provisions which require prior approval by MSD for substantially all major
transactions by Eli Witt, including (but not limited to) incurrence of debt,
acquisitions, material contracts, the sale of assets, stock issuance and
repurchase, changes in Eli Witt's charter and by-laws, and capital expenditures.
Due to the shareholder rights granted to MSD, the Corporation no longer has
unilateral control over Eli Witt. Therefore, the Corporation deconsolidated Eli
Witt as of April 25, 1994 and is accounting for its remaining investment in Eli
Witt under the equity method. The 1994 financial statements reflect the
application of the equity method of accounting retroactive to the beginning of
the year. The financial statements of prior years continue to reflect Eli Witt
as a fully consolidated subsidiary. See Notes 1 and 2 to the Consolidated
Financial Statements.

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The Corporation owns approximately 25% of the stock of Centaur
Communications Limited, a privately-held publisher of business magazines in the
United Kingdom.

CONSUMER PRODUCTS

The Consumer Products segment is comprised of the Cigar Business.

CIGAR BUSINESS

The cigar business is comprised principally of (a) the manufacture and
sale, by General Cigar Co., Inc. ("General Cigar"), of domestic and imported
cigars in all major price categories under numerous trademarks, including the
premium cigar brands of Macanudo, Partagas, Temple Hall, Ramon Allones, Cohiba
and Canaria D'Oro and the domestic cigar brands of Garcia y Vega, White Owl,
Tiparillo, Robt. Burns, Wm. Penn and Tijuana Smalls and (b) the growing,
processing and sale of cigar wrapper tobacco by the Culbro Tobacco Division of
General Cigar.

Cigars are produced with three tobacco components: filler, binder and
wrapper. Filler tobacco is purchased from a large number of growers and
suppliers in many areas of the world. The binder is principally natural binder
leaf or HTL, a homogenized tobacco binder developed by General Cigar. General
Cigar's premium brands and its Garcia y Vega brand are wrapped with natural
cigar wrapper tobacco. Its other domestic cigars are primarily wrapped with
homogenized tobacco wrappers. Some of the natural leaf wrapper tobacco used for
General Cigar's cigars is grown by General Cigar on farms it leases from the
Corporation in the Connecticut River Valley. The remainder of General Cigar's
requirements for natural leaf wrapper tobacco is purchased from a number of
foreign growers and suppliers. A major portion of the wrapper tobacco grown by
General Cigar is sold to others, including export sales principally in Europe.
General Cigar annually adjusts acreage grown to reflect changing market demands
anticipated from export customers.

In November 1990 the Corporation sold the homogenized wrapper and binder
manufacturing facility used by General Cigar in Lancaster, Pennsylvania to Brown
& Williamson Tobacco Corporation. As part of the transaction, Brown &
Williamson manufactures at the facility General Cigar's requirements for these
products for a term of ten years.

In 1992 General Cigar completed the consolidation of its Dothan, Alabama
domestic cigar manufacturing operations into one building. Also in late 1992
General Cigar moved its corporate headquarters from the Corporation's New York
City headquarters building to the Griffin Center corporate park of Culbro Land
Resources in Bloomfield, Connecticut. The move integrated General Cigar's
headquarters operations with its Culbro Tobacco operations in Connecticut.

General Cigar maintains inventories of wrapper and filler tobacco for
cigars sufficient to meet its estimated requirements for more than one year.
Most of its inventories are stored in warehouses in the United States. General
Cigar believes that its inventories are adequately insured.

The markets for General Cigar's cigars are highly competitive. The
industry, through 1993, has experienced a long continuing decline in cigar
consumption and substantial consolidation. The most recent cigar statistics
reflect a modest reversal of this trend with unit sales turning positive in
1994. Dollar sales have increased as a result of price increases and a
substantial increase in the

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demand for higher priced premium and super premium cigar products. In order to
maintain its position in its markets, General Cigar advertises and employs a
variety of promotional activities. General Cigar believes that it is among the
industry leaders in the manufacture and sale of cigars in the United States,
with particular strength in the higher priced, premium and super premium
segments.

General Cigar's products are distributed in the United States through
approximately 1,300 wholesale distributors and direct retail and chain store
accounts.

The cigar business carried on by General Cigar in Jamaica and the Dominican
Republic, where the Corporation produces its highest priced, handmade cigars,
and warehouses certain of its inventories, and some of the sources of tobacco
purchased by General Cigar, are subject to the risks associated with foreign
operations.

General Cigar's handmade cigars include Macanudo, Macanudo Vintage Cabinet,
Partagas, Partagas Limited Reserve, Temple Hall, Cohiba, Ramon Allones and
Canaria D'Oro. General Cigar cannot predict the effect on its cigar business of
a reopening of trade with Cuba, if that should occur, except that such trade
could adversely affect its handmade cigar manufacturing business.

In 1993 General Cigar reappointed its independent sales agent in Europe to
take advantage of increased opportunities resulting from the eradication of
trade barriers among Common Market countries. In 1994 direct contacts were made
with distributors in Eastern European Countries to explore possible sales
opportunities in these emerging markets. Cigar export sales, revenues from
royalties and other revenues from foreign operations are not material. General
Cigar imports for sale in the United States on an exclusive basis the Djeep
lighter - a disposable butane gas lighter made in France. In recent years, one
customer has comprised up to 60% of General Cigar's Djeep lighter sales. In
1994 Djeep and the disposable lighter industry introduced a child resistant
lighter in accordance with regulations promulgated by the Consumer Products
Safety Commission.

* * *

While the substantial adverse publicity resulting from the 1964 Report of
the Surgeon General and subsequent reports with respect to studies linking the
use of tobacco with human disease have not been principally directed at cigars,
General Cigar believes such publicity and the health concerns it has provoked
have contributed to the long decline of sales in the cigar industry. The
reported health effects upon non-smokers of so-called "passive" or
"environmental tobacco smoke" have caused the U.S. Surgeon General and others to
support restrictive legislation. Federal and state regulations designating
certain areas as non-smoking areas and the prohibition of smoking cigars in
certain areas have adversely affected the sales of cigar products. Various
legislative initiatives affecting tobacco, including warnings of carcinogenic
chemical contents, advertising bans and nondeductibility of advertising expenses
have recently been implemented or proposed. Tobacco products, including cigars,
may also face increased federal excise taxes and potential litigation to fund
various health care costs and legislative initiatives.

NURSERY PRODUCTS BUSINESS

Imperial Nurseries, Inc. ("Imperial") which previously operated as a
division of the Corporation, became in February 1993 a wholly-owned subsidiary
of the Corporation. Imperial is a grower, distributor and broker of wholesale
nursery stock. The nursery industry is extremely fragmented, with the industry
leader having less than 1% of total market share. Imperial believes that its
volume places it among the ten largest nursery companies in the country.

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Imperial's growing operations are located on property owned by the
Corporation and leased to Imperial in Connecticut (1,000 acres) and in northern
Florida (350 acres). Such operations mainly serve landscapers, retail chain
store garden departments, retail nurseries and garden centers, and wholesale
nurseries and distributors. Imperial-grown products are also distributed
through the company's own wholesale horticultural sales and service centers.
Imperial's major markets service the Northeast, Mid-Atlantic, Southeast and Mid-
West. Nursery sales are seasonal, peaking in spring and are affected by
commercial and residential building activity as well as weather conditions.

Imperial operates seven wholesale sales and service centers which sell a
wide range of plant material and horticultural tools and products to the trade.
In 1994, Imperial established an eighth location via a joint venture in the
Cleveland, Ohio marketplace. In addition, Imperial centers which are owned by
the Corporation and leased to Imperial, are located in Windsor, Connecticut;
Aston, Pennsylvania; Pittsburgh, Pennsylvania; Columbus, Ohio; Cincinnati, Ohio;
White Marsh, Maryland; and Manassas, Virginia.

In 1994, Imperial continued to diversify its customer base in order to
reduce its dependence on a few large customers. Much of this growth continues
to be in independent retail garden centers where "do-it-yourself" consumer
demand has been strong. Approximately 35% of the nursery stock sold by Imperial
is purchased from other growers.

Growing and shipping capacity has been increased to meet the potential
volume and quality needs of Imperial's customers and to capitalize on any growth
in this market during the predicted economic upturn in the Northeast.

As the result of studies undertaken in 1993, Imperial has reorganized its
operations by changing to a regional organizational structure. The new
structure is anticipated to remove conflicting objectives between the nursery
and distribution operations and improve overall customer satisfaction. The
quality programs initiated in 1993 have begun to show positive results with the
elimination of approximately $1 million in waste and rework in 1994. Currently
17 self directed teams are operating and focused on future improvements in
service levels at reduced costs.

INDUSTRIAL PRODUCTS BUSINESS

Industrial Products consists of CMS Gilbreth Packaging Systems, Inc. ("CMS
Gilbreth") which manufactures high quality plastic labels and a variety of
application equipment. These markets are both highly specialized and
fragmented. CMS Gilbreth believes it is a leader in the several markets in
which it participates.

CMS Gilbreth has manufacturing plants in Bensalem and Bristol, Pennsylvania
(labeling materials), Turlock, California (application machinery), and its
headquarters is located in Trevose, Pennsylvania. It also has regional sales
offices located in Chicago, Illinois and Brussels, Belgium.

In 1994, CMS Gilbreth completed its third consecutive year of record sales
and earnings. Strong results in the roll-fed labeling machinery and shrink
label materials segments balanced a sluggish year in the shrink label
application machinery segment. During the year the company closed its Kingston,
Pennsylvania operation and established a Technology Center in Allentown,
Pennsylvania to coordinate research and development efforts for machinery and
materials at one location. CMS Gilbreth

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also established strategic business groups to develop new markets for the
company's product line. The company continued to commit to its philosophy of
continuous improvement by achieving ISO (International Organization for
Standardization) 9001 certification for its manufacturing facilities. This
comprehensive standard covers the quality policies and procedures that CMS
Gilbreth uses to design, manufacture, install and service the product line.

In 1994 one customer accounted for approximately 20% of CMS Gilbreth's
aggregate sales. Such customer has notified it of plans to change its label
technology and substantially reduce its purchases from CMS Gilbreth beginning in
the second quarter of 1995.

Certain of CMS Gilbreth's shrink label printing business is dependent upon
its ability to source raw material of print quality film. Such film is
available only from a limited number of suppliers, but CMS Gilbreth believes its
sources to be adequate.

The machine manufacturing operations of Trine Manufacturing Company, Inc.
("Trine"), a subsidiary of the Corporation and a separate legal entity whose
operations are integrated with CMS Gilbreth, are dependent on the validity and
enforceability of various patents issued to it or others by the United States
Patent and Trademark Office and internationally. Sales of its machines may be
affected by patents issued to others (See Item 3(iii)) and the commercial
exploitation of technological advances in the design and production of labeling
machinery may be limited by such patents. CMS Gilbreth has developed
environmentally-compatible wraparound and sleeved film for labeling in
conjunction with its high-speed application machinery. Management has been
advised that certain aspects of these new developments may be patentable and has
taken appropriate steps to protect its proprietary rights.

Due to the nature of Trine's business, purchases of its machines are
generally on a onetime basis. The only continuing business is for parts and
service. Trine's sales are principally in the food and beverage industry,
including substantial sales to soft drink bottlers. Approximately 35% of its
sales are to foreign customers. Trine sales in the domestic market are
principally to companies in the food and dairy industry, although other outlets
for its machinery are being developed.

REAL ESTATE

The Corporation's Real Estate segment is comprised of Culbro Land
Resources, Inc. and 387 Park Avenue South, the New York City building which the
Corporation owns and operates.

CULBRO LAND RESOURCES

The Corporation is engaged in the real estate development business on
portions of its land in Connecticut through Culbro Land Resources, Inc.
("Resources"), headquartered in Windsor, Connecticut. Resources develops
portions of the Corporation's properties for office, residential and commercial
use.

Resources' most substantial development is Griffin Center in Windsor,
Connecticut and Griffin Center South in Bloomfield, Connecticut. Together these
master planned developments comprise approximately 600 acres, half of which have
been developed with nearly 2,000,000 square feet of office and industrial space.

Griffin Center currently includes nine Class A corporate office buildings
built by Resources. Prior to 1983, Resources sold 70% interests in five of the
buildings to a bank-managed real estate investment fund, which is currently
seeking a purchaser for these properties. In 1984, Resources sold one office
building and a 70% interest in a second to an insurance company; and, in 1986,
Resources sold a 70% interest in a building to the same insurance company.
Resources manages these properties for its investor-partners.

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At year end, approximately 77% of the rentable space in Griffin Center was
rented. The commercial rental market is flat and excess capacity is prevalent
in northern Connecticut. To attract and retain tenants, Resources continues to
provide a variety of amenities to maintain Griffin Center as a highly
competitive, prime office park offering quality services to tenants.

Griffin Center South, a 130-acre tract, comprises fifteen buildings of
industrial and research/development space. Nine of these buildings have been
retained by Resources for rental and are 95% rented. The other buildings have
been built on land sold by Resources to commercial users who occupy the space.
Resources has a master plan state traffic certificate which allows for the
development of an additional 500,000 square feet of space.

Resources owns a 600-acre tract of land near Bradley International Airport
and Interstate 91 now known as New England Tradeport. To date, 140,000 square
feet of warehouse and light manufacturing space have been developed and are 100%
occupied. A state traffic certificate for the future development of 1.3 million
square feet has been obtained for the Tradeport.

Two additional Resources' parcels available for development include 33
acres in the Day Hill Technology Center in Windsor, and 100 acres in the South
Windsor Technology Center. State traffic certificates have been obtained for
500,000 square feet and 750,000 square feet of development, respectively.

In 1988, Culbro Homes, Inc. ("Culbro Homes"), a subsidiary of Resources,
began infrastructure work at Walden Woods, a 153-acre site in Windsor,
Connecticut which is planned to contain more than 400 residential units. Prior
to 1992 Culbro Homes had built and sold 45 homes before discontinuing the home
building part of developing Walden Woods. Since then, Culbro Homes has
concluded agreements with two third-party home builders which would ultimately
transfer the building rights to a total of 110 units at Walden Woods. A second
section of Walden Woods was opened for development in 1993, and another 64 homes
have been constructed since then. Negotiations are currently underway with a
home builder which, if successfully concluded, would grant an option for the
building rights to approximately 175 units at Walden Woods.

The development of Resources' land in Simsbury, Connecticut commenced in
1994 with the sale of an approved 14-lot residential subdivision to a local
builder. Resources has several other tracts in the Greater Hartford area
suitable for residential development but cannot predict when, or if, development
will begin due to the continuing slowdown in the residential market throughout
the region.

387 PARK AVENUE SOUTH

In 1983 the Corporation acquired all of the outstanding stock of a
corporation whose principal asset was an office building in New York City. The
building is 12 stories and contains approximately 210,000 square feet of rental
space. The purchase price of approximately $15 million was financed principally
by a $12 million mortgage which was prepaid in 1988. The Corporation has
advanced substantial amounts for building improvements. Approximately 11% of
the space in the building has been leased to the Corporation for use as its
offices and the remaining space is being leased or is available for lease as
commercial rental property. Currently approximately 24% of rentable space is
available for lease in this building.

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SUBSIDIARIES

In 1987 the Corporation established several wholly-owned subsidiaries and
transferred to them the assets and liabilities of formerly unincorporated
divisions. The Corporation serves as the parent company of separate
subsidiaries operating its cigar, nursery, machine and labeling systems and land
development operations. Imperial Nurseries, Inc., formerly a Division of the
Corporation, was incorporated as a separate company in February 1993. See
Exhibit 22 hereto. In connection with the loan agreements entered into by the
Corporation in February 1993 (see Note 3 to the Consolidated Financial
Statements), the Corporation pledged the stock of all of its active subsidiaries
as collateral for such loans.

EMPLOYEES

The Corporation employs approximately 2,695 persons (excluding seasonal
help employed in wrapper tobacco and nursery operations).

NOTE: The brand names mentioned in this Report are trademarks owned by or
licensed to the Corporation or its subsidiaries. All rights with
respect thereto are reserved.

ITEM 2 - PROPERTIES

LAND HOLDINGS

The Corporation is a major landholder in the State of Connecticut and owns
some land in the State of Massachusetts, with holdings of approximately 5,600
acres, located principally in the Connecticut River Valley. In addition, the
Corporation owns approximately 1,100 acres in Florida, a portion of which is
used for Imperial Nurseries' growing operations, and owns the sites for Imperial
Nurseries' seven sales and service centers. Each such center typically has a
warehouse/office facility and 10-15 acres of nursery stock.

The book value of undeveloped land holdings, which includes land currently
needed for tobacco and nursery operations, owned by the Corporation and
Resources in the Connecticut River Valley is approximately $5,000,000. The
Corporation believes the fair market value is very substantially in excess of
such book value. The Corporation is developing certain of these holdings. (See
the description of Culbro Land Resources, Inc. under "Real Estate"). Such
development activities have increased the value of the Corporation's adjoining
properties. Of the Corporation's land not currently needed for tobacco or
nursery operations, only a portion is currently suitable for development.

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FACILITIES

The table below sets forth the general character and location of certain of
the principal facilities of the Corporation and its subsidiaries. It does not
include the facilities of Culbro Land Resources, Inc. (See discussion of Real
Estate under Item 1 - Business).

OWNED APPROXIMATE
OR FLOOR SPACE
LOCATION LEASED NATURE OF OPERATION (SQUARE FEET)
-------- ------ ------------------- -------------
<S> <C> <C> <C>

New York, New York Owned Executive Offices
-Corporate Operations 25,000
Bensalem, Pennsylvania Owned Labeling Systems Operations 63,000
Bristol Township,
Pennsylvania Owned Labeling Systems Operations 101,000
Turlock, California Owned Production Machinery 32,000
Trevose, Pennsylvania Leased Executive Offices
-Labeling Systems Operations 9,000
Kingston, Jamaica, W.I. Owned Cigar Manufacturing 117,000
Dothan, Alabama Leased (1) Cigar Manufacturing & Warehousing 166,000
Hatfield, Massachusetts Owned Tobacco Warehousing & Processing 94,000
Santiago, Dominican
Republic Leased Tobacco Processing & Cigar Mfg. 171,000
Granby, Connecticut Owned Executive Offices
-Nursery Operations 8,000
Bloomfield, Connecticut Owned Executive Offices
-Cigar Operations 11,000

<FN>
(1) Industrial Revenue Bond financing lease

</TABLE>

In addition to the above, the Corporation owns a 48,000 square foot
warehouse in Alabama that is leased out.

The Corporation and its General Cigar Co., Inc. subsidiary lease
approximately 80 acres of land for growing tobacco in the Dominican Republic.
In addition, the Corporation leases approximately four other facilities for
production support and related office locations which have an aggregate of
approximately 17,000 square feet of floor space.

In May 1994 a building used by General Cigar Co., Inc. for farm
administration and tobacco warehousing in Windsor, Connecticut was totally
destroyed by fire. The Corporation is currently negotiating a settlement for
this loss with its insurance carrier.

ITEM 3 - LEGAL PROCEEDINGS

The Corporation is involved in various legal actions including the
following:

(i) TOWN OF WEST SPRINGFIELD V. CULBRO CORPORATION

In 1986 the State of Massachusetts closed certain public and private wells
in the West Springfield, Massachusetts area, where the Corporation has farmed
tobacco, because of contamination by ethylene dibromide (EDB) and other
pesticides. Subsequently the Corporation's farms were identified as a probable
source of the EDB contamination.

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In April 1987 the Town of West Springfield, Massachusetts filed suit in
Hampden County Superior Court against the Corporation, another tobacco farmer,
nine chemical manufacturers and an unknown number of unnamed manufacturers and
distributors of pesticides.

The Complaint alleges, among many other things with respect to each
defendant, that the Corporation was negligent in that it should have known that
its use of farm pesticides would contaminate the Town's public wells. The
Complaint demands judgment in the amount of $10,000,000 plus costs and expenses.
The Town has recently calculated that its "direct costs incurred or to be
incurred" as a result of the alleged contamination are $7,532,000 and it
demanded $4,170,000 "in full and complete satisfaction of this matter". The
Corporation believes the five chemical companies which remain defendants in this
action will play the major role in any defense or other resolution of this
litigation. One of the Corporation's general liability insurance carriers is
bearing legal expenses for this action while reserving its rights as to
coverage. The Corporation believes another carrier is also jointly and
severally responsible for coverage. After extensive discovery the Corporation
continues to believe it has meritorious defenses. In a similar action in
Connecticut the chemical manufacturers bore the major part of settlement
contributions and the Corporation's insurance did respond.

(ii) TOBACCO LIABILITY

While the Corporation now has no pending litigation respecting tobacco and
health, there is currently substantial litigation respecting cigarette smoking
and "environmental tobacco smoke", and other forms of tobacco use may also be
challenged in the courts.

(iii) TRINE MANUFACTURING COMPANY, INC.

Trine Manufacturing Company, Inc., a subsidiary of the Corporation which
manufacturers labeling machines ("Trine"), has reached a settlement of its
patent infringement litigation with B&H Manufacturing, Inc. ("B&H") in the
Federal District Court for the Eastern District of California, Fresno Division.
See the description of such litigation and related matters on page 11 of the
Registrant's Form 10-K for the fiscal year ended November 28, 1992.

The settlement provides relief for Trine from several, potentially large
claims for indemnity for patent infringement damages and/or royalties paid by
certain of Trine's customers including Foster Forbes, a division of American
National Can Corporation, to B&H. The settlement also provides a mechanism
under which other Trine customers using Trine machines in an allegedly
infringing manner would be offered a special licensing arrangement from B&H.
The arrangement offers these customers a release of all liability for past
patent infringement if they enter into a license agreement and pay royalties to
B&H on all future production of allegedly infringing articles during the life of
the B&H patents. Certain other terms and conditions of the settlement are
confidential by agreement of the parties. Trine did not admit the validity of
B&H's patents, will not make any representations as to whether a customer's use
of its Trine machines infringes these patents and agreed to notify its customers
that a patent license may be available from B&H.

The settlement contains mutual releases by B&H and Trine for all claims and
causes of action which were asserted or could have been asserted in the
litigation. B&H also agreed never to sue the Corporation, Trine, or CMS
Gilbreth Packaging Systems, Inc., an affiliated company, or their successors in
interest for future infringement of the B&H patents involved in the litigation
and foreign counterparts of these patents.

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The settlement was also signed on behalf of the seller ("Seller") to the
Corporation of the Trine business. In connection with the Corporation's
acquisition of Trine in 1988 the Seller indemnified the Corporation respecting
the B&H patents and the Corporation has reached a separate agreement with the
Seller whereby the Seller would allow the Corporation to reimburse itself for
85% of the legal fees paid to its patent attorneys in the B&H litigation from
the escrow account established as part of the acquisition. In addition, funds
withheld from payment of the Seller under certain related consulting and non-
competition agreements have been used to reimburse the Seller for 85% of its
legal fees.

In June 1994 the Seller and the Corporation settled the patent infringement
indemnification action against them by Anchor Glass Container Corporation.
Approximately 90% of the amounts paid in settlement was offset against the
funds withheld from the Seller. The remaining amount of withheld funds,
approximately $1,000,000, will be paid to the Seller pursuant to an arbitration
award binding on Seller and the Corporation.

There is no litigation currently pending with respect to the B&H patents.
The settlement with B&H described above should preclude any such indemnity
action against the Corporation in the United States. The settlement, however,
does not extend to foreign markets and such litigation is possible in the
future.

(iv) IMPERIAL NURSERIES AZALEA CROP

In early 1991 at its Quincy, Florida farm the Imperial Nurseries
("Imperial") Division of the Corporation sustained a significant loss of its
azalea crop. The loss appears to have been caused by the use of Benlate 50 DF,
a product of E.I. DuPont De Nemours & Co. ("DuPont") which was contaminated,
possibly by the herbicide atrazine. DuPont reportedly had a similar problem in
1989. The crops involved have been inspected by adjusters for DuPont and for
the Corporation's property insurance carrier, Arkwright-Factory Mutual
("Arkwright").

In August 1991 Imperial made a claim for approximately $2,200,000 for lost
sales of azaleas and other plants unsaleable because of the damaged azaleas,
less $240,000 previously advanced by DuPont. Despite consistent expressions of
support and approval by its claims adjuster, DuPont refused payment of the
claim. Imperial then filed suit in the United States District Court for the
Northern District of Florida seeking compensation for its full losses from
DuPont and certain distributors of Benlate. Extensive discovery has been
completed and trial is currently underway.

* * *

Management does not believe that the above described actions will have a
material adverse effect upon the financial condition of the Corporation.

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

None

-11-

<PAGE>

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS

On February 7, 1995 the approximate number of record holders of Common
Stock of the Corporation was 985 which does not include beneficial owners whose
shares are held of record in the names of brokers or nominees. The closing
market price as quoted on the New York Stock Exchange on such date was $14.00
per share. The information appearing (i) under Quarterly Data on Common Shares
the Annual Report, (ii) in Note 4 to the Consolidated Financial Statements and
(iii) in Note 11 to the Consolidated Financial Statements are hereby
incorporated by reference.

ITEM 6. SELECTED FINANCIAL DATA

The Consolidated Statement of Operations and the Selected Financial Data
appearing in the Annual Report are hereby incorporated by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The Management's Discussion and Analysis in the Annual Report is hereby
incorporated by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements together with the Report of
Independent Accountants are hereby incorporated by reference.

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

-12-

<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION

INFORMATION CONCERNING DIRECTORS

(AGE) AND
DATE SINCE WHICH
NAME HAS CONTINUOUSLY
(LETTERS REFER TO SERVED AS A PRINCIPAL OCCUPATION AND
COMMITTEE MEMBERSHIPS, DIRECTOR OF THE BUSINESS EXPERIENCE ALSO SERVES AS A DIRECTOR
IDENTIFIED BELOW) CORPORATION DURING PAST FIVE YEARS (1) OF THE FOLLOWING CORPORATIONS
- ---------------------- ----------- -------------------------- ----------------------------
<S> <C> <C> <C>

Bruce A. Barnet (49) 1990 President and Chief Executive Officer
(a),(b),(f) of Cowles Magazines - publishing (1993);
Private investor (1991-1992); President,
Family Media Publications (1990); President,
Riordan Publishing Company (1990);
Vice President, Time, Inc.'s Magazine
Group (1987-1990)

John L. Bernbach (51) 1988 Chairman and Chief Executive Officer of Omnicom Group, Inc., North American
(a),(f) The Bernbach Group, Inc., - consulting Television, Inc., Northbridge
(1994), Vice Chairman of DDB Needham Programming, Inc., Wemco, Inc.,
Worldwide, Inc., Director and President Chairman, Avenue China, Inc.
of DDB Needham Worldwide, Inc.
- advertising (1989-1994)

Edgar M. Cullman (2) (77) 1961 Chairman of the Board of Directors Centaur Communications Limited,
(b),(c),(d),(e) Bloomingdale Properties, Inc.,
The Eli Witt Company

Edgar M. Cullman, Jr.(2) (49) 1982 President; President of First Financial Caribbean
(c),(d),(f) Culbro Land Resources, Inc. (1992-1993) Corporation, Bloomingdale
Properties, Inc., The Eli Witt
Company

Frederick M. Danziger(2) (55) 1975 Member of the Firm of Mudge Rose IBAH, Inc.
(c),(d) Guthrie Alexander & Ferdon Monro Muffler/Brake Inc.,
-attorneys Ryan Instruments, L.P. (general
partner), Bloomingdale
Properties, Inc., First
Financial Caribbean Corporation,
Centaur Communications Limited

John L. Ernst(3) (54) 1983 Chairman of the Board and President First Financial Caribbean
(b),(c),(e) of Bloomingdale Properties, Inc. - Corporation
investments and real estate

Thomas C. Israel (51) 1989 A Director and Chairman of A.C. Chase N.B.W., Glenayre
(a),(f) Israel Enterprises, Inc. - investments Technologies, Inc.,
Noel Group, Inc., The Pet
Food Giant

Dan W. Lufkin (62) 1976 Private investor American Medical International,
(a),(b),(c),(d),(e) Syratech, Inc., Savoy Pictures,
Inc., Allen & Co., Inc.,
London Fog Industries

-13-

<PAGE>

Graham V. Sherren (57) 1987 Chairman and Chief Executive Officer, ARIS, Hundred Acre Securities Ltd.,
(f) Centaur Communications Limited - Input Type Setting Ltd.,
publisher of magazines and trade Gieves Group Ltd., Vexford
periodicals in the United Kingdom Holdings Ltd., Stace-Barr Ltd.

Peter J. Solomon (56) 1980 Chairman, Peter J. Solomon Company Centenniel Cellular Corp.,
(b),(d) Limited -investment bankers; Century Communications Inc.,
Bradlee's, Monroe Muffler/Brake,
Inc., Office Depot, Inc.,
Phillips-Van Heusen Corp.,
Ralphs Grocery Co.,
The Eli Witt Company

Francis T. Vincent, Jr. (56) 1992 Private investor; senior advisor to The Continental Corp.
(a),(b),(f) Peter J. Solomon Company Limited - Oakwood Homes Corp.,
investment bankers (1992-1994); Time Warner, Inc.
Commissioner, Major League Baseball
(1989-1992)

<FN>
- ----------------
Member of the: (a) Audit Committee; (b) Compensation Committee; (c)
Executive Committee; (d) Finance Committee; (e) Nominating Committee; and
(f) Strategic Planning Committee

(1) Except as otherwise indicated each director has had the same principal
occupation during the past five years. Positions not otherwise identified
are with the Corporation.

(2) Mr. Cullman is the father of Mr. Cullman, Jr., and the father-in-law of Mr.
Danziger.

(3) Mr. Ernst is the nephew of Mr. Edgar M. Cullman.

</TABLE>

The Board of Directors held 10 meetings during 1994. The Corporation has
the following Committees of the Board of Directors: Audit, Compensation,
Executive, Finance, Nominating and Strategic Planning. Committee memberships of
the Board of Directors are indicated in the above table. Directors as a whole
attended approximately 87% of the aggregate of all Board and Committee meetings
(of Committees of which they were members). Mr. Bernbach attended less than 75%
of combined Board and Committee meetings (of Committees of which he is a
member).

Effective January 1, 1991 the annual retainer paid to Members of the Board
of Directors and amounts paid per meeting were reduced by 10% from previous
years. In 1994 such retainer and amounts were not increased. Members of the
Board of Directors who are not employees of the Corporation received $16,200 per
year and $720 for each Board and Committee meeting attended in 1994. Committee
chairmen received $1,080 for each Committee meeting attended, except for the
chairmen of the Audit and Compensation Committees who received $1,350. Reduced
amounts were paid if more than one meeting was held on any day. Non-employee
Directors who are not members of the Cullman-Ernst group (See "Item 12. Security
Ownership of Certain Beneficial Owners and Management - Security Ownership of
Management and Principal Holders - Principal Holders") participate in the Stock
Option Plan for Non-employee Directors.

The Audit Committee, whose Chairman is Mr. Israel, reviews audit reports
and the scope of audit by both the Corporation's internal audit staff and its
independent accountants and related matters pertaining to the preparation and
examination of the Corporation's financial statements. From time to time such
Committee makes recommendations to the Board of Directors with respect to the
foregoing matters as well as with respect to the appointment of the
Corporation's independent accountants. The Audit Committee held three meetings
in 1994 and recommended to the Board of Directors the selection of Price
Waterhouse.

-14-

<PAGE>

The Nominating Committee, whose Chairman is Mr. Ernst, recommended to the
Board of Directors the election of the director-nominees proposed in this Proxy
Statement for election by the shareholders. The Nominating Committee reviews
incumbent directors and the qualifications of candidates suggested from all
sources, including Board members, management and shareholders. Shareholders
desiring to recommend candidates for election as directors at the Corporation's
1996 Annual Meeting of Shareholders should submit names and appropriate
biographical information to the Secretary of the Corporation before November 1,
1995.

The following table sets forth the information called for in this Item 10
with respect to executive officers of the Corporation.

NAME OF EXECUTIVE OTHER PRESENT YEAR OTHER POSITIONS
OFFICER AND POSITIONS AND SERVICE OR OTHER BUSINESS
PRESENT PRINCIPAL OFFICES (2) AS EXECUTIVE EXPERIENCE DURING
POSITION (1) (BEGINNING OFFICER PAST FIVE
(BEGINNING YEAR) AGE YEAR) BEGAN YEARS (YEARS)
- ----------------- --- ------------- ------------ -----------------

EDGAR M. CULLMAN 77 Director 1963 None
Chairman of the Board (1961)
(1975)

EDGAR M. CULLMAN, JR. 49 Director 1983 None
President (1984) (1982)

JOSEPH C. AIRD 49 None 1987 None
Vice President-
Controller (1987)

JAY M. GREEN 47 Treasurer 1988 None
Executive Vice (1988)
President Finance &
Administration (1988)

JANET A. KRAJEWSKI 40 None 1993 None
Vice President-Taxes
(1993)

A. ROSS WOLLEN 51 Senior Vice 1977 None
General Counsel President (1983)
(1980) & Secretary (1987)

<FN>
(1) All of the Corporation's executive officers are subject to annual
reelection. There were and are no understandings or arrangements between any of
the Corporation's executive officers and any other person (except directors and
officers acting solely in their capacities as such) pursuant to which any

-15-

<PAGE>

executive officer was selected as an officer. Mr. Green has an employment
agreement terminating in 1999. See page 17 of the Corporation's Proxy Statement
for the 1994 Annual Meeting. (See Item 14, Exhibit 10(E)). Positions not
otherwise identified are with the Corporation.

(2) Some of the Corporation's executive officers also serve as officers and
directors of The Eli Witt Company, of which Mr. Green is the Chairman of the
Board. Eli Witt became a public company on February 19, 1993 although not
currently registered under the Securities and Exchange Act of 1934, and the
Corporation now owns 50.1% of its common stock.

</TABLE>

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth the annual and long-term compensation for
the Corporation's Chief Executive Officer and the four highest-paid executive
officers, as well as the total compensation paid to each individual during the
Corporation's last three calendar years.

SUMMARY COMPENSATION TABLE

Long Term
Compensation
--------------------------
Annual Compensation (1) Awards
------------------------------------------------- --------------------------
(a) (b) (c) (d) (e) (f) (g)
------------------ --- ------ --------- --------------- ---------- ------------
Securities
Restricted Underlying
Name and Salary Other Annual Stock Options/SARs
Principal Position Year ($) Bonus ($) Compensation($) Awards($) (#)
------------------ --- ------ --------- --------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>

Edgar M. Cullman 1994 360,000 -- 23,628 -- --
Chairman of the Board and 1993 360,000 -- 17,242 -- --
Chief Executive Officer 1992 360,000 -- 18,465 -- --

Edgar M. Cullman, Jr. 1994 352,000 -- 33,716 -- --
President 1993 352,000 193,900(2) 25,510 -- --
1992 276,523 75,000(3) 25,776 -- --

Jay M. Green (4) 1994 340,000 -- 26,714 -- 125,000
Executive Vice President 1993 340,000 132,500(2) 25,510 -- 14,900
Chief Financial Officer 1992 264,512 120,000(3) 25,390 -- 14,700

A. Ross Wollen 1994 176,925 -- 30,182 -- 11,500
Senior Vice President 1993 176,925 58,975(2) 27,573 -- 10,000
General Counsel & Secretary 1992 168,260 55,000(3) 26,415 -- 9,400

Joseph C. Aird 1994 115,500 -- 26,607 -- 4,500
Vice President-Controller 1993 115,500 27,500(2) 23,508 -- 3,900
1992 109,500 60,000(3) 23,390 -- 3,500
<FN>
(1) In December of 1990 the Corporation changed its fiscal year end from
December to November. However, the Annual Compensation column reflects
amounts paid during the calendar year. Amounts shown under Other Annual
Compensation include matching contributions made by the Corporation under
the Savings Plan and other miscellaneous cash benefits, not required to be
included, but do not include funding for or receipt of retirement plan
benefits (See "Employee Benefit Plans"). No executive officer who would
otherwise have been includable in such table resigned or terminated
employment during 1994.

(2) Cash bonuses paid in 1993 (other than to the chief executive officer)
pursuant to the Corporation's Annual Incentive Compensation Plan for 1992.

-16-

<PAGE>

(3) Special cash bonuses were paid in 1993 (other than to the chief executive
officer) to the four next highest paid executive officers, all in
connection with the merger of one of the Corporation's subsidiaries which
closed in February 1993.

(4) Mr. Green entered into an Employment Agreement with the Corporation which
was approved by the Corporation's Shareholders at the 1994 Annual Meeting
of Shareholders. The Employment Agreement provides that Mr. Green will be
employed by the Corporation as Executive Vice President - Finance and
Administration and Treasurer for a period of five years at a base salary of
$340,000 (subject to increases annually as determined by the Compensation
Committee) and will be eligible for a bonus of up to 50% of his annual base
salary (to be determined at the sole discretion of the Compensation
Committee). If Mr. Green should be terminated by the Corporation without
cause, he will receive a cash severance payment of 150% of his annual
salary. The Employment Agreement also provides for a grant of an option to
purchase 125,000 shares of the Corporation's Common Stock at a fixed
exercise price of $4 per share.

</TABLE>

EMPLOYEE BENEFIT PLANS

RETIREMENT PLAN

Retirement benefits are payable under the Corporation's Employees
Retirement Plan for officers and other employees of the Corporation and its
participating subsidiaries. Directors who are not employees do not participate.
Benefits are accrued under the Plan on a career-average earnings basis and
through 1994 the pension credit is 1.1% for annual compensation up to the
individual's covered compensation as determined from published Social Security
tables and 1.65% for annual compensation above said amounts. Compensation is
the base rate of earnings as of the first business day of each Plan Year payable
for service during the Plan Year, excluding overtime, bonuses, incentive
compensation or other additional compensation. An updating formula has been
periodically applied to adjust for inflation. The estimated annual benefits
payable as a life annuity upon retirement at normal retirement age, which
assumes service will continue until age 65 at 1994 base salaries, for Messrs.
Cullman, Jr., Green, Wollen and Aird are $99,798, $54,291, $63,544 and $42,727,
respectively. The retirement benefit for Mr. Cullman, Sr., reflecting the fact
that his deferred receipt since age 65, is $169,465, which under tax law he was
required to begin receiving April 1, 1989.

STOCK OPTION PLANS

In January of 1991 the Board of Directors approved the adoption of the 1991
Employees Incentive Stock Option Plan (the "1991 Plan") which was approved by
the Corporation's shareholders on May 9, 1991. Options granted pursuant to the
1991 Plan in 1991 and 1992 have substantially exhausted the options available
for grant thereunder and in December 1992 the Board of Directors approved the
adoption of the Culbro Corporation 1992 Stock Plan (the "1992 Plan") which was
approved by the Corporation's shareholders on April 8, 1993. Options to
purchase a total of 88,300 shares were granted under the 1992 Stock Plan to 11
employees on February 10, 1994 at $15.50 per share. Such options are not
exercisable until three years from the date of grant.

Options currently outstanding were granted either under the 1991 Plan or
the 1992 Plan (collectively the "Plans"). The Plans are administered by the
Compensation Committee of the Board of Directors (the "Committee"), none of
whose members may hold options granted pursuant to the Plans. The Committee
determines the form of the option agreements to be used under the Plans and the
terms and conditions to be included in such option agreements.

-17-

<PAGE>

Under the 1992 Plan an aggregate 300,000 shares of Common Stock were
authorized to be made subject to options; of such shares 157,300 shares were
subject to unexercised options as of March 1, 1994. As of such date no shares
were available for grant under the 1991 Plan since the 1992 Plan has replaced
the 1991 Plan. Options are granted under the Plans at prices equal to 100% of
the fair market value of the shares of Common Stock on the date of grant.

Options granted under the Plans were intended to be incentive stock options
or nonqualified options. Options granted in 1990, 1991, 1992, 1993 and 1994 are
100% exercisable three years after the date of grant and not before such date
and terminate eight years (six in the case of the 1990 grant) from such date.
All options permit the delivery, with the consent of the Committee, of
previously owned Common Stock of the Corporation in payment, in lieu of cash,
for the purchase of shares upon exercise. The Plans also contain a limitation
on the dollar amount of incentive stock options which may be granted to any
employee and restrictions pertaining to any grant to a 10% shareholder. Messrs.
Cullman do not participate in the Plans.

The Plans permit the grant together with an option of a stock appreciation
right payable in cash. If granted, such a right entitles the holder to receive
in cash upon exercise the difference between the option exercise price and the
market value of the Corporation's Common Stock in lieu of exercising the
attached option.

The 1992 Plan also permits the grant of shares of the Corporation's Common
Stock. No such grants have been made.

The Corporation's shareholders have also approved a stock option plan for
non-employee Directors pursuant to which options to purchase 2,000 shares are
granted at each Annual Meeting to non-employee Directors who are not members of
the Cullman-Ernst group. In April 1994 options to purchase 14,000 shares were
granted to 7 non-employee Directors at the exercise price of $14.38 per share.

STOCK OPTION INFORMATION

Options to purchase 9,900 shares were exercised in 1994 by 2 executive
officers of the Corporation upon the termination of their employment.
Information pertaining to options granted to named executives from 1992
through 1994 is as follows:

NUMBER OF SECURITIES
UNDERLYING OPTIONS/SARS(1)
--------------------------
JAY M. A. ROSS JOSEPH
GREEN WOLLEN AIRD
----- ------ ------
<S> <C> <C> <C>

Granted on February 20, 1992 at $18.00 per share 14,700 9,400 3,900
Granted on January 27, 1993 at $16.75 per share 14,900 10,000 4,200
Granted on February 10, 1994 at $15.50 per share -- 11,500 3,500
Granted on April 7, 1994 at $4.00 per share 125,000(2) -- --

<FN>
- ----------------

(1) Options granted under the Plans were intended to be incentive stock options
or nonqualified options. Options granted are 100% exercisable three years
after the date of grant and not before such date and terminate eight years
from the date of grant. All options permit the delivery, with the consent
of the Committee, of previously owned Common Stock of the Corporation in
payment, in lieu of cash, for the purchase of shares upon exercise.
Options granted to the above named executives include tandem SARs.

(2) See footnote (1) to the following table.

</TABLE>

-18-

<PAGE>

STOCK OPTION GRANTS IN 1994 FISCAL YEAR

The following table sets forth the number of stock options granted to each
of the named executives during fiscal year 1994.
<TABLE>
<CAPTION>

INDIVIDUAL GRANTS
--------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENTAGE OF ASSUMED ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS/ EXERCISE MARKET PRICE APPRECIATION FOR TEN YEAR
UNDERLYING SARS GRANTED OR BASE PRICE OPTION TERM
OPTIONS/SARS TO EMPLOYEES IN PRICE ON DATE EXPIRATION ---------------------------------------
NAME GRANTED(#) 1994 FISCAL YEAR ($/SHARE) OF GRANT DATE 0% 5% 10%
- ---- ------------ ---------------- --------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>

Jay M. Green (1) 125,000 58.6 $ 4.00 $14.38 4/7/04 $1,297,500 $2,427,938 $4,162,252
A. Ross Wollen 11,500 5.4 $15.50 $15.50 2/10/02 $0 $ 112,100 $ 284,085
Joseph C. Aird 4,500 2.1 $15.50 $15.50 2/10/02 $0 $ 43,865 $ 111,164

<FN>
- ----------------

(1) Such option (the "Option") was granted to Mr. Green pursuant to his
Employment Agreement with the Corporation. The Option vests and becomes
exercisable with respect to 25,000 shares of common stock per year, on each
of the five anniversaries of the date of the grant. The Option expires on
the tenth anniversary date of the date it becomes exercisable, or after the
date Mr. Green ceases to be an employee of the Corporation or its
subsidiaries, within one year following Mr. Green's death or disability,
within three months following a voluntary termination, immediately upon a
termination for cause and within 90 days following a termination without
cause. If Mr. Green is terminated without cause during the first 30 months
of the Employment Agreement, the Option shall immediately become
exercisable with respect to 87,500 shares (less the number of shares which
had already vested) and if Mr. Green is terminated without cause during the
last 30 months of the Employment Agreement, the Option shall immediately
become exercisable with respect to all shares of stock covered thereby. In
addition to exercisability upon termination of employment, the Employment
Agreement with Mr. Green provides that the Option shall be exercisable in
its entirety in the event that the Cullman-Ernst group (see "Item 12.
Security Ownership of Certain Beneficial Owners and Management - Security
Ownership of Management and Principal Holders - Principal Holders") owns
less than 40% of the Corporation's Common Stock.

</TABLE>

-19-

<PAGE>

AGGREGATED OPTIONS/SAR - FISCAL YEAR-END OPTIONS/SAR VALUES

Options to purchase 9,900 options for the Corporation's common stock were
exercised in 1994. The Cullmans do not hold any options. The following table
presents the value of unexercised options and tandem SARs held by the other
named executives at 1994 fiscal year end:

NUMBER OF SECURITIES
UNDERLYING OPTIONS/SARS VALUE OF UNEXERCISED
HELD IN-THE-MONEY OPTIONS/SARS
AT FISCAL YEAR END (#) AT FISCAL YEAR END (1)
--------------------------------- ---------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>

Jay M. Green (2) 29,900 154,600 -0- $1,156,250
A. Ross Wollen 18,400 30,900 -0- -0-
Joseph C. Aird 7,400 11,900 -0- -0-

<FN>
- ----------------

(1) The amounts presented in this column have been calculated based upon the
difference between a fair market value of $13.25 of the Corporation's
Common Stock on December 2, 1994 and the exercise price of each stock
option/SAR. Options granted to the named executives include tandem SARs.
See "Stock Option Plans" on page 23.

(2) See footnote (1) to the table on page 16.

</TABLE>

ANNUAL INCENTIVE COMPENSATION PLAN

The Committee meets during the first quarter of each year to assess the
performance during the preceding fiscal year of the officers of the Corporation
and senior officers of its subsidiaries and to recognize and reward meritorious
performance by payment of incentive compensation with respect to such year.
Pursuant to a plan approved for 1994 by the Board of Directors such annual
incentive compensation was limited to predetermined percentages of each
recipient's annual salary and depended upon the achievement of specified
financial and subjective goals. Incentive compensation is payable in cash
subject to deferral under the Corporation's Deferred Incentive Compensation
Plan. No amounts were paid or will be paid as annual incentive compensation
pursuant to the Corporation's 1994 annual plan to any of the executive officers
listed in the Summary Compensation Table. Employees who do not participate in
the incentive compensation plan may be eligible for annual bonus payments
depending upon operating unit results. Mr. Cullman, Sr. did not participate in
the plan.

LONG TERM PERFORMANCE PLAN

In 1988 the Committee and the Board of Directors approved the Long Term
Performance Plan (the "Plan") which is intended to provide additional cash
compensation to certain officers of the Corporation and senior officers of its
subsidiaries selected by the Committee. Payments under the Plan are based on
the financial performance of the subsidiaries and the Corporation over three-
year performance cycles, beginning in 1989 and every other year thereafter. The
performance measurements which determined the payments to subsidiary officers
were based generally on cumulative net income and cumulative cash flow for each
subsidiary. Target goals in each category were set and incentive compensation,
as a percentage of salary, was paid depending upon percentage of goal achieved.
In 1992 the first payment under this Plan was made only to participants from the
Corporation's General Cigar Co., Inc. subsidiary based on performance during the
period 1989 through 1991. Corporate executives' participation depended upon
consolidated results in both categories exceeding by 10% subsidiary targets and
no such incentive compensation was paid to any Corporate executive.
Approximately eight corporate executive officers and four to nine senior
officers at each subsidiary participate in the Plan. Mr. Cullman, Sr. did not
participate in the Plan. Subject to certain conditions, an employee may defer
all or a portion of the payment pursuant to the Corporation's Deferred Incentive
Compensation Plan.

-20-

<PAGE>

The second three-year performance cycle began with fiscal year 1991. The
award of compensation for officers of the Corporation's subsidiaries under this
second three-year performance cycle is based upon achievement of a predetermined
formula based upon the return on net assets for their respective subsidiaries.
Officers of the Corporation selected by the Committee could participate in the
Plan at the discretion of the Committee. The second performance cycle resulted
in no incentive compensation being paid to any named executive. A similar third
three-year performance cycle began with fiscal year 1993. Mr. Cullman, Sr. will
not participate in the Plan.

DEFERRED INCENTIVE COMPENSATION PLAN

In 1982 the Board of Directors adopted the Deferred Incentive Compensation
Plan to be administered by the Committee, pursuant to which recipients of
incentive compensation and directors' fees may elect to defer receipt thereof.
Under a defined contribution arrangement amounts deferred earn interest,
compounded quarterly, at the prime rate less 1%. Such amounts are not intended
to be recognized for tax purposes until receipt. Participating recipients may
designate the amount and the time periods of deferral. Participants have no
vested rights in deferred amounts credited to their accounts and are general
creditors of the Corporation until such amounts are actually paid.

SAVINGS PLAN

The Board of Directors adopted a Savings Plan in 1982. The Savings Plan
covers salaried and hourly employees of the Corporation and its participating
subsidiaries who are employed in the United States, are over age 21 and have six
months of service. In 1994 a participating employee could have (i) saved up to
5% of annual base salary through payroll deductions, with the Corporation
contributing $0.40 on each dollar contributed; and (ii) saved an additional 10%
of annual base salary without receiving any matching contributions.
Contributions made in 1994 through payroll deductions not in excess of $9,240
per year may have been accumulated as before-tax savings pursuant to Section
401(k) of the Internal Revenue Code. Participants are permitted to choose to
allocate their contributions among several alternative investment options.

During the period from January 1, 1994 to December 31, 1994 the
Corporation's matching contributions under the Savings Plan for the accounts of
the individuals named under "Summary Compensation Table" are included under
Other Annual Compensation.

INSURANCE AND HEALTH PROGRAMS

The Corporation maintains a variety of employee welfare benefit plans
providing life, hospitalization, medical and long-term disability insurance for
its salaried and certain hourly paid employees. In addition the Corporation
provides life, hospitalization and medical insurance for certain of its retired
employees. The Corporation's aggregate contributions for such employee welfare
benefit plans through December 3, 1994 amounted to approximately $4,383,000.

In 1976 the Corporation adopted an Executive Life Insurance Program (the
"Program") pursuant to which insurance was purchased for middle and senior level
officers and employees. Insurance coverage of $20,000 was provided for each
$10,000 salary increment in excess of $50,000 and additional coverage of $10,000
was provided for each $10,000 salary increment in excess of $100,000 up to a
maximum insurance coverage of $250,000. As of July 1, 1988 the Program was
suspended and all benefits remain as they were as of that date. No new
participants have been offered benefits under this Program since its suspension.
The aggregate face amount of such coverage through November 30, 1994 was
approximately $3,400,000. The amounts paid by the Corporation in such year as
premiums totaled approximately $91,000, which was paid in part from a loan
against the cash value of said insurance and the balance in cash.

-21-

<PAGE>

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION - INTERLOCKS AND INSIDER
PARTICIPATION

The Compensation Committee, whose Chairman is Mr. Ernst, supervises
management compensation and employee benefits and administers the Corporation's
pension, stock option, savings, health, incentive compensation and other
employee benefit plans. It held 3 meetings in 1994.

BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

GENERAL

Pursuant to Article III, Section 11 of the Corporation's By-Laws, the
Compensation Committee of the Board of Directors annually recommends "to the
Board compensation for officers and principal employees and agents, and its
recommendations for their participation in any compensation or other plan for
the benefit of employees... and shall administer all such plans...". It has
been the practice of the Committee to review, consider and approve the
recommendations of management as to all compensation paid by the Corporation and
its subsidiaries exceeding $75,000 per annum.

The chief executive officer and president, Messrs. Cullman, Sr. and
Cullman, Jr., respectively, are members of the Cullman and Ernst Group which
owns approximately 52% of the Corporation's Common Stock (see "Principal
Holders"). They have declined to participate in the Corporation's Stock Option
Plans and Mr. Cullman, Sr. also does not participate in the Annual Incentive
Compensation Plan or the Long Term Performance Plan (see below).

POLICIES

The Committee intends that stock options and cash performance awards serve
as a significant part of executives' (other than the chief executive) total
compensation package, and thus they are granted and awarded in consideration of
present and anticipated performance as well as past performance. Moreover, the
stock options and cash performance awards are intended to offer the top
executives significant long-term incentives to increase their efforts on behalf
of the Corporation and its subsidiaries and to focus managerial efforts on
enhancing shareholder value. As indicated above, the Committee's compensation
philosophy is to have long-term incentives that pay more for superior
performance and less if performance does not achieve that level. The Committee,
in making its determinations with respect to stock option and performance award
grants and awards to the individual senior executives, was guided by the
percentage of the individual's base salary that the estimated value of the stock
options and cash performance awards would comprise. In the case of the Messrs.
Cullman incentives are to be achieved through potential payments of incentive
compensation. Mr. Cullman, Jr. participates in the Annual Plan and Long Term
Performance Plans. Mr. Cullman, Sr.'s incentive compensation could be
substantial, based upon results, through appropriate ad hoc recognition for
significant accomplishment at the discretion of the Committee.

SALARY AND CASH BONUSES

The chief executive officer's salary has not been increased since 1990.
Special cash bonuses were paid in 1993 (other than to the chief executive
officer) to the other named executive officers aggregating $260,000, all in
connection with the merger of one of the Corporation's subsidiaries which closed
in February 1993. The Committee does not believe it need now adopt any policy
with respect to

-22-

<PAGE>

the recently enacted $1,000,000 deduction cap of Internal Revenue Code Section
162 since no executive officer is expected to receive compensation in such year
in excess of such amount. Pursuant to his Employment Agreement, Mr. Green may
not be permitted to exercise such number of options in any year which would
result in his total compensation exceeding the $1,000,000. Such limitation may
not apply in the final year of the Option.

STOCK OPTION PLANS

The Committee administers the Plans described under "Stock Option Plans".
In recent years options have been granted to approximately 15 employees
including the Corporation's senior management (other than Messrs. Cullman who
have declined to participate) and one or two senior officers at each of the
Corporation's operating companies. The Committee has determined that options be
granted to Messrs. Green and Wollen and operating company presidents at 100% of
their annual salaries. Since 1994, Mr. Green's compensation has been determined
in accordance with his Employment Agreement. He will no longer participate in
the Corporation's regular Stock Option Plans. Other corporate staff and
operating company executive officers are awarded options at the discretion of
the Committee and generally at 60% and 40% of annual salary depending upon
relative seniority and responsibilities. No options have been exercised since
1990 by any executive officer of the Corporation, except for two such officers
upon the termination of their employment in 1994.

LONG TERM PERFORMANCE PLAN

The Committee administers the Long Term Performance Plan which is based
upon financial performance of the operating companies and the Corporation over
three-year cycles. The performance measurements which determined the payments
to subsidiary officers were based generally on cumulative net income and
cumulative cash flow for each subsidiary. Target goals in each category were
set and incentive compensation, as a percentage of salary, was paid depending
upon percentage of goal achieved. The first cycle (1989-91) resulted in
payments to the officers of only one operating company. The second cycle (1991-
93) resulted in no incentive compensation being paid to any named executive.

ANNUAL INCENTIVE COMPENSATION PROGRAM

The Committee established and administers the Annual Incentive Compensation
Program which is designed to recognize and reward meritorious performance during
the previous fiscal year. Such compensation is limited to predetermined
percentages of each recipient's annual salary and depends upon the achievement
of specified financial and subjective goals. Mr. Cullman, Sr. does not
participate in this Program. A total of $416,700 was paid in 1993 with respect
to fiscal year 1992 to the named executives other than the chief executive
officer. No such payments were made to any of the Corporation's executive
officers with respect to fiscal years 1993 or 1994.

COMPENSATION COMMITTEE

John L. Ernst, Chairman
Bruce A. Barnet
Edgar M. Cullman
Dan W. Lufkin
Peter J. Solomon
Francis T. Vincent, Jr.

-23-

<PAGE>

The Board Compensation Committee Report on Executive Compensation shall not
be deemed incorporated by reference by any general statement incorporating by
reference this Annual Report into any filing under the Securities Act of 1933 or
the Securities Exchange Act of 1934, except to the extent that the Corporation
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Mr. Cullman, Chairman and chief executive officer of the Corporation, is a
member of the Compensation Committee. Messrs. Cullman are members of the Board
of Bloomingdale Properties, Inc., of which Mr. Ernst, Chairman of the
Corporation's Compensation Committee, is Chairman and President. Mr. Cullman,
Sr. is Chairman of the Compensation Committee of Centaur Communications Limited,
of which Mr. Sherren is chief executive officer. Mr. Sherren is a Member of the
Corporation's Board but does not serve on its Compensation Committee.

Mr. Solomon is Chairman of Peter J. Solomon Company Limited which provides
the Corporation strategic planning and long-range financial advice pursuant to
an engagement letter effective June 1, 1989. Such agreement provides for
payments of $18,750 per quarter, plus expenses, and additional amounts for
specified projects. In 1994 such firm was paid $306,000 for services rendered
relating to an acquisition by the Corporation's Eli Witt subsidiary. Mr.
Solomon is a member of Eli Witt's Board of Directors. He was not paid any
compensation in 1993 or 1994 with respect to such membership. Mr. Vincent was a
senior advisor to Peter J. Solomon Company Limited until December 1994.

Real estate management and advisory services have been provided to the
Corporation by an affiliate of Bloomingdale Properties, Inc., with which members
of the Cullman and Ernst group (see "Principal Holders") are associated. A fee
of approximately $195,360 was paid by the Corporation in 1994 for management of
the Corporation's New York office building and for other real estate advisory
services. Mr. Ernst is Chairman of Bloomingdale Properties, Inc.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL HOLDERS

MANAGEMENT

The following table lists the number of shares of Common Stock of the
Corporation beneficially owned by the nominees for election as directors (who
are all current directors) and by all directors and officers of the Corporation
collectively:

Number of Percent of
Name Shares(1) Outstanding

---- --------- -----------
<S> <C> <C>
Bruce A. Barnet 100 *
John L. Bernbach 600 *
Edgar M. Cullman 987,646 23% (2)
Edgar M. Cullman, Jr. 888,752 21% (2)
Frederick M. Danziger 164,120 4% (2)
John L. Ernst 425,784 10% (2)
Thomas C. Israel 5,000 *
Dan W. Lufkin 10,000 *
Graham V. Sherren 500 *
Peter J. Solomon 1,000 *
Francis T. Vincent, Jr. 1,000 *
All directors and officers collectively,
consisting of fifteen persons 1,783,746 42% (1)

<FN>
----------------
* Less than 1%

-24-

<PAGE>

(1) This information reflects the definition of beneficial ownership adopted by
the Securities and Exchange Commission. Beneficial ownership shown is sole
investment and voting power, except as reflected in footnote 2. Where more
than one person shares investment and voting power in the same shares such
shares may be shown more than once. Such shares are reflected only once,
however, in the total for all directors and officers. Excluded are shares
held by charitable foundations and trusts of which members of the Cullman
and Ernst families, including persons referred to in footnote 2, are
officers and directors.

(2) See "Principal Holders". Included within the shares shown as beneficially
owned by Mr. Cullman are 873,948 shares in which he holds shared investment
and/or voting power; included within the shares shown as beneficially owned
by Mr. Ernst are 416,321 shares in which he holds shared investment and/or
voting power; included within the shares shown as beneficially owned by Mr.
Danziger are 147,578 shares in which he holds shared investment and/or
voting power; and included within the shares shown as beneficially owned by
Mr. Cullman, Jr. are 745,362 shares in which he holds shared investment
and/or voting power. Excluded in each case are shares held by charitable
foundations and trusts in which such persons or their families or trusts
for their benefit are officers and directors. Messrs. Cullman, Ernst,
Danziger, and Cullman, Jr. disclaim beneficial interest in all shares over
which there is shared investment and/or voting power and in all excluded
shares.

</TABLE>

PRINCIPAL HOLDERS

As of December 31, 1994, a group consisting of Messrs. Cullman, direct
members of their families and trusts for their benefit; Mr. Ernst, his sister
and direct members of their families and trusts for their benefit; a partnership
in which members of the Cullman and Ernst families hold substantial direct and
indirect interests and charitable foundations and trusts of which members of the
Cullman and Ernst families are directors or trustees, owned an aggregate of
approximately 2,239,000 shares of the Corporation's Common Stock (approximately
52%). Among others, Messrs. Cullman and their wives, Mr. Ernst and to a lesser
extent Mr. Danziger (who is a member of the Cullman and Ernst group), hold
investment and voting power or shared investment and voting power over such
shares. Certain of such shares are pledged as security for loans payable under
standard pledge arrangements.

A form filed with the Securities and Exchange Commission on behalf of the
Cullman and Ernst group states that there is no formal agreement governing the
group's holding and voting of such shares but that there is an informal
understanding that the persons and entities included in the group will hold and
vote together the shares owned by each of them in each case subject to any
applicable fiduciary responsibilities.

The Gabelli Group, Inc., One Corporate Center, Rye, New York, NY 10580,
through certain wholly-owned subsidiaries, is the owner of an aggregate of
519,200 shares of the Corporation's Common Stock (approximately 12%). A form
filed with the Securities and Exchange Commission on September 18, 1991 by
Gabelli Funds, Inc. states that the securities have been acquired by GAMCO
Investors, Inc., a wholly-owned subsidiary of Gabelli Funds, Inc. and Gabelli
Funds, Inc., on behalf of their investment advisory clients. The Corporation
has been informed that no individual client of The Gabelli Group, Inc. has
ownership of more than 5% of the Corporation's Common Stock. An affiliate of
the Gabelli Group provides investment advisory services to the Corporation's
pension fund for which it receives customary advisory fees.

Heine Securities Corporation, 51 J.F.K. Parkway, Short Hills, N.J. 07078,
is the owner of an aggregate of 180,200 shares of the Corporation's Common Stock
(approximately 4.2%).

-25-

<PAGE>

Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 294,300 shares of the
Corporation's Common Stock (approximately 6.8%) as of December 31, 1994, all of
which shares are held in portfolios of DFA Investment Dimensions Group Inc., a
registered open-end investment company, or in series of the DFA Investment Trust
Company, a Delaware business trust, or the DFA Group Trust and DFA Participation
Group Trust, investment vehicles for qualified employee benefit plans, all of
which Dimensional Fund Advisors Inc. serves as investment manager. Dimensional
disclaims beneficial ownership of all such shares.

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Corporation's officers and directors, and persons who own more than ten
percent of its Common Stock, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and the New York Stock
Exchange. Such persons are required by regulation to furnish the Corporation
with copies of all Section 16(a) forms they file. Based upon its involvement in
the preparation of certain of such forms, a review of the copies of other such
forms received by it and the written representation from one reporting entity
that no Form 5 was required for such entity, the Corporation believes that with
respect to 1994 all such Section 16(a) filing requirements were satisfied,
except that Mr. Cullman, Sr. failed to file a Form 4 in a timely fashion
respecting his purchase of 500 shares of the Corporation's Common Stock in
November 1994.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

1. Mr. Danziger is a member of the law firm of Mudge Rose Guthrie
Alexander & Ferdon. During the Corporation's 1994 fiscal year, such firm
received for services rendered approximately $332,000 from the Corporation, and
approximately $325,000 from its former subsidiary, The Eli Witt Company ("Eli
Witt"). Such amounts include approximately $450,000 for services rendered
relating to the acquisition of the southern operations of NCC L.P. by Eli Witt
and certain related transactions.

2. The Corporation has a Directors and Officers Liability and Corporate
Reimbursement insurance policy with the Chubb Group of Insurance Companies. The
policy period is from March 19, 1994 through March 19, 1995 at a premium of
$113,850. The Corporation maintains a separate Pension Trust Liability
insurance policy covering employees acting in fiduciary capacities. The policy
period is from March 19, 1994 through March 19, 1995 at a premium of $23,900.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) Financial Statements (annexed hereto): There are filed as part of
this Report on Form 10-K: the Consent and Report of Independent Accountants; and
the Consolidated Financial Statements (including Notes) of the Corporation. See
Index To Financial Statements and Additional Financial Data.

(a)(2) Schedules (annexed hereto): Financial Statement Schedules
required by Item 8 of Form 10-K for the fiscal years ended 1994, 1993 and 1992.
See Index To Financial Statements and Additional Financial Data.

(a)(3) Exhibits. (Enumeration corresponds to the Exhibit Table, Item
601, Regulation S-K. Items not enumerated are not applicable).

-26-

<PAGE>

(3) THE ARTICLES OF INCORPORATION AND BY-LAWS OF THE CORPORATION.

(A) The Articles of Incorporation, as amended to date (Incorporated
by reference to Exhibits to Form 10-K of the Corporation filed for the
fiscal year 1984 - (Exhibit 3(A)) and to the definitive proxy statement of
Registrant, dated April 11, 1988, for its Annual Meeting of Shareholders
held on May 12, 1988).

(B) The By-Laws, as amended to date (Incorporated by reference to
Exhibits to Form 10-K of the Corporation filed for the fiscal year 1984 -
(Exhibit 3(B)) and to the definitive proxy statement of Registrant, dated
April 11, 1988, for its Annual Meeting of Shareholders held on May 12,
1988).

(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES.

(A) Note Purchase Agreement, dated July 15, 1988, respecting 9.87%
Series C Senior Notes due 1998 and 9.93% Series D Senior Notes due 1998
(Incorporated by reference to Exhibits to Form 10-Q of the Corporation
filed for the thirteen weeks ended July 2, 1988 - (Exhibit (a)(2)).

(B) Credit Agreement, dated May 24, 1990 with several banks and
Manufacturers Hanover Trust Company, as Agent. (Incorporated by reference
to Exhibits to Form 10-Q of the Corporation filed for the thirteen weeks
ended June 30, 1990 - (Exhibit (a)).

(C) Amended and Restated Note Purchase Agreement among the
Corporation and six institutional investors relating to the private
placement of $35,000,000 of Senior Notes, dated July 15, 1988 amended and
restated as of February 19, 1993, including Exhibits (which have been
omitted but will be furnished to the Commission upon request).
(Incorporated by reference to Exhibits to Form 10-K of the Corporation
filed for the fiscal year 1992).

(D) Amended and Restated Credit Agreement, dated February 19, 1993
with several banks and Chemical Bank, as Agent, including Exhibits (which
have been omitted but will be furnished to the Commission upon request).
(Incorporated by reference to Exhibits to Form 10-K of the Corporation
filed for the fiscal year 1992).

(E) Credit Agreement among The Eli Witt Company, The Several Lenders
from Time to Time Parties Hereto and Chemical Bank, as Agent, Dated as of
February 19, 1993. (Incorporated by reference to Exhibits to Form 10-K of
the Corporation filed for the fiscal year 1992).

Certain other documents evidencing indebtedness of the Corporation are not
filed herewith in reliance upon the exemption provided by Item
601(b)(4)(iii)(A); the Registrant hereby undertakes to furnish a copy of such
documents to the Commission upon request.

(10) EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS.

(A) 1992 Stock Plan of Registrant, dated December 10, 1993
(Incorporated by reference to the definitive proxy statement of Registrant,
dated March 3, 1993, for its Annual Meeting of Shareholders held on April
8, 1993).

-27-

<PAGE>

(B) Stock Option Plan for Non-employee Directors of Registrant, dated
December 10, 1993 (Incorporated by reference to the definitive proxy
statement of Registrant, dated March 3, 1993, for its Annual Meeting of
Shareholders held on April 8, 1993).

(C) 1991 Employees Incentive Stock Option Plan of Registrant
(Incorporated by reference to the definitive proxy statement of Registrant,
dated April 9, 1991, for its 1991 Annual Meeting of Shareholders held on
May 9, 1991).

(D) 1983 Employees Incentive Stock Option Plan of Registrant, as
amended (Incorporated by reference to the definitive proxy statement of
Registrant, dated April 6, 1983, for its Annual Meeting of Shareholders
held on May 12, 1983 and to the Appendix filed pursuant to Rule 424(c)
under the Securities Act of 1933, as amended, dated March 3, 1987).

(E) Employment Contract between the Registrant and Jay M. Green
(Incorporated by reference to the definitive proxy statement of Registrant,
dated March 14, 1994, for its Annual Meeting of Shareholders held April 7,
1994).

(F) Shareholders Agreement dated as of April 25, 1994 among Culbro
Corporation, MS Distribution, Inc. and The Eli Witt Company.

(G) Culbro Corporation 10% Exchangeable Note Due 1998 in the amount
of $15,000,000, issued April 25, 1994 to MS Distribution, Inc.

(13) ANNUAL REPORT TO SECURITY HOLDERS.

The Corporation's Annual Report to Shareholders for 1994 (annexed
hereto). Such Annual Report, except for those portions which are expressly
incorporated by reference, is furnished for the information of the
Securities and Exchange Commission and is not to be deemed "filed" or
incorporated by reference as part of this Form 10-K.

(22) SUBSIDIARIES.

List of Subsidiaries.

(28) UNDERTAKING.

For the purposes of complying with the amendments to the rules
governing Form S-8 (effective July 13, 1990) under the Securities Act of
1933, the undersigned registrant hereby undertakes as follows, which
undertaking shall be incorporated by reference to registrant's Registration
Statement on Form S-8 (Incorporated by reference to Exhibits to Form 10-K
of the Corporation filed for the fiscal year 1984 - (Exhibit 28)) and
subsequent Form S-8's:

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such

-28-

<PAGE>

indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

(b) The Corporation filed no reports on Form 8-K in the last quarter of
its 1994 fiscal year:

(d) See Index to Financial Statements and Additional Financial Data.

-29-

<PAGE>

SIGNATURES

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

CULBRO CORPORATION

By /s/ JAY M. GREEN
-------------------------------------------------
Jay M. Green
Executive Vice President-Finance and Administration

Dated: February 23, 1995

Pursuant to the requirements of the Securities Exchange Act of 1934, this
annual report has been signed by the following persons on behalf of the
Corporation and in the capacities indicated on February 23, 1995.

Signatures Title

BRUCE A. BARNET Director
- -----------------------
(Bruce A. Barnet)

JOHN L. BERNBACH Director
- -----------------------
(John L. Bernbach)

EDGAR M. CULLMAN Chairman of the Board, Director and
- ----------------------- Principal Executive Officer
(Edgar M. Cullman)

EDGAR M. CULLMAN, JR. President, Director and
- ----------------------- Principal Operating Officer
(Edgar M. Cullman, Jr.)

FREDERICK M. DANZIGER Director
- -----------------------
(Frederick M. Danziger)

JOHN L. ERNST Director
- -----------------------
(John L. Ernst)

JAY M. GREEN Executive Vice President and
- ----------------------- Principal Financial Officer
(Jay M. Green)

THOMAS C. ISRAEL Director
- -----------------------
(Thomas C. Israel)

DAN W. LUFKIN Director
- -----------------------
(Dan W. Lufkin)

GRAHAM V. SHERREN Director
- -----------------------
(Graham V. Sherren)

PETER J. SOLOMON Director
- -----------------------
(Peter J. Solomon)

FRANCIS T. VINCENT, JR. Director
- -----------------------
(Francis T. Vincent, Jr.)

JOSEPH C. AIRD Vice President and
- ----------------------- Controller
(Joseph C. Aird)

-30-

<PAGE>

CONSUMER PRODUCTS
GENERAL CIGAR CO., INC.
Manufacturing and marketing cigars, growing wrapper tobacco and
distributing disposable lighters.

INDUSTRIAL PRODUCTS
CMS GILBRETH PACKAGING SYSTEMS, INC.
Manufacturing and marketing of packaging and labeling systems,
including plastic shrink film labels and tamper-evident seals, and
packaging machinery to apply them.

NURSERY PRODUCTS
IMPERIAL NURSERIES, INC.
Growing plants which are sold principally to garden centers,
wholesalers, and mass merchandisers and operating sales and service
centers which sell principally to landscapers.

REAL ESTATE
CULBRO LAND RESOURCES, INC.
Building and managing commercial and industrial properties and
developing residential subdivisions on real estate owned by the
Corporation in Connecticut and Massachusetts.

387 PAS CORP.
Owning and managing a commercial office building in New York City.

EQUITY INVESTMENTS
THE ELI WITT COMPANY
Wholesaling tobacco products, candy, groceries, food, health and beauty
aids and general merchandise.

CENTAUR COMMUNICATIONS LIMITED
Publishing business specialty magazines in the United Kingdom and producing
and distributing audio language tapes.

- -------------------------------------------------------------------------------
QUARTERLY DATA ON COMMON SHARES

Following are the high and low prices of the common shares of Culbro
Corporation in 1994 and 1993 as traded on the New York Stock Exchange.

1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
HIGH LOW HIGH LOW HIGH LOW HIGH LOW
- -------------------------------------------------------------------------------
1994 18 15 1\8 16 1\8 12 7\8 17 1\2 13 1\2 16 3\4 13 3\4

1993 18 1\2 14 3\8 19 1\2 14 7\8 18 14 1\4 17 1\4 13 1\2
------------------------------------------------------------------
------------------------------------------------------------------
THERE WERE NO CASH DIVIDENDS DECLARED IN 1994 OR 1993.

1
<PAGE>

SELECTED FINANCIAL DATA 1990

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1994 1993 1992 1991 48 Weeks
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales and other revenue $185,415 $1,364,576 $1,148,722 $1,104,272 $908,395
Operating profit 8,779 18,779 15,863 24,184 19,826
Income before cumulative effect of
accounting change 1,152 1,725 1,868 3,176 3,109
Income per common share before
cumulative effect of accounting change 0.27 0.24 0.43 0.74 0.72
Net income (loss) 1,152 (7,452) 1,868 3,176 3,109
Net income (loss) per common share 0.27 (1.89) 0.43 0.74 0.72
Dividends per common share -- -- 0.60 0.80 0.80
Working capital 78,372 131,126 111,691 92,124 113,621
Property and equipment, net 76,873 114,898 99,509 99,498 115,812
Total assets 273,237 423,659 403,648 343,023 393,951
Long-term debt 98,976 175,405 145,678 132,885 161,944
Shareholders' equity 112,037 110,882 119,035 119,750 120,013
Book value per common share at
end of period 26.01 25.74 27.63 27.80 27.86
Weighted average common
shares outstanding 4,308,000 4,308,000 4,308,000 4,307,000 4,307,000
----------------------------------------------------------------
----------------------------------------------------------------

THE 1994 INFORMATION PRESENTED ABOVE REFLECTS THE DECONSOLIDATION OF ELI WITT (SEE NOTE 1).
THE PRIOR YEARS' INFORMATION HAS NOT BEEN RESTATED.

- ---------------------------------------------------------------------------------------------------------------------
</TABLE>

MANAGEMENT'S DISCUSSION AND ANALYSIS

LIQUIDITY AND CAPITAL RESOURCES

In 1994, Culbro Corporation (the "Corporation") reduced its outstanding
debt by approximately $11.5 million, using cash generated from operations and
proceeds from collection of a mortgage. Additionally, debt included on the
Corporation's consolidated balance sheet was reduced by approximately $75
million as a result of the deconsolidation of its wholesale distribution
subsidiary, The Eli Witt Company ("Eli Witt"), which is being accounted for
under the equity method (see Note 1). The deconsolidation did not have an effect
on liquidity or cash flow because the cash flow of Eli Witt has not been
available to the Corporation since Eli Witt was financed separately in February
1993. The following comparisons of cash flows are based on the pro forma
condensed consolidated 1993 financial statements contained in Note 1, which
present Eli Witt on an equity basis.

Net cash provided by OPERATING ACTIVITIES in 1994 reflects higher operating
profit, excluding the effect of the $4 million charge primarily for the writeoff
of unrecoverable costs previously expended in the Connecticut real estate
business. In addition, cash flow from operations was generated by lower
inventories and accounts receivable. In 1993, net cash used in operating
activities reflected the repurchase of accounts receivable upon termination of
the accounts receivable sales program.

Net cash provided by INVESTING ACTIVITIES in 1994 principally reflects the
receipt of $8 million from Eli Witt representing proceeds from Eli Witt's
refinancing its mortgage to the Corporation. This cash flow was partially offset
by capital expenditures, primarily in the industrial products business. In the
prior year, net cash provided by investing activities reflected principally cash
received from the separate financing of Eli Witt, including a cash dividend from
Eli Witt and repayment of Eli Witt's intercompany debt to the Corporation,
partially offset by the Corporation's $10 million mortgage loan to Eli Witt. In
1993, the Corporation also received approximately $4.9 million from an agreement
relating to an earlier sale of its injection molded plastics business.

Net cash used in FINANCING ACTIVITIES in 1994 reflects payments of
long-term debt, principally with cash flow from operations and the investing
activities described above. Additionally, the Corporation received approximately
$11.3 million for a 10% subordinated note issued to MS Distribution, Inc. (see
Note 2) and obtained a $5 million equipment mortgage. The subordinated note,
which has a face value of $15 million, does not require interest or principal
payments until maturity in 1998, at which time it is exchangeable, at the
Corporation's option, for the Series B preferred stock of Eli Witt currently
held by the Corporation. Therefore, the subordinated note may

2
<PAGE>

be satisfied without the use of cash. The equipment mortgage has a ten year
term, requires a $1.2 million balloon payment at maturity, and bears interest
at 7.25%. In 1993, net cash used in financing activities reflected the reduction
of debt, primarily with the proceeds from the separate financing of Eli Witt
described above.

The Corporation's projected capital requirements are primarily the
scheduled debt maturities and reduction of the Credit Agreement commitment
discussed in Note 3. No significant increases in capital expenditures or other
capital outlays are currently anticipated except for a possible additional
investment in Eli Witt of up to $5 million. The Corporation's liquidity improved
significantly in 1994, as evidenced primarily by its lower debt level under its
bank Credit Agreement relative to the remaining availability under the Credit
Agreement. Management believes that cash flow from operations and the existing
liquidity will be sufficient to meet its maturing near-term obligations and
normal capital requirements. Over the long-term, management will seek to
maintain a level of indebtedness which is commensurate with the Corporation's
earnings and cash flow, and will continue to pursue opportunities to supplement
cash flow from operations by proceeds generated from other transactions.

RESULTS OF OPERATIONS
1994 COMPARED TO 1993

In 1994, the Corporation deconsolidated Eli Witt from its consolidated
financial statements as a result of a reduction in ownership and control over
Eli Witt. The Corporation is accounting for its remaining investment in Eli Witt
under the equity method of accounting. The deconsolidation was effective in
April 1994 but the equity method was retroactively applied as of the beginning
of the fiscal year. Prior years' financial statements have not been restated.
The comparisons reflected in the following discussion pertain to the 1993
condensed pro forma statement of operations contained in Note 1, which presents
Eli Witt under the equity method.

The Corporation's income before the cumulative effect of an accounting
change was substantially unchanged from last year. A $4.0 million pretax charge
primarily for the writeoff of certain unrecoverable costs in the Corporation's
Connecticut real estate business, and a $2.1 million equity loss from Eli Witt's
operations compared to a profit of $1.6 million last year were substantially
offset by higher operating profit in both the cigar business and the industrial
products business and a pretax gain of $2.7 million on the sale of 400,000
shares of Eli Witt common stock to MS Distribution, Inc. ("MSD") in connection
with the subordinated note issued to MSD.

Operating profit at General Cigar Co., Inc. ("General Cigar") increased due
to higher volume in cigar sales, and price increases on substantially all cigar
categories. The increase in cigar sales reflects the resurgence of the cigar
market, particularly the premium segment, due to renewed interest in and
acceptance of cigar smoking.

Operating profit in the industrial products business, CMS Gilbreth
Packaging Systems, Inc. ("CMS Gilbreth"), increased due to higher sales volume
in both packaging machinery and packaging materials, and improved margins on
sales. The improved margins reflected continuing benefits from manufacturing
efficiencies. CMS Gilbreth's largest customer of packaging materials, comprising
approximately 20% of CMS Gilbreth's annual revenue, informed management that it
will change label technology and therefore substantially reduce the quantity of
labels purchased from CMS Gilbreth. The change is expected to be phased in
beginning with the 1995 second quarter, at the earliest. This development did
not affect the 1994 results.

Operating results in the Corporation's Connecticut real estate business,
Culbro Land Resources, Inc. ("CLR"), were lower than the prior year's due to the
$3.6 million charge described below and lower profits from residential lot
sales. The slow and uneven recovery of the Connecticut real estate market
continued to adversely affect commercial lease rates and residential development
activity in 1994. During 1994, due to the continuing adverse real estate market
conditions in Connecticut, CLR's management undertook a review of projects
under development. As a result of this review, management decided not to proceed
with certain projects as initially planned, and approximately $3.6 million of
capitalized development costs that were deemed to have no continuing value were
written off.

Results in the Corporation's nursery products business, Imperial Nurseries,
Inc. ("Imperial"), were lower in the current year due to higher costs and
expenses, principally for reserves recorded for potentially unsaleable
inventories and accrued severance costs. Imperial's business continued to be
negatively affected by competitive pricing. However, prices in the fall of 1994
were much improved compared to the same period in the prior year.

The Corporation's results from its equity investments include the
operations of the Eli Witt wholesale distribution business through the April
1994 deconsolidation, and the Centaur Communications Limited ("Centaur")
publishing business. The Corporation did not recognize its share of Eli Witt's
results subsequent to the April deconsolidation because of Eli Witt's common
deficit position, and will not recognize any future results of Eli Witt until
its common deficit is recouped. The Corporation's overall results from equity
investments reflect a loss of $2.1 million from Eli Witt's operations and a
profit of $0.4 million from the Centaur business compared to a loss in the prior
year. The loss in the Eli Witt business,

3
<PAGE>

compared to a profit in the prior year, was due to lower profit from cigarette
sales, lower manufacturers' purchase incentive programs, and higher expenses.
Centaur's results reflect higher revenue from its magazine publications.

The gain of approximately $2.7 million was realized from the sale of
400,000 shares of Eli Witt common stock to MSD. Other nonoperating income of
approximately $1.4 million represents accretion of $0.9 million and accrued
dividends of $0.5 million from the date of the deconsolidation through the end
of the fiscal year on the Series B mandatorily redeemable preferred stock of Eli
Witt held by the Corporation. These amounts equal the amortization of original
issue discount and interest expense on the subordinated note.

The increase in interest expense in 1994 reflects the interest and
amortization of the discount on the subordinated note, partially offset by the
effect of the overall reduction in the Corporation's debt. The rate on the
subordinated note is higher than the rate on the debt repaid with the
subordinated note proceeds. There were no fees on sales of accounts receivable
in the current year because the accounts receivable sales program was terminated
in 1993 in connection with the separate financing of Eli Witt.

1993 COMPARED TO 1992

The 1993 net loss was due to the cumulative effect of the adoption of SFAS
No. 106 which resulted in a net charge of $9.2 million. Income before the
accounting change in 1993 declined from the prior year, reflecting principally
higher interest expense and lower operating profit in the consumer products
businesses (excluding the effect of certain nonrecurring charges recorded in
this segment in 1992), partially offset by higher operating profit in the
industrial products business. Operating profit was not materially different in
1993 as compared to 1992 in the nursery products and real estate businesses.

In the consumer products businesses, net sales and other revenue increased
primarily due to Eli Witt's acquisition of Certified Grocers near the end of the
first quarter. Excluding the effect of the nonrecurring charges recorded in the
prior year, which included a restructuring charge of $3.5 million at Eli Witt
and a relocation charge of $1.0 million at General Cigar, overall operating
profit in the consumer products businesses declined, due to lower operating
profit at Eli Witt, while operating profit at General Cigar was substantially
unchanged. Eli Witt's operating profit was negatively impacted by competitive
pricing pressures, which reduced gross margins, and lower profit from inventory
price appreciation on excess cigarettes purchased in anticipation of
manufacturers price increases. Additionally, gross profit was negatively
affected when cigarette manufacturers reduced prices on their premium cigarette
brands by approximately 25% during the year and curtailed purchase incentive
programs. In the fourth quarter, Eli Witt adjusted its pricing to customers to
partially compensate for these effects. At General Cigar, higher revenues from
cigar sales were substantially offset by lower sales of Connecticut shade
wrapper tobacco, due to reduced demand by foreign cigar manufacturers. The
increase in cigar sales in 1993 reflected price increases and higher volume of
premium cigar sales partially offset by lower volume of nonpremium cigar sales.

Operating profit at CMS Gilbreth increased in 1993 due to higher sales and
improved gross margins. CMS Gilbreth's higher sales reflected volume increases
in both packaging materials and machinery. The improved gross margins resulted
from manufacturing improvements in the production of packaging materials.

Operating profit in the real estate businesses was substantially unchanged
as higher profit in the Connecticut real estate business, Culbro Land Resources,
was offset by the full year effect of 1992 lease expirations in the
Corporation's New York office building. The higher profit at Culbro Land
Resources reflected principally higher gains on sales of both commercial and
residential properties.

The Corporation's loss from equity investments was lower in 1993 because
the prior year's results included the loss on the disposition of the
Corporation's 25% equity investment in Moll PlastiCrafters, a transaction that
generated cash of approximately $5 million. Results from the Corporation's 25%
equity investment in Centaur were lower due mainly to a 1992 gain related to a
sale of shares by Centaur.

The higher interest expense reflected several factors, including the effect
of the additional debt assumed in the acquisition of Certified Grocers and the
termination of the accounts receivable sales agreement. These were partially
offset by lower borrowings in 1993 for the purchase of excess cigarette
inventories for the Eli Witt business, and the effect of the prepayment of the
Corporation's Senior Notes.

Fees on sales of accounts receivable declined due to the termination of the
accounts receivable sales agreement near the end of the first quarter. In 1992,
the accounts receivable sales agreement was in effect the entire year.

The comparatively higher effective tax rate reflected the effect of certain
tax liability adjustments, and the effect of higher state taxes in the current
year as a result of a change in the mix of pretax income.

<PAGE>

CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>

NET SALES AND OTHER REVENUE $ 185,415 $1,364,576 $1,148,722
COSTS AND EXPENSES
Cost of goods sold 117,193 1,219,742 1,020,608
Selling, general and administrative expenses 55,443 126,055 108,629
Restructuring charge at Eli Witt -- -- 3,500
Other expense, net 4,000 -- 122
----------------------------------------
OPERATING PROFIT 8,779 18,779 15,863
Gain on sale of Eli Witt common stock 2,691 -- --
Loss from equity investments, net 1,728 290 882
Other nonoperating income 1,446 -- --
Interest expense, net 8,614 14,411 10,405
Fees on sales of accounts receivable -- 476 2,037
----------------------------------------
Income before income taxes 2,574 3,602 2,539
Income tax provision 1,422 1,877 671
----------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 1,152 1,725 1,868
Cumulative effect of accounting change for postretirement benefits, net of tax -- (9,177) --
----------------------------------------
NET INCOME (LOSS) 1,152 (7,452) 1,868
Accretion of Series A preferred stock of Eli Witt -- 705 --
----------------------------------------
NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS 1,152 (8,157) 1,868
Retained earnings - beginning of year 98,345 106,502 107,219
Dividends -- -- (2,585)
----------------------------------------
Retained earnings - end of year $ 99,497 $ 98,345 $ 106,502
----------------------------------------
----------------------------------------
Income per common share before cumulative effect of accounting change $ 0.27 $ 0.24 $ 0.43
Cumulative effect of accounting change per common share -- (2.13) --
----------------------------------------
Net income (loss) per common share $ 0.27 $ (1.89) $ 0.43
----------------------------------------
----------------------------------------

Weighted average common shares outstanding 4,308,000 4,308,000 4,308,000
----------------------------------------
----------------------------------------

</TABLE>

CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCK AND CAPITAL IN EXCESS OF
PAR VALUE

CAPITAL IN COMMON
COMMON EXCESS OF STOCK IN
(DOLLARS IN THOUSANDS) STOCK PAR VALUE TREASURY
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>

Balance November 30, 1991 $4,549 $13,296 $(5,314)
Issuance of treasury stock (166 shares) -- -- 2
------------------------------------

Balance November 28, 1992 4,549 13,296 (5,312)
Issuance of treasury stock (226 shares) -- -- 4
------------------------------------

Balance November 27, 1993 4,549 13,296 (5,308)
Issuance of treasury stock (226 shares) -- -- 3
------------------------------------

Balance December 3, 1994 $4,549 $13,296 $(5,305)
------------------------------------
------------------------------------

</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5
<PAGE>

CONSOLIDATED BALANCE SHEET

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
ASSETS DEC. 3, 1994 Nov. 27, 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>

CURRENT ASSETS
Cash and cash equivalents $ 6,682 $ 8,715
Receivables, less allowance of $1,426 (1993 - $2,364) 25,084 75,917
Inventories 68,189 128,216
Other current assets 5,759 5,931
----------------------------
Total current assets 105,714 218,779

Property and equipment, net 76,873 114,898
Real estate held for sale or lease, net 31,373 35,338
Investment in Series B preferred stock of Eli Witt 12,773 --
Investment in real estate joint ventures 7,864 8,275
Other, including investment in Centaur of $14,545 (1993 - $14,195) 19,643 24,923
Intangible assets, net 18,997 21,446
----------------------------
Total assets $273,237 $423,659
----------------------------
----------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 22,885 $ 72,870
Long-term debt due within one year 4,158 14,519
Income taxes 299 264
----------------------------
Total current liabilities 27,342 87,653

Long-term debt 98,976 175,405
Accrued retirement benefits 15,227 19,477
Deferred income taxes 4,765 5,479
Other noncurrent liabilities and deferred credits 14,890 14,758
----------------------------
Total liabilities 161,200 302,772
----------------------------
Minority interest in Eli Witt -- 10,005
----------------------------

SHAREHOLDERS' EQUITY
Common stock, par value $1 per share
Authorized - 10,000,000 shares
Issued - 4,549,190 shares 4,549 4,549
Capital in excess of par value 13,296 13,296
Retained earnings 99,497 98,345
----------------------------
117,342 116,190
Less - Common stock in Treasury, at cost, 240,902 shares (1993 - 241,128) (5,305) (5,308)
----------------------------
Total shareholders' equity 112,037 110,882
----------------------------
Total liabilities, minority interest and shareholders' equity $273,237 $423,659
----------------------------
----------------------------

</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

6
<PAGE>

CONSOLIDATED STATEMENT OF CASH FLOWS

(DOLLARS IN THOUSANDS) 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>

OPERATING ACTIVITIES:
Net income (loss) $ 1,152 $ (7,452) $ 1,868
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Cumulative effect of accounting change, net of tax -- 9,177 --
Depreciation and amortization 7,381 12,620 11,368
Gain on sale of Eli Witt common stock (2,691) -- --
Loss from equity investments, net 1,728 290 882
Discount and interest on subordinated note 1,446 -- --
Other nonoperating income (1,446) -- --
Provision for bad debts 764 1,332 1,485
Changes in assets and liabilities net of effects from the
deconsolidation of Eli Witt in 1994 and the
acquisition of Certified Grocers by Eli Witt in 1993:
Decrease (increase) in real estate held for sale or lease, net 3,965 326 (523)
Decrease (increase) in inventories 2,098 60,828 (67,114)
(Increase) decrease in accounts receivable (763) 5,815 (4,963)
Decrease in sales of accounts receivable -- (26,000) (4,000)
Increase (decrease) in accounts payable and accrued liabilities 304 (7,821) 4,755
Increase (decrease) in income taxes payable 35 (90) (1,542)
(Decrease) increase in deferred income taxes (2,714) 1,106 652
Other, net 2,751 (304) 95
--------------------------------------
Net cash provided by (used in) operating activities 14,010 49,827 (57,037)
--------------------------------------

INVESTING ACTIVITIES:
Proceeds from Eli Witt's repayment of a mortgage loan to the Corporation 8,000 -- --
Additions to property and equipment (4,826) (8,275) (10,666)
Proceeds from the sale of Eli Witt common stock 672 -- --
Proceeds from Take-out Agreement with Moll PlastiCrafters -- 4,953 --
Acquisition of Certified Grocers by Eli Witt, net of cash acquired -- (2,762) --
Other, net -- -- 573
--------------------------------------
Net cash provided by (used in) investing activities 3,846 (6,084) (10,093)
--------------------------------------

FINANCING ACTIVITIES:
Payments of long-term debt, including debt refinanced by
Eli Witt in its 1993 acquisition of Certified Grocers (28,718) (55,338) (820)
Increases in long-term debt, including debt assumed by
Eli Witt in its 1993 acquisition of Certified Grocers 16,669 61,612 17,000
Net (decrease) increase in notes payable -- (43,200) 43,200
Dividends -- -- (2,585)
--------------------------------------
Net cash (used in) provided by financing activities (12,049) (36,926) 56,795
--------------------------------------
Net increase (decrease) in cash and cash equivalents 5,807 6,817 (10,335)
Cash and cash equivalents at beginning of year
(excluding Eli Witt cash of $7,840 at the beginning of 1994) 875 1,898 12,233
--------------------------------------
Cash and cash equivalents at end of year $ 6,682 $ 8,715 $ 1,898
--------------------------------------
--------------------------------------

</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

7
<PAGE>

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

BASIS OF CONSOLIDATION

The consolidated financial statements reflect the accounts of all of the
Corporation's wholly owned subsidiaries. The Corporation's subsidiary in the
wholesale distribution business, The Eli Witt Company ("Eli Witt"), which prior
to 1994 was a consolidated subsidiary, has been deconsolidated and is accounted
for on the equity method of accounting as of the beginning of the 1994 fiscal
year (see Note 1). Prior years' financial statements have not been restated to
reflect Eli Witt on the equity method. For comparative purposes, the
accompanying footnotes to the Corporation's consolidated financial statements
include, where deemed appropriate, unaudited pro forma financial information of
prior years reflecting Eli Witt on the equity method.

The Corporation accounts for its approximate 25% investment in Centaur
Communications Limited ("Centaur") on the equity method. Approximately $6,550,
representing the excess of the cost of the Corporation's investment over the
book value of its equity in Centaur, is being amortized on a straight-line basis
over 40 years.

The Corporation accounts for its investments in real estate joint ventures
on the equity method.

FISCAL YEAR

The Corporation's fiscal year ends on the Saturday nearest November 30.
Fiscal 1994 ended on December 3, 1994 and contained 53 weeks. Fiscal 1993 and
1992 ended on November 27, 1993 and November 28, 1992, respectively, and each
year included 52 weeks.

RECLASSIFICATION

Certain amounts in the prior years' financial statements have been
reclassified to conform to the current presentation.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on deposit and amounts due from
banks maturing within 90 days of purchase.

INVENTORIES

Inventories are stated at the lower of cost or market using the first-in,
first-out ("FIFO") or average cost method.

Raw materials include tobacco in the process of aging and landscape nursery
stock, a substantial amount of which will not be used or sold within one year.
It is the practice in these industries to include such inventories in current
assets. Raw materials also include tobacco in bond which is subject to customs
duties payable upon withdrawal from bond. Following industry practice, the
Corporation does not include such duties in inventories until paid.

The cost of inventories of Eli Witt, included in the Corporation's 1993
consolidated balance sheet, was determined by the last-in, first-out ("LIFO")
method. Eli Witt's inventories consisted mainly of cigarettes, tobacco,
confectionery, grocery and paper products.

The Corporation believes that the LIFO method resulted in a better matching
of the costs and revenues of Eli Witt.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Depreciation is determined on
a straight-line basis over the estimated useful asset lives for financial
reporting purposes and principally on accelerated methods for tax purposes. Upon
the sale or retirement of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and the difference
between the book value and any proceeds realized on the sale is charged or
credited to income. Expenditures for maintenance and repairs are charged to
income as incurred; renewals and improvements are capitalized.

INTANGIBLE ASSETS

Intangible assets include principally the excess of the costs of businesses
acquired over the fair value of their net tangible assets and are amortized on a
straight-line basis principally over 40 years.

POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

Effective at the beginning of the 1993 fiscal year, the Corporation adopted
Statement of Financial Accounting Standards ("SFAS") No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," which requires the
Corporation to recognize postretirement benefits on the accrual basis.

MINORITY INTEREST IN SUBSIDIARY

The minority interest in subsidiary included in the Corporation's 1993
balance sheet reflected the Series A preferred stock of Eli Witt issued in
connection with Eli Witt's 1993 acquisition of Certified Grocers of Florida,
Inc.

REVENUE AND GAIN RECOGNITION

In the consumer products, industrial products, and nursery products
businesses, sales and the related costs of sales are recognized primarily upon
shipment of products. In the real estate business, gains on real estate sales
are recognized in accordance with SFAS No. 66, "Accounting for Sales of Real
Estate."

INCOME TAXES

The Corporation uses the liability method of accounting for income taxes in
accordance with SFAS No. 109, "Accounting for Income Taxes."

EARNINGS PER SHARE

Earnings per share of common stock are based on the weighted average number
of shares of common stock outstanding considering the dilutive effect of
outstanding stock options. In 1993, earnings per share amounts were computed
after an accretion charge on the Series A preferred stock of Eli Witt.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The amounts included in the financial statements for accounts receivable,
accounts payable and accrued liabilities reflect their fair values because of
the short-term maturity of these instruments. The fair values of the
Corporation's other financial instruments are discussed in Notes 2 and 3.

8
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

NOTE 1 -- DECONSOLIDATION OF ELI WITT

On April 25, 1994, Eli Witt acquired the net assets of the six Southern
distribution facilities of NCC L.P. (see Note 2) in exchange for 595,000 newly
issued common shares of Eli Witt. The Corporation accounted for this transaction
as a like kind exchange and therefore did not recognize any gain or loss on this
transaction. As a result of the additional shares of common stock issued by Eli
Witt and the concurrent sale by the Corporation of 400,000 shares of its Eli
Witt common stock holdings (see Note 2), the Corporation's ownership of Eli
Witt's outstanding common stock was reduced from 85% to 50.1%. In connection
with these transactions the Corporation entered into a Shareholders Agreement
with MS Distribution, Inc. ("MSD"), a former limited partner in the NCC L.P.
partnership. MSD now owns approximately 38% of the outstanding common stock of
Eli Witt. This Agreement contains certain governance provisions which require
the prior approval of MSD for all major transactions by Eli Witt, including (but
not limited to), incurrence of debt, acquisitions, material contracts, the sale
of assets, issuance and repurchase of stock, changes in Eli Witt's charter and
by-laws, and capital expenditures. Due to the shareholder rights granted to MSD,
the Corporation no longer has unilateral control over Eli Witt. Therefore, the
Corporation deconsolidated Eli Witt as of April 25, 1994 and is accounting for
its remaining investment in Eli Witt under the equity method. The 1994 financial
statements reflect the application of the equity method of accounting
retroactive to the beginning of the year. The financial statements of prior
years continue to reflect Eli Witt as a fully consolidated subsidiary.

The following unaudited condensed statement of operations, statement of
cash flows and balance sheet, of the Corporation, presented for comparative
purposes, reflect Eli Witt under the equity method on a pro forma basis for
1993.

CONDENSED STATEMENT OF OPERATIONS OF CULBRO CORPORATION

1993
(unaudited)
1994 (pro forma)
- ---------------------------------------------------------------------------
<S> <C> <C>

Net sales and other revenue $185,415 $167,230
Operating profit (including other
expense of $4,000 in 1994) $ 8,779 $ 8,745
Gain from sale of Eli Witt common stock $ 2,691 $ --
(Loss) income from equity investments, net $ (1,728) $ 1,339
Income before effect of accounting change $ 1,152 $ 1,020

</TABLE>

CONDENSED STATEMENT OF CASH FLOWS OF CULBRO CORPORATION

1993
(unaudited)
1994 (pro forma)
- ---------------------------------------------------------------------------
<S> <C> <C>

Net cash provided by (used in)
operating activities $ 14,010 $ (845)
-----------------------
Proceeds (issuance) of mortgage on an
Eli Witt facility 8,000 (10,000)
Additions to property and equipment (4,826) (3,647)
Proceeds from sale of Eli Witt common stock 672 --
Cash dividend from Eli Witt -- 41,529
Net repayment of Eli Witt intercompany debt -- 46,129
Take-out Agreement -- 4,953
-----------------------
Net cash provided by investing activities 3,846 78,964
-----------------------
Payments of debt (28,718) (78,038)
Increases in debt 16,669 --
-----------------------
Net cash used in financing activities (12,049) (78,038)
-----------------------
Net increase in cash and cash equivalents $ 5,807 $ 81
-----------------------
-----------------------

</TABLE>

CONDENSED BALANCE SHEET OF CULBRO CORPORATION

Nov. 27,
1993
DEC. 3, (unaudited)
1994 (pro forma)
- ---------------------------------------------------------------------------
<S> <C> <C>

Total current assets $105,714 $100,293
Property and equipment, net 76,873 78,770
All other assets, including investments 90,650 102,833
-----------------------
Total assets $273,237 $281,896
-----------------------
-----------------------

Total current liabilities $ 27,342 $ 32,592
Long-term debt 98,976 104,914
All other noncurrent liabilities 34,882 33,508
-----------------------
Total liabilities 161,200 171,014
Shareholders' equity 112,037 110,882
-----------------------
Total liabilities and shareholders' equity $273,237 $281,896
-----------------------
-----------------------

</TABLE>

9
<PAGE>

NOTE 2 -- INVESTMENT IN ELI WITT

At the time of the deconsolidation and at December 3, 1994, Eli Witt was in
a common deficit position, and as such, the Corporation has a negative basis in
its common equity investment in Eli Witt. The negative basis of approximately
$6.5 million is reflected as a deferred credit in the Corporation's balance
sheet as of December 3, 1994. Accordingly, the Corporation recognized the
results of Eli Witt through the April 25, 1994 deconsolidation date and will not
recognize any future profit or losses of Eli Witt until its common deficit is
recouped. At December 3, 1994 the $15 million face value mandatorily redeemable
Series B preferred stock of Eli Witt held by the Corporation is included on the
consolidated balance sheet at approximately $12.8 million. This amount reflects
the fair value of the preferred stock based on the fair value of the related
subordinated note for which it is exchangeable in August 1998.

The carrying value of Series B preferred stock is increased annually by
accretion to its $15 million face value, plus 10% cumulative dividends. The
total amount of accretion and dividends is equal to the amortization of the
original issue discount plus accrued interest on the subordinated note. Other
nonoperating income in the 1994 consolidated statement of operations includes
accretion and accrued dividends totaling $1,446 which equal the amount of
discount amortization and interest on the subordinated note included in the
Corporation's consolidated interest expense.

In 1994, Eli Witt refinanced the mortgage on a Florida distribution
facility through a financial institution, and used the proceeds to repay $8
million of the $10 million mortgage the Corporation held on that facility. The
Corporation retains a $2 million second mortgage, which is included in other
assets on the Corporation's December 3, 1994 consolidated balance sheet.

Eli Witt's unaudited summarized financial information is as follows:

SUMMARIZED STATEMENT OF OPERATIONS OF ELI WITT

1994
(UNAUDITED) 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C>

Net sales and other revenue $1,521,796 $1,197,346 $984,679
Operating (loss) profit $ (10,349) $ 10,034 $ 10,820
Net (loss) income $ (14,411) $ 2,334 $ 4,921
Dividends/accretion related to
preferred stock $ (3,039) $ (1,855) $ --
Net (loss) income available to
common shareholders $ (17,450) $ 479 $ 4,921

</TABLE>

SUMMARIZED BALANCE SHEET OF ELI WITT

DEC. 3,
1994 Nov. 27,
(UNAUDITED) 1993
- ---------------------------------------------------------------------------
<S> <C> <C>

Trade receivables, net $ 64,576 $ 50,832
Inventories 54,576 57,929
Property and equipment, net 43,353 36,128
All other assets 26,611 20,036
-----------------------
Total assets $189,116 $164,925
-----------------------
-----------------------
Accounts payable and accrued expenses $ 69,058 $ 49,666
Total debt 105,399 85,263
All other liabilities 10,141 12,067
-----------------------
Total liabilities 184,598 146,996
-----------------------
Mandatorily redeemable Series B preferred stock 17,650 16,150
-----------------------
Shareholders' (deficit) equity:
Series A preferred stock 10,080 10,005
Series C preferred stock 1,464 --
Common stock and accumulated deficit (24,676) (8,226)
-----------------------
Total shareholders'(deficit) equity (13,132) 1,779
-----------------------
Total liabilities, preferred stock
and shareholders' (deficit) equity $189,116 $164,925
-----------------------
-----------------------
</TABLE>

At December 3, 1994 Eli Witt was operating under a temporary waiver of the
covenants under its Credit Agreement, pending satisfactory conclusion of
negotiations of new covenants and terms with the creditor banks, and a possible
additional investment of up to $5 million from the Corporation.

NCC SOUTH ACQUISITION

On April 25, 1994 Eli Witt acquired the net assets of the six Southern
distribution facilities of NCC L.P. ("NCC"), a limited partnership engaged in
the wholesale distribution business. The six facilities, designated as NCC
South, comprised a portion of the overall distribution business conducted by NCC
through nine warehouses in total.

Prior to this acquisition, the Corporation owned 85% of the outstanding
common stock of Eli Witt and the former shareholders of Certified Grocers of
Florida, Inc. ("Certified Grocers") held 15%, which they received in connection
with Eli Witt's acquisition of Certified Grocers in 1993 (see below). In
connection with its acquisition of NCC South, Eli Witt issued to NCC 595,000
shares of common stock, representing approximately 23% of its outstanding common
stock after the acquisition. In a transaction executed simultaneously with Eli
Witt's acquisition of NCC South, the Corporation sold 400,000 shares of its Eli
Witt common stock to MSD, a former limited partner

10
<PAGE>

of NCC and an affiliate of the Morgan Stanley Leveraged Equity Fund II L.P., and
issued a $15 million subordinated note to MSD. In return, the Corporation
received proceeds of $12 million and the right to exchange in 1998, at the
Corporation's option, the subordinated note for the $15 million face value Eli
Witt Series B preferred stock held by the Corporation. The $12 million proceeds
received from MSD was allocated to the subordinated note ($11,328) and to the
Eli Witt common stock sold ($672) based on their fair values as of April 25,
1994. A pretax gain of $2,691 was recognized on the 400,000 shares sold to MSD,
comprising the proceeds of $672 and the Corporation's negative basis of $2,019
in the shares sold.

As a result of the transactions described above, MSD owns shares totaling
approximately 38% of the outstanding common stock of Eli Witt. The Corporation
retained a 50.1% ownership in the outstanding common stock of Eli Witt, and the
former shareholders of Certified Grocers now hold approximately 12% of the
outstanding common stock of Eli Witt.

CERTIFIED GROCERS ACQUISITION

In February 1993, Eli Witt acquired Certified Grocers, a grocery wholesaler
located in Ocala, Florida with annual revenue of approximately $300 million.
Each share of Certified Grocers' common stock was converted into one share of
newly issued nonvoting Eli Witt Series A preferred stock with a stated value of
$15.8 million and an estimated value of $9.3 million when it was issued.
Dividends on the Series A preferred stock are cumulative, and are payable
quarterly beginning in May 1996.

Certain former Certified Grocers shareholders received 300,000 shares of
Class C common stock in exchange for entering three-year supply agreements with
Eli Witt. These shares represented 15% of the issued and outstanding common
stock of Eli Witt after the acquisition.

In conjunction with the Certified Grocers acquisition, Eli Witt obtained
its own financing separate from the Corporation and its other subsidiaries, and
its cash flow was no longer available to the Corporation and its other
subsidiaries. Eli Witt obtained a $125 million Credit Agreement from which it
repaid its intercompany debt to the Corporation and also paid the Corporation a
cash dividend. These payments totaled $87.7 million. The Corporation used these
proceeds to reduce its existing debt, including debt incurred to finance Eli
Witt's cigarette purchases and to repurchase all previously sold yet uncollected
receivables under its accounts receivable sales agreement, which included Eli
Witt's receivables. Eli Witt also used its new credit facility to retire
Certified Grocers' debt of approximately $24.3 million assumed in the
acquisition.

In connection with the acquisition of Certified Grocers, Eli Witt also
declared a special dividend to the Corporation in the form of its Series B
preferred stock, with a stated value of $15 million. Dividends on the Series B
preferred stock are cumulative, and accrue from the acquisition date at the rate
of 10% per annum of the stated value. There have been no dividend payments from
Eli Witt to the Corporation. The Series B preferred stock is subject to
mandatory redemption in August 1998 at a price equal to the stated value plus
accrued dividends. In connection with the NCC South transaction in April 1994,
the Corporation negotiated the right to exchange its Eli Witt Series B preferred
stock and accrued dividends for the Corporation's subordinated note, and accrued
interest, issued to MSD (see Note 3).

NOTE 3 -- LONG-TERM DEBT

Long-term debt includes:

Nov. 27,
1993
DEC. 3, Nov. 27, (unaudited)
1994 1993 (pro forma)
- ---------------------------------------------------------------------------
<S> <C> <C> <C>

Culbro Corporation
Credit Agreement $ 52,000 $ 69,000 $ 69,000
The Eli Witt Company
Credit Agreement -- 70,850 --
Senior Notes, 9.9%, due
serially through 1998 23,855 34,491 34,491
Exchangeable Subordinated Note,
10% (face value $15,000) 11,850 -- --
Obligations under capital leases 3,682 6,305 4,359
Other, principally mortgages 11,747 9,278 6,811
--------------------------------------
103,134 189,924 114,661

Less: Due within one year 4,158 14,519 9,747
--------------------------------------
Total long-term debt $ 98,976 $175,405 $104,914
--------------------------------------
--------------------------------------

</TABLE>

11
<PAGE>

The November 27, 1993 pro forma balances reflect long-term debt excluding
Eli Witt. As of December 3, 1994, the annual payment requirements under the
terms of all the above loans, excluding the Culbro Corporation Credit Agreement
(the "Credit Agreement"), the exchangeable subordinated note and capital leases,
for the years 1995 through 1999 are $3,297, $7,477, $7,521, $7,571 and $613,
respectively.

The Credit Agreement terminates in June 1996 and provides committed
financing at market rates, principally LIBOR plus a margin of 1 1/2%. In
accordance with the terms of the Credit Agreement, the original commitment of
$80 million was reduced to $73 million in 1994 and will be reduced to $65
million in September 1995. In lieu of compensating balance requirements, the
Corporation pays a commitment fee of 1\2 of 1% per annum on the unused available
balance. The Senior Notes and the Credit Agreement are collateralized by the
stock of the Corporation's operating subsidiaries and include limitations on
indebtedness, capital expenditures, investments and other significant
transactions, as defined. Proceeds from significant asset sales not in the
ordinary course of business are required to be used to reduce commitments under
the Credit Agreement and amounts outstanding under the Senior Notes. The Senior
Notes and the Credit Agreement permit dividends to be paid subsequent to 1994,
provided the Corporation's results exceed certain requirements, as defined.

As described in Note 2, the Corporation issued a $15 million 10%
subordinated note due August 1998 and sold 400,000 of its Eli Witt shares for
proceeds of $12 million in connection with Eli Witt's acquisition of NCC South.
No interest payments are required on the note until maturity, at which time the
principal and all accrued interest may be exchanged, at the Corporation's
option, for the Series B preferred stock of Eli Witt held by the Corporation.
Interest expense in 1994 includes $522 for amortization of the original issue
discount on the subordinated note.

On January 27, 1994, the Corporation obtained a $5 million mortgage on
certain equipment. The proceeds were used to reduce the amount outstanding under
the Credit Agreement. The mortgage bears interest at 7.25% per annum and has a
term of ten years, with a balloon payment of $1.2 million due at maturity.

In 1993, the Corporation entered into two interest rate swap agreements
with major banks as a hedge against interest rate exposure on its variable rate
debt under the Credit Agreement. One of the agreements fixed the LIBOR rate at
4.74% on $30 million of variable rate debt through March 1996. The other
interest rate swap agreement fixed the LIBOR rate at 4.89% on an additional $20
million of variable rate debt through September 1995. The effect of the swap
agreements was to increase 1994 interest expense by $370 for payments made to
the banks in excess of payments received from the banks, when interest rates
under the Credit Agreement varied from the swap rates. Management believes that
risk of loss due to nonperformance by the banks is minimal.

Management believes that because the interest rates on the Credit Agreement
adjust to current market rates, this debt, as stated on the December 3, 1994
balance sheet, approximates its fair market value. Management also believes that
the amounts reflected on the balance sheet for its Senior Notes and other debt
facilities reflect their current market values based on market interest rates
for comparable risks, maturities and collateral. The estimated fair market value
of the interest rate swap agreements, based on their estimated termination
values, was $1,134 as of December 3, 1994.

NOTE 4 -- SHAREHOLDERS' EQUITY

EMPLOYEES STOCK OPTION PLANS

The 1992 Stock Plan (the "1992 Plan") and the 1991 Employees Incentive
Stock Option Plan (the "1991 Plan") for officers and key employees, made
available 300,000 and 210,000 shares of common stock, respectively, for purchase
at prices equal to the fair market value at date of grant. The options
outstanding under these plans may be exercised as Incentive Stock Options, which
under current tax laws do not provide any tax deductions to the Corporation.
Options may be exercised over a period ending not later than eight years from
the date of grant. The exercise period for each grant is determined by the
Corporation's Compensation Committee.

12
<PAGE>

At December 3, 1994, a total of 131,800 shares under the 1992 Plan were
available for future grant. There are no shares available for future grant under
the 1991 Plan. Of the options outstanding at December 3, 1994, a total of
137,400 may be exercised as stock appreciation rights. The options granted under
the 1992 and 1991 Plans are not exercisable until three years from the date of
grant. Transactions under the 1992 and 1991 Plans are summarized as follows:

NUMBER
OF SHARES
- ---------------------------------------------------------------------------
<S> <C>

Options outstanding at Nov. 30, 1991 185,574
Granted during 1992 80,900
Expired and canceled (36,466)
-------
Options outstanding at Nov. 28, 1992 230,008
Granted during 1993 79,900
Expired and canceled (29,208)
-------
Options outstanding at Nov. 27, 1993 280,700
Granted during 1994 88,300
Expired, canceled and exercised (33,400)
-------
Options outstanding at Dec. 3, 1994 335,600
-------
-------
Option prices range between: $14.00
and
$27.00
Options exercisable:
November 28, 1992 18,708
November 27, 1993 30,700
December 3, 1994 109,000
Expiration date of the 1991 Plan 2001
Expiration date of the 1992 Plan 2002
Number of option holders at Dec. 3, 1994 13

</TABLE>

NONEMPLOYEE DIRECTORS STOCK OPTION PLAN

The 1992 Stock Option Plan for Nonemployee Directors made available 45,000
shares of common stock for purchase at prices equal to the fair market value at
date of grant. Options canceled become available for future grant. Options are
not exercisable until three years from the date of grant and may be exercised
over a period ending not later than eight years from the date of grant. At
December 3, 1994, 17,000 shares remained available for future grant. The options
outstanding will be exercised as Incentive Stock Options. None of the options
outstanding at December 3, 1994 may be exercised as stock appreciation rights.

Transactions under the 1992 Plan for Nonemployee Directors are as follows:

NUMBER
OF SHARES
- ---------------------------------------------------------------------------
<S> <C>

Options outstanding at Nov. 28, 1992 --
Granted during 1993 14,000
------
Options outstanding at Nov. 27, 1993 14,000
Granted during 1994 14,000
------
Options outstanding at Dec. 3, 1994 28,000
------
------
Option prices are: $14.38
and
$16.69
Options exercisable:
November 27, 1993 None
December 3, 1994 None
Number of option holders at Dec. 3, 1994 7

</TABLE>

EMPLOYMENT AGREEMENT

The Corporation entered into a five-year employment agreement in 1994 with
a corporate officer which included the issuance of 125,000 stock options. The
options are exercisable at a rate of 25,000 per year over the period 1995
through 1999 at an option price of $4.00 per share. At the time the options were
granted, the quoted market price of the Corporation's common stock was $14.69
per share. The difference between this market price and the option price is
being reflected as compensation expense over the term of the agreement. In 1994,
such expense was $170.

PREFERRED STOCK

The Corporation has 1,000,000 authorized but unissued shares of preferred stock,
par value $1.

13
<PAGE>

NOTE 5 -- LEASES

The Corporation and its subsidiaries have noncancellable leases relating
principally to a manufacturing facility and vehicles.

CAPITAL LEASES

Future minimum lease payments under capital leases and the present value of
such payments as of December 3, 1994 were:

<TABLE>

- ---------------------------------------------------------------------------
<S> <C>

1995 $1,314
1996 934
1997 694
1998 450
1999 346
Later years 601
------
Total minimum lease payments 4,339
Less: Amounts representing interest 657
------
Present value of minimum lease payments (a) $3,682
------
------

<FN>
(a) INCLUDED ON THE CONSOLIDATED BALANCE SHEET AS CURRENT LIABILITIES ARE $854
(1993 - $1,667) AND AS LONG-TERM DEBT $2,828 (1993 -$4,638). PRO FORMA
CONSOLIDATED CURRENT LIABILITIES AND LONG-TERM DEBT RELATING TO LEASES AT
NOVEMBER 27, 1993, EXCLUDING ELI WITT, WERE $1,020 AND $3,339 RESPECTIVELY
(SEE NOTE 3).

</TABLE>

At December 3, 1994, property and equipment financed with capital leases
amounted to $4,652 (1993 - $7,114), net of accumulated depreciation of $4,489
(1993 - $10,032). Pro forma property and equipment financed with capital leases
as of November 27, 1993, excluding Eli Witt, was $5,168, net of accumulated
depreciation of $4,068.

Consolidated depreciation expense relating to capital leases was $1,019 in
1994 (1993 -$1,906; 1992 - $2,273). Pro forma depreciation expense relating to
capital leases was $1,082 and $1,153 in 1993 and 1992, respectively.

OPERATING LEASES

Future minimum rental payments under noncancellable leases as of December
3, 1994 were:

<TABLE>

- ---------------------------------------------------------------------------
<S> <C>

1995 $ 448
1996 364
1997 316
1998 142
1999 128
Later years --
------
Total minimum lease payments $1,398
------
------

</TABLE>

Total rental expenses for all operating leases in 1994 was $478 (1993 -
$4,042; 1992 -$2,893). Pro forma consolidated rental expense in 1993 and 1992,
was $667 and $895, respectively.

As lessor, the Corporation's activities consist of the leasing of office
and industrial space in Connecticut and New York. Future minimum rentals to be
received under noncancellable leases, as of December 3, 1994, were:

<TABLE>

- ---------------------------------------------------------------------------
<S> <C>

1995 $ 4,206
1996 3,759
1997 3,405
1998 2,505
1999 2,087
Later years 2,810
-------
Total minimum rental revenue $18,772
-------
-------

</TABLE>

Total rental revenue from all leases in 1994 was $5,596 (1993 - $5,275;
1992 - $6,598).

NOTE 6 -- PENSION PLAN

The Corporation has a noncontributory defined benefit pension plan covering
certain employees. The plan provides benefits based on employees' years of
service and compensation. Contributions to the plan are made in accordance with
the provisions of the Employee Retirement Income Security Act.

Pension expense included in the consolidated results of operations,
including the expense in 1993 and 1992 related to the separate Eli Witt pension
plan, was as follows:

1994 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C>

Service costs - benefits
earned during the year $ 1,089 $ 1,182 $ 1,492
Interest on projected
benefit obligations 3,928 5,029 5,110
-------------------------------------
Total benefit expense 5,017 6,211 6,602
-------------------------------------
Actual return on pension
plans' assets (786) (9,603) (12,911)
Difference from expected
long-term return (3,499) 4,915 8,320
-------------------------------------
Net expected return (4,285) (4,688) (4,591)
-------------------------------------
Amortization of net
pension obligation at
adoption of SFAS No. 87 51 50 235
Other 21 30 42
-------------------------------------
Net pension expense $ 804 $ 1,603 $ 2,288
-------------------------------------
-------------------------------------

</TABLE>

14
<PAGE>

Pro forma net pension expense in 1993 and 1992, excluding Eli Witt, was
$1,011 and $981, respectively.

The status of the Culbro Corporation pension plan at December 3, 1994 and
the Culbro Corporation and Eli Witt pension plans at November 27, 1993 was as
follows:

1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>

Present value of benefits earned by
participants, including vested benefits of
$45,614 and $66,836 at Dec. 3, 1994 and
Nov. 27, 1993, respectively $46,072 $67,751
----------------------
----------------------
Plan assets at fair value, primarily equities 56,373 70,459
Present value of projected benefit obligations 48,307 70,069
----------------------
Plan assets in excess of projected benefit
obligations 8,066 390
Amount included on balance sheet 5,320 10,656
----------------------
Unrecognized net asset $13,386 $11,046
----------------------
----------------------
Unrecognized net asset includes:
Net gain from experience differences and
assumption changes $13,899 $11,716
Changes due to plan amendments $ (225) $ (331)
Net pension obligation at adoption of SFAS No. 87 $ (288) $ (339)
----------------------
----------------------

</TABLE>

During 1994, the Culbro Corporation pension plan assumed the obligation for
$1,068 of life insurance benefits for retirees covered under the pension plan.
This transaction resulted in an increase in the Corporation's accrued pension
liability reflected in "Amount included on balance sheet" above, and a
corresponding reduction in the accrued liability for other postretirement
benefits (see Note 7).

Discount rates of 8.5% and 7.5% were used to compute the present value of
pension benefits at December 3, 1994 and November 27, 1993, respectively. A 5%
rate of increase in future compensation levels was used to estimate the
projected pension obligations at both December 3, 1994 and November 27, 1993.
The expected rate of return on pension plan assets in 1994, 1993, and 1992 was
estimated at 9% representing the average long-term rate expected from the
investment of plan assets.

At November 27, 1993, the projected benefit obligations in excess of the
plan assets for the Eli Witt pension plan was $7,208, representing the present
value of projected benefit obligations of $15,290 less plan assets of $8,082.

NOTE 7 -- OTHER POSTRETIREMENT BENEFITS

The Corporation provides health and life insurance benefits to certain
retired employees. Effective at the beginning of the 1993 fiscal year, the
Corporation adopted SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." This statement required the Corporation to record
a liability for the present value of its unfunded accumulated postretirement
benefit obligation and recognize postretirement benefits on the accrual basis.
Previously, the Corporation expensed the cost of these benefits when paid. The
Corporation elected to record its entire accumulated liability for such benefits
as of the beginning of 1993. A net charge of $9.2 million ($2.13 per share),
reflecting the accrued postretirement benefit obligation of $14.8 million, net
of a deferred tax benefit of $5.6 million, was recorded in the Corporation's
1993 consolidated statement of operations. The effect of adopting SFAS No. 106
on 1993 operating profit was not material.

The components of other postretirement benefits expense included in the
consolidated statement of operations, including amounts related to Eli Witt in
1993, were as follows:

1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>

Service cost - benefits earned during
the year $110 $ 196
Interest on accumulated postretirement
benefit obligation 693 1,067
-------------------
Total expense (1993 pro forma excluding
Eli Witt -- $839) $803 $1,263
-------------------
-------------------
</TABLE>

In 1992, other postretirement benefits expense, recorded on a cash basis,
was $1,100.

15
<PAGE>

The liabilities recorded for the actuarial present value of accumulated
postretirement benefits, none of which have been funded, for the Corporation at
December 3, 1994 and the Corporation and Eli Witt at November 27, 1993, were as
follows:

1993
(unaudited)
1994 1993 (pro forma)
- ---------------------------------------------------------------------------
<S> <C> <C> <C>

Retirees $4,954 $10,382 $6,303
Fully eligible active plan
participants 1,655 2,836 2,245
Other active participants 694 1,330 1,012
Unrecognized net gain from
experience differences and
assumption changes 933 -- --
------------------------------------
Liability for other postretirement
benefits $8,236 $14,548 $9,560
------------------------------------
------------------------------------

</TABLE>

The accumulated postretirement benefit obligation was determined using
discount rates of 8.5% and 7.5% at December 3, 1994 and November 27, 1993,
respectively. Because the Corporation's obligation for medical benefits is
fixed, any increase in the medical cost trend would have no effect on the
accumulated postretirement benefit obligation, service cost or interest cost.

The adoption of SFAS No. 106 did not have an adverse effect on the
Corporation's cash flow because the Corporation continues to fund the cost of
postretirement benefits as incurred.

NOTE 8 -- INCOME TAXES

The provision for income taxes is summarized as follows:

1994 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C>

Current:
Federal $1,296 $ 54 $(631)
State and local 840 715 650
Deferred, principally federal (714) 1,108 652
------------------------------------
$1,422 $1,877 $ 671
------------------------------------
------------------------------------

</TABLE>

Income before income taxes in 1994, 1993 and 1992 was substantially
from domestic U.S. operations.

The reasons for the differences between the United States statutory income
tax rate and the effective rates are shown in the following table:

1994 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C>

Tax expense at statutory rates $ 875 $1,225 $ 863
State and local income taxes 402 670 429
Subsidiary loss accounted for
under the equity method 706 -- --
Refund of prior years' income taxes
and liability adjustments (467) (300) (653)
Foreign subsidiaries (119) 184 80
Other 25 98 (48)
------------------------------------
$1,422 $1,877 $ 671
------------------------------------
------------------------------------

</TABLE>

The significant components of the net deferred tax liabilities are as
follows:

1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>

Fixed assets $10,300 $13,770
Deferred income attributable to deconsolidated
subsidiary 555 --
Postretirement benefit obligation (3,692) (5,627)
Pension liabilities (2,372) (3,984)
LIFO inventory -- 7,687
Net operating loss carryforwards -- (6,510)
Other (26) 143
----------------------
$ 4,765 $ 5,479
----------------------
----------------------

</TABLE>

NOTE 9 -- SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION

NET SALES AND OTHER REVENUE

Excise taxes are included in net sales and other revenue and cost of goods
sold in the consolidated statement of operations. Excise taxes paid on cigars in
1994, 1993 and 1992 were $5,555, $5,028 and $4,414, respectively. Excise taxes
on Eli Witt cigarette sales in 1993 and 1992 were approximately $130,000 and
$100,000, respectively.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Included in selling, general and administrative expenses in 1994 were
taxes, other than payroll and income taxes, of $2,360 (1993 - $2,405; 1992 -
$2,247), and maintenance and repair expenses of $2,179 (1993 - $2,236; 1992 -
$2,311).

16
<PAGE>

RESTRUCTURING CHARGE AT ELI WITT

The $3,500 charge recorded in 1992 reflected the curtailment of benefits
under the Eli Witt pension plan and the costs of closing certain distribution
facilities in anticipation of Eli Witt's acquisition of Certified Grocers.

OTHER EXPENSE, NET

The other expense of $4,000 in the 1994 consolidated statement of
operations reflects a $3,600 charge, in the Connecticut real estate business,
to write off development costs expended in earlier years for certain
discontinued projects, and a $400 charge to close a facility in the industrial
products business.

Other expense, net, in the 1992 consolidated statement of operations
reflected $1,040 to relocate the headquarters of the Corporation's subsidiary,
General Cigar Co., Inc. ("General Cigar"), from New York to the Corporation's
office complex north of Hartford. Also included in 1992 was other income of $918
for proceeds from the favorable settlement of a litigation matter to recover
certain expenses in connection with the 1988 acquisition of Gilbreth
International.

LOSS FROM EQUITY INVESTMENTS, NET

The Corporation's loss from equity investments in 1994 includes a net loss
from Eli Witt's operations through the April deconsolidation date of $2,078, and
$350 of equity in earnings of Centaur. The Corporation's loss from equity
investments in 1993 reflected the results of Centaur.

The loss from equity investments in 1992 reflected a loss of $897 on the
Corporation's Take-out Agreement with Moll PlastiCrafters, and a gain recognized
from the sale of shares by Centaur, which more than offset the Corporation's
equity in Centaur's operating loss.

INVENTORIES

Inventories consist of:

DEC. 3, Nov. 27,
1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>

Raw materials and supplies $32,645 $ 34,232
Work-in-process 18,490 15,213
Finished goods 17,054 78,771
----------------------
$68,189 $128,216
----------------------
----------------------

</TABLE>

At November 27, 1993, the cost and quantities of Eli Witt's cigarette
inventory, included in finished goods, were lower than the previous year's,
which resulted in a reduction in costs and the liquidation of LIFO inventory
quantities. The effect in 1993 was to increase pretax income by $2,090.

The cost of Eli Witt's inventories at LIFO was $52,674 at November 27,
1993. On a FIFO basis, the cost of these inventories would have been $65,975.
Cost of sales on a FIFO basis would have been higher by $2,090 in 1993. This
supplemental information is presented for comparative purposes.

PROPERTY AND EQUIPMENT

Property and equipment consist of:

DEC. 3, Nov. 27,
1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>

Land $ 11,303 $ 13,453
Buildings 62,366 84,340
Machinery and equipment 58,592 82,372
Accumulated depreciation (55,388) (65,267)
-----------------------
$ 76,873 $114,898
-----------------------
-----------------------

</TABLE>

Depreciation expense on property and equipment in 1994 was $6,330 (1993 -
$10,890; 1992 - $10,414). Pro forma depreciation expense in 1993 and 1992,
excluding Eli Witt, was $6,496 and $6,982, respectively.

INTANGIBLE ASSETS

Included in intangible assets as of December 3, 1994 is $17,050, net of
accumulated amortization of $3,286, reflecting the excess of the costs over the
fair value of net assets acquired for units in the industrial products business.

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities include trade payables of $4,230
(1993 - $40,785), accrued salaries and wages of $2,503 (1993 - $5,270) and other
accrued liabilities of $16,152 (1993 - $26,815). Pro forma balances as of
November 27, 1993, excluding Eli Witt, were $5,620, $1,804 and $15,157,
respectively.

SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid during the year for:

1994 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C>

Interest, net of amounts capitalized $7,893 $14,067 $11,184
------------------------------------
------------------------------------
Income taxes, net $3,642 $ 1,647 $ 1,577
------------------------------------
------------------------------------

</TABLE>

Cash paid for interest during 1993 and 1992, excluding Eli Witt, was $7,284
and $7,547, respectively.

17
<PAGE>

NOTE 10 -- INDUSTRY SEGMENT INFORMATION

1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>

NET SALES AND OTHER REVENUE
Consumer Products $ 88,304 $1,271,837 $1,059,796
Industrial Products 51,080 46,896 41,808
Real Estate 11,103 11,669 12,977
Nursery Products 34,928 34,174 34,141
--------------------------------------
$185,415 $1,364,576 $1,148,722
--------------------------------------
--------------------------------------
OPERATING PROFIT (see Note 2 below)
Consumer Products $ 13,532 $ 18,555 $ 18,358
Industrial Products 5,626 4,931 3,647
Real Estate (1,983) 2,092 2,219
Nursery Products (604) 348 446
--------------------------------------
Industry segment totals 16,571 25,926 24,670
Gain on sale of Eli Witt common stock 2,691 -- --
Loss from equity investments, net 1,728 290 882
Other nonoperating income 1,446 -- --
General corporate expense 7,792 7,147 8,807
Interest expense, net 8,614 14,411 10,405
Fees on sales of accounts receivable -- 476 2,037
--------------------------------------
Income before income taxes $ 2,574 $ 3,602 $ 2,539
--------------------------------------
--------------------------------------
IDENTIFIABLE ASSETS
Consumer Products $ 64,126 $ 229,400 $ 204,251
Industrial Products 49,008 50,017 52,626
Real Estate 71,215 75,682 76,309
Nursery Products 40,636 41,474 39,749
--------------------------------------
Industry segment totals 224,985 396,573 372,935
General corporate 48,252 27,086 30,713
--------------------------------------
$273,237 $ 423,659 $ 403,648
--------------------------------------
--------------------------------------

</TABLE>

CAPITAL EXPENDITURES DEPRECIATION AND AMORTIZATION
--------------------------------------------------------------------------------------
1994 1993 1992 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>

Consumer Products $1,455 $5,698 $ 7,100 $1,815 $ 6,994 $ 5,450
Industrial Products 2,317 1,127 902 2,749 2,745 2,660
Real Estate 402 591 2,207 1,045 1,082 1,129
Nursery Products 594 822 437 912 949 1,273
--------------------------------------------------------------------------------------
Industry segment totals 4,768 8,238 10,646 6,521 11,770 10,512
General corporate 58 37 20 860 850 856
--------------------------------------------------------------------------------------
$4,826 $8,275 $10,666 $7,381 $12,620 $11,368
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------

<FN>
NOTES: 1) THE CORPORATE PROFILE ON PAGE 1 OF THIS REPORT DESCRIBES THE
PRINCIPAL TYPES OF PRODUCTS AND SERVICES OF EACH INDUSTRY SEGMENT.
THE CONSUMER PRODUCTS SEGMENT INFORMATION IN 1993 AND 1992 INCLUDES
ELI WITT. IN 1994, ELI WITT'S RESULTS ARE INCLUDED IN THE LOSS FROM
EQUITY INVESTMENTS AS A RESULT OF THE DECONSOLIDATION OF ELI WITT.

2) OPERATING PROFIT IN 1994 INCLUDES $3.6 MILLION FOR THE WRITEOFF OF
DEVELOPMENT COSTS EXPENDED IN EARLIER YEARS IN THE REAL ESTATE
SEGMENT AND A $0.4 MILLION CHARGE TO RESTRUCTURE A UNIT IN THE
INDUSTRIAL PRODUCTS SEGMENT. OPERATING PROFIT IN THE CONSUMER
PRODUCTS SEGMENT IN 1992 INCLUDES $3.5 MILLION FOR A RESTRUCTURING
CHARGE IN CONNECTION WITH THE ACQUISITION OF CERTIFIED GROCERS BY
ELI WITT AND OTHER EXPENSE OF APPROXIMATELY $1 MILLION FOR THE
HEADQUARTERS RELOCATION OF GENERAL CIGAR. 1992 OPERATING PROFIT IN
THE INDUSTRIAL PRODUCTS SEGMENT INCLUDES OTHER INCOME OF
APPROXIMATELY $0.9 MILLION FOR THE FAVORABLE SETTLEMENT OF A
LITIGATION MATTER.

3) REVENUE, OPERATING PROFIT AND ASSETS OF OPERATIONS OUTSIDE THE U.S.
AND EXPORT SALES ARE NOT MATERIAL.

4) CAPITAL EXPENDITURES AND DEPRECIATION AND AMORTIZATION INCLUDE
AMOUNTS RELATING TO CAPITAL LEASES.

</TABLE>

18
<PAGE>

NOTE 11 -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

Summarized quarterly financial data are presented below.

1994 QUARTERS 1ST 2ND 3RD 4TH TOTAL
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>

Net sales and other revenue $33,360 $54,499 $46,760 $50,796 $185,415
Gross profit 13,010 18,771 17,392 19,049 68,222
Net income (loss) (1,049) 2,236 (A) (1,146) 1,111 1,152
Net income (loss) per common share (0.24) 0.52 (A) (0.27) 0.26 0.27
-------------------------------------------------------------------
-------------------------------------------------------------------

<FN>
(A) THE RESULTS OF THE 1994 SECOND QUARTER WERE REVISED TO INCREASE NET INCOME
FROM $2,129 ($0.49 PER SHARE) TO $2,236 ($0.52 PER SHARE). THE REVISION
RESULTS FROM THE ELIMINATION OF AN ACCOUNTING CHANGE INCOME ITEM AFTER TAX
OF $1,572 ($0.36 PER SHARE), AND THE INCLUSION OF A PREVIOUSLY DEFERRED
GAIN ON THE SALE OF A PORTION OF THE CORPORATION'S COMMON SHARES OF ELI
WITT OF $2,691 PRETAX.

</TABLE>

The 1994 fourth quarter includes expenses totaling $1.1 million, including
$0.4 million to settle a litigation matter in the industrial products business
and $0.7 million to reserve for potentially unsaleable inventories and employee
severance in the nursery products business.

1993 QUARTERS 1ST 2ND 3RD 4TH TOTAL
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>

Net sales and other revenue $286,655 $389,602 $357,919 $330,400 $1,364,576
Gross profit 28,092 39,249 39,688 37,805 144,834
Income (loss) before cumulative effect of
accounting change (1,655) 1,772 849 759 1,725
Net (loss) income (10,832) 1,772 849 759 (7,452)
Income (loss) per common share before
cumulative effect of accounting change (0.38) 0.36 0.14 0.12 0.24
Net (loss) income per common share (2.51) 0.36 0.14 0.12 (1.89)
--------------------------------------------------------------------
--------------------------------------------------------------------

</TABLE>

At November 27, 1993, the effect of manufacturers' price reductions on
cigarette inventories of Eli Witt, valued on LIFO, and lower quantities of
cigarette inventories on hand than at the end of the previous year, resulted in
lower cost of sales of approximately $2.1 million, of which approximately $1.4
million was reflected in the fourth quarter.

The net sales and gross profit for the 1993 quarters presented above
include Eli Witt as a consolidated subsidiary. Pro forma 1993 quarterly net
sales and gross profit, excluding Eli Witt, is presented below.

1993 QUARTERS (PRO FORMA) 1ST 2ND 3RD 4TH TOTAL
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>

Net sales and other revenue $29,703 $48,822 $41,291 $47,414 $167,230
Gross profit 10,045 17,234 15,172 17,301 59,752
-------------------------------------------------------------------
-------------------------------------------------------------------

</TABLE>

NOTE 12 -- COMMITMENTS AND CONTINGENCIES

In connection with the sale of Moll Tool & Plastics Corp. ("Moll Tool") in
1991, the Corporation remains liable on a machinery lease obligation of
approximately $3.9 million assumed by the purchaser of Moll Tool.

An administration and warehouse facility in Connecticut, owned and operated
by General Cigar, was destroyed by a fire in May 1994. The loss was covered by
insurance and General Cigar expects to receive an insurance settlement, which
should be finalized in 1995, in excess of the book value of the assets
destroyed.

19
<PAGE>

REPORT OF MANAGEMENT

Management is responsible for the accompanying consolidated financial
statements, which are prepared in accordance with generally accepted accounting
principles. In management's opinion, the consolidated financial statements
present fairly the Corporation's financial position, results of operations and
cash flows.

The Corporation maintains a system of internal accounting procedures and
controls intended to provide reasonable assurance, at appropriate cost, that
transactions are executed in accordance with proper authorization, are properly
recorded and reported in the financial statements, and that assets are
adequately safeguarded. The Corporation's internal audit department continually
evaluates the adequacy and effectiveness of this system of controls.

The Audit Committee of the Board of Directors is comprised solely of
outside directors and is responsible for overseeing and monitoring the quality
of the Corporation's accounting and auditing practices. The Audit Committee
meets regularly with management, the internal audit department and the
independent accountants to discuss audit activities, internal controls and
financial reporting matters. The internal audit department and the independent
accountants have full and free access to the Audit Committee.

To foster the conduct of its business in accordance with the highest
ethical standards, the Corporation annually disseminates ethical guidelines, the
compliance with which is monitored by senior management and the Audit Committee.

The appointment of Price Waterhouse as the Corporation's independent
accountants was recommended and approved by the Audit Committee and the Board of
Directors, and was approved by the shareholders. Their Report is based on an
examination conducted in accordance with generally accepted auditing standards,
including a review of internal accounting controls and tests of accounting
procedures and records.

/s/ Edgar M. Cullman
Edgar M. Cullman
CHAIRMAN AND CHIEF EXECUTIVE OFFICER

/s/ Jay M. Green
Jay M. Green
EXECUTIVE VICE PRESIDENT - CHIEF FINANCIAL OFFICER AND TREASURER

20
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

PRICE WATERHOUSE LLP [Logo]

To the Shareholders and Directors of Culbro Corporation

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and retained earnings, of cash flows and
of changes in common stock and capital in excess of par value present fairly, in
all material respects, the financial position of Culbro Corporation and its
subsidiaries at December 3, 1994 and November 27, 1993, and the results of their
operations and their cash flows for the fiscal years ended December 3, 1994,
November 27, 1993, and November 28, 1992, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
management of Culbro Corporation; 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 generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

As discussed in Note 7 to the consolidated financial statements, the
Corporation adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," in
1993.

/s/ Price Waterhouse LLP
New York, New York
April 3, 1995

21
<PAGE>

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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

FORM 10-K

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

FOR FISCAL YEAR ENDED DECEMBER 3, 1994

ITEMS 8 and 14 - INDEX TO FINANCIAL STATEMENTS
AND ADDITIONAL FINANCIAL DATA

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

CULBRO CORPORATION

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

<PAGE>

CULBRO CORPORATION AND SUBSIDIARY COMPANIES

INDEX TO FINANCIAL STATEMENTS AND ADDITIONAL FINANCIAL DATA

The financial statements together with the report thereon of Price
Waterhouse LLP dated April 3, 1995, appearing on Pages 5 to 19 of the
accompanying 1994 Annual Report to Shareholders, are incorporated by reference
in this Form 10-K Annual Report. With the exception of the aforementioned
information, and such other information specifically incorporated by reference
herein, the 1994 Annual Report to Shareholders is not to be deemed filed or
incorporated by reference as part of this report.

The following additional financial data should be read in conjunction with
the financial statements in such 1994 Annual Report to Shareholders. Schedules
not included with this additional financial data have been omitted because they
are not applicable or the required information is shown in the financial
statements or notes thereto.

PAGE

Report of Independent Accountants on Financial
Statement Schedules and Consent of Independent
Accountants C-1

Summarized Financial Information of Equity Investee -
Centaur Communications, Ltd. F-1

Financial Statements of Equity Investee -
The Eli Witt Company (1)

Schedules:

V - Property and Equipment S-1

VI - Accumulated Depreciation and
Amortization of Property and Equipment S-2

VIII - Valuation and Qualifying Accounts
and Reserves S-3

XI - Real Estate and Accumulated Depreciation S-4/S-5

(1) THE FINANCIAL STATEMENTS OF ELI WITT ARE NOT AVAILABLE AT THE TIME OF THIS
FILING. THEY WILL BE FILED UNDER COVER OF FORM 10-K/A AS AN AMENDMENT
TO THIS FILING.

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
-----------------------------

To the Board of Directors of Culbro Corporation

Our audits of the consolidated financial statements referred to in our
report dated April 3, 1995 appearing on page 21 of the 1994 Annual Report to
Shareholders of Culbro Corporation (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedules listed in Item 14(a)
of this Form 10-K. In our opinion, these Financial Statement Schedules present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.

PRICE WATERHOUSE LLP

New York, New York
April 3, 1995

CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------

We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 2 - 94202) of Culbro Corporation of our report dated
April 3, 1995 appearing on page 21 of the 1994 Annual Report to Shareholders
which is incorporated in this Annual Report on Form 10-K. We also consent to
the incorporation by reference of our report on the Financial Statement
Schedules which appears above.

PRICE WATERHOUSE LLP

New York, New York
April 11, 1995

C - 1

<PAGE>

SUMMARIZED FINANCIAL INFORMATION OF EQUITY INVESTEE
---------------------------------------------------

CENTAUR COMMUNICATIONS, LTD.
----------------------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
Twelve Months Ended
CONDENSED STATMENT OF INCOME DEC. 3, 1994
- -------------------------------------------------------------------------------

<S> <C>
Net sales $ 55,929

Costs and expenses 52,790
--------
Pretax income 3,139

Income tax 1,071
--------

Net income $ 2,068
--------
--------

CONDENSED BALANCE SHEET DEC. 3, 1994
- -------------------------------------------------------------------------------

Trade receivables $ 12,582
Other current assets 5,271
---------
17,853

Publishing rights 19,233
Other noncurrent assets 5,209
---------
Total assets $ 42,295
---------
---------

Accounts payable & accrued expenses $ 6,722
Other current liabilities 1,578
---------
8,300

Other noncurrent liabilities 3,821
---------
Total liabilities 12,121

Shareholders' equity 30,174
---------
Total liabilities and shareholders equity $ 42,295
---------
---------

<FN>
NOTE: The unaudited condensed financial statements presented above have been
translated from British Pounds into U.S. Dollars in accordance with
SFAS No. 52 "Foreign Currency Translation".

F-1

</TABLE>

<PAGE>

CULBRO CORPORATION
SCHEDULE V - PROPERTY AND EQUIPMENT
-----------------------------------
(DOLLARS IN THOUSANDS)

BALANCE AT ADDITIONS OTHER CHANGES BALANCE AT
DESCRIPTION BEGINNING OF YEAR AT COST RETIREMENTS ADD (DEDUCT) END OF YEAR
- ----------- ----------------- ------- ----------- ----------- -----------

FOR THE FISCAL YEAR ENDED DECEMBER 3, 1994
<S> <C> <C> <C> <C> <C>
Land $ 13,453 $ 25 $ 12 $ (2,039) (4) $11,303
(51) (2)
(73) (1)

Buildings 84,340 1,078 661 (22,268) (4) 62,366
(123) (2)

(9) (1)
123 (2)
Machinery & equipment 82,372 3,723 2,110 (25,507) (4) 58,592
------ ----- ----- ------- ------
$180,165 $4,826 $2,783 $(49,947) $132,261
-------- ------ ------ -------- --------
-------- ------ ------ -------- --------

FOR THE FISCAL YEAR ENDED NOVEMBER 27, 1993
44 (2)
Land $11,783 $109 $143 $ (63) (1) $13,453
1,723 (3)

Buildings 69,469 1,634 1,879 (435) (2) 84,340
15,551 (3)

(10) (1)
563 (2)
Machinery & equipment 77,025 6,532 4,861 3,123 (3) 82,372
------ ----- ----- ----- ------
$158,277 $8,275 $6,883 $20,496 $180,165
-------- ------ ------ ------- --------
-------- ------ ------ ------- --------

FOR THE FISCAL YEAR ENDED NOVEMBER 28, 1992
4 (2)
Land $11,843 $158 $37 $(185) (1) $11,783

Buildings 65,658 4,007 218 22 (2) 69,469

(28) (1)
Machinery & equipment 72,840 6,501 2,234 (54) (2) 77,025
------ ----- ----- ---- ------
$150,341 $10,666 $2,489 $(241) $158,277
-------- ------- ------ ------ --------
-------- ------- ------ ------ --------
<FN>
NOTES:
- ------
(1) AMORTIZATION CREDITED DIRECTLY TO ASSET ACCOUNTS - CHARGED TO COST OF SALES. (3) ACQUISITION OF CERTIFIED GROCERS OF
FLORIDA, INC..
(2) RECLASSIFICATION. (4) DECONSOLIDATION OF ELI WITT

</TABLE>

S - 1

<PAGE>

CULBRO CORPORATION

SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF
----------------------------------------------------------
PROPERTY AND EQUIPMENT
----------------------
(DOLLARS IN THOUSANDS)

BALANCE AT ADDITIONS OTHER CHANGES BALANCE AT
DESCRIPTION BEGINNING OF YEAR AT COST RETIREMENTS ADD (DEDUCT) END OF YEAR
- ----------- ----------------- ------- ----------- ------------ -----------

FOR THE FISCAL YEAR ENDED DECEMBER 3, 1994

$ (2,543) (2)
Buildings $19,373 $ 1,681 $ 519 (117) (1) $17,875

(11,143) (2)
Machinery & equipment 45,894 4,567 1,922 117 (1) 37,513
------ ----- ----- --- ------
$65,267 $6,248 $2,441 $(13,686) $55,388
------- ------ ------ --------- -------
------- ------ ------ --------- -------

FOR THE FISCAL YEAR ENDED NOVEMBER 27, 1993

Buildings $17,016 $3,017 $ 538 $(122) (1) $19,373

Machinery & equipment 41,752 7,800 3,955 297 (1) 45,894
------ ------- ------ ----- -------
$58,768 $10,817 $4,493 $ 175 $65,267
------- ------- ------ ------ --------
------- ------- ------ ------ --------

FOR THE FISCAL YEAR ENDED NOVEMBER 28, 1992

Buildings $14,748 $2,430 $154 $(8) (1) $17,016

Machinery & equipment 36,095 7,771 2,116 2 (1) 41,752
------- ------- ------ ------- ------
$50,843 $10,201 $2,270 $(6) $58,768
------- ------- ------ -------- -------
------- ------- ------ -------- -------

<FN>
NOTES:
- ------
(1) RECLASSIFICATION.
(2) DECONSOLIDATION OF ELI WITT.

</TABLE>

S - 2

<PAGE>

CULBRO CORPORATION

SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
--------------------------------------------------------------
(DOLLARS IN THOUSANDS)

BALANCE AT CHARGED TO COSTS CHARGED TO DEDUCTIONS BALANCE AT
DESCRIPTION BEGINNING OF YEAR AND EXPENSES OTHER ACCOUNTS FROM RESERVES END OF YEAR
- ----------- ----------------- ------------ -------------- ------------- -----------

FOR THE FISCAL YEAR ENDED DECEMBER 3, 1994
<S> <C> <C> <C> <C> <C>
Reserves:

Uncollectible accounts - 1,220 (3)
trade receivables $2,364 $ 764 $ 39 $ 521 (1) $1,426
------ ------ ------ ------ ------
------ ------ ------ ------ ------

Inventories $ 832 $1,422 $ 90 $ 865 (2) $1,479
------ ------ ------ ------ ------
------ ------ ------ ------ ------

FOR THE FISCAL YEAR ENDED NOVEMBER 27, 1993
Reserves:

Uncollectible accounts -
trade receivables $2,650 $1,332 $617 $2,235 (1) $2,364
------ ------ ---- ------ ------
------ ------ ---- ------ ------

Inventories $1,247 $534 $ - $949 (2) $832
------ ------ ---- ---- ----
------ ------ ---- ---- ----

FOR THE FISCAL YEAR ENDED NOVEMBER 28, 1992
Reserves:

Uncollectible accounts -
trade receivables $2,416 $1,485 $149 $1,400 (1) $2,650
------ ------ ---- ------ ------
------ ------ ---- ------ ------

Inventories $1,308 $827 $ - $888 (2) $1,247
------ ---- ---- ---- ------
------ ---- ---- ---- ------

<FN>
NOTES:

- -------
(1) ACCOUNTS RECEIVABLE WRITTEN-OFF.
(2) INVENTORIES DISPOSED.
(3) DECONSOLIDATION OF ELI WITT.

</TABLE>

S - 3

<PAGE>

CULBRO CORPORATION
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
------------------------------------------------------
(DOLLARS IN THOUSANDS)

COST CAPITALIZED
SUBSEQUENT GROSS AMOUNT
INITIAL COST TO ACQUISITION AT DECEMBER 3, 1994
------------ -------------- ---------------------
ENCUM- BLDG & CARRYING BLDG & ACCUM. DATE OF DATE OF DEPR
DESCRIPTION BRANCES LAND IMPRV IMPRV COSTS LAND IMPRV TOTAL DEPR. CONSTRUCTION ACQUSITION LIFE
- ----------- ------- ---- ----- ----- ----- ---- ----- ----- ----- ------------ ---------- ----

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Land - CT $ - $2,925 $ - $7,137 $ 80 $3,005 $7,137 $10,142 $ -

Restaurant
Bloomfield, CT - 1 - 1,259 - 1 1,259 1,260 (407) 1983 40 yrs

Residential Development
Windsor, CT - 82 - 2,229 2,121 82 4,350 4,432 - -

Commercial Off Bldg
Bloomfield, CT 769 47 - 2,030 - 47 2,030 2,077 (973) 1977 40 yrs

Commercial Off Bldg
Bloomfield, CT - 3 - 1,815 - 3 1,815 1,818 (453) 1985 40 yrs

Commercial Off Bldg
Bloomfield, CT - 1 - 1,513 24 1 1,537 1,538 (222) 1988 40 yrs

Commercial Off Bldg
Bloomfield, CT - 1 - 1,452 23 1 1,475 1,476 (244) 1988 40 yrs

Commercial Off Bldg
Bloomfield, CT - 1 - 666 - 1 666 667 (119) 1988 40 yrs

Commercial Off Bldg
Bloomfield, CT - 5 - 3,289 40 5 3,329 3,334 (295) 1991 40 yrs

Commercial Off Bldg
E. Granby, CT 1,995 74 - 3,105 - 74 3,105 3,179 (1,359) 1978 40 yrs

Commercial Off Bldg
E. Granby, CT - 32 1,723 179 - 32 1,902 1,934 (362) 1989 40 yrs

Commercial Off Bldg
Windsor, CT 3,859 69 - 4,416 149 69 4,565 4,634 (684) 1989 40 yrs
------ ---- ------- ------ ----- ------ ------ ------- ------
$6,623 $3,241 $1,723 $29,090 $2,437 $3,321 $33,170 $36,491 $(5,118)
------ ------ ------ ------- ------ ------ ------- ------- --------
------ ------ ------ ------- ------ ------ ------- ------- --------

</TABLE>

S - 4

<PAGE>

CULBRO CORPORATION

SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
(DOLLARS IN THOUSANDS)

FISCAL YEAR ENDED DECEMBER 3, 1994

COST RESERVE
---- -------
<S> <C> <C>
Balance at beginning of year $39,676 $(4,338)
Changes during the year:
Improvements 1,624
Additions to reserve charged to costs
and expenses (780)
Cost of sales (including writeoffs) (4,809)
------- -------
Balance at end of year $36,491 $(5,118)
------- -------
------- -------
FISCAL YEAR ENDED NOVEMBER 27, 1993

COST RESERVE
---- -------
Balance at beginning of year $39,328 $(3,664)
Changes during the year:
Improvements 1,352
Additions to reserve charged to costs
and expenses (748)
Cost of sales (1,004) 74
------- --------
Balance at end of year $39,676 $(4,338)
------- --------
------- --------

FISCAL YEAR ENDED NOVEMBER 28, 1992

COST RESERVE
---- -------
Balance at beginning of year $38,087 $(2,946)
Changes during the year:
Improvements 3,083
Additions to reserve charged to costs
and expenses (718)
Cost of sales (1,842)
------- -------
Balance at end of year $39,328 $(3,664)
------- -------
------- -------

</TABLE>

S - 5

<PAGE>

EXHIBIT 22

CULBRO CORPORATION

State/Jurisdiction
SUBSIDIARIES (1) of incorporation
- ---------------- ------------------

General Cigar Co., Inc. (2) Delaware
Culbro Machine Systems, Inc. Delaware
Culbro Land Resources, Inc. (3) Delaware
387 PAS Corporation New York
CMS Gilbreth Packaging Systems, Inc. (4) Pennsylvania
Trine Manufacturing Company Delaware
Imperial Nurseries, Inc. Delaware

(1) The Corporation also has approximately 7 inactive subsidiaries which
considered in the aggregate as a single subsidiary would not constitute a
significant subsidiary. The Consolidated Financial Statements of the
Corporation include the accounts of all subsidiaries of the Corporation.

(2) Includes approximately 8 subsidiaries and 4 operating divisions within
which it carries on its cigar manufacturing and distribution business and
approximately 12 assumed names in which it does business.

(3) Includes approximately 5 subsidiaries utilized to carry on certain aspects
of its real estate development business.

(4) Includes Gilbreth International Corporation, a wholly-owned subsidiary of
the Corporation, which carries on its plastic shrink film and labeling
systems business.

<PAGE>

Item 14 (10) (F)

EXECUTION COPY

SHAREHOLDERS AGREEMENT

DATED AS OF APRIL 25, 1994

Among

CULBRO CORPORATION

MS DISTRIBUTION, INC.

and

THE ELI WITT COMPANY

<PAGE>

TABLE OF CONTENTS

PAGE

ARTICLE I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 1

SECTION 1.1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE II. RIGHTS AND OBLIGATIONS WITH
RESPECT TO TRANSFER. . . . . . . . . . . . . . . . . . . . 7

SECTION 2.1. General Restrictions . . . . . . . . . . . . . . . . . . . 7
SECTION 2.2. Legends. . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.3. Tag-along Rights . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2.4. Rights to Compel Sale. . . . . . . . . . . . . . . . . . . 11
SECTION 2.5. Rights of First Offer. . . . . . . . . . . . . . . . . . . 13
SECTION 2.6. Improper Transfer. . . . . . . . . . . . . . . . . . . . . 14

ARTICLE III. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . 15

SECTION 3.1. Demand Registration. . . . . . . . . . . . . . . . . . . . 15
SECTION 3.2. Incidental Registration. . . . . . . . . . . . . . . . . . 18
SECTION 3.3. Holdback Agreements. . . . . . . . . . . . . . . . . . . . 19
SECTION 3.4. Registration Procedures. . . . . . . . . . . . . . . . . . 20
SECTION 3.5. Indemnification by the Issuer. . . . . . . . . . . . . . . 23
SECTION 3.6. Indemnification by Holders
of Registrable Securities . . . . . . . . . . . . . . . 24
SECTION 3.7. Conduct of Indemnification Proceedings . . . . . . . . . . 24
SECTION 3.8. Contribution . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 3.9. Participation in Public Offering . . . . . . . . . . . . . 26
SECTION 3.10. Rule 144 Reporting . . . . . . . . . . . . . . . . . . . . 27

ARTICLE IV. CORPORATE GOVERNANCE; COVENANTS . . . . . . . . . . . . . . . 27

SECTION 4.1. Designation of Directors;
Corporate Action. . . . . . . . . . . . . . . . . . . . 27
SECTION 4.2. Actions Requiring Consent of MSD . . . . . . . . . . . . . 28
SECTION 4.3. Certain Agreements . . . . . . . . . . . . . . . . . . . . 32
SECTION 4.4. Exchange of Culbro Note;
Series B Redemption . . . . . . . . . . . . . . . . . . 33

-i-

<PAGE>

PAGE

ARTICLE V. REPRESENTATIONS AND WARRANTIES
OF CULBRO AND THE ISSUER . . . . . . . . . . . . . . . . . 34

SECTION 5.1. Corporate Existence and Power. . . . . . . . . . . . . . . 34
SECTION 5.2. Corporate Authorization. . . . . . . . . . . . . . . . . . 34
SECTION 5.3. Governmental Authorization . . . . . . . . . . . . . . . . 34
SECTION 5.4. Non-Contravention. . . . . . . . . . . . . . . . . . . . . 35

ARTICLE VI. REPRESENTATIONS AND
WARRANTIES OF MSD. . . . . . . . . . . . . . . . . . . . . 35

SECTION 6.1. Corporate Existence and Power. . . . . . . . . . . . . . . 35
SECTION 6.2. Corporate Authorization. . . . . . . . . . . . . . . . . . 35
SECTION 6.3. Governmental Authorization . . . . . . . . . . . . . . . . 35
SECTION 6.4. Non-Contravention. . . . . . . . . . . . . . . . . . . . . 36

ARTICLE VII. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 36

SECTION 7.1. Headings . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 7.2. No Inconsistent Agreements . . . . . . . . . . . . . . . . 36
SECTION 7.3. Frustration of Purpose;
Administration of Agreement . . . . . . . . . . . . . . 36
SECTION 7.4. Entire Agreement . . . . . . . . . . . . . . . . . . . . . 36
SECTION 7.5. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 7.6. Applicable Law . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 7.7. Severability . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 7.8. Agreement to be Bound. . . . . . . . . . . . . . . . . . . 37
SECTION 7.9. Termination. . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 7.10. Survival of Provisions . . . . . . . . . . . . . . . . . . 38
SECTION 7.11. Successors, Assigns, Transferees . . . . . . . . . . . . . 38
SECTION 7.12. Amendments; Waivers. . . . . . . . . . . . . . . . . . . . 38
SECTION 7.13. Counterparts . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 7.14. Recapitalization, etc. . . . . . . . . . . . . . . . . . . 38
SECTION 7.15. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . 39

EXHIBIT A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41

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SHAREHOLDERS AGREEMENT

SHAREHOLDERS AGREEMENT dated as of April 25, 1994 among The Eli Witt
Company, a Delaware corporation (the "Issuer"), Culbro Corporation, a New York
corporation ("Culbro"), and MS Distribution, Inc., a Delaware corporation
("MSD"). Each of the parties to this Agreement (other than the Issuer) and any
other Person who, pursuant to the terms hereof, shall become a party to or agree
to be bound by the terms of this Agreement after the date hereof is sometimes
hereinafter referred to as a "Holder".

Culbro and MSD and the Issuer and MSD have entered into Securities
Purchase Agreements, each dated as of April 18, 1994 (together, the "Securities
Purchase Agreement") pursuant to which MSD purchased, among other things, Common
Shares (as defined below) from Culbro and the Subordinated Note (as defined
below) from the Issuer.

The Issuer and NCC L.P. have entered into an Asset Purchase Agreement
dated as of April 18, 1994 (the "Asset Purchase Agreement") pursuant to which
NCC L. P. acquired Common Shares, which it distributed to MSD in partial
redemption of its limited partnership interest.

The parties hereto desire to restrict the sale, assignment, transfer,
encumbrance or other disposition of the Securities and to provide for certain
rights and obligations relating to the capital stock of the Issuer and certain
matters relating to the conduct of the business and the affairs of the Issuer
following the date hereof.

Accordingly, the parties hereto agree as follows:

ARTICLE I.

DEFINITIONS

SECTION 1.1. DEFINITIONS. The following terms, as used herein, have
the following meanings:

"ACCRUED DIVIDEND AMOUNT" means the amount of dividends on the Series
B Preferred accrued from the date of issuance to the date of this Agreement
(whether or not paid).

"AFFILIATE" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control with
such Person.

"ANCILLARY AGREEMENTS" has the meaning set forth in the Asset Purchase
Agreement.

<PAGE>

"BOARD OF DIRECTORS" means the Board of Directors of the Issuer.

"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized by law to close.

"BUYER'S NOTICE" has the meaning set forth in Section 2.5.

"CHEMICAL BANK AGREEMENT" has the meaning set forth in the Asset
Purchase Agreement.

"CLASS C COMMON STOCK" means the Class C common stock, par value $0.01
per share, of the Issuer.

"COMMISSION" means the Securities and Exchange Commission and any
successor commission or agency having similar powers.

"COMMON SHARES" means shares of common stock, par value $0.01 per
share, of the Issuer.

"COMPELLED SALE NOTICE" has the meaning set forth in Section 2.4(b).

"COMPELLED SALE OFFER" has the meaning set forth in Section 2.4(a).

"COMPELLED SALE PURCHASE" has the meaning set forth in Section 2.4(a).

"CULBRO CHANGE OF CONTROL" means the acquisition by any Person or
"group", within the meaning of Section 13(d) (3) of the Exchange Act, of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 50% or more of the outstanding capital stock of Culbro or 50%
or more of the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors of Culbro, other than
any such acquisition by any such Person or "group" comprised solely of Edgar M.
Cullman, Edgar M. Cullman, Jr., John L. Ernst, Frederick M. Danziger, the
members of their families, trusts for their benefit or partnerships in which
they own substantial interests.

"CULBRO NOTE" has the meaning set forth in the Securities Purchase
Agreement of Culbro.

"CULBRO PERCENTAGE" means, as of any date, (A) the difference of (i)
the Accrued Dividend Amount and (ii) an amount equal to dividends on the Series
B Preferred received by Culbro on or prior to such date (which shall not be less

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than zero), DIVIDED BY (B) the sum of (i) the amount of dividends on the Series
B Preferred accrued from the date of issuance and unpaid immediately prior to
the date of determination and (ii) the Designated Amount.

"DEBT" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business, (iv) all obligations of such Person as lessee which are capitalized in
accordance with generally accepted accounting principles, (v) all Debt of others
secured by a Lien on any asset of such Person, whether or not such Debt is
assumed by such Person, and (vi) all Debt of others guaranteed by such Person.

"DESIGNATED AMOUNT" means (i) as of any date on or prior to the third
anniversary of the date hereof, an amount equal to the sum of (x) $12 million
and (y) the product of $1 million times .00274N (where "N" is the number of days
elapsed from the date hereof) and (ii) as of any date following the third
anniversary of the date hereof, $15 million.

"DESIGNATED EXCHANGE" means an exchange of the Culbro Note pursuant to
Section 3(b) (iii) thereof as a result of the occurrence of an event referred to
in clauses (ii) through (vii) of the definition of "Accelerated Exchange Event"
contained therein.

"DISADVANTAGEOUS CONDITION" has the meaning set forth in Section
3.1(y).

"DULY ENDORSED" means duly endorsed in blank by the Person or Persons
in whose name a stock certificate is registered or accompanied by a duly
executed stock assignment separate from the certificate.

"EW JUNIOR PREFERRED STOCK" has the meaning set forth in the
Securities Purchase Agreement.

"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

"FIRST OFFER PRICE" has the meaning set forth in Section 2.5.

"FULLY DILUTED" means, with respect to the Common Shares or
Registrable Securities, all outstanding Common Shares or outstanding shares of
Registrable Securities,

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respectively, and all of the Common Shares or Registrable Securities, as the
case may be, issuable upon exercise of any then outstanding options (whether
vested or not vested), warrants, convertible or exchangeable securities or other
similar instruments or rights.

"INDEMNIFYING PARTY" has the meaning set forth in Section 3.7.

"INSPECTORS" has the meaning set forth in Section 3.4(g).

"MATERIAL ADVERSE EFFECT" shall, with respect to the Issuer and
Culbro, have the meaning set forth in the Securities Purchase Agreement and,
with respect to MSD, shall mean a material adverse effect on the business,
operations or financial condition of MSD.

"MAXIMUM OFFERING SIZE" has the meaning set forth in Section 3.1(f).

"MORTGAGE" means, together, the Mortgage and Security Agreement made
February 19, 1993 between the Issuer and Culbro and the Note referred to
therein, each as amended from time to time.

"MSLEF" means The Morgan Stanley Leveraged Equity Fund II, L.P.

"MSLEF CONSENTING DIRECTOR" has the meaning set forth in Section 4.1.

"MSLEF DIRECTORS" has the meaning set forth in Section 4.1.

"MSLEF SIDELETTER" has the meaning set forth in the Securities
Purchase Agreement.

"NASD" means the National Association of Securities Dealers, Inc.

"PERMITTED TRANSFEREE" means (i) an Affiliate of MSD and (ii) a
limited partner, general partner or director of MSD or any such Affiliate.

"PERSON" means an individual, partnership, corporation, trust, joint
stock company, association, joint venture, or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.

"PRIORITY SECURITIES" has the meaning set forth in Section 3.2.

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<PAGE>

"PUBLIC OFFERING" means any underwritten public offering of equity
securities (or securities convertible into equity securities) of the Issuer
pursuant to an effective registration statement under the Securities Act other
than pursuant to a registration statement on Form S-4 or Form S-8 or any
successor or similar form.

"RECORDS" has the meaning set forth in Section 3.4(g).

"REGISTRABLE SECURITIES" means any Common Shares acquired by the
Holders; PROVIDED that such Common Shares shall cease to be Registrable
Securities if and when (i) a registration statement with respect to the
disposition of such Common Shares shall have become effective under the
Securities Act and such Common Shares shall have been disposed of pursuant to
such effective registration statement, (ii) such Common Shares shall have been
sold under circumstances in which all of the applicable conditions of Rule 144
(or any similar provisions then in force) under the Securities Act are met,
(iii) such Common Shares shall have been otherwise transferred, if new
certificates or other evidences of ownership for such Common Shares not bearing
a legend restricting further transfer and not subject to any stop transfer order
or other restrictions on transfer shall have been delivered by the Issuer, and
subsequent disposition of such Common Shares shall not require registration or
qualification of such Common Shares under the Securities Act, or (iv) such
Common Shares shall have ceased to be outstanding.

"REGISTRATION EXPENSES" means all (i) registration and filing fees,
(ii) fees and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of a qualified independent underwriter, if
any, counsel in connection therewith and the reasonable fees and disbursements
of counsel in connection with blue sky qualifications of the Registrable
Securities), (iii) printing expenses, (iv) internal expenses of the Issuer
(including, without limitation, all salaries and expenses of officers and
employees performing legal or accounting duties), (v) fees and disbursements of
counsel for the Issuer, (vi) customary fees and expenses for independent
certified public accountants retained by the Issuer (including the expenses of
any comfort letters or costs associated with the delivery by independent
certified public accountants of a comfort letter or comfort letters), (vii) fees
and expenses of any special experts retained by the Issuer in connection with
such registration, (viii) reasonable fees and expenses of one separate firm of
attorneys (in addition to any local counsel) for the Holders (which counsel
shall be selected by the Selling Investor and shall be reasonably acceptable to
the Issuer and any Holder

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selling securities constituting at least 30% of all securities to be included in
such registration), (ix) fees and expenses of listing the Registrable Securities
on a securities exchange and (x) any reasonable out-of-pocket expenses of the
Holders (or the agents who manage their accounts), any transfer taxes and any
fees and expenses of underwriter's counsel; but shall not include any
underwriting fees or discounts or commissions attributable to the sale of
Registrable Securities.

"REMAINING HOLDERS" has the meaning set forth in Section 2.5.

"SALE DATE" has the meaning set forth in Section 2.3.

"SECURITIES" means the Common Shares held by any Holder, the Culbro
Note, the Subordinated Note and the EW Junior Preferred Stock.

"SECURITIES ACT" means the Securities Act of 1933, as amended.

"SECURITIES PURCHASE AGREEMENT" has the meaning set forth in the
preamble hereto.

"SELLER" has the meaning set forth in Section 2.5.

"SELLER'S NOTICE" has the meaning set forth in Section 2.5.

"SELLING INVESTOR" has the meaning set forth in Section 3.1.

"SERIES A PREFERRED" means the Series A Preferred Stock, par value
$0.01 per share, of the Issuer.

"SERIES B PREFERRED" means the Series B Preferred Stock, par value
$0.01 per share, of the Issuer.

"SERIES B REDEMPTION EVENT" means the earliest to occur of the
following:

(i) August 19, 1998;

(ii) the initial Public Offering;

(iii) a Culbro Change of Control;

(iv) any person or group (other than Culbro) directly or indirectly
acquires a majority of the Issuer's outstanding common stock or
ordinary voting power;

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(v) if Culbro ceases to own a majority of the outstanding common
stock or ordinary voting power of the Issuer; or

(vi) individuals who constituted the Board of Directors as of January
1 of any year (as of any such January 1, the "Incumbent
Directors"; such term to include all individuals who were members
of such board as of such January 1, whether or not they were
previously Incumbent Directors) cease for any reason to
constitute at least a majority of the Board of Directors;
PROVIDED that any individual becoming a director during any year
shall be considered to be an Incumbent Director if such
individual's election, appointment or nomination for election by
stockholders, was recommended or approved unanimously by the
Incumbent Directors continuing in office following such election,
appointment or nomination present, in person or by telephone, at
any meeting of the Board of Directors, after the giving of a
sufficient notice to each Incumbent Director so as to provide a
reasonable opportunity for such Incumbent Directors to be present
at such meeting.

"SUBORDINATED NOTE" has the meaning set forth in the Securities
Purchase Agreement.

"TAG-ALONG NOTICE" has the meaning set forth in Section 2.3.

"TAG-ALONG NOTICE DATE" has the meaning set forth in Section 2.3.

"TAG-ALONG NOTICE PERIOD" has the meaning set forth in Section 2.3.

"TAG-ALONG OFFER" has the meaning set forth in Section 2.3.

"TAG-ALONG OFFEREES" has the meaning set forth in Section 2.3.

"TAG-ALONG PURCHASER" has the meaning set forth in Section 2.3.

"TAG-ALONG RATIO" has the meaning set forth in Section 2.3.

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<PAGE>

"THIRD PARTY" means a prospective purchaser for value in an arm's-
length transaction from a Holder where such purchaser is not (i) the Issuer or
(ii) an Affiliate of such Holder.

ARTICLE II.

RIGHTS AND OBLIGATIONS WITH
RESPECT TO TRANSFER

SECTION 2.1. GENERAL RESTRICTIONS. (a) Subject to Section 2.1(b),
each Holder may offer, sell, assign, transfer, grant a participation in or
otherwise dispose of any Securities; PROVIDED that such offer, sale, assignment,
transfer, participation or other disposition (i) is made in compliance with the
Securities Act and any applicable state and foreign securities laws and (ii) is
not made in violation of this Agreement. Notwithstanding anything herein to the
contrary, no Holder may pledge or otherwise encumber or grant a security
interest in any of its Securities.

(b) Notwithstanding anything herein to the contrary, Culbro may not
offer, sell, assign, transfer, grant a participation in, encumber or otherwise
dispose of any Securities if such offer, sale, assignment, transfer,
participation, encumbrance or other disposition would result in a redemption (in
whole or in part) of the Series B Preferred Stock, the Culbro Note, the EW
Junior Preferred Stock or the Series A Preferred Stock or in an exchange of the
Culbro Note.

(c) No Holder shall grant any proxy or enter into or agree to be
bound by any voting trust with respect to the Common Shares; nor shall any
Holder enter into any agreement or arrangement of any kind with any Person with
respect to the Common Shares inconsistent with the provisions of this Agreement,
including, but not limited to, agreements or arrangements with respect to the
acquisition, disposition or voting of Common Shares, or act, for any reason, as
a member of a group or in concert with any other Person in connection with the
acquisition, disposition or voting of Common Shares in any manner which is
inconsistent with the provisions of this Agreement.

(d) Chemical Bank, or such other Person as the parties shall from
time to time agree, is hereby appointed as the Issuer's transfer agent.

(e) Notwithstanding anything herein or in the terms of the Culbro
Note to the contrary, if, as a result of

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sales or transfers in part of the Culbro Note by MSD, the Culbro Note is held by
more than 15 Persons at any time, MSD by notice to Culbro shall designate itself
or a third party to act as agent for such Persons.

SECTION 2.2. LEGENDS. (a) Each certificate evidencing outstanding
Securities acquired by any Holder shall bear a legend in substantially the
following form:

THE SECURITIES REPRESENTED BY ThIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER ThE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, OR TRANSFERRED EXCEPT IN
COMPLIANCE ThEREWITh. THE SECURITIES REPRESENTED BY ThIS CERTIFICATE
ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTh
IN THE SHAREHOLDERS AGREEMENT DATED AS OF APRIL 25, 1994, COPIES OF
WHICH WILL BE FURNISHED BY ThE ELI WITT COMPANY AND ANY SUCCESSOR
ThERETO UPON REQUEST AND WIThOUT CHARGE.

(b) If any Common Shares shall cease to be Registrable Securities,
the Issuer shall, upon the written request of the Holder thereof, issue to such
Holder a new certificate evidencing such Common Shares without the first
sentence of the legend required by Section 2.2(a) hereof endorsed thereon. If
any Securities shall cease to be subject to the restrictions on transfer set
forth in this Agreement, the Issuer shall, upon the written request of the
holder thereof, issue to such holder a new certificate evidencing such
Securities without the second sentence of the legend required by Section 2.2(a)
hereof endorsed thereon.

SECTION 2.3. TAG-ALONG RIGHTS. (a) Except as provided in Section
2.3(e), if any Holder proposes to sell or otherwise dispose of any of its Common
Shares to any Third-Party (a "Tag-along Purchaser") pursuant to a bona fide
offer to purchase, in one transaction or series of similar transactions (a "Tag-
along Offer"), such Holder shall provide written notice (the "Tag-along Offer
Notice") of such Tag-along Offer to the Issuer and the Issuer shall promptly
provide written notice (the effective date of such notice being the "Tag-along
Notice Date") of such Tag-along Offer to the other Holders and the holders of
the Class C Common Stock (the "Tag-along Offerees") in the manner set forth in
this Section 2.3. The Tag-along Offer Notice shall identify the Tag-along
Purchaser, the Tag-along Ratio (as defined below), the consideration per Common
Share and other material terms and conditions of the Tag-along Offer and, in the
case of a Tag-along Offer in which the consideration

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payable for Common Shares consists in part or in whole of consideration other
than cash, such information relating to such consideration as the Tag-along
Offerees may reasonably request as being necessary for the Tag-along Offerees to
evaluate such non-cash consideration, it being understood that such request
shall not obligate such Holder to deliver any information to the Tag-along
Offerees not provided to such Holder by the Tag-along Purchaser.

The Tag-along Offerees shall have the right, exercisable as set forth
below, to accept the Tag-along Offer for up to such number of their Common
Shares determined pursuant to Section 2.3(b). The consideration per share paid
to the Tag-along Offerees shall be not less than the highest price paid per
share to such Holder, which shall include any payments to such Holder for an
agreement not to compete or any consulting fees payable to such Holder (other
than fees for actually anticipated future services); PROVIDED that in no event
shall any reasonable and customary investment banking or investment advisory
fees payable to such Holder or any of its Affiliates be included in the amount
of consideration per Common Share. If any Tag-along Offeree desires to accept
the Tag-along Offer, such Tag-along Offeree shall provide such Holder with
written revocable notice (a "Tag-along Notice") (specifying the number of Common
Shares which such Tag-along Offeree desires to sell) within 15 Business Days
after the Tag-along Notice Date, and shall simultaneously provide a copy of such
Tag-along Notice to the Issuer. Such Tag-along Notice may be withdrawn or
modified at any time until the expiration of 20 Business Days after the Tag-
along Notice Date (the "Tag-along Notice Period"). At the expiration of the
Tag-along Notice Period, the most recent Tag-along Notice shall become
irrevocable and binding, and shall constitute an irrevocable acceptance of the
Tag-along Offer by such Tag-along Offeree for the Common Shares specified
therein.

As soon as practicable after the expiration of the Tag-along Notice
Period, such Holder shall notify the Issuer and the accepting Tag-along Offerees
of the number of Common Shares the Tag-along Offerees are obligated to sell or
otherwise dispose of pursuant to the Tag-along Offer and Section 2.3(b). Such
Holder shall notify the Issuer and the accepting Tag-along Offerees of the
proposed date of any sale ("Sale Date") pursuant to this Section 2.3 no less
than ten days prior to the Sale Date, and the accepting Tag-along Offerees shall
deliver to such Holder the Duly Endorsed certificate or certificates
representing the Common Shares to be sold or otherwise disposed of pursuant to
such offer by the Tag-along Offerees, together with a limited power-of-attorney
authorizing such Holder to sell or otherwise dispose of such Common Shares
pursuant to the terms of the Tag-along Offer and all other documents

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required to be executed in connection with Tag-along Offer, no less than two
days prior to the Sale Date.

(b) (i) Each Tag-along Offeree shall have the right to sell, pursuant
to the Tag-along Offer, a number of Common Shares up to the product of the
total number of Common Shares offered to be sold by such Holder or offered
to be purchased by the Tag-along Purchaser as set forth in such Tag-along
Offer multiplied by a fraction (the "Tag-along Ratio"), the numerator of
which shall be the total number of Fully-Diluted Common Shares owned by
each Tag-along Offeree and the denominator of which shall be the sum of the
total number of Fully-Diluted Common Shares owned by the Holders and the
holders of the Class C Common Stock.

(ii) In no event may any Tag-along Offeree sell pursuant to any given
Tag-along Offer more than the total number of Common Shares specified in
such Tag-along Offeree's Tag-along Notice applicable to such Tag-along
Offer. Such Holder shall determine the aggregate number of Common Shares
to be sold by the accepting Tag-along Offerees pursuant to any given Tag-
along Offer. If at the termination of the Tag-along Notice Period any Tag-
along Offeree shall not have accepted the Tag-along Offer, such Tag-along
Offeree will be deemed to have waived any and all of its rights under this
Section 2.3 with respect to the sale or other disposition of any of its
Common Shares pursuant to such Tag-along Offer.

(c) Such Holder shall have 90 days from the termination of the Tag-
along Notice Period in which to consummate the sale contemplated by the Tag-
along Offer to the Tag-along Purchaser at the price and on the terms contained
in the Tag-along Offer Notice. In the case of a Tag-along Offer in which the
consideration payable for Common Shares consists in part or in whole of
consideration other than cash, any increase in the cash component of such Tag-
along Offer shall constitute terms that are IPSO FACTO "more favorable" and thus
require the provisions of 2.3(a) to again apply to such increased offer. If, at
the end of such 90 day period, such Holder has not completed the sale
contemplated by the Tag-along Offer Notice, all of the restrictions on sale or
other disposition contained in this Agreement with respect to Common Shares
owned by such Holder shall again be in effect.

(d) Promptly after the consummation of the sale or other disposition
of the Common Shares pursuant to the Tag-along Offer, such Holder shall notify
the Tag-along Offerees thereof, shall remit to the Tag-along Offerees the

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total sales price specified in the Tag-along Offer Notice of the Common Shares
of the Tag-along Offerees sold or otherwise disposed of pursuant thereto, and
shall furnish such other evidence of such sale (including the time of
completion) and the terms thereof as may be reasonably requested by the Tag-
along Offerees.

(e) The provisions of this Section 2.3 shall not apply to (i) any
proposed sale of Common Shares by such Holder pursuant to a Public Offering or
in compliance with Rule 144 under the Securities Act or (ii) one or more
proposed sales by MSD or MSLEF of up to a number of Common Shares equal to the
difference of (x) 400,000 Common Shares and (y) the number of Common Shares
previously transferred pursuant to Section 2.5(f) (ii).

(f) Notwithstanding anything contained in this Section 2.3, there
shall be no liability on the part of such Holder to the Tag-along Offerees if
the sale of Common Shares pursuant to Section 2.3(c) is not consummated for
whatever reason. Whether to effect a sale of Common Shares pursuant to this
Section 2.3 by such Holder is in the sole and absolute discretion of such
Holder.

(g) No Tag-along Offeree may be required to make any representation
or warranty in connection with the Tag-along Offer other than as to such Tag-
along Offeree's ownership and authority to sell, free of liens, claims and
encumbrances, the Common Shares proposed to be sold by it. Notwithstanding the
foregoing, the Tag-along Offerees shall be required to bear their proportionate
share up to but in no event in excess of the net proceeds received by the Tag-
along Offerees for the Common Shares sold by them pursuant to such Tag-along
Offer, of any escrows, holdbacks or adjustments in purchase price under the
terms of the purchase agreement relating to such Tag-along Offer.

SECTION 2.4. RIGHTS TO COMPEL SALE. (a) Except as provided in
Section 2.4(d) and subject to the provisions set forth in Article IIA, Section
7(a) of the certificate of incorporation of the Issuer, in the event a Culbro
Change of Control has previously occurred, if MSD proposes to sell to any Person
(the "Compelled Sale Purchaser") all or substantially all of the Common Shares
held by it (the "Compelled Sale Offer"), then MSD shall have the right,
exercisable as set forth below, to require Culbro to sell all, but not less than
all, of the Common Shares then held by Culbro to the Compelled Sale Purchaser,
for the same consideration per Common Share and otherwise on the same terms and
conditions upon which MSD sells its Common Shares. If MSD elects to exercise its
right to compel Culbro to sell Common Shares pursuant to this Section 2.4 in
connection

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with any Tag-Along Offer, the provisions of this Section 2.4 shall apply in lieu
of the provisions of Section 2.3.

(b) If MSD elects to exercise its right to compel sale pursuant to
this Section 2.4 it shall deliver written notice (a "COMPELLED SALE NOTICE") of
any Compelled Sale Offer to Culbro and the Issuer, setting forth the
consideration per Common Share and other terms thereof. Culbro shall deliver to
MSD prior to the expiration of the 30-day period commencing on the date of the
applicable Compelled Sale Notice, the certificate or certificates representing
the number of Common Shares required to be sold by Culbro, Duly Endorsed,
together with all other documents required to be executed by Culbro connection
with such Compelled Sale Offer. If Culbro fails to deliver such certificates to
MSD, the Issuer shall cause the books and records of the Issuer to show that
such Common Shares are bound by the provisions of this Section 2.4 and that such
Common Shares shall be transferred only to the Compelled Sale Purchaser upon
surrender for transfer by Culbro.

MSD shall have 90 days from the date of the Compelled Sale Notice to
sell to the Compelled Sale Purchaser all the Common Shares subject to the
Compelled Sale Offer. Promptly after completion of any such sale pursuant to
this paragraph, MSD shall notify the Issuer and Culbro of such completion and
shall furnish evidence of such sale (including time of completion) and of the
terms thereof as the Issuer or Culbro may request. MSD shall also promptly
remit to Culbro the proceeds of such sale attributable to the sale of Culbro's
Common Shares. If any sale to a Compelled Sale Purchaser is not completed prior
to the expiration of the 90-day period referred to in this paragraph, MSD may
not consummate such sale and shall return to Culbro all certificates
representing the Common Shares which Culbro previously delivered to MSD in
connection with such Compelled Sale Offer.

(c) Notwithstanding anything in this Section 2.4 to the contrary,
there shall be no liability on the part of MSD to Culbro if any sale of Common
Shares pursuant to this Section 2.4 is not consummated for whatever reason. It
is understood that MSD, in its sole discretion, shall determine whether to
effect a sale of Common Shares to any Person pursuant to this Section 2.4.

(d) The provisions of this Section 2.4 shall not apply to any
proposed sale by MSD of all of its Common Shares (i) to the Issuer, (ii) to a
Permitted Transferee or (iii) pursuant to a Public Offering or in compliance
with Rule 144 under the Securities Act.

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SECTION 2.5. RIGHTS OF FIRST OFFER. (a) Except as provided in
Section 2.5(f), if at any time any Holder desires to sell for value any Common
Shares then owned by such Holder to any Third Party, such Holder shall first
comply with the rights of first offer contained in this Section 2.5. Such
Holder shall give written notice to the Issuer stating that such Holder desires
to make such sale, the number of Common Shares proposed to be sold and the price
per Common Share.

For purposes of this Agreement, any notice stating a Holder's desire
to sell Common Shares pursuant to this Section 2.5 is referred to as a "SELLER'S
NOTICE"; the Common Shares covered by any Seller's Notice are referred to as the
"OFFERED SHARES"; the Holder giving the Seller's Notice is sometimes referred to
as the "SELLER"; the cash equivalent of the price per share which the Holder
proposes to be paid therefor is referred to as the "FIRST OFFER PRICE"; and any
notice given any Holder pursuant to which such Holder elects to purchase Offered
Shares and that states (i) the maximum number of such Offered Shares that such
Holder elects to purchase, (ii) that the election made in such notice is
irrevocable and (iii) that such Holder shall purchase any number of Offered
Shares up to such maximum number at the First Offer Price in cash is referred to
as a "BUYER'S NOTICE". Each Seller's Notice shall constitute an irrevocable
offer by the Seller to the remaining Holders (the "REMAINING HOLDERS") of the
Offered Shares at the First Offer Price. The Issuer shall mail a copy of any
Seller's Notice (together with a description of the offering procedures
hereunder) to the Remaining Holders within 5 days of the receipt thereof.

(b) Within 10 days after the date of mailing by the Issuer of the
Seller's Notice, the Remaining Holders may elect to purchase Offered Shares at
the First Offer Price in a Buyer's Notice to the Seller, with a copy to the
Issuer. If the Remaining Holders fail to elect to purchase all of the Offered
Shares within such 10 day period then the Seller (i) shall be under no
obligation to sell any of the Offered Shares to the Remaining Holders, unless
the Seller so elects, and (ii) may, within a period of three months from the
date of the Seller's Notice, sell all or any Offered Shares to one or more Third
Parties at a price per share not less than the First Offer Price and on other
terms and conditions (including the form of consideration, which shall be the
same) which are no more favorable to the purchaser than those set forth in the
Seller's Notice.

(c) In the event of an oversubscription to purchase Offered Shares in
connection with notice given under Section 2.5(b) hereof, each Offeree which
delivered a Buyer's Notice thereunder shall be permitted to purchase its

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pro rata share of the Offered Shares. Such pro rata share shall equal the
product of (i) the fraction, the numerator of which shall be the number of
Offered Shares such Offeree offered to purchase pursuant to its Buyer's Notice
delivered under Section 2.5(b) and the denominator of which shall be the
aggregate number of Offered Shares all Offerees offered to purchase under
Section 2.5(b), times (ii) the aggregate number of Offered Shares available to
be purchased under Section 2.5(b).

(d) If the Remaining Holders do not elect to purchase all the Offered
Shares at the First Offer Price in cash and the Seller shall not have sold the
Offered Shares to any Third Party prior to the expiration of the three month
period specified in Section 2.5, then the rights of first offer under this
Section 2.5 shall again apply in connection with any subsequent sale or offer to
sell by such Seller.

(e) The closing of the purchases of Offered Shares by any Holder
pursuant to this Section 2.5 shall take place on the fifth Business Day after
the expiration of the time periods specified above. At such closing, such
Holder shall deliver the appropriate amount by certified or bank check or by
wire transfer in same day funds to the Seller against delivery of certificates
representing the Offered Shares so purchased, Duly Endorsed.

(f) Notwithstanding anything contained in this Section 2.5, the
provisions of this Section 2.5 shall not apply to (i) any transfer of Common
Shares made by a TagAlong Offeree pursuant to Section 2.3 or by Culbro pursuant
to Section 2.4, (ii) transfers by MSD (together with its Permitted Transferees)
of up to a number of Common Shares equal to the difference of (x) 400,000 Common
Shares and (y) the number of Common Shares previously sold pursuant to Section
2.3(e) (ii) or (iii) transfers pursuant to a Public Offering or in compliance
with Rule 144 under the Securities Act.

SECTION 2.6. IMPROPER TRANSFER. (a) Any attempt to sell, assign,
transfer, grant a participation in, pledge or otherwise dispose of any Common
Shares not in compliance with this Agreement shall be null and void and neither
the Issuer nor any transfer agent shall give any effect in the Issuer's stock
records to such attempted sale, assignment, transfer, grant of a participation
in, pledge or other disposition.

(b) No Holder shall enter into any transaction or series of
transactions for the purpose or with the effect of, directly or indirectly,
denying or reducing the value of the rights of any other Holder under this
Agreement, and any

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such transaction shall be null and void and, to the extent that such transaction
requires any action by the Issuer, it shall not be given effect in the Issuer's
stock records or otherwise.

ARTICLE III.

REGISTRATION RIGHTS

SECTION 3.1. DEMAND REGISTRATION.

(a) REGISTRATION ON REQUEST OF HOLDERS. From and after the second
anniversary of the Closing Date and for as long as any Holder owns Registrable
Securities, any Holder (the "SELLING INVESTOR") may make a written request that
the Issuer effect the registration under the Securities Act of not less than 15%
of the outstanding Registrable Securities, and specifying the intended method of
disposition thereof. The Issuer will promptly give written notice of such
requested registration to all other Holders of Registrable Securities, and
thereupon will use its best efforts to effect, as promptly as practicable, the
registration under the Securities Act of:

(i) the Registrable Securities which the Issuer has been so requested
to register by the Selling Investor; and

(ii) all other Registrable Securities which the Issuer has been
requested to register by any other Holder thereof by written request
received by the Issuer within ten Business Days after the giving of such
written notice by the Issuer (which request shall specify the intended
method of disposition of such Registrable Securities);

all to the extent necessary to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities so to be
registered; PROVIDED that:

(x) the Issuer shall not be obligated to file a registration
statement relating to a registration request pursuant to this Section 3.1
at any time during the six-month period immediately following the effective
date of another registration statement filed pursuant to this Section
3.1(a) and, except as otherwise specifically provided herein, shall in no
event be obligated to file more than six registration statements pursuant
to this Section 3.1(a); and

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(y) with respect to any registration statement filed or to be filed
pursuant to this Section 3.1, if the Board of Directors shall determine, in
its good faith judgment, that to maintain the effectiveness of such
registration statement or to permit such registration statement to become
effective (or, if no registration statement has yet been filed, to file
such a registration statement) would be significantly disadvantageous (a
"DISADVANTAGEOUS CONDITION") to the Issuer or its stockholders in light of
the existence, or in anticipation, of any acquisition or financing activity
involving the Issuer or the unavailability for reasons beyond the Issuer's
control of any required financial statements, the Issuer may, for a period
of not more than 180 days from the date of the Board's determination, cause
such registration statement to be withdrawn and the effectiveness of such
registration statement to be terminated or, if no registration statement
has yet been filed, elect not to file such registration statement.

Unless the Selling Investor shall consent in writing, no other party, including
the Issuer (but excluding another Holder of Registrable Securities), shall be
permitted to offer securities under any registration pursuant to Section 3.1(a).
Promptly after the expiration of the ten Business Day period referred to in
clause (ii) above, the Issuer shall notify all the Holders to be included in the
registration of the other Holders and the number of shares of Registrable
Securities requested to be included therein. The Selling Investor requesting a
registration under this Section 3.1(a) may, at any time prior to the effective
date of the registration statement relating to such registration, revoke such
request, without liability (except as set forth in Section 3.1(c)) to any other
Holder of Registrable Securities requested to be registered pursuant to clause
(ii) above, by providing a written notice to the Issuer revoking such request.
If the Issuer determines to take any action pursuant to clause (y) above, the
Issuer shall deliver a notice to the Selling Investor and to any other Holder
selling Registrable Securities pursuant to an effective registration statement
to such effect, and furnish to such persons a certified copy of the resolution
of the Board of Directors authorizing such action, together with a general
description of the applicable Disadvantageous Condition. Upon the receipt of
any such notice, such persons shall forthwith discontinue use of the prospectus
contained in such registration statement and, if so directed by the Issuer,
shall deliver to the Issuer all copies of the prospectus then covering such
Registrable Securities current at the time of receipt of such notice (or, if no
registration statement has yet been filed, all drafts of the

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prospectus covering such Registrable Securities). If any Disadvantageous
Condition shall cease to exist, the Issuer shall promptly notify the Selling
Investor (and any other Holders who shall have ceased selling securities
pursuant to an effective registration statement as a result of such
Disadvantageous Condition) to such effect. The Issuer shall, if any
registration statement shall have been withdrawn, at such time as it in good
faith deems appropriate or, if earlier, at the end of the 180 day period
referred to in clause (y) above, file a new registration statement covering the
Registrable Securities that were covered by such withdrawn registration
statement, and the effectiveness of such registration statement shall be
maintained for such time as may be necessary so that the period of effectiveness
of such new registration statement, when aggregated with the period during which
such withdrawn registration statement was effective, shall be such time as may
be otherwise required by this Agreement.

(b) REGISTRATION STATEMENT FORM. If, pursuant to a registration
request under this Section 3.1, (i) the Issuer proposes to effect registration
by filing of a registration statement on Form S-3 (or any successor or similar
short-form registration statement), (ii) such registration is in connection with
a Public Offering and (iii) the managing underwriter shall advise the Issuer in
writing that, in its opinion, the use of another form of registration statement
is of material importance to the success of such proposed offering, then such
registration shall be effected on such other form.

(c) EXPENSES. The Issuer shall pay all Registration Expenses in
connection with the registrations which are requested and become effective
pursuant to this Section 3.1, and each Holder shall pay all underwriting
discounts and commissions and transfer taxes, if any, relating to the sale or
disposition of such Holder's Registrable Securities pursuant to a registration
statement requested pursuant to this Section 3.1. The Issuer shall not be
liable for Registration Expenses in connection with a registration that shall
not have become effective due to a revocation by the Selling Investor requesting
such registration under this Section 3.1, and such Registration Expenses shall
be borne by the Selling Investor who initially requested and revoked such
registration.

(d) EFFECTIVE REGISTRATION STATEMENT. A registration requested
pursuant to this Section 3.1 shall not be deemed to have been effected unless
the registration statement relating thereto has become effective under the
Securities Act.

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(e) SELECTION OF UNDERWRITERS. Subject to paragraph 3 of the MSLEF
Sideletter, if any registration pursuant to this Section 3.1 is in the form of a
Public Offering, the Selling Investor shall have the right to select the
managing underwriter or co-managing underwriters for such Public Offering, which
underwriter shall be reasonably acceptable to the Issuer.

(f) PRIORITY PARTICIPATION IN REQUESTED REGISTRATIONS. If a
registration pursuant to this Section 3.1 involves a Public Offering and the
managing underwriter shall advise the Issuer that, in its view, the number of
equity securities requested to be included in such registration (including
securities which the Issuer requests to be included which are not Registrable
Securities) exceeds the largest number of securities which can be sold without
having an adverse effect on such offering (the "MAXIMUM OFFERING SIZE"),
including the price at which such securities can be sold, the Issuer will
include in such registration:

(i) first, the equity securities proposed to be sold by the Issuer;
and

(ii) second, the Registrable Securities requested to be included in
such registration pursuant to Section 3.1(a)(i) and 3.1(a)(ii), allocated
(if necessary) pro rata among such Holders on the basis of the relative
number of shares of Registrable Securities each such Holder has requested
to be included in such registration.

(g) If at least 50% of the Registrable Securities requested to be
registered by the Selling Investor are not included in such registration, then
the Selling Investor may request that the Issuer effect an additional
registration under the Securities Act of all or part of the Selling Investor's
Registrable Securities in accordance with this Section 3.1 and subject to
Section 3.3, and the Issuer shall pay the Registration Expenses in connection
with such additional registration.

SECTION 3.2. INCIDENTAL REGISTRATION. (a) If the Issuer at any time
proposes to register any of its equity securities (the "PRIORITY SECURITIES")
under the Securities Act (other than a registration (i) on Form S-8 or S-4 or
any successor or similar forms, (ii) relating to Common Shares issuable upon
exercise of employee stock options or in connection with any employee benefit or
similar plan of the Issuer, (iii) in connection with a direct or indirect
acquisition by the Issuer of another person, or (iv) pursuant to Section 3.1)
whether or not for sale for its own account, in a manner which would permit

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registration of Registrable Securities for sale to the public under the
Securities Act, it will each such time, subject to the provisions of Section
3.2(b), give prompt written notice to all Holders of record of Registrable
Securities of its intention to do so and of such Holders' rights under this
Section 3.2, at least 30 days prior to the anticipated filing date of the
registration statement relating to such registration. Any such notice shall
offer all such Holders the opportunity to include in such registration such
number of Registrable Securities as each such Holder may request. Upon the
written request of any such Holder made within 20 days after the receipt of
notice from the Issuer (which request shall specify the number of Registrable
Securities intended to be disposed of by such Holder and the intended method of
disposition thereof), the Issuer will use its best efforts to effect the
registration under the Securities Act of all Registrable Securities which the
Issuer has been so requested to register by the Holders thereof, to the extent
required to permit the disposition (in accordance with such intended methods
thereof) of the Registrable Securities so to be registered; PROVIDED that (i) if
such registration involves a Public Offering, all Holders of Registrable
Securities requesting to be included in the Issuer's registration must sell
their Registrable Securities to the underwriters selected by the Issuer on the
same terms and conditions as apply to the Issuer and (ii) if, at any time after
giving written notice of its intention to register any securities pursuant to
this Section 3.2(a) and prior to the effective date of the registration
statement filed in connection with such registration, the Issuer shall determine
for any reason not to register such securities, the Issuer shall give written
notice to all Holders of Registrable Securities and shall be relieved of its
obligation to register any Registrable Securities in connection with such
registration. If a registration pursuant to this Section 3.2(a) involves a
Public offering, any Holder of Registrable Securities requesting to be included
in such registration may elect, in writing not less than five Business Days
prior to the effective date of the registration statement filed in connection
with such registration, not to register such securities in connection with such
registration. No registration effected under this Section 3.2 shall relieve the
Issuer of its obligations to effect registrations upon request under Section
3.1. The Issuer will pay all Registration Expenses in connection with each
registration of Registrable Securities requested pursuant to this Section 3.2,
and each Holder shall pay all underwriting discounts and commissions and
transfer taxes, if any, relating to the sale or disposition of such Holder's
Registrable Securities pursuant to a registration statement effected pursuant to
this Section 3.2.

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(b) PRIORITY IN INCIDENTAL REGISTRATIONS. If a registration pursuant
to this Section 3.2 involves a Public Offering and the managing underwriter
shall advise the Issuer that, in its view, the number of equity securities
(including all Registrable Securities) which the Issuer, the Holders and any
other persons (including holders of the Class C Common Stock) intend to include
in such registration exceeds the Maximum Offering Size, the Issuer will include
in such registration, in the priority listed below, securities up to the Maximum
Offering Size:

(i) first, Priority Securities to be sold for the Issuer's own
account;

(ii) second, Registrable Securities requested to be included in such
registration by the Holders thereof pursuant to Section 3.2(a), allocated
(if necessary) pro rata among such Holders on the basis of the relative
number of shares of Registrable Securities each such Holder has requested
to be included in such registration; PROVIDED that the number of
Registrable Securities requested by any Holder to be included in such
registration may be reduced by a proportion not to exceed the proportion by
which the number of Registrable Securities requested by any other person to
be included in such registration is reduced; and

(iii) third, Priority Securities to be sold for the account of
holders of Priority Securities other than the Issuer, with such priorities
among them as the Issuer shall determine.

SECTION 3.3. HOLDBACK AGREEMENTS. (a) If any registration of
Registrable Securities shall be in connection with a Public Offering, each
Holder of Registrable Securities agrees not to effect any public sale or
distribution, including any sale pursuant to Rule 144 or any successor provision
under the Securities Act, of any Registrable Securities, and not to effect any
such public sale or distribution of any other equity security of the Issuer or
of any security convertible into or exchangeable or exercisable for any equity
security of the Issuer (in each case, other than as part of such Public
Offering) during the fourteen days prior to, and during the 120 day period (or,
in the case of an initial Public Offering, the 180 day period) beginning on, the
closing date of such registration statement (except as part of such
registration); PROVIDED that each Holder of Registrable Securities has received
written notice of such registration at least two Business Days prior to the
anticipated beginning of the fourteen day period referred to above.

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(b) If any registration of Registrable Securities shall be in
connection with a Public Offering, the Issuer agrees (i) not to effect any
public sale or distribution of any of its equity securities or of any security
convertible into or exchangeable or exercisable for any equity security of the
Issuer during the fourteen days prior to, and during the 120 day period (or, in
the case of the initial Public Offering, the 180 day period) beginning on, the
effective date of such registration statement (except as part of such
registration) and (ii) that any agreement entered into after the date of this
Agreement pursuant to which the Issuer issues or agrees to issue any privately
placed securities shall contain a provision under which holders of such
securities agree not to effect any public sale or distribution of any such
securities during the periods described in (i) above, in each case including a
sale pursuant to Rule 144 under the Securities Act (except as part of any such
registration, if permitted); PROVIDED that the provisions of this paragraph (b)
shall not prevent the conversion or exchange of any securities pursuant to their
terms into or for other securities.

SECTION 3.4. REGISTRATION PROCEDURES. Whenever Holders request that
any Registrable Securities be registered pursuant to Section 3.1 or 3.2, the
Issuer shall, subject to the provisions of such Sections, use its best efforts
to effect the registration and the sale of such Registrable Securities in
accordance with the intended method of disposition thereof as quickly as
practicable, and in connection with any such request:

(a) The Issuer will as expeditiously as possible prepare and file
with the Commission a registration statement on any form for which the
Issuer then qualifies or which counsel for the Issuer shall deem
appropriate and which form shall be available for the sale of the
Registrable Securities to be registered thereunder in accordance with the
intended method of distribution thereof, and use its best efforts to cause
such filed registration statement to become and remain effective for a
period not less than 270 days.

(b) The Issuer will, if requested, prior to filing a registration
statement or prospectus or any amendment or supplement thereto, furnish to
each Holder and each underwriter, if any of the Registrable Securities
covered by such registration statement copies of such registration
statement as proposed to be filed, and thereafter the Issuer will furnish
to such Holder and underwriter, if any, such number of copies of such
registration statement, each amendment and supplement thereto (in each case
including all exhibits thereto and documents incorporated by reference

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therein) the prospectus included in such registration statement (including
each preliminary prospectus) and such other documents as such Holder or
underwriter may reasonably request in order to facilitate the disposition
of the Registrable Securities owned by such Holder.

(c) After the filing of the registration statement, the Issuer will
promptly notify each Holder of Registrable Securities covered by such
registration statement of any stop order issued or threatened by the
Commission and take all reasonable actions required to prevent the entry of
such stop order or to remove it if entered.

(d) The Issuer will use its best efforts (i) to register or qualify
the Registrable Securities under such other securities or blue sky laws of
such jurisdictions in the United States as any Holder of Registrable
Securities covered by such registration statement reasonably (in light of
such Holder's intended plan of distribution) requests and (ii) to cause
such Registrable Securities to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Issuer and do any and all other acts and
things that may be reasonably necessary or advisable to enable such Holder
to consummate the disposition of the Registrable Securities owned by such
Holder; PROVIDED that the Issuer will not be required (x) to qualify
generally to do business in any jurisdiction where it would not otherwise
be required to qualify but for this paragraph (d), (y) to subject itself to
taxation in any such jurisdiction or (z) to consent to general service of
process in any such jurisdiction.

(e) The Issuer will immediately notify each Holder of Registrable
Securities covered by such registration statement, at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act, of the occurrence of an event requiring the preparation of
a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
will not contain an untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading and promptly make available to each such
Holder any such supplement or amendment.

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(f) The Issuer will enter into customary agreements (including an
underwriting agreement in customary form) and take such other actions as
are reasonably required in order to expedite or facilitate the disposition
of such Registrable Securities.

(g) The Issuer will make available for inspection by any Holder of
Registrable Securities covered by such registration statement, any
underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other professional retained by
any such Holder or underwriter (collectively, the "INSPECTORS"), all
financial and other records, pertinent corporate documents and properties
of the Issuer (collectively, the "RECORDS") as shall be reasonably
necessary to enable them to exercise their due diligence responsibility,
and cause the Issuer's officers, directors and employees to supply all
information reasonably requested by any Inspectors in connection with such
registration statement. Records which the Issuer determines, in good
faith, to be confidential and which it notifies the Inspectors are
confidential shall not be disclosed by the Inspectors unless (i) the
disclosure of such Records is necessary to avoid or correct a misstatement
or omission in such registration statement or (ii) the release of such
Records is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction. Each Holder agrees that information obtained by it
as a result of such inspections shall be deemed confidential and shall not
be used by it as the basis for any market transactions in tt)e securities
of the Issuer or its Affiliates unless and until such is made generally
available to the public. Each Holder further agrees that it will, upon
learning that disclosure of such Records is sought in a court of competent
jurisdiction, give notice to the Issuer and allow the Issuer, at its
expense, to undertake appropriate action to prevent disclosure of the
Records deemed confidential.

(h) The Issuer will furnish to each Holder of Registrable Securities
covered by such registration statement and to each underwriter, if any, a
signed counterpart of (i) an opinion or opinions of counsel to the Issuer
addressed to such holder and underwriter and (ii) a comfort letter or
comfort letters from the Issuer's independent public accountants, each in
customary form and covering such matters of the type customarily covered by
opinions or comfort letters, as the case may be, as a majority of the
Holders of the Registrable Securities included in such registration
statement or the managing underwriter therefor

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reasonably requests. The Issuer will use its best efforts to have such
comfort letter or comfort letters addressed to each such Holder and
underwriter.

(i) The Issuer will otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to
its securityholders, as soon as reasonably practicable, an earnings
statement covering a period of 12 months, beginning within three months
after the effective date of the registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities
Act.

(j) The Issuer will use its best efforts to cause all such
Registrable Securities to be listed on each securities exchange on which
similar securities issued by the Issuer are then listed.

The Issuer may require each Holder of Registrable Securities included
in such registration statement promptly to furnish in writing to the Issuer such
information regarding the distribution of the Registrable Securities as the
Issuer may from time to time reasonably request and such other information as
may be legally required in connection with such registration.

Each Holder agrees that, upon receipt of any notice from the Issuer of
the happening of any event of the kind described in Section 3.4(e), such Holder
will forthwith discontinue disposition of Registrable Securities pursuant to the
registration statement covering such Registrable Securities until such Holder's
receipt of the copies of the supplemented or amended prospectus contemplated by
Section 3.4(e), and, if so directed by the Issuer, such Holder will deliver to
the Issuer all copies of the most recent prospectus covering such Registrable
Securities at the time of receipt of such notice. In the event the Issuer shall
give such notice, the Issuer shall extend the period during which the
effectiveness of such registration statement shall be maintained (including the
period referred to in Section 3.4(a) hereof) by the number of days during the
period from and including the date of the giving of notice pursuant to Section
3.4(e) to the date when the Issuer shall make available to the Holders a
prospectus supplemented or amended to conform with the requirements of Section
3.4(e).

The Issuer shall not be liable for the failure of any such
registration to become effective provided that the Issuer complies with its
obligations hereunder.

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SECTION 3.5. INDEMNIFICATION BY THE ISSUER. The Issuer agrees to
indemnify and hold harmless each Holder of Registrable Securities covered by a
registration statement, its officers, directors and agents, and each person, if
any, who controls such Holder within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act from and against any and all losses,
claims, damages, liabilities and expenses caused by any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement or prospectus relating to the Registrable Securities (as amended or
supplemented if the Issuer shall have furnished any amendments or supplements
thereto) or any preliminary prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information furnished in writing to the Issuer by such Holder or on such
Holder's behalf expressly for use therein; PROVIDED, that with respect to any
untrue statement or omission or alleged untrue statement or omission made in any
preliminary prospectus, or in any prospectus, as the case may be, the indemnity
agreement contained in this paragraph shall not apply to the extent that any
such loss, claim, damage, liability or expense results from the fact that a
current copy of the prospectus (or, in the case of a prospectus, the prospectus
as amended or supplemented) was not sent or given to the person asserting any
such loss, claim, damage, liability or expense at or prior to the written
confirmation of the sale of the Registrable Securities concerned to such person
if it is determined that the Issuer has provided such prospectus and it was the
responsibility of such Holder to provide such person with a current copy of the
prospectus (or such amended or supplemented prospectus, as the case may be) and
such current copy of the prospectus (or such amended or supplemented prospectus,
as the case may be) would have cured the defect giving rise to such loss, claim,
damage, liability or expense. The Issuer also agrees to indemnify any
underwriters of the Registrable Securities, their officers and directors and
each person who controls such underwriters on substantially the same basis as
that of the indemnification of the Holders provided in this Section 3.5.

SECTION 3.6. INDEMNIFICATION BY HOLDERS OF REGISTRABLE SECURITIES.
Each Holder of Registrable Securities included in any registration statement
agrees, severally but not jointly, to indemnify and hold harmless the Issuer,
its officers, directors and agents and each person, if any, who controls the
Issuer within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act to the same extent as the foregoing

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indemnity from the Issuer to such Holder, but only (i) with respect to
information furnished in writing by such Holder or on such Holder's behalf
expressly for use in any registration statement or prospectus relating to the
Registrable Securities, or any amendment or supplement thereto, or any
preliminary prospectus or (ii) to the extent that any loss, claim, damage,
liability or expense described in Section 3.5 results from the fact that a
current copy of the prospectus (or, in the case of a prospectus, the prospectus
as amended or supplemented) was not sent or given to the person asserting any
such loss, claim, damage, liability or expense at or prior to the written
confirmation of the sale of the Registrable Securities concerned to such person
if it is determined that it was the responsibility of such Holder to provide
such person with a current copy of the prospectus (or such amended or
supplemented prospectus, as the case may be) and such current copy of the
prospectus (or such amended or supplemented prospectus, as the case may be)
would have cured the defect giving rise to such loss, claim, damage, liability
or expense. Each such Holder also agrees to indemnify and hold harmless
underwriters of the Registrable Securities, their officers and directors and
each person who controls such underwriters on substantially the same basis as
that of the indemnification of the Issuer provided in this Section 3.6.

SECTION 3.7. CONDUCT OF INDEMNIFICATION PROCEEDINGS. In case any
proceeding (including any governmental investigation) shall be instituted
involving any person in respect of which indemnity may be sought pursuant to
Section 3.1 or 3.2, such person (an "INDEMNIFIED PARTY") shall promptly notify
the person against whom such indemnity may be sought (the "INDEMNIFYING PARTY")
in writing and the Indemnifying Party shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Indemnified
Party, and shall assume the payment of all fees and expenses. In any such
proceeding, any Indemnified Party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii)
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them. It is understood that the
Indemnifying Party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) at any time for all such Indemnified Parties, and that all such fees
and expenses shall be reimbursed as they are incurred. In the case of any such
separate firm for the Indemnified Parties, such firm shall be designated in

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writing by the Indemnified Parties. The Indemnifying Party shall not be liable
for any settlement of any proceeding effected without its written consent, but
if settled with such consent, or if there be a final judgment for the plaintiff,
the Indemnifying Party shall indemnify and hold harmless such Indemnified
Parties from and against any loss or liability (to the extent stated above) by
reason of such settlement or judgment. No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, effect any settlement of any
pending or threatened proceeding in respect of which any Indemnified Party is or
could have been a party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional release of
such Indemnified Party from all liability arising out of such proceeding.

SECTION 3.8. CONTRIBUTION. If the indemnification provided for in
this Article III is unavailable to the Indemnified Parties in respect of any
losses, claims, damages or liabilities referred to herein, then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages or liabilities (i) as between the Issuer and the
Holders of Registrable Securities covered by a registration statement on the one
hand and the underwriters on the other, in such proportion as is appropriate to
reflect the relative benefits received by the Issuer and such Holders on the one
hand and the underwriters on the other from the offering of the Registrable
Securities, or if such allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits but also
the relative fault of the Issuer and such Holders on the one hand and of
the underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations and (ii) as between the Issuer on the
one hand and each Holder of Registrable Securities covered by a registration
statement on the other, in such proportion as is appropriate to reflect the
relative fault of the Issuer and of each such Holder in connection with such
statements or omissions, as well as any other relevant equitable considerations.
The relative benefits received by the Issuer and such Holders on the one hand
and the underwriters on the other shall be deemed to be in the same proportion
as the total proceeds from the offering (net of underwriting discounts and
commissions but before deducting expenses) received by the Issuer and the
Holders bear to the total underwriting discounts and commissions received by the
underwriters, in each case as set forth in the table on the cover page of the
prospectus. The relative fault of the Issuer and the Holders on the one hand
and of

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the underwriters on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Issuer and the Holders or by the underwriters. The
relative fault of the Issuer on the one hand and of each Holder on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by such party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.

The Issuer and the Holders agree that it would not be just and
equitable if contribution pursuant to this Section 3.8 were determined by pro
rata allocation (even if the underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such Indemnified Party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 3.8, no underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and no Holder shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities of such Holder were offered to the
public exceeds the amount of any damages which such Holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Each Holder's obligation to contribute pursuant to this
Section 3.8 is several in the proportion that the proceeds of the offering
received by such Holder bears to the total proceeds of the offering received by
all the Holders and not joint.

SECTION 3.9. PARTICIPATION IN PUBLIC OFFERING. No person may
participate in any Public Offering hereunder

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unless such person (i) agrees to sell such person's securities on the basis
provided in any underwriting arrangements approved by the persons entitled
hereunder to approve such arrangements and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements and these Registration Rights.

SECTION 3.10. RULE 144 REPORTING. (a) With a view to making
available to the Holders the benefits of certain rules and regulations of the
Commission which may permit the sale of Common Shares to the public without
registration, issuer agrees to:

(1) make and keep public information available as those terms are
understood and defined in Rule 144 (including paragraph (c) (2) of such
Rule);

(2) file with the Commission in a timely manner reports and other
documents, if any, required of Issuer under the Securities Act and the
Exchange Act; and

(3) furnish to the Holders forthwith upon request a written statement
by Issuer as to its compliance with the reporting requirements of Rule 144,
and of the Securities Act and the Exchange Act (if applicable), a copy of
the most recent annual or quarterly report of issuer filed with the
Commission, if any, and such other reports and documents of Issuer and
other information in the possession of or reasonably obtainable by Issuer
as the Holders may reasonably request in availing themselves of any rule or
regulation of the Commission allowing the Holders to sell securities
without registration.

(b) The Issuer agrees to provide to the Holders such information as
is reasonably available to the Issuer in order to permit the Holders to sell
Common Shares pursuant to Rule 144A of the Securities Act.

ARTICLE IV

CORPORATE GOVERNANCE; COVENANTS

SECTION 4.1. DESIGNATION OF DIRECTORS; CORPORATE ACTION. (a) Each
of the Issuer and Culbro agrees to use its best efforts to cause two directors
designated by MSD to be appointed to the Board of Directors and, upon the
request of MSD, the board of directors of each Subsidiary of the Issuer. Each
director so designated by MSD is referred to

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herein individually as a "MSLEF DIRECTOR" and together as the "MSLEF DIRECTORS".
MSD shall be entitled but not required to designate from time to time one of the
MSLEF Directors as the "MSLEF CONSENTING DIRECTOR" for the purposes set forth
below. Each of the MSLEF Directors may be removed and replaced at any time with
or without cause at the discretion of MSD. Culbro agrees that, upon the written
request of MSD, it will use its best efforts (including in the case of directors
of the Issuer designated by Culbro, replacing such directors) to cause the
directors of the Issuer to vote the Issuer's stock in each Subsidiary of the
Issuer to appoint, remove or replace the MSLEF Directors upon the request of
MSD.

(b) The Board of Directors shall at all times consist of ten members
and the boards of directors of each Subsidiary of the Issuer shall at all times
consist of ten members. In the event of an increase in the size of any such
board, MSD will have the right to designate additional directors to be appointed
to such board such that the number of directors designated by MSD shall be equal
to the lesser of (i) the second largest number of directors designated by any
stockholder or group of stockholders (directors of the Issuer nominated by the
holders of the Series A Preferred, if any, and the Class C Common Stock will
constitute a group for this purpose) or (ii) the largest number of directors
which is not inconsistent with the rights of the holders of the Class C Common
Stock; PROVIDED that , subject to the provisions set forth in Article IIA,
Section 6 of the certificate of incorporation of the Issuer, MSD shall have the
right to appoint a majority of the members of the Board of Directors upon a
Culbro Change of Control; and PROVIDED FURTHER that in the event Culbro ceases
to hold a majority of the outstanding Common Shares or ordinary voting power of
the Issuer, each of Culbro and MSLEF shall have the right to designate a number
of directors on the Board of Directors (excluding for this purpose any directors
of the Issuer nominated by the holders of the Series A Preferred and the Class C
Common Stock) in proportion to its ordinary voting power. Culbro and the Issuer
agree to use their best efforts to take all actions necessary to cause such
directors designated by MSD to be appointed to the Board of Directors and the
board of directors of each Subsidiary of the Issuer.

(c) MSD shall have the right to appoint one member to each committee
of the Board of Directors. Culbro and the Issuer agree to use their best
efforts to take all actions necessary to appoint each such committee member.

(d) Each of Culbro and the Issuer agrees, immediately upon request of
MSD, to execute a shareholder consent with respect to the Issuer, or to vote its
Common

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Shares at, or nominate persons to be directors in connection with, any annual or
special meeting of shareholders where action with respect to the election of
directors is to be taken, or to cause the directors of the Issuer to execute a
consent with respect to a Subsidiary of the Issuer or to vote the shares of such
Subsidiary, in each case so as to give effect to the provisions of this Section
4.1.

SECTION 4.2. ACTIONS REQUIRING CONSENT OF MSD. The Issuer shall not,
and shall not (and shall cause its designees to the Board of Directors not to)
permit any of its Subsidiaries to, and Culbro shall not cause the Issuer or any
Subsidiary of the Issuer to, take any of the following actions without a
favorable vote of MSD or the written consent of at least one MSLEF Director or,
if a MSLEF Consenting Director has been designated, the consent of the MSLEF
Consenting Director:

(a) CHARTER AND BYLAWS. Alter, repeal, amend or adopt any provision
of the certificate of incorporation, by-laws or other constituent documents of
the Issuer or any Subsidiary of the Issuer;

(b) DEBT. (A) (i) Incur, assume, or at any time be liable with
respect to, any Debt, (ii) refinance or renew any Debt, (iii) discharge, repay
(other than pursuant to regularly scheduled payments thereof) or cancel any
Debt, other than (x) in the case of clause (i), pursuant to the Chemical Bank
Agreement as in effect on the date hereof and (y) in the case of clauses (i),
(ii) and (iii), other Debt with an aggregate principal amount outstanding at any
time equal to $1,500,000 or (B) enter into credit facilities or other financing
arrangements other than those specifically permitted pursuant to this Section
4.2(b);

(c) OTHER BUSINESS. Make any material change in the nature of the
business of the Issuer and its Subsidiaries, taken as a whole;

(d) ACCOUNTING; TAX. (i) Make any significant change in the
financial accounting principles, or the accounting or tax policies (including
making or changing any tax election or changing any annual tax accounting
period), of the Issuer or its Subsidiaries from those in effect on the date
hereof, except for changes required by generally accepted accounting principles
or applicable law or regulation, (ii) remove or appoint the auditors of the
Issuer or its Subsidiaries or (iii) approve annual financial statements of the
Issuer or its Subsidiaries and any financial information with respect to the
Issuer or its Subsidiaries to be filed with the Commission;

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(e) BUSINESS COMBINATION. Effect any merger, consolidation or any
other business combination, or any reorganization recapitalization,
reclassification, spin-off, partial or complete liquidation, extraordinary
dividend, split-up, distribution to stockholders or combination of the
securities of the Issuer or any Subsidiary of the Issuer or any other change in
capital structure of the Issuer or any Subsidiary of the Issuer other than
changes specifically permitted pursuant to Section 4.2(b);

(f) SALE OF ASSETS. Sell, assign, lease, exchange, transfer or
dispose of assets (by disposition of assets, stock or otherwise) of the Issuer
or its Subsidiaries, in one transaction or a series of transactions, having a
fair market value in the good faith determination of the Board in excess of $3
million during any twelve-month period, other than sales of inventory in the
ordinary course of business;

(g) ACQUISITIONS. Purchase or acquire for its own account any
ownership interest in any Person or business, whether effected as a merger, a
purchase, an acquisition of assets or a purchase, pooling or acquisition of
capital stock or otherwise, other than any such ownership interest arising in
connection with the satisfaction by a Third Party of a bad debt owing to the
Issuer or a Subsidiary of the Issuer;

(h) DISSOLUTION. (i) Dissolve or liquidate, or adopt any plan of
dissolution or liquidation, (ii) consent to or commence any suit, proceeding or
other action or file a petition or consent to a petition (A) under any existing
or future law of any jurisdiction relating to bankruptcy, insolvency,
reorganization of relief of debtors, seeking to have an order for relief entered
with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding up, liquidation,
dissolution, composition or other relief with respect to it, or (B) seeking
appointment of a receiver, liquidator, assignee, trustee, custodian or other
similar official for it or all or any substantial part of its assets, or (iii)
make any assignment for the benefit of creditors, or (iv) admit in writing its
inability to pay its debts generally as they become due, or (v) voluntarily
dissolve itself or (vi) take any corporate action in furtherance of any such
action other than, in the case of clauses (i) through (vi) above, in the case of
Subsidiaries of the Issuer with a net worth, individually or in the aggregate,
equal to $250,000 or less;

(i) TRANSACTIONS WITH AFFILIATES. Except as expressly contemplated
by the Asset Purchase Agreement or

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any Ancillary Agreement, directly or indirectly do any of the following: lease,
sell or transfer any property or services to or lease or purchase any property
or services from, make any investment in, make any loan or advance to, or
receive any loan, advance or investment from, incur or suffer any lien,
liability, or obligation to, or guaranty, extend credit for, or suffer any
liability for any obligation of, or modify the terms of any existing transaction
or arrangement with, or engage in any other transaction or arrangement with, or
commit to such a transaction or arrangement with, the Issuer or any Affiliate of
the Issuer; PROVIDED that the foregoing provisions of this Section 4.2(i) shall
not prohibit (i) the Issuer or any Subsidiary of the Issuer from declaring or
paying any lawful dividend otherwise permitted to be made without the consent of
MSLEF or MSD pursuant to the terms hereof, (ii) any transactions OR ARRANGEMENTS
(including purchases or sales) set forth on the DISCLOSURE SCHEDULE to the Asset
Purchase Agreement or specifically permitted by the certificate of incorporation
of the Issuer in effect on the date hereof, (iii) any transaction or arrangement
between the Issuer and any wholly-owned Subsidiary of the Issuer or (iv) the
refinancing with Philip Morris or an Affiliate of Philip Morris of $8 million
principal amount of the Mortgage on terms and conditions to include interest
payable at the rate of 10% per annum and payments of principal equal to $500,000
per annum with the balance to be paid at maturity.

(j) STOCK ISSUANCE AND REPURCHASE. Issue, sell, dividend, redeem,
convert, exchange, repurchase, cancel, retire or otherwise dispose of any shares
of its capital stock, phantom equity or similar rights or interests or any
warrants, options or other rights to purchase, substitute for or acquire shares
of capital stock, phantom equity or similar rights or interests or securities
convertible into or exchangeable for any shares of capital stock, phantom equity
or similar rights or interests of the Issuer or any of its Subsidiaries, except
(i) upon the conversion, exchange or redemption of the Class C Common Stock, the
Series A Preferred Stock or the Subordinated Note or as otherwise contemplated
by this Agreement or the Ancillary Agreements, (ii) options issued to purchase
Common Shares, and Common Shares issued upon exercise of such options, pursuant
to option plans of the Issuer in effect on the date hereof or (iii) any phantom
equity issued pursuant to the agreement dated January 24, 1994 between the
Issuer and Mr. Bane.

(k) CHIEF EXECUTIVE OFFICER. (i) appoint or remove the chief
executive officer of the Issuer or (ii) adopt, enhance, implement or modify to
any material extent any incentive or other compensation arrangement (including
base salary and option or bonus plans), benefit

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plan or arrangement, or other term of employment of or relating to the chief
executive officer of the Issuer;

(l) COMMITTEES. Establish any committee of the Board of Directors or
the board of directors of any Subsidiary of the Issuer or pay fees to members of
such committees, other than as previously approved by MSLEF or MSD pursuant to
the terms hereof;

(m) LITIGATION. Institute, terminate or settle material litigation
with a Third Party;

(n) CAPITAL EXPENDITURES. Make or commit to make (i) any individual
capital expenditure project (regardless of duration) in excess of $7 million or
(ii) capital expenditures during any fiscal year in excess of an aggregate of $7
million per annum (excluding any capital expenditures previously approved as an
exception to the prohibition set forth in clause (i) above);

(o) ACQUISITION OF ASSET OR BUSINESS. Purchase or acquire from any
other Person assets or a business, other than purchases of inventory and
supplies in the ordinary course of business other than purchases or acquisitions
specifically permitted or otherwise approved pursuant to the terms of this
Section 4.2;

(p) MATERIAL CONTRACTS. Enter into or amend any contract, agreement
or obligation (including any credit facility or debt security) which creates a
liability or involves payments (or is reasonably expected to create a liability
or involve payments) in excess of (i) $75,000,000, in the case of contracts,
agreements or obligations for the purchase or sale of inventory in the ordinary
course of business, (ii) $3,000,000, in the case of any other contract,
agreement or obligation or (iii) which otherwise is material to the Issuer or
any of its Subsidiaries;

(q) DIVIDENDS. (i) Except as provided in Section 4.4(d), pay or
declare dividends or distributions on the capital stock of the Issuer or any of
its Subsidiaries or (ii) establish or modify policies with respect to dividends;
and

(r) OTHER TRANSACTIONS. Enter into any other agreement, arrangement
or transaction which is material to the Issuer and its Subsidiaries, taken as a
whole, other than agreements, arrangements or transactions which (i) pursuant to
the terms hereof are specifically permitted without prior approval pursuant to
this Section 4.2 or (ii) previously have been approved pursuant to this Section
4.2.

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The Issuer shall use its best efforts to give to MSD, the MSLEF Directors or the
MSLEF Consenting Director, as the case may be, actual notice that the consent of
such Person is being solicited in connection with the requirements of this
Section 4.2. Such Person shall use its best efforts to grant such consent (or
to indicate that such consent is being withheld) as soon as possible but no
later than 20 days following delivery of such notice.

SECTION 4.3. CERTAIN AGREEMENTS. (a) The parties hereto agree that
MSD shall have the right to review with senior management of the Issuer and its
Subsidiaries the annual business plans, and budget and longer-term strategic
plans, of the Issuer and its Subsidiaries prior to their submission to the Board
of Directors or the board of directors of any such Subsidiary.

(b) The Issuer will hold, and will use its best efforts to cause
their Affiliates, officers, directors, employees, agents and representatives to
hold, in confidence, unless compelled to disclose by judicial or administrative
process or by other requirements of law all confidential documents and
information concerning the Agreement of even date herewith between MSD and
Nicotiana Enterprises, Inc. ("NEI"), NEI or its Affiliates furnished to such
Person except to the extent that such information can be shown to have been (i)
previously known on a nonconfidential basis by such Person, (ii) in the public
domain through no fault of such Person or (iii) later lawfully acquired by such
Person from sources other than NEI or any of its Affiliates or any of their
stockholders, partners, officers, directors, employees, agents or
representatives; PROVIDED that any Person may disclose such information to the
stockholders, officers, directors, employees, agents or representatives of such
Person or Affiliate in connection with the transactions contemplated by this
Agreement so long as such Persons are informed by such Person of the
confidential nature of such information and are directed by such Person to treat
such information confidentially.

(c) If the refinancing of the Mortgage referred to in Section 4.2(i)
(iv) is not consummated within 120 days following the Closing Date, Culbro and
the Issuer will cause the Mortgage to be amended to extend the maturity date to
seven years following the Closing Date and to require that MSLEF consent to
prepayments and refinancings thereof; PROVIDED that no such consent shall be
required in connection with any such refinancing on terms not materially worse
to Buyer than those in effect on the date hereof with a maturity of not less
than seven years and containing a call feature payable at par.

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(d) As soon as practicable following the end of each calendar month
and each fiscal quarter, the Issuer shall cause to be prepared and delivered to
MSD a financial reporting package containing operating data and financial
information for the Issuer in respect of such month or quarter, as the case may
be, which is of a type and in a format similar to that previously provided to
Culbro.

SECTION 4.4. EXCHANGE OF CULBRO NOTE; SERIES B REDEMPTION. (a)
Subject to Section 4.4(b), the Issuer hereby agrees that, upon the occurrence of
a Series B Redemption Event, it shall redeem all shares of Series B Preferred
then outstanding at the redemption price and in the manner set forth in the
certificate of incorporation of the Issuer.

(b) The Issuer hereby agrees that it shall provide 30 days prior
written notice of the anticipated occurrence of a Series B Redemption Event;
PROVIDED that if the Issuer receives less than 30 days' prior notice of a
mandatory redemption of the type described in clauses (iii) through (vi) of the
definition of "Series B Redemption Event", the Issuer shall notify MSD of such
redemption immediately upon receipt of such notice by the Issuer.

(c) Immediately following any redemption of the Series B Preferred,
MSD will pay to Culbro an amount in cash equal to (i) the Culbro Percentage
MULTIPLIED BY (ii) the aggregate amount in cash received by MSD in connection
with such redemption of the Series B Preferred plus any dividends in respect of
the Series B Preferred previously received by MSD; PROVIDED THAT in no event
shall such amount exceed the Accrued Dividend Amount (as reduced by any amount
of such Accrued Dividend Amount previously paid to Culbro).

(d) Immediately (or, if possible, 48 hours) prior to any exchange of
the Culbro Note other than any Designated Exchange, the Issuer shall, and Culbro
shall cause the Issuer to, declare, and set a record date prior to such exchange
with respect to, the payment of all accrued and unpaid dividends on all of the
shares of Series B Preferred (or, in the case of a partial exchange, on the
Series B Preferred to be redeemed) to the extent funds are legally available for
the payment of dividends and subject to the provisions of the Custody and Pledge
Agreement of even date herewith among Culbro, MSD, the Issuer and the Custodian.

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ARTICLE V

REPRESENTATIONS AND WARRANTIES
OF CULBRO AND THE ISSUER

Each of Culbro and the Issuer, as to itself, represents and warrants
to MSD as of the date hereof that:

SECTION 5.1. CORPORATE EXISTENCE AND POWER. (a) Such Person is a
corporation duly incorporated, validly existing and in good standing under
the laws of its jurisdiction of incorporation and has all corporate powers
and all governmental licenses, authorizations, permits, consents and approvals
required to carry on its business as now conducted except for those licenses,
authorizations, permits, consents and approvals the absence of which would
not, individually or in the aggregate, have a Material Adverse Effect. Such
Person has heretofore delivered to MSD and MSLEF true and complete copies of
its certificate of incorporation and bylaws as currently in effect.

(b) Each Subsidiary of the Issuer is a corporation duly incorporated,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted.

SECTION 5.2. CORPORATE AUTHORIZATION. The execution, delivery and
performance by such Person of this Agreement are within its corporate powers and
have been duly authorized by all necessary corporate action on its part. This
Agreement constitutes a valid and binding agreement of such Person.

SECTION 5.3. GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by such Person of this Agreement require no action by or in respect
of, or filing with, any governmental body, agency or official other than any
such action or filing as to which the failure to make or obtain would not,
individually or in the aggregate, have a Material Adverse Effect.

SECTION 5.4. NON-CONTRAVENTION. The execution, delivery and
performance by such Person of this Agreement do not and will not (i) violate the
certificate of incorporation or bylaws of such Person, (ii) assuming compliance
with the matters referred to in Section 5.3, violate any applicable law, rule,
regulation judgment, injunction, order or decree, (iii) require any consent or
other action by any Person under or constitute a default under, any agreement or
other instrument binding such

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Persons or (iv) result in the creation or imposition of any Lien on any asset of
such Person except, in the case of clauses (ii), (iii) and (iv), to the extent
that any such violation would not, individually or in the aggregate, have a
Material Adverse Effect.

ARTICLE VI

REPRESENTATIONS AND
WARRANTIES OF MSD

MSD represents and warrants to Culbro and the Issuer as of the date hereof
that:

SECTION 6.1. CORPORATE EXISTENCE AND POWER. (a) MSD is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has all corporate powers and all
governmental licenses, authorizations, permits, consents and approvals
required to carry on its business as now conducted except for those licenses,
authorizations, permits, consents and approvals the absence of which would not,
individually or in the aggregate, have a Material Adverse Effect. MSD has
heretofore delivered to Culbro and the Issuer true and complete copies of its
certificate of incorporation and bylaws as currently in effect.

(b) MSD has no Subsidiaries.

SECTION 6.2. CORPORATE AUTHORIZATION. The execution, delivery and
performance by MSD of this Agreement are within its powers and have been duly
authorized by all necessary action on its part. This Agreement constitutes a
valid and binding agreement of MSD.

SECTION 6.3. GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by MSD of this Agreement require no action by or in respect of, or
filing with, any governmental body, agency or official other than any such
action or filing as to which the failure to make or obtain would not,
individually or in the aggregate, have a Material Adverse Effect.

SECTION 6.4. NON-CONTRAVENTION. The execution, delivery and
performance by MSD of this Agreement do not and will not (i) violate the
certificate of incorporation or bylaws of (ii) assuming compliance with the
matters referred to in Section 6.3, violate any applicable law, rule, regulation
judgment, injunction, order or decree, (iii) require any consent or other action
by any Person under or constitute a default under, any agreement or other
instrument binding upon MSD or (iv) result in the creation

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or imposition of any Lien on any asset of MSD except, in the case of clauses
(ii), (iii) and (iv), to the extent that any such violation would not,
individually or in the aggregate, have a Material Adverse Effect.

ARTICLE VII

MISCELLANEOUS

SECTION 7.1. HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not control or affect the meaning or
construction of any provisions hereof.

SECTION 7.2. NO INCONSISTENT AGREEMENTS. The Issuer will not
hereafter enter into any agreement with respect to its securities which is
inconsistent with or grant rights superior to the rights granted to the Holders
of Registrable Securities in this Agreement. The Issuer has not previously
entered into any agreement with respect to any of its debt or equity securities
granting any registration rights to any Person.

SECTION 7.3. FRUSTRATION OF PURPOSE; ADMINISTRATION OF AGREEMENT. No
Holder may do directly or indirectly that which is prohibited by this Agreement.
The Board of Directors shall have general authority to administer the terms of
this Agreement.

SECTION 7.4. ENTIRE AGREEMENT. This Agreement, the Asset Purchase
Agreement, the Securities Purchase Agreement, and the other agreements referred
to herein and therein constitute the entire agreement and understanding of the
parties hereto in respect of the subject matter contained herein and therein,
and there are no restrictions, promises, representations, warranties, covenants,
or undertakings with respect to the subject matter hereof, other than those
expressly set forth or referred to herein or therein. This Agreement, the Asset
Purchase Agreement, the Securities Purchase Agreement, and the other agreements
referred to herein and therein supersede all prior agreements and understandings
between the parties hereto with respect to the subject matter hereof.

SECTION 7.5. NOTICES. All notices, requests and other communications
to any party hereunder shall be in writing (including telecopier) and shall be
given to such party at its address or telecopier number set forth on the
signature page hereof, or such other address or telecopier number as such party
may hereinafter specify for the purpose to the party giving such notice. All
such notices, requests

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and other communications shall be deemed received on the date of receipt by the
recipient thereof if received prior to 5 p.m. in the place of receipt and such
day is a business day in the place of receipt. Otherwise, any such notice,
request or communication shall be deemed not to have been received until the
next succeeding business day in the place of receipt.

SECTION 7.6. APPLICABLE LAW. This Agreement shall be construed in
accordance with and governed by the laws of the State of New York, without
regard to the conflicts of law rules of such state.

SECTION 7.7. SEVERABILITY. The invalidity or unenforceability of any
provisions of this Agreement in any jurisdiction shall not affect the validity,
legality or enforceability of the remainder of this Agreement in such
jurisdiction or the validity, legality or enforceability of this Agreement,
including any such provision, in any other jurisdiction, it being intended that
all rights and obligations of the parties hereunder shall be enforceable to the
fullest extent permitted by law.

SECTION 7.8. AGREEMENT TO BE BOUND. No transfer of securities of the
Issuer otherwise permitted pursuant to Article II (other than transfers pursuant
to Article III or any other Public Offering, pursuant to Rule 144, to a
Permitted Transferee or to the Issuer) shall be effective unless (i) the
certificates representing such securities issued to such transferee shall bear
the legend set forth in Section 2.2, if required by such Section and (ii) prior
to such transfer, such transferee shall have executed and delivered to the
Issuer an instrument or instruments substantially in the form of Exhibit A
hereto confirming that the transferee has agreed to be bound, to the same extent
and in the same manner as the transferor, by the terms of this Agreement, a copy
of which instrument shall be maintained on file with the Secretary of the Issuer
and shall include the address of such transferee to which notices hereunder
shall be sent.

SECTION 7.9. TERMINATION. This Agreement shall terminate and be of
no further force or effect upon the tenth anniversary of the date hereof.

SECTION 7.10. SURVIVAL OF PROVISIONS. The representations and
warranties contained in this Agreement shall survive and remain in full force
and effect in accordance with their terms until the first anniversary of the
date hereof; PROVIDED that no representation or warranty shall survive the date
hereof if the party to whom such representation or warranty is made has
knowledge of facts on

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the date hereof that would cause such representation or warranty not be true on
such date.

SECTION 7.11. SUCCESSORS, ASSIGNS, TRANSFEREES. The provisions of
this Agreement shall be binding upon and accrue to the benefit of the parties
hereto and their respective heirs, successors and assigns. Notwithstanding the
foregoing, neither this Agreement nor any right, remedy, obligation or liability
arising hereunder or by reason hereof shall be assignable by the Issuer or any
Holder, except in connection with a transfer of securities of the Issuer
pursuant to the terms hereof; PROVIDED that MSD may assign any of its rights,
remedies, obligations or liabilities hereunder to (or exercise any of the
foregoing jointly with) an Affiliate of MSD without the consent of the other
parties hereto.

SECTION 7.12. AMENDMENTS; WAIVERS. (a) No failure or delay on the
part of any party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided by law.

(b) Any provision of this Agreement may be amended or waived if, but
only if, such amendment or waiver is in writing-and is signed, in the case of an
amendment, by each party to this Agreement (or, in the case of an amendment to
any provision of Article IV, by Culbro, the Issuer and MSD), or in the case of a
waiver, by the party against whom the waiver is to be effective.

SECTION 7.13. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original with the same effect
as if the signatures thereto and hereto were upon the same instrument.

SECTION 7.14. RECAPITALIZATION, ETC. In the event that any capital
stock or other securities are issued in respect of, in exchange for, or in
substitution of, any Common Shares by reason of any reorganization,
recapitalization, reclassification, merger, consolidation, spin-off, partial or
complete liquidation, stock dividend, split-up, sale of assets, distribution to
stockholders or combination of the Common Shares or any other change in capital
structure of the Issuer, appropriate adjustments shall be made with respect to
the relevant provisions of this Agreement so as to fairly and equitably
preserve, as far as practicable, the original rights and obligations of the
parties hereto under this Agreement.

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SECTION 7.15. REMEDIES. The parties hereto acknowledge and agree
that in the event of any breach of this Agreement, the parties would be
irreparably harmed and could not be made whole by monetary damages. Each party
hereto accordingly agrees (i) not to assert by way of defense or otherwise that
a remedy at law would be adequate, and (ii) that the parties agree, in addition
to any other remedy to which they may be entitled, that the remedy of specific
performance of this Agreement is appropriate in any action in court.

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.

CULBRO CORPORATION

By /s/ A. Ross Wollen
-------------------------------------------
Name: A. Ross Wollen
Title: Senior Vice President
387 Park Avenue South
New York, NY 10016
Telephone: (212) 561-8700
Telecopier: (212) 561-8791

THE ELI WITT COMPANY

By /s/ Jay M. Green
-------------------------------------------
Name: Jay M. Green
Title: Chairman
Address: P.O. Box 1909
Tampa, FL 33601
Telephone: (813) 623-6502
Telecopier: (813)

MS DISTRIBUTION, INC.

By /s/ Larry Sorrel
-------------------------------------------
Name: Larry Sorrel
Title: Vice President
Address: c/o The Morgan
Stanley Leveraged
Equity Fund II, L.P.
1251 Avenue of the
Americas
New York, NY 10020
Telephone: (212) 703-8736
Telecopier: (212) 703-7951

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EXHIBIT A

FORM OF AGREEMENT TO BE BOUND

[Date]

To the Parties to the
Shareholders Agreement
dated as of April 25, 1994

Dear Sirs:

Reference is made to the Shareholders Agreement dated as of April 25,
1994 (the "SHAREHOLDERS AGREEMENT") among Culbro Corporation, The Eli Witt
Company, MS Distribution, Inc. and each other Person who shall become a party to
the Shareholders Agreement as provided therein. Capitalized terms used herein
and not defined have the meanings ascribed to them in the Shareholders
Agreement.

In consideration of the representations, covenants and agreements
contained in the Shareholders Agreement, the undersigned hereby confirms and
agrees that it shall be bound, to the same extent and in the same manner as the
transferor, by all of the provisions thereof.

This letter shall be construed and enforced in accordance with the
laws of the State of New York.

Very truly yours,

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

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Item 14 (10) (G)

THIS SECURITY WAS ISSUED ON APRIL 25, 1994 (THE "ISSUE DATE") AT AN
ISSUE PRICE OF $__________ FOR EACH $1,000 IN PRINCIPAL AMOUNT. UNDER THE
INTERNAL REVENUE CODE AND PROPOSED TREASURY REGULATIONS, ALL INTEREST PAYMENTS
ON THIS SECURITY ARE TO BE TREATED AS PART OF THE STATED REDEMPTION PRICE AT
MATURITY, THEREBY CAUSING THIS SECURITY TO HAVE ORIGINAL ISSUE DISCOUNT ("OID").
ACCORDINGLY, (i) THE TOTAL AMOUNT OF OID FOR EACH $1,000 IN PRINCIPAL AMOUNT OF
THIS SECURITY IS $__________ AND (ii) THE YIELD TO MATURITY FOR PURPOSES OF
ALLOCATING OID IS ___% COMPOUNDED ANNUALLY.

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATED SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, OR
TRANSFERRED EXCEPT IN COMPLIANCE THEREWITH. THIS NOTE IS ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE SHAREHOLDERS AGREEMENT
DATED AS OF APRIL 25, 1994, COPIES OF WHICH WILL BE FURNISHED BY CULBRO
CORPORATION AND ANY SUCCESSOR THERETO UPON REQUEST AND WITHOUT CHARGE.

No. $15,000,000

CULBRO CORPORATION

10% Exchangeable Note Due 1998

Culbro Corporation, a New York corporation (the "Issuer"), for value
received hereby promises to pay to MS Distribution, Inc. ("MSD") and its
successors, transferees and assigns by wire transfer of immediately available
funds to an account (the "Bank Account") designated by MSD by notice to the
Issuer the principal sum of Fifteen Million Dollars ($15,000,000) on August 19,
1998, and to pay interest, by wire transfer of immediately available funds to
the Bank Account on August 19, 1998, on the unpaid principal sum hereof
outstanding at the rates per annum set forth below, from April 25, 1994;
PROVIDED that in lieu of payment of such principal and interest by wire transfer
immediately available funds, the obligations of the Issuer under this Note shall
be satisfied in full upon (and the Issuer shall always have the right to so
satisfy such obligations by) an exchange of the Notes for the EW Series B
Preferred Stock (as defined below) pursuant to Section 3 if such exchange
results in the transfer to the Holders (as defined below) of beneficial
ownership and physical possessions of the EW Series B Preferred Stock plus an
amount equal to accrued interest on the Notes.
<PAGE>

This Note shall bear interest, commencing on the date hereof, at a
rate per annum equal to 10%. If all or any portion of the principal amount
hereof or interest hereon is not paid when due (whether upon acceleration,
redemption, at maturity or otherwise), then in each such case the overdue amount
shall bear interest ("Overdue Interest") at the rate of 12% per annum,
compounded quarterly, which Overdue Interest shall accrue from the date such
overdue amount was due to the date payment of such amount has been made or duly
provided for. All such Overdue Interest shall be payable on demand.

Interest on this Note accrued for any period less than a full year
shall be computed on the basis of an annual rate of 10.0% and a 365-day and the
actual number of days in such partial year.

Notwithstanding anything herein to the contrary, all payments of
principal and interest to be made by Culbro under this Note, and all costs of
enforcement and collection, shall be required to be made or satisfied only out
of the EW Series B Preferred Stock, dividends or distributions with respect
thereto, income thereon and proceeds thereof. The Holder, by acceptance of this
Note, agrees that, insofar as Culbro or any of its shareholders, officers,
directors, employees and agents are concerned, it will look to the EW Series B
Preferred Stock, dividends or distributions with respect thereto and any income
and proceeds therefrom and no recourse or assertion of personal liability shall
be had for the payment of the principal or interest under this Note against
Culbro or any shareholder, officer, director, agent, employee thereof, any legal
representative, heir, estate, successor or assignee of Culbro or against any
property, assets or funds other than the EW Series B Preferred Stock, dividends
or distributions with respect thereto or income thereon or proceeds thereof.
Nothing in this paragraph shall be construed to limit in any way the remedies
available against Culbro or Ew under the Securities Purchase Agreement, the
Shareholders Agreement or any other agreement referred to therein or entered
into in connection therewith.

The holder of this Note agrees, for the benefit of (i) the lenders
under the Amended and Restated Credit Agreement dated as of February 19, 1993,
as amended, among the Issuer and the several lenders parties thereto and
Chemical Bank, as agent, and (ii) the holders of the Issuer's 9.56% Series B
Senior Notes Due 1994, 9.87% Series C Senior Notes Due 1998 and 9.93% Series D
Notes Due 1998, all issued pursuant to that certain Amended and Restated Note
Purchase Agreement dated as of February 19, 1993, as amended, among the Issuer
and the several note purchasers identified in Schedule I thereto, that in the

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event any voluntary or involuntary proceeding under Chapter 11 of the United
States Bankruptcy Code, as amended, shall be filed by or against the Issuer, the
holder of this Note will in a timely manner duly elect the application of the
provisions of Section 1111(b)(2) of such Code to any claim for payment arising
out of this Note, to the extent permitted by Section 1111(b)(1) thereof.

This Note is the duly authorized note of the Issuer (the "Note")
referred to in the Securities Purchase Agreement dated as of April 18, 1994
between the Issuer and MSD. the Note is transferable and assignable by MSD or
any transferee of MSD to one or more purchasers; PROVIDED that such transfer or
assignment is made in compliance with the Securities Act of 1933, as amended,
and any applicable state and foreign securities laws; and PROVIDED FURTHER that
this Note shall not be transferred to any Person which is not an Affiliate of
MSD without the prior consent of Chemical Bank, as agent under the Credit
Agreement dated as of February 19, 1993 among the Issuer, the Financial
Institutions signatory thereto and Chemical Bank, as amended, unless such Person
holds at least 10% of the Common Stock of EW outstanding at the time of such
transfer. This Note is subject to certain restrictions set forth in the
Shareholders Agreement (the "Shareholders Agreement") dated as of the date
hereof among the Issuer and the other parties thereto. Culbro has secured its
obligations hereunder pursuant to the Custody and Pledge Agreement (the "Custody
and Pledge Agreement") dated as of the date hereof.

The Issuer agrees to issue to MSD or any transferee of MSD from time
to time a replacement Note or Notes in the form hereof and in such denominations
as such Person may request to facilitate such transfers and assignments.
References to "Notes" shall include the Note or Notes issued following a
transfer or assignment of this Note in whole or in part to more than one
purchaser. In addition, after delivery of an indemnity in form and substance
satisfactory to the Issuer, the Issuer also agrees to issue a replacement Note
if this Note has been lost, stolen, mutilated or destroyed.

The Issuer shall keep at its principal office a register (the
"Register") in which shall be entered the name and address of the registered
holder of this Note and of all transfers of this Note. References to the
"Holder" (or "Holders") shall mean the Person (or Persons) listed in the
Register as the payee of the Notes. The ownership of this Note shall be proven
by the Register. For the purpose of paying any amount owing under this Note,
the Issuer shall be entitled to rely on the name and address in the Register and
notwithstanding anything to the contrary contained in this Note, no Event of
Default shall occur under Section

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2.1(a) if payment is made in accordance with the name and address contained in
the Register.

Section 1. CERTAIN TERMS DEFINED. The following terms for all
purposes of this Note shall have the respective meanings specified below. The
terms defined in this Section 1 include the plural as well as the singular.

"ACCELERATED EXCHANGE EVENT" means the occurrence of any of the
following events:

(i) any Series B Redemption Event; or

(ii) failure on the part of the Issuer to observe or perform any
of the covenants or agreements of the Issuer contained in the Custody
and Pledge Agreement;

(iii) the Security Interest (as defined in the Custody and
Pledge Agreement) shall fail to constitute a valid and perfected first
priority Lien or Culbro or any third party shall so assert in writing;
or

(iv) a court having jurisdiction in the premises shall enter a
decree or order for relief in respect of the Issuer in an involuntary
case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) of
the Issuer or for any substantial part of the property of the Issuer
or ordering the winding up or liquidation of the affairs of the
Issuer; or

(v) commencement by the Issuer of a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consent to the entry of an order for relief in
an involuntary case under any such law, or consent to the appointment
or taking possession by a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of the issuer or for any
substantial part of the property of the Issuer, or the Issuer shall
make the general assignment for the benefit of creditors; or

(vi) any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Issuer; or

(vii) (A) failure by the Issuer or any of its Subsidiaries
(including without limitation EW) to make any payment in respect of
any Material Debt when due or within any applicable grace period or
(B) the

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occurrence of any event or condition which (x) results in the
acceleration of the maturity of any Material Debt or (y) enables (or,
with the giving of notice or lapse of time or both, would enable) the
holder of such Material Debt or any Person acting on such holder's
behalf to accelerate the maturity thereof, which failure in the case
of clause (y) above shall be continuing and not waived by the holders
of such Material Debt for a period of 30 days; or

(viii) Culbro Net Worth shall be less than $60 million; or

(ix) any sale, exchange or conveyance of all or substantially
all of the assets, properties or business of the Issuer; or

(x) any merger or consolidation other than any merger in which
(w) the Issuer is the surviving company in such merger and such
company shall have the certificate of incorporation and bylaws of the
issuer, (x) immediately following such merger, the only shareholders
of the surviving company shall be the shareholders of the Issuer
immediately prior to such merger and their relative equity interest
shall remain unchanged, (y) Culbro Net Worth immediately following
such merger shall be at least equal to the Culbro Net Worth
immediately prior to such merger and (z) no Default shall have
occurred and be continuing immediately following such merger; or

(xi) any Recapitalization.

"ACCELERATION NOTICE" shall have the meaning set forth in Section
2.1.

"AFFILIATE" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control with,
such Person; PROVIDED that neither MSD nor any Affiliate of MSD shall be an
Affiliate of the Issuer.

"BUSINESS DAY" means any day except a Saturday, Sunday or other day
on which commercial banks in the City of New York are authorized by law to
close.

"CULBRO NET WORTH" means at any date the consolidated shareholder's
equity of the issuer and its Subsidiaries determined as of such date.

"DEBT" of any Person means at any date, without duplication, (i) all
obligations, including accrued and unpaid interest and premium, of such Person
for borrowed

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money, (ii) all obligations of such Person evidenced by bonds, debentures, notes
or other similar instruments, (iii) all obligations of such Person in respect of
letters of credit, bankers' acceptance or other similar instruments (or
reimbursement obligations with respect thereto), (iv) all obligations of such
person to pay the deferred purchase price of property or services, except Trade
Payables, (v) all obligations of such Person as lessee which are capitalized in
accordance with generally accepted accounting principles, (vi) all Debt of
others secured by a Lien on any asset of such Person, whether or not such Debt
is assumed by such Person, and (vii) all Debt of others Guaranteed by such
Person.

"DEFAULT" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.

"EVENT OF DEFAULT" shall have the meaning set forth in Section 2.1.

"EXCHANGE NOTICE" shall have the meaning set forth in Section 3.

"EW" means the Eli Witt Company, a Delaware corporation.

"EW SERIES B PREFERRED STOCK" means the Series B Preferred Stock, par
value $0.01 per share, of EW.

"GUARANTEE" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt of such other Person (whether arising by virtue of partnership
arrangements, by agreement to keep-well, to purchase assets, goods, securities
or services, to take-or-pay, or to maintain financial statement conditions or
otherwise) or (ii) entered into for the purpose of assuring in any other manner
the obligee of such Debt for the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part); PROVIDED that the term
Guarantee shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.

"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the

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purposes of this Note, the Issuer shall be deemed to own subject to a Lien any
asset which it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capitalized lease or other title
retention agreement relating to such asset.

"MATERIAL DEBT" means (i) all Debt of the Issuer and/or one or more
of its Subsidiaries owing to MSD or its Affiliates (other than the Notes) and
(ii) any other Debt (other than (a) the Notes, (b) Debt of the Issuer owed to
any Subsidiary or (c) Debt of any Subsidiary owed to the Issuer or any other
Subsidiary) of the Issuer and/or one or more of its Subsidiaries, arising in
one or more related or unrelated transactions exceeding $3,000,000 in the
aggregate.

"PERSON" means an individual, corporation, partnership, association,
trust or other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.

"RECAPITALIZATION" means any reorganization, recapitalization,
reclassification, spin-off, partial or complete liquidation, dividend (other
than regular quarterly dividends in any amount not to exceed $.20 per share of
common stock of the Issuer paid after the Closing Date), split-up, repurchase by
the Issuer of its capital stock (other than repurchases in one transaction or a
series of transactions for aggregate consideration not to exceed $4,000,000),
distribution to stockholders or combination of the securities of the Issuer or
any other change (other than a change which is immaterial) in capital structure
of the Issuer.

"REQUIRED HOLDERS" means, as of any date, holders of at least 50% of
the total principal amount of Notes outstanding on such date.

"SERIES B REDEMPTION EVENT" means the events described in clauses
(ii) through (vi) of the definition of "Series B Redemption Event" set forth in
the Shareholders Agreement.

"SUBSIDIARY" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at the time directly
or indirectly owned by the Issuer.

"TRADE PAYABLES" means accounts payable or any other indebtedness or
monetary obligations to trade creditors created or assumed by the Issuer or any
Subsidiary

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of the issuer in the ordinary course of business in connection with the
obtaining of materials or services.

Section 2. EVENTS OF DEFAULT AND REMEDIES.

SECTION 2.1. EVENT OF DEFAULT DEFINED; ACCELERATION OF MATURITY;
WAIVER OF DEFAULT. In case one or more of the following events ("Events of
Default") shall have occurred and be continuing;

(a) default in the payment of all or any part of the principal of or
interest on any of the Notes as and when the same shall become due and payable,
at maturity, upon any redemption, by acceleration or otherwise; or

(b) failure on the part of the Issuer duly to observe or perform any
other of the covenants or agreements on the part of the Issuer contained in the
Notes (other than those covered by clause (a) above) which failure shall have
continued for a period of 30 days after written notice thereof has been given to
the Issuer; or

(c) a court having jurisdiction in the premises shall enter a decree
or order for relief in respect of the Issuer in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or appointing a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of the Issuer or for any substantial part of
the property of the Issuer or ordering the winding up or liquidation of the
affairs of the Issuer; or

(d) the Issuer shall commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consent to the entry of an order for relief in an involuntary case under any
such law, or consent to the appointment or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official) of
the Issuer or for any substantial part of the property of the Issuer, or the
Issuer shall make any general assignment for the benefit of creditors; or

(e) any Accelerated Exchange Event (other than an Accelerated
Exchange Event described in clause (iv) or (v) of the definition thereof);

then, and in each and every such case (other than an Event of Default specified
in Section 2.1(c) or 2.1(d) hereof), the Required Holders, by notice in writing
to the Issuer (the "Acceleration Notice"), may declare the aggregate principal
amount of the Notes and the interest accrued thereon to be due and payable
immediately, and upon any such

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declaration the same shall become immediately due and payable; PROVIDED that if
an Event of Default specified in Section 2.1(c) or 2.1(d) occurs, the aggregate
principal of and accrued interest on the Notes shall become and be immediately
due and payable without any declaration or other act on the part of the Holders.

Section 2.2. POWER AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT
WAIVER OF DEFAULT. No right or remedy herein conferred upon or reserved to the
Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.

No delay or omission of the Holders to exercise any right or power
accruing upon any Event of Default occurring and continuing as aforesaid shall
impair any such right or power or shall be construed to be a waiver of any such
Event of Default or an acquiescence therein; and every power and remedy given by
this Note or by law may be exercised from time to time, and as often as shall be
deemed expedient, by the Holders.

Section 2.3. WAIVER OF PAST DEFAULTS. The Required Holders may
waive any past Default and its consequences. In the case of any such waiver,
the Issuer and the Holders shall be restored to their former positions and
rights hereunder, respectively; but no such waiver shall extend to any
subsequent or other Default or impair any right consequent thereon.

Upon any such waiver, such Default shall cease to exist and be deemed
to have been cured and not to have occurred for every purpose of the Notes; but
no such waiver shall extent to any subsequent or other Default or impair any
right consequent thereon.

3. EXCHANGE. (a) The Notes shall be exchangeable into EW
Series B Preferred Stock, in whole or from time to time in part, (i) at the
option of the Required Holders at any time following April 25, 1998 and (ii) at
the option of the Issuer at any time following July 1, 1998.

(b) The Notes shall be automatically exchanged, in whole and not in
part, into the EW Series B Preferred Stock immediately prior to the earliest to
occur of (i) August 19, 1998, (ii) any redemption in full of the EW Series B
Preferred Stock or (iii) any Accelerated Exchange

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Event. In addition, the Notes shall be automatically exchanged into EW Series B
Preferred Stock from time to time in part immediately prior to any partial
redemption of the EW Series B Preferred stock. Any exchange pursuant to this
Section 3(b) shall occur automatically, without further action on the part of
the Holders or the Issuer. Holders of outstanding Notes automatically shall
become the beneficial owners of the number of shares of the EW Series B
Preferred Stock determined pursuant to Section 3(b) and the Notes or portion
thereof so exchanged shall be canceled concurrently with such exchange.

(c) Any exchange pursuant to this Section 3 shall be for Notes having
an aggregate principal amount which shall bear the same proportion, as nearly as
may be, to the total principal amount of all of the Notes then outstanding as
the number of shares of EW Series B Preferred Stock being redeemed bears to the
total number of shares of EW Series B Preferred Stock outstanding immediately
prior to such exchange. Any exchange of less than all of the Notes shall be
applied pro rata among the Notes according to the principal amounts thereof.

(d) An amount equal to all interest on the aggregate principal amount
of Notes being exchanged pursuant to this Section 3, accrued to the date fixed
for exchange, shall be paid to the Holders on the date fixed for exchange.

(e) (i) At least 30 but not more than 60 days prior to the date
fixed or anticipated for any exchange of the Notes or the date of any event
which, pursuant to Section 3(b), would result in any such exchange, the Required
Holders (in the case of any exchange pursuant to Section 3(a)(i)) or the Issuer
(in the case of any exchange pursuant to Section 2(a)(ii) or 3(b)) shall give
written notice of such exchange (the "Exchange Notice") by first class mail,
postage prepaid, to the Issuer and to all Holders; PROVIDED that notwithstanding
the foregoing, if the Issuer received less than 30 days' prior notice of a
redemption described in Section 3(b)(ii) or an event described in Section
3(b)(iii), the Issuer shall notify the Holders of the resulting exchange
immediately upon receipt of such notice by the Issuer. In the case of any
exchange pursuant to Section 3(b), an Exchange Notice shall be sent to each
Holder at such Holder's address as the same appears on the Register. Each
Exchange Notice shall state:

(A) whether all or a portion of the Notes are to be exchanged,
the total principal amount of the Notes being exchanged and the amount
of accrued interest thereon;

10
<PAGE>

(B) the portion of the Notes held by the holder to be exchanged;
and

Neither the failure to give such Exchange Notice nor any deficiency in such
Exchange Notice shall affect the validity or the occurrence of such exchange.

(ii) On or before the date fixed for exchange (or promptly
following receipt by the Holder of an Exchange Notice from the Issuer,
if later), each Holder shall surrender the Notes to the Issuer in the
manner and at the place designated by the Issuer by notice in writing
to the Holders, and each Note shall be canceled and retired. In the
event that only a portion of the Notes outstanding are exchanged, a
new Note shall be issued representing the unexchanged portion of such
Note and interest shall continue to accrue in respect of such
unexchanged Notes in accordance with the provisions hereof until such
time as they are exchanged. Notwithstanding the foregoing, failure to
comply with the provisions of this Section shall not affect the
validity of any such exchange.

(iii) Unless the Issuer defaults in its obligations pursuant to
this Section 3 notwithstanding that any of the Notes so called for
exchange shall not have been surrendered for cancellation, all rights
of the Holders of such Notes so exchanged shall cease with respect to
the Notes on such date (except the right to receive from the Issuer
the EW Series B Preferred Stock deliverable on such exchange as
provided below and any other amounts, including without limitation
accrued interest, payable pursuant to Section 3), and the person
entitled to receive the EW Series B Preferred Stock deliverable upon
exchange shall be treated for all purposes as the registered holder of
such EW Series B Preferred Stock as of the date which coincides with
the date of exchange and such shares of EW Series B Preferred Stock
shall be delivered to such Holder or Holders pursuant to the terms of
the Custody and Pledge Agreement dated as of the date hereof.

(iv) The Issuer shall pay any and all transfer taxes that may be
payable in respect of the delivery of the EW Series B Preferred Stock
in exchange for the Notes. The Issuer shall not, however, be required
to pay any tax which may be payable in respect of any transfer
involved in the delivery of the EW Series B

11
<PAGE>

Preferred Stock in a name other than that in which the Notes so
exchanged were registered.

(v) If the Issuer receives any payment or distribution in
respect of the EW Series B Preferred Stock to which the Holders are
otherwise entitled pursuant to the terms hereof, such payment or
distribution shall be held in trust for the benefit of, and shall be
paid over or delivered to, the Holders for application pursuant to the
terms hereof.

(f) Notwithstanding anything herein to the contrary, the Issuer may
satisfy its obligations under this Section 3 by delivering to the Holders on the
date fixed for exchange, in lieu of EW Series B Preferred Stock, an amount in
cash equal to the principal amount of the Notes so exchanged, together with
accrued interest thereon.

Section 4.1. MODIFICATION OF NOTES. The Notes may be modified with
the written consent of the Required Holders. The Required Holders may waive
compliance by the Issuer of any provision of the Notes. As long as the Credit
Agreement is in effect, the parties hereto agree that any attempt to amend or
modify this Note shall be ineffective without the consent of Chemical Bank, as
Agent under the Credit Agreement.

Section 5.2. MISCELLANEOUS. (a) The Issuer shall not offer, sell,
assign, transfer or otherwise dispose of all or any part of the EW Series B
Preferred Stock other than pursuant to the Custody and Pledge Agreement.

(b) THIS NOTE SHALL BE GOVERNED BY AND BE CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICTS OF LAW
RULES OF SUCH STATE. The Issuer hereby waives presentment, demand, notice,
protest and all other demands and notices in connection with the delivery,
acceptance, performance and enforcement of this Note, except as specifically
provided herein, and assent to extensions of the time of payment, or forbearance
or other indulgence without notice. The Holder by acceptance of the Note agrees
to be bound by the provisions of this Note. The Section headings herein are for
convenience only and shall not affect the construction hereof.

12
<PAGE>

Section 6.1. WAIVER OF JURY TRIAL. Culbro hereby irrevocably waives
any and all right to trial by jury in any legal proceeding arising out of or
related to the Notes.

IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed as of this 25th day of April, 1994.

CULBRO CORPORATION

By: /S/ S. ROSS WOLLEN
--------------------------------
Senior Vice President

<PAGE>
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