CULBRO CORP, 10-K405, 1997-03-17

CULBRO CORP
10-K405, 1997-03-17
TOBACCO PRODUCTS

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<PAGE>

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________
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 NOVEMBER 30, 1996
-------------------------------------------

OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-1210
CULBRO CORPORATION
(Exact name of registrant as specified in its charter)

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

387 PARK AVENUE SOUTH, NEW YORK, NEW YORK 10016-8899
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)

(Registrant's Telephone Number, Including Area Code) (212) 448-3800
--------------

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ------------------- -------------------
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 [X]

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. [X]

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:
$179,000,000 approximately, based on the closing sales price on the New York
Stock Exchange on February 20, 1997.

Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: Common Stock:
4,518,472 shares as of February 20, 1997.

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 Prospectus of General Cigar Holdings, Inc., dated February 27,
1997, as filed February 28, 1997 pursuant to Rule 424(b) and
included as Exhibit 99 to this Report on Form 10-K (the
"Prospectus").
II Prospectus of General Cigar Holdings, Inc., dated February 27,
1997, as filed February 28, 1997 pursuant to Rule 424(b) and
included as Exhibit 99 to this Report on Form 10-K (the
"Prospectus").
III Proxy Statement in connection with the 1997 Annual Meeting of
Shareholders
IV Prospectus of General Cigar Holdings, Inc., dated February 27,
1997, as filed February 28, 1997 pursuant to Rule 424(b) and
included as Exhibit 99 to this Report on Form 10-K (the
"Prospectus").

SEE PAGE 15 HEREOF FOR HOW TO REQUEST A COPY OF THE PROSPECTUS.

<PAGE>

FORM 10 -K 1996 CULBRO CORPORATION

PART I

ITEM 1 - BUSINESS

Culbro Corporation and its subsidiaries (the "Corporation") comprise a
diversified consumer and industrial products company. At the end of its 1996
fiscal year the Corporation engaged in three principal lines of business: (1)
Tobacco Products, comprised of the manufacturing and marketing of cigars and the
growing, processing and selling of cigar wrapper tobacco; (2) Nursery Products,
comprised of growing for sale container and field grown nursery products
principally to nursery mass merchandisers, and owning and operating wholesale
sales and service centers; and (3) Real Estate, comprised of 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 5 to the
Consolidated Financial Statements.

On November 8, 1996 the Corporation closed the sale of its CMS Gilbreth
packaging and labeling business. The effect of the sale was accounted for in
the Corporation's fiscal third quarter results. See Note 3 to the Consolidated
Financial Statements.

Subsequent to the end of its 1996 fiscal year end the Corporation's
subsidiary, General Cigar Holdings, Inc. ("Holdings"), filed a Form S-1
Registration Statement (No. 333-18791, filed December 24, 1996) (the
"Registration Statement") for the offering to the public (the "Offering") of
its Class A Common Stock. The Offering took place on February 28, 1997. In
connection with such sale the Corporation completed certain asset transfers
(the "Asset Transfers"), pursuant to which (i) all of the Corporation's
assets and liabilities relating to the cigar business, including
approximately 1,100 acres of land used in the tobacco growing operations and
its New York cigar bar, Club Macanudo, and certain other assets and
liabilities, including the Corporation's corporate headquarters, were
transferred to Holdings, and (ii) substantially all of the Corporation's
non-tobacco related assets and liabilities, including all of its assets and
liabilities relating to its nursery business and real estate business,
together with the Corporation's 25% interest in Centaur Communications
Limited and its interests in The Eli Witt Company and related liabilities,
were transferred to Culbro Land Resources, Inc. ("CLR"). As a result of the
Asset Transfers, the Corporation is a holding company with substantially no
assets other than its ownership interests in Holdings and CLR. See "The
Asset Transfers, the Distribution and the Merger" on pages 54-57 of the
Prospectus. When used herein the "Corporation" includes the assets,
liabilities and operations held by it indirectly through Holdings and CLR.

Subsequent to the Offering, the Corporation intends to effect a
distribution (the "Distribution") to the shareholders of the Corporation of all
issued and outstanding shares of common stock of CLR. The Distribution will be
contingent principally upon (i) either a tax ruling or an opinion of counsel
satisfactory to the Corporation that the Distribution constitutes a tax-free
reorganization under Section 355 of the Internal Revenue Code and (ii) the
approval by the holders of 66-2/3% of the Corporation's common stock of the
merger of the Corporation into Holdings (the "Merger"). Holdings will be the
surviving corporation in the Merger and will issue to the holders of the common
stock of the Corporation 4.44557 shares of Class B Common Stock for each share
of the Corporation's common stock outstanding on the date of the Merger, or
approximately 20,087,182 shares of Class B Common Stock in the aggregate,
subject to adjustment for

<PAGE>

FORM 10 -K 1996 CULBRO CORPORATION

any options exercised prior to the Merger. The shareholders of the Corporation
will not vote with respect to the adoption of the Merger until May 1997.

On January 21, 1997 the Corporation, through its subsidiary General Cigar
Co., Inc. acquired substantially all of the assets of Villazon & Company, Inc.
and all of the stock of its affiliate Honduras American Tobacco, S.A. de C.V.
("Hatsa" and together with Villazon & Company, Inc., "Villazon"). See Note 2 to
the Consolidated Financial Statements and pages 5, 6 and 53 of the Prospectus.

EQUITY INVESTMENTS

The Corporation owns 50.1% of The Eli Witt Company ("Eli Witt"), a
wholesale distributor of tobacco, sundries and general merchandise. See Note
11 to the Consolidated Financial Statements. The Corporation deconsolidated
Eli Witt as of April 25, 1994 and is accounting for its remaining investment
in Eli Witt under the equity method in its 1996 financial statements. In
November 1996 Eli Witt filed for protection under Chapter 11 of the Federal
Bankruptcy Law. In connection with such filing Eli Witt entered into a
contract to sell all of its operating assets to another distributor. On
January 13, 1997, the proposed sale was approved by the Bankruptcy Court and
is expected to be completed in the second quarter of 1997. As a result of
the terms of the proposed sale, shareholders of Eli Witt are not expected to
receive any proceeds from the sale. The Corporation has no investment related
to Eli Witt on its 1996 consolidated balance sheet. See Item 3 - Legal
Proceedings.

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

TOBACCO BUSINESS

The tobacco 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, and (b) the
growing, processing and sale of cigar wrapper tobacco by the Culbro Tobacco
Division of General Cigar. General Cigar's products are distributed in the
United States through approximately 1,300 wholesale distributors and direct
retail and chain store accounts.

For a discussion of General Cigar's business see "General", "Market
Overview", "Making a General Cigar Premium Cigar", "Business Strategy",
"Backorders", "Sales and Marketing", "Trademarks", "Raw Materials" and
"Competition" on pages 30-37 of the Prospectus.

For a discussion of the tobacco industry and its effect on General Cigar
see "Regulation", "Litigation" and "Excise Taxes" on pages 37-40 of the
Prospectus.

See "Legal Proceedings" on pages 40 and 41 and "Risk Factors" on pages 10-
16 of the Prospectus for various matters that could have an adverse effect on
General Cigar's business or results of operations.

<PAGE>

FORM 10 -K 1996 CULBRO CORPORATION

NURSERY PRODUCTS BUSINESS

The landscape nursery operations of the Corporation are operated by its
wholly-owned subsidiary, Imperial Nurseries, Inc. ("Imperial"). Imperial is a
grower, distributor and broker of wholesale landscape nursery stock. The
landscape 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 landscape nursery companies in the country.

Imperial's growing operations are located on property part owned by the
Corporation and part by Imperial, in Connecticut (1,000 in ground acres and 400
acres for containers) and in northern Florida (350 of container acres). The
largest portion of Imperial's container grown product consists of broad leaf
evergreens, including azaleas and rhododendron. Its field grown as opposed to
container product includes principally evergreen pines, hemlocks, spruce and
arborvitae. Imperial also contracts with a grower in the Middle Atlantic states
to grow field grown product for Imperial. The agreement provides for Imperial
to purchase such product over a 5 year period. This program is part of a
program intended to reduce Imperial's investment in field grown plants and to
shorten its product growing cycles to increase the profitability of the field
grown business. Imperial is also reviewing other approaches to increasing its
return on assets. Among the possible approaches are holding some of its
containerized production for a longer period and selling such plants in terra
cotta or similar containers for immediate use by customers and adding a broader
selection of perennial flowers both directed at increasing margin and selling
price.

The combined field grown and container operations serve principally
landscapers, retail chain store garden departments, retail nurseries and garden
centers, and wholesale nurseries and distributors. Imperial-grown products are
also distributed through its 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. The largest portion of Imperial's assets are represented by plant
inventories.

Imperial operates eight wholesale horticultural sales and service centers
which sell a wide range of plant material, including a large portion purchased
from growers other than Imperial, and horticultural tools and products to the
trade. The centers owned by Imperial are located in Windsor, Connecticut;
Aston, Pennsylvania; Pittsburgh, Pennsylvania; Columbus and Cincinnati, Ohio;
White Marsh, Maryland; and Manassas, Virginia. In addition, Imperial leases a
center in Monroeville, Pennsylvania.

In 1996, Imperial continued to diversify its customer base in order to
reduce its dependence on a few large customers. Currently Imperial's sales are
made to a large variety of customers, none of whom represents more than 3% of
sales.

Containerized 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 the Mid-Atlantic and Midwest markets.

REAL ESTATE BUSINESS

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

<PAGE>

FORM 10 -K 1996 CULBRO CORPORATION

The Corporation is directly engaged in the real estate development
business on portions of its land in Connecticut through Culbro Land
Resources, Inc. ("CLR"), headquartered in Bloomfield , Connecticut. CLR
develops portions of the Corporation's properties for commercial, residential
and office use. In connection with the Asset Transfers and Distribution
described on page 2, CLR is expected to be named Griffin Land & Nursery Co.

During the last several years, the real estate market in the Hartford area,
particularly that in the northwest quadrant, where the majority of the
Corporation's acreage is located, has been depressed by a number of factors,
including the decline of employment in the defense and insurance industries.
The development of the Corporation's land was also affected by land planning
questions, particularly in the town of Simsbury. In Simsbury, the value of the
Corporation's land is affected by the presence of chlordane on a portion of the
land which is intended for residential development. The Corporation is
examining means of remediation on its lands and will seek to subdivide certain
of its Simsbury properties over a reasonable period.

CLR's 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 1,750,000 square feet of office and
industrial space. Griffin Center currently includes nine corporate office
buildings built by CLR. During the 1980's, CLR sold 70% interests in five of
the buildings to a bank-managed real estate investment fund. In 1996, these
buildings were sold in a transaction initiated by the successor of that
partner. CLR recorded a pre-tax loss as a result of this transaction. In the
1980's, CLR also sold 70% interests in two other office buildings to an
insurance company. CLR currently maintains a 30% interest in those two office
buildings in the Griffin Center Office Complex which aggregate 160,000 sq. ft.
One other office building which had been leased to the State of Connecticut
was transferred to the lender to the building in a deed in lieu of foreclosure
in 1996.

Griffin Center South, a 130-acre tract, comprises fifteen buildings of
industrial and research/development space. Nine of these buildings have been
retained by CLR for rental and are 78% rented. The other buildings have been
built on land sold by CLR to commercial users who occupy the space. CLR has a
master plan state traffic certificate which allows for the development of an
additional 300,000 square feet of space.

CLR owns a 600-acre tract of land near Bradley International Airport and
Interstate 91 known as the New England Tradeport. To date, 140,000 square feet
of warehouse and light manufacturing space have been developed and are 95%
occupied and a bottling and distribution plant for Pepsi-Cola has been built. A
state traffic control certificate for the future development of 1.3 million
square feet has been obtained for the Tradeport. CLR intends to direct its
primary efforts at the construction and leasing of light industrial and
warehouse facilities at Tradeport. Development at Tradeport will require
investment in offsite infrastructure on behalf of Windsor, Connecticut and
improvement of some state or town roads.

Two additional CLR parcels available for development include 28 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 these
parcels for 500,000 square feet and 200,000 square feet of development,
respectively.

<PAGE>

FORM 10 -K 1996 CULBRO CORPORATION

In 1988, a subsidiary of CLR began infrastructure work at Walden Woods, a
153-acre site in Windsor, Connecticut which was planned to contain more than 365
residential units. Prior to 1992 CLR had built and sold 45 homes before
discontinuing its home building operations at Walden Woods. Since then two
third-party home builders have completed an additional 64 homes.

CLR is seeking to develop a joint venture to process bulky waste and
build a transfer station and recycling operation on a portion of its land in
East Granby,Connecticut. In addition, approximately 500 acres are leased for
tobacco growing to General Cigar at rentals approximating carrying cost.
These leases, which extend for 10 years, may be terminated, as to 100 acres,
annually on one year's prior notice. CLR also leases office space to General
Cigar.

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 was approximately $15 million. The Corporation has
advanced substantial amounts for building improvements. On April 21, 1995, the
Corporation entered into a $5 million mortgage on the building. 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 10% of rentable space is
available for lease in this building. Results in 1996 increased slightly due to
rental of previously vacant space.

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, and land development operations.
Imperial Nurseries, Inc., formerly a Division of the Corporation, was
incorporated as a separate company in February 1993. See Exhibit 21(A) hereto.
In connection with the loan agreements entered into by the Corporation in
February 1993 (see Note 6 to the Consolidated Financial Statements) and as at
1996 fiscal year end, the Corporation had pledged the stock of all of its active
subsidiaries as collateral for such loans.

As a result of the Asset Transfers discussed on page 2 hereof the
Corporation in February 1997 became a holding company with substantially no
assets other than its ownership of Holdings and CLR. (See Exhibit 21(B)
hereto).

EMPLOYEES

The Corporation employs approximately 4,323 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.

<PAGE>

FORM 10 -K 1996 CULBRO CORPORATION

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 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
"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.

Ownership of certain of these land holdings has changed as a result of
the Asset Transfers described on page 2 hereof.

<PAGE>

FORM 10 -K 1996 CULBRO CORPORATION

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
New York, New York Leased Club Macanudo
-Cigar Bar 5,000
Kingston, Jamaica, W.I. Owned Cigar Manufacturing 119,000

Dothan, Alabama Leased (1) Cigar Manufacturing & Warehousing 165,000

Hatfield, Massachusetts Owned Tobacco Warehousing & Processing 81,000

Santiago, Dominican Republic Leased (2) Tobacco Processing,& Cigar
Manufacturing & Storage 384,242
Granby, Connecticut Owned Executive Offices
-Nursery Operations 8,000
Bloomfield, Connecticut Owned Executive Offices
-Cigar Operations 11,137
Bloomfield, Connecticut Leased Headquarters
-Cigar Operations 12,500
Bloomfield, Connecticut Leased Warehouse 11,644

Chicago, Illinois Leased Club Macanudo Chicago
-Cigar Bar 11,000
</TABLE>

(1) Industrial Revenue Bond financing lease. The Corporation owns a 52,500
square foot warehouse in Dothan, Alabama that is leased to a third
party.

(2) The Corporation leases property in Santiago, Dominican Republic for its
cigar manufacturing, tobacco processing and tobacco warehousing
operations. These operations are conducted in several different
facilities which are subject to 12 different leases. The Corporation
subleases 70,000 square feet of these facilities to Shade Leaf Processors.

(3) Facilities added by the Villazon Acquisition are listed on page 42 of
the Prospectus.

<PAGE>

ITEM 3 - LEGAL PROCEEDINGS

The matters required to be discussed in this Item 3 are contained on pages
40 and 41 of the Prospectus under "Legal Proceedings", Tobacco Litigation and
Other Litigation.

As a result of the Asset Transfers described on page 2 hereof, CLR will
acquire the Corporation's 50.1% interest in Eli Witt. In November 1996, Eli
Witt filed for protection under Chapter 11 of the Federal Bankruptcy Law. Prior
to February 1993, Eli Witt was a wholly-owned subsidiary of the Corporation and
filed consolidated tax returns with the Corporation. The Corporation, Eli Witt
and other parties engaged in two complex acquisitions and reorganizations in
1993 and 1994, pursuant to which the Corporation received significant
distributions from Eli Witt to repay the Corporation's debt, including
substantial amounts the Corporation had previously borrowed from unaffiliated
third parties to fund Eli Witt's business. The Corporation subsequently loaned
$5 million to Eli Witt. It is anticipated that these transactions (including
the transfer of funds to the Corporation) will be reviewed by Eli Witt creditors
and other parties in interest in connection with the Chapter 11 case. To date,
one creditor has written to the unsecured creditors committee proposing an
inquiry into this matter.

Management does not believe that the above referenced matters 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

PART II

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

On February 20, 1997 the approximate number of record holders of Common
Stock of the Corporation was approximately 840 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
$79.00 per share. The information appearing (i) under Quarterly Data on Common
Shares on page 21 hereof, (ii) in Note 7 to the Consolidated Financial
Statements and (iii) in Note 13 to the Consolidated Financial Statements are
hereby incorporated by reference.

ITEM 6 - SELECTED FINANCIAL DATA

The Consolidated Statement of Operations appearing on page 22 hereof and the
Selected Financial Data appearing on page 21 hereof 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 on page 17 hereof is hereby
incorporated by reference.

<PAGE>

FORM 10 -K 1996 CULBRO CORPORATION

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.

PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION

In accordance with General Instruction G-3 to Form 10-K, the information
called for in this Item 10 with respect to directors is not presented here since
such information is included in the definitive proxy statement which involves
the election of directors which will be filed pursuant to Regulation 14A not
later than 120 days after the close of the fiscal year, and such information is
hereby incorporated by reference from such proxy statement.

<PAGE>

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)

<S> <C> <C> <C> <C>
EDGAR M. CULLMAN 79 Director 1963 None
Chairman of the Board (1961)
(1975)

EDGAR M. CULLMAN, JR. 50 Director 1983 None
President (1984) (1982)

JOSEPH C. AIRD 52 None 1987 None
Senior Vice President-
Controller (1987)

JAY M. GREEN 49 Treasurer 1988 None
Executive Vice (1988)
President Finance &
Administration (1988)

DAVID M. DANZIGER 31 None 1996 Director of Operational Projects
Vice President - The Eli Witt Company
Corporate Development (7/95-1/96);Harvard Business
(1996) School (MBA) (9/92-6/94);
Director Budget and Analysis
- NYC Department of
Transportation (8/90-7/92)

ANTHONY J. GALICI 39 None 1995 None
Vice President-Assistant
Controller (1995)

JANET A. KRAJEWSKI 42 None 1993 None
Vice President-Taxes
(1993)

MARY L. RAFFANIELLO 43 None 1995 None
Vice President-
Human Resources (1995)

A. ROSS WOLLEN 53 Senior Vice 1977 None
General Counsel President (1983)
(1980) & Secretary (1987)
</TABLE>

<PAGE>

FORM 10 -K 1996 CULBRO CORPORATION

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
executive officer was selected as an officer. Mr. Green has an employment
agreement terminating in 1999. See page 53 of the Prospectus. (See Item 14,
Exhibit 10(E)). Positions not otherwise identified are with the Corporation.

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 1996, 1995 and 1994.
See Index To Financial Statements and Additional Financial Data.

(a)(3) Exhibits. Certain exhibits are incorporated herein by reference
to the Registration Statement of General Cigar Holdings, Inc. on Form S-1 filed
December 24, 1996 (No. 333-18791) of which the Prospectus is a part (the
"Registration Statement"). (Enumeration corresponds to the Exhibit Table, Item
601, Regulation S-K. Items not enumerated are not applicable).

(2) PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR
SUCCESSION.

(A) Form of Distribution Agreement among Culbro Corporation, Culbro Land
Resources, Inc. and General Cigar Holdings, Inc. (Incorporated by reference to
Exhibit 2.1 of the Registration Statement).

(B) Form of Merger Agreement among Culbro Corporation and General Cigar
Holdings, Inc. (Incorporated by reference to Exhibit 2.2 of the Registration
Statement).

(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).

<PAGE>

FORM 10 -K 1996 CULBRO CORPORATION

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

(A) 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).

(B) 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).

(C) 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).

(D) Credit Agreement dated as of January 21, 1997 among General Cigar Co.,
Inc. as Borrower; General Cigar Holdings, Inc., 387 PAS Corp., Club Macanudo,
Inc., GCH Transportation, Inc. and Villazon & Company, Inc., as Guarantors; the
Lenders from time to time parties thereto; and Chase Securities as arranger,
with the Chase Manhattan Bank as Administrative Agent. (Incorporated by
reference to Exhibit 10.17 of the Registration Statement).

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) MATERIAL CONTRACTS; 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).

(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).

<PAGE>

FORM 10 -K 1996 CULBRO CORPORATION

(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)
and amendment dated January 11, 1997 (Incorporated by reference to Exhibit 10.7
of the Registration Statement).

(F) Stock Option Plan for Non-employee Directors of Registrant, dated
March 7, 1996 (Incorporated by reference to the definitive proxy statement of
Registrant, dated March 15, 1996, for its Annual Meeting of Shareholders held on
April 11, 1996).

(G) Form of 1997 Stock Option Plan of General Cigar Holdings,
Inc.(Incorporated by reference to Exhibit 10.8 of the Registration Statement).

(H) 1996 Stock Plan of Culbro Corporation, dated as of March 15, 1996
(Incorporated by reference to the definitive proxy statement of Culbro
Corporation, dated March 15, 1996, for its Annual Meeting of Shareholders held
on April 11, 1996).

(10) MATERIAL CONTRACTS; OTHER

(I) Shareholders Agreement dated as of April 25, 1994 among Culbro
Corporation, MS Distribution, Inc. and The Eli Witt Company (Incorporated by
reference to Exhibits to Form 10-K of the Corporation filed for fiscal year
1994).

(J) Asset Purchase Agreement, dated as of December 20, 1996, among General
Cigar Co., Inc., Villazon & Company, Inc. and the Stockholders (as defined
therein) (Incorporated by reference to Exhibit 10.1 of the Registration
Statement).

(K) Stock Purchase Agreement, dated as of December 23, 1996, among General
Cigar Co., Inc., Honduras American Tabaco, S.A. de C.V., and the Sellers (as
defined therein) (Incorporated by reference to Exhibit 10.2 of the
Registration Statement).

(L) Form of Tax Sharing Agreement among Culbro Corporation, Culbro Land
Resources, Inc. and General Cigar Holdings, Inc.(Incorporated by reference to
Exhibit 10.3 of the Registration Statement).

(M) Form of Benefits and Employment Matters Allocation Agreement among
Culbro Corporation, Culbro Land Resources, Inc. and General Cigar Holdings,
Inc.(Incorporated by reference to Exhibit 10.4 of the Registration Statement).

(N) Form of Services Agreement among Culbro Corporation, Culbro Land
Resources, Inc. and General Cigar Holdings, Inc.(Incorporated by reference to
Exhibit 10.5 of the Registration Statement).

(O) Form of Agricultural Lease between Culbro Land Resources, Inc. and
General Cigar Holdings, Inc.(Incorporated by reference to Exhibit 10.6 of the
Registration Statement).

(13) ANNUAL REPORT TO SECURITY HOLDERS.

Not applicable.

<PAGE>

FORM 10 -K 1996 CULBRO CORPORATION

(21) SUBSIDIARIES.

(A) List of Subsidiaries.

(B) Chart 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 Prospectus 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 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.

(99) Prospectus of General Cigar Holdings, Inc., dated February 27,
1997, as filed February 28, 1997 pursuant to Rule 424(b).

(b) The Corporation filed reports on Form 8-K on August 29, 1996 and
January 21, 1997.

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

To receive a copy (while supplies last) of the final Prospectus, dated
February 27, 1997, which is part of the General Cigar Holdings, Inc.
Registration Statement on Form S-1 (filed December 24, 1996 and subsequently
amended, No. 333-18791) send a written request to:

GENERAL CIGAR HOLDINGS, INC.
387 Park Avenue South
New York, NY 10016-8899
Attention: Secretary

<PAGE>

FORM 10 -K 1996 CULBRO CORPORATION

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

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 as of March 13, 1997.

SIGNATURES TITLE

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

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

/s/ EDGAR M. CULLMAN Chairman of the Board
- --------------------
(Edgar M. Cullman) and Director

/s/ EDGAR M. CULLMAN, JR. President, Director and
- -------------------------
(Edgar M. Cullman, Jr.) Chief Executive Officer

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

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

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

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

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

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

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

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

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

<PAGE>

Management's Discussion and Analysis

Liquidity and Capital Resources

In 1996, cash used in operating activities of continuing operations
reflected principally higher tobacco inventories at General Cigar Co., Inc.
("General Cigar") to meet the current demand for cigars and to secure certain
tobacco supplies to meet the anticipated future demand for cigars. The
increase in accounts receivable reflected the increased cigar sales. The
decrease in deferred taxes reflected the reversal of excess deferred taxes
due to lower than expected taxes on the sale of CMS Gilbreth Packaging
Systems, Inc. ("CMS Gilbreth"), and the reclassification to current
liabilities of deferred taxes for the reversal of timing differences. These
items were partially offset by proceeds from the sale by the Corporation's
Connecticut real estate business of an equity investment in a real estate
joint venture.

Cash provided by investing activities principally included the proceeds
from the sale of CMS Gilbreth. The increase in capital expenditures in 1996
versus 1995 related to investment in General Cigar's manufacturing
facilities to meet increased demand for premium cigars. In order to increase
production, General Cigar recently expanded its manufacturing facilities in the
Dominican Republic and Jamaica, and expects to increase production at its
facilities in Honduras, which were recently acquired as a result of the
acquisition of Villazon (see below). The cash used in financing activities
reflects the reduction of debt from the proceeds of the CMS
Gilbreth sale.

On February 28, 1997, the Corporation's newly formed subsidiary,
General Cigar Holdings, Inc. ("GC Holdings"), completed an initial public
offering of 6.9 million shares of its Class A Common Stock (the "Offering"),
representing approximately 26% of the common equity ownership of GC Holdings.
The proceeds from the Offering, after underwriters' discounts and commissions
and estimated other expenses, were approximately $113 million, and were used
to repay debt, a substantial portion of which was incurred in the acquisition
of Villazon (see below). The Corporation owns the remaining equity ownership
of GC Holdings in the form of Class B Common Stock. GC Holdings has no
operations of its own, and its principal asset is all of the outstanding
common stock of General Cigar. Under the terms of a Distribution Agreement
entered into on February 27, 1997 among the Corporation, GC Holdings and
Culbro Land Resources ("CLR"), the Corporation transferred certain assets and
liabilities to GC Holdings and CLR. The Distribution Agreement also provided
for the transfer of the assets of the Corporation's non-tobacco businesses and
investments, principally the nursery business, Imperial Nurseries, Inc.
("Imperial Nurseries"), most of the New England real estate holdings and the
investment in Centaur Communications, Ltd. ("Centaur") to CLR. Subject to
certain conditions, the Corporation intends to distribute to its shareholders
the common stock of CLR (the "Distribution"). The only significant asset the
Corporation will have after the Distribution will be its investment in GC
Holdings. The Corporation will then be merged, subject to approval of 66 2/3%
of its shareholders, with and into GC Holdings, with the Corporation's
shareholders at that time receiving approximately 4.45 shares of Class B
Common Stock of GC Holdings in exchange for each share of the Corporation's
stock.

On January 21, 1997, General Cigar acquired two affiliated companies
(collectively "Villazon") for approximately $81.4 million consisting of $90.5
million of purchase price and direct acquisition costs, less $9.1 million of
cash acquired. At closing, cash paid to the sellers was $64.6 million and $24.4
million of seller notes were issued. The acquisition of Villazon was

17
<PAGE>

financed from the initial borrowings under the General Cigar Credit
Agreement (see below), which was repaid from the Offering proceeds.

On January 21, 1997, General Cigar entered into a Credit Agreement (the
"General Cigar Credit Agreement") which provided financing for the
acquisition of Villazon and repayment of the amount outstanding under the
Culbro Credit Agreement. The General Cigar Credit Agreement provides
financing for GC Holdings and its subsidiaries. In addition, under the terms
of the Distribution Agreement, General Cigar transferred $7 million to
finance the operations of CLR and its subsidiaries. Subsequent to the
Offering, the cash flows of CLR have been segregated from the cash flows
of GC Holdings.

The Corporation believes that cash flows from operations and credit
facilities will be adequate to finance its businesses.

Results of Operations
1996 Compared to 1995

In 1996, the Corporation sold its packaging and labeling systems business,
CMS Gilbreth, and has reported CMS Gilbreth's results as a discontinued
operation. Results of prior years were restated to reflect the current
presentation.

Income from continuing operations increased from $7.5 million in 1995
to $8.4 million in 1996 due principally to higher operating profit in the
cigar business, partially offset by the effect of other expense of $4.5
million (see below) recorded in contemplation of the Offering.

Higher profit in the cigar business reflected an increase in net sales of
approximately 25%. The increase in net sales reflected principally higher unit
sales of premium cigars, and higher prices in all cigar categories. Continued
strong sales and prices of premium cigars and higher prices in the mass market
category more than offset slightly lower unit volume in certain brands of mass
market cigars. Management believes that volume in mass market cigars was
adversely affected by repositioning and renaming certain brands. Gross profit in
the cigar business increased, reflecting higher prices, benefits from mix due to
relatively higher sales of premium cigars, and the increased volume. Operating
expense in the cigar business increased due principally to the higher sales
volume. The operating results of the Club Macanudo cigar bar which opened in
1996 were not material.

Operating profit in the nursery products business, Imperial Nurseries,
was substantially unchanged from last year. The effect of higher net sales
was offset by lower margins and higher operating expenses.

In the Connecticut real estate business, operating results decreased
from last year due to lower property sales and a loss of approximately $0.4
million on the sale of an equity interest in a real estate joint venture. The
joint venture sale generated proceeds of approximately $4 million. Operating
results of the New York City office building increased due to higher rental
revenue from leasing previously vacant space.

General corporate expense increased by $2.3 million due to other expense
of $4.5 million partially offset by lower annual incentive compensation
expense in 1996 compared to 1995. The other expense of $4.5 million in 1996
represents the cost of terminating a long-term incentive compensation plan and
severance costs for corporate employees, in contemplation of the Offering.

18
<PAGE>

Interest expense decreased from 1995 reflecting lower debt levels in
1996 and overall lower interest rates.

The loss from discontinued operations reflects the loss on the sale of CMS
Gilbreth, partially offset by operating profit prior to the sale. Operating
results of CMS Gilbreth declined from last year due principally to lower sales.

1995 Compared to 1994

The income from continuing operations in 1995, compared to a loss from
continuing operations in 1994, reflected substantially higher operating
profit in the cigar business. The higher profit in the cigar business
reflected higher unit volume and higher prices in all cigar categories. Gross
profit was higher due to the higher sales and increased gross margins. The
increase in gross margins reflected a more favorable mix due to relatively
higher sales of premium cigars and lower fixed costs per unit due to the
higher volume. Operating expenses in the cigar business increased due to the
higher volume. As a percentage of net sales, operating expenses decreased
slightly in fiscal 1995 due to expenses increasing at a lower rate relative
to the increase in sales.

Operating results in the Corporation's nursery products business
increased in 1995 due to improved pricing and lower costs, partially offset
by the effect of lower volume. Imperial's 1995 results included a charge of
$1 million to reserve for excess field grown plant inventories due to
projected market conditions. Imperial plans to reduce its investment in field
grown plant inventories.

In the Corporation's real estate segment, operating results of the
Connecticut real estate business increased, reflecting the effect of the $3.6
million charge recorded in 1994 to write off previously expended costs on
certain projects that were not being developed as originally planned. Excluding
the effect of this one-time charge in 1994, operating results in the Connecticut
real estate business in 1995 were substantially unchanged. Conditions in the
commercial and residential real estate markets in the greater Hartford area
continued to hamper development activities. Although leasing activities were
strong in 1995, lower lease rates reflected the soft commercial market. Results
in the Corporation's commercial office building in New York City improved
slightly due to higher rental income from short-term leases.

General corporate expense increased due principally to accruals for
management incentive compensation, related to the increased earnings in 1995.

Results from the Corporation's equity investments in 1995 reflected a loss
at Centaur compared to income in 1994. Centaur's lower results reflected a
weakening in the British economy. The Corporation's 1994 results from equity
investments included a loss at Eli Witt prior to the deconsolidation of that
company in April 1994.

In 1995, the Corporation's results included certain nonoperating items,
both income and expense, which substantially offset each other. A gain of
approximately $2.6 million on an insurance settlement reflected the proceeds
received from two of the claims related to a General Cigar office and warehouse
facility destroyed by fire in May 1994. Additional claims related to this
incident remain outstanding. Included in other nonoperating income, net were
approximately $2.2 million of expenses reflecting the Corporation's support of
its investment in Eli Witt and expenses related to a terminated transaction for
the sale of 51% of General Cigar.

19
<PAGE>

Interest expense increased in 1995 because of a full year of interest
accrued on the 10% exchangeable subordinated note, as compared to a partial
year in 1994. The accrued dividend income and accretion on the Eli Witt Series B
Preferred Stock, included in other nonoperating income, net, is equal to the
accrued interest expense on the subordinated note.

Net income increased in 1995 compared to 1994 due to the higher income
from continuing operations and slightly higher results from the discontinued
operation, CMS Gilbreth, which was sold in 1996. CMS Gilbreth's results
increased as a result of higher sales and cost reduction benefits from closing a
facility in 1994, partially offset by higher spending on research and
development.

20
<PAGE>

Quarterly Data on Common Shares

The following are the high and low prices of common shares of Culbro Corporation
(the "Corporation") in 1996 and 1995 as traded on the New York Stock Exchange.

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
High Low High Low High Low High Low
] --------------- --------------- --------------- ---------------
1996 67 5/8 46 3/4 76 3/4 52 1/4 62 1/2 43 1/4 60 1/4 49 1/4
1995 14 7/8 11 3/4 29 1/2 14 7/8 36 1/4 26 51 3/4 33

There were no cash dividends declared in 1996 or 1995.

Selected Financial Data

<TABLE>
<CAPTION>
(dollars in thousands except per share data) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales and other revenue $ 204,812 $ 168,996 $ 134,335 $ 1,317,680 $ 1,106,914
Operating profit 19,853 18,644 3,153 13,848 12,216
Income (loss) from continuing
operations 8,399 7,504 (2,172) (1,218) (31)
Income (loss) per common share from
continuing operations 1.80 1.69 (0.50) (0.45) (0.01)
Net income (loss) 7,856 11,189 1,152 (7,452) 1,868
Net income (loss) per common share 1.68 2.52 0.27 (1.89) 0.43
Dividends per common share -- -- -- -- 0.60
Working capital 95,430 64,671 69,003 120,147 96,542
Property and equipment, net 66,829 61,059 61,894 99,994 83,637
Total assets 243,444 277,818 268,057 419,791 400,609
Long-term debt 49,925 84,089 98,612 174,969 145,163
Shareholders' equity 135,788 124,975 112,037 110,882 119,035
Book value per common share at
end of period 30.09 28.47 26.01 25.74 27.63
Weighted average common shares
and equivalents outstanding 4,664,000 4,440,000 4,308,000 4,308,000 4,308,000
========= ========= ========= ========= =========
</TABLE>

The 1992 through 1995 information presented above has been restated to reflect
CMS Gilbreth as a discontinued operation. The 1996, 1995 and
1994 information reflects the deconsolidation of Eli Witt (see Note 11).

21
<PAGE>

Consolidated Statement of Operations and Retained Earnings

(dollars in thousands except per share data)
- --------------------------------------------------------------------------------
1996 1995 1994

Net sales and other revenue $ 204,812 $168,996 $134,335
Costs and expenses
Cost of goods sold 120,449 98,072 83,085
Selling, general and administrative expenses 60,010 52,280 44,497
Other expense 4,500 -- 3,600
--------- --------- --------
Operating profit 19,853 18,644 3,153
Income (loss) from equity investments, net 303 (153) (1,728)
Other nonoperating income, net 1,917 116 1,446
Gain on insurance settlement -- 2,586 --
Gain on sale of Eli Witt common stock -- -- 2,691
Interest expense 8,758 9,242 8,585
--------- --------- --------
Income (loss) before income taxes 13,315 11,951 (3,023)
Income tax provision (benefit) 4,916 4,447 (851)
--------- --------- --------
Income (loss) from continuing operations 8,399 7,504 (2,172)
--------- --------- --------
Discontinued operation:
Loss on sale of business, net of tax benefit and
reversal of excess deferred taxes of $4,182 (1,311) -- --
Income from operations, net of tax of $527
(1995-$2,580;1994-$2,273) 768 3,685 3,324
--------- --------- --------
(Loss) income from discontinued operation (543) 3,685 3,324
--------- --------- --------
Net income 7,856 11,189 1,152
Retained earnings - beginning of year 110,686 99,497 98,345
--------- --------- --------
Retained earnings - end of year $ 118,542 $110,686 $ 99,497
========= ========= ========

Income (loss) per common share from
continuing operations $ 1.80 $ 1.69 $ (0.50)
(Loss) income per common share from
discontinued operation (0.12) 0.83 0.77
--------- --------- --------
Net income per common share $ 1.68 $ 2.52 $ 0.27
========= ========= =========
Weighted average common shares
and equivalents outstanding 4,664,000 4,440,000 4,308,000
========= ========= =========

See Notes to Consolidated Financial Statements.

22
<PAGE>

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

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)
Issuance of treasury stock (225 shares) -- -- 5
Exercise of stock options (81,632 shares) -- (20) 1,764
------ ------- --------
Balance December 2, 1995 4,549 13,276 (3,536)
Issuance of treasury stock (60 shares) -- -- 1
Exercise of stock options (121,388 shares) - 326 2,630
------ ------- --------
Balance November 30, 1996 $4,549 $13,602 $ (905)
====== ======= ========

See Notes to Consolidated Financial Statements.

23
<PAGE>

Consolidated Balance Sheet
Nov. 30, Dec. 2,
(dollars in thousands except per share data) 1996 1995
- --------------------------------------------------------------------------------

Assets
Current Assets
Cash and cash equivalents $ 5,409 $ 6,523
Receivables, less allowance of $784 (1995-$803) 35,257 28,377
Inventories 81,232 63,774
Deferred income taxes 3,091 --
Other current assets 4,832 4,883
--------- ---------
Total current assets 129,821 103,557

Property and equipment, net 66,829 61,059
Real estate held for sale or lease, net 25,218 29,959
Investment in real estate joint ventures 3,403 7,964
Other, including investment in Centaur
of $14,695 (1995-$14,392) 18,173 18,049
Investment in Series B Preferred Stock of Eli Witt -- 15,122
Net assets of discontinued operation -- 42,108
--------- ---------
Total assets $ 243,444 $ 277,818
========= =========
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued liabilities $ 27,502 $ 27,363
Income taxes 5,481 2,610
Long-term debt due within one year 1,408 8,913
--------- ---------
Total current liabilities 34,391 38,886

Long-term debt 49,925 84,089
Accrued retirement benefits 15,874 16,148
Deferred income taxes -- 5,622
Other noncurrent liabilities and deferred credit 7,466 8,098
--------- ---------
Total liabilities 107,656 152,843
--------- ---------
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 13,602 13,276
Retained earnings 118,542 110,686
--------- ---------
136,693 128,511
Less-Common stock in Treasury, at cost
37,597 shares (1995-159,045) (905) (3,536)
--------- ---------
Total shareholders' equity 135,788 124,975
--------- ---------
Total liabilities and shareholders' equity $ 243,444 $ 277,818
========= =========

See Notes to Consolidated Financial Statements.

24
<PAGE>

Consolidated Statement of Cash Flows

<TABLE>
<CAPTION>
(dollars in thousands) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 7,856 $ 11,189 $ 1,152
Adjustments to reconcile net income
to net cash (used in) provided by operating activities:
Depreciation and amortization 5,334 5,157 4,632
Loss (income) from discontinued operation, before tax 4,198 (6,265) (5,597)
Gain on insurance settlement -- (2,586) --
Gain on sale of Eli Witt common stock -- -- (2,691)
(Income) loss from equity investments, net (303) 153 1,728
Discount and interest on subordinated note 2,167 2,349 1,446
Accretion and dividend income on Series B Preferred Stock of Eli Witt (2,167) (2,349) (1,446)
Increase in other noncurrent liabilities from other expense 3,000 -- --
Provision for bad debts 490 278 570
Proceeds from sale of equity interest in a real estate joint venture 4,042 -- --
Changes in assets and liabilities:
Decrease in real estate held for sale or lease 1,024 1,414 3,965
(Increase) decrease in inventories (17,458) (1,892) 1,017
Increase in accounts receivable (7,370) (11,161) (690)
(Decrease) increase in accounts payable and accrued liabilities (314) 9,179 (1,065)
Increase in income taxes payable 2,871 2,311 35
(Decrease) increase in deferred income taxes (8,713) 857 (2,714)
Other, net 1,177 (1,432) 1,934
-------- -------- --------
Net cash (used in) provided by operating activities of continuing operations (4,166) 7,202 2,276
Net cash provided by operating activities of discontinued operation 3,547 9,435 10,235
-------- -------- --------
Net cash (used in) provided by operating activities (619) 16,637 12,511
-------- -------- --------

Investing activities:
Net proceeds from sale of CMS Gilbreth 35,030 -- --
Additions to property and equipment (11,079) (3,688) (2,509)
Investment in Eli Witt subordinated note -- (5,000) --
Proceeds from insurance settlement -- 2,225 500
Proceeds from Eli Witt repayment of a mortgage loan to the Corporation -- -- 8,000
Proceeds from the sale of Eli Witt common stock -- -- 672
Investing activities related to discontinued operation (947) (1,450) (2,317)
-------- -------- --------
Net cash provided by (used in) investing activities 23,004 (7,913) 4,346
-------- -------- --------

Financing activities:
Payments of long-term debt (25,662) (15,502) (28,662)
Increases in long-term debt 475 5,000 16,669
Proceeds from exercise of stock options 1,688 1,363 --
-------- -------- --------
Net cash used in financing activities (23,499) (9,139) (11,993)
-------- -------- --------

Net (decrease) increase in cash and cash equivalents (1,114) (415) 4,864
Cash and cash equivalents at beginning of year 6,523 6,938 2,074
-------- -------- --------
Cash and cash equivalents at end of year $ 5,409 $ 6,523 $ 6,938
======== ======== ========
</TABLE>

See Notes to Consolidated Financial Statements.

25
<PAGE>

NOTES to CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands except per share data)

1. Significant Accounting Policies

Basis of Consolidation

The consolidated financial statements of the Corporation include the
accounts of all wholly owned subsidiaries. The Corporation accounts for its
approximately 25% investment in 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 investment in real estate
joint ventures on the equity method.

Fiscal Year

The Corporation's fiscal year ends on the Saturday nearest November 30.
Fiscal 1996 and 1995 ended on November 30, 1996 and December 2, 1995,
respectively, and contained 52 weeks. Fiscal 1994 ended on December 3, 1994, and
contained 53 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 bank commercial
paper which matures 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.

26
<PAGE>

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.

Revenue and Gain Recognition

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

Advertising and Promotion Expense

Production costs of future media advertising are deferred until the
advertising occurs. All other advertising and promotion costs are expensed when
incurred.

Stock-Based Compensation

In 1996, the Corporation adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." The Corporation has elected to adopt this new accounting
statement through a pro forma disclosure of the effects of using a fair value
method to value stock options granted (see Note 7). The Corporation will
continue to use the method of accounting for stock options as prescribed by APB
Opinion No. 25, "Accounting for Stock Issued to Employees." Therefore, adoption
of the disclosure requirements of SFAS No. 123 will have no effect on the
Corporation's reported financial position and results of operations.

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.

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 Note 6.

27
<PAGE>

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenue and expenses during the period reported. Actual results
could differ from those estimates. Estimates are used when accounting for
allowance for uncollectible accounts receivable, depreciation and amortization,
employee benefit plans, taxes, and other contingencies, among others.

2. Subsequent Events

Certain Transactions

GC Holdings has no operations of its own, and its principal asset is all
of the outstanding stock of General Cigar Co., Inc. ("General Cigar"),
previously a wholly owned direct subsidiary of the Corporation. Pursuant to a
Distribution Agreement entered into on February 27, 1997, among the Corporation,
GC Holdings and the Corporation's wholly owned subsidiary, Culbro Land
Resources, Inc. ("CLR"), the Corporation transferred certain assets and
liabilities to GC Holdings and CLR. The Distribution Agreement also provides for
a potential distribution of the stock of CLR to the shareholders of the
Corporation (the "Distribution"). The Distribution is contingent upon (i)
either a tax ruling or an opinion of counsel satisfactory to the Corporation
that the Distribution constitutes a tax free reorganization under Section 335
of the Internal Revenue code and (ii) approval of the Merger (see below) by
the Corporation's shareholders.

The assets transferred to GC Holdings included principally 1,100 acres
of land, all of the outstanding common stock of 387 PAS Corp., Club Macanudo,
Inc., and Club Macanudo (Chicago) Inc. The terms of the Distribution
Agreement required GC Holdings to assume certain related liabilities and the
amount outstanding under the Culbro Credit Agreement (see Note 6). The
Distribution Agreement also provided for the assumption of certain employee
benefit arrangements of the Corporation by GC Holdings, and for a tax sharing
agreement between the Corporation, GC Holdings, and CLR. The assets
transferred to CLR included the Corporation's non-tobacco businesses and
investments, principally its nursery business, Imperial Nurseries, Inc.
("Imperial"), most of its New England real estate holdings and the investment
in Centaur Communications Ltd. ("Centaur"). The Distribution Agreement also
required a transfer of $7 million to CLR from GC Holdings on February 27, 1997.

28
<PAGE>

Subsequent to the Distribution, the Corporation will have as its only
significant asset its investment in GC Holdings. The Corporation will then be
merged (the "Merger"), subject to approval of 66 2/3% of its shareholders,
into GC Holdings. The Corporation's shareholders at that time will receive
approximately 4.45 shares of Class B Common Stock of GC Holdings in exchange
for each share of the Corporation's stock.

Villazon Acquisition

On January 21, 1997, General Cigar completed the acquisitions of two
affiliated companies, Villazon & Company, Inc., a U.S. corporation, and
Honduras American Tabaco, S.A de C.V., a Honduran corporation (collectively
"Villazon"), for approximately $81.4 million consisting of $90.5 million of
purchase price and direct acquisition costs less $9.1 million of cash
acquired at closing. Cash paid to the sellers was $64.6 million and $24.4
million aggregate principal amount of seller notes were issued (the "Villazon
Acquisition"). Both companies are engaged in the cigar business. The Villazon
Acquisition will be accounted for using the purchase method of accounting.
Cost in excess of net assets acquired, primarily trade names and other
intangible assets, is estimated to be approximately $71 million (see
unaudited pro forma condensed financial information in Note 4). General Cigar
entered into a Credit Agreement (see Note 6) to finance the acquisition. The
amounts borrowed under the General Cigar Credit Agreement and $14.4 million
of the seller notes were repaid with the proceeds from the Offering.

3. Business Disposition

On November 8, 1996, the Corporation completed the sale of its labeling
and packaging systems business, CMS Gilbreth Packaging Systems, Inc. ("CMS
Gilbreth"). The Corporation received net proceeds, after sale expenses, of
approximately $35.0 million and recorded an estimated pretax loss of
approximately $5.5 million on the sale, net of operating profit of approximately
$1.6 million earned during the phase-out period. The actual loss on sale will be
determined when the closing balance sheet of CMS Gilbreth is finalized. The sale
proceeds were used to repay debt.

CMS Gilbreth is reported as a discontinued operation in the accompanying
financial statements. Financial statements of prior periods have been restated
to reflect the current presentation. Net sales and other revenue of CMS Gilbreth
in 1996 were $43,624 through the date of sale, and $51,048 and $51,080 in 1995
and 1994, respectively.

4. Consolidated Condensed Pro Forma Financial Information (Unaudited)

The following consolidated condensed unaudited pro forma financial
information reflects the Corporation as if the Villazon Acquisition,
including the associated borrowings to finance the acquisition, the sale of
CMS Gilbreth, and the Offering had been completed. The unaudited consolidated
condensed pro forma statement of operations assumes that these transactions
had taken place at the beginning of fiscal 1996. The unaudited consolidated
condensed pro forma balance sheet reflects the effect of the acquisition of
Villazon and the

29
<PAGE>

Offering as if they had taken place at the balance sheet date. The effect of
the sale of CMS Gilbreth is reflected in the Corporation's 1996 balance
sheet. The unaudited pro forma consolidated condensed financial information
presented herein may not necessarily reflect the results of operations and
financial position that actually would have been achieved had the
transactions discussed above actually taken place at the assumed dates.

Consolidated Condensed Pro Forma Statement of Operations (Unaudited)

1996
----

Net sales $ 246,830
---------
Operating profit 31,934
Other nonoperating items 2,899
Interest expense 4,766
---------
Income before taxes 30,067
Income tax expense 11,449
---------
Income before minority interest 18,618
Minority interest in subsidiary (4,831)
---------
Income from continuing operations $ 13,787
=========

Consolidated Condensed Pro Forma Balance Sheet (Unaudited)

Nov. 30,
1996
--------

Current assets $151,530
Property and equipment, net 71,179
Intangible assets 71,352
Other assets 49,136
--------
Total assets $343,197
========

Current liabilities $ 35,824
Long-term debt 28,445
Other noncurrent liabilities 30,140
--------
Total liabilities 94,409
Minority interest in subsidiary 40,463
Shareholders' equity 208,325
--------
Total liabilities, minority interest and shareholders'equity $343,197
========

30
<PAGE>

5. Industry Segment Information

The Corporation's businesses operate in three industry segments: consumer
products, nursery products and real estate. The consumer products segment is
engaged in the manufacturing and marketing of cigars, growing wrapper
tobacco, distributing disposable lighters and operating a cigar bar in New
York City, which opened in 1996. The nursery products segment is engaged in
growing plants which are sold principally to garden centers, wholesalers, and
mass merchandisers and operating sales and service centers which sell
principally to landscapers. The real estate segment is engaged in building
and managing commercial and industrial properties, developing residential
subdivisions on real estate owned by the Corporation in Connecticut and
Massachusetts and owning and managing a commercial office building in New
York City.

Revenue, operating profit and assets of operations outside the United
States, and export sales are not material. Capital expenditures and
depreciation and amortization presented herein include amounts related to
capital leases.

1996 1995 1994
- --------------------------------------------------------------------------------

Net sales and other revenue
Consumer Products $154,676 $ 124,033 $ 88,304
Nursery Products 36,759 34,507 34,928
Real Estate 13,377 10,456 11,103
-------- --------- ---------
$204,812 $ 168,996 $ 134,335
======== ========= =========
Operating Profit
Consumer Products $ 31,013 $ 26,405 $ 13,532
Nursery Products 1,650 1,732 (604)
Real Estate (a) 721 1,719 (1,983)
-------- --------- ---------
Industry segment totals 33,384 29,856 10,945
General corporate expense (b) 13,531 11,212 7,792
Income (loss) from equity investments, net 303 (153) (1,728)
Other nonoperating income, net 1,917 116 1,446
Gain on insurance settlement -- 2,586 --
Gain on sale of Eli Witt common stock -- -- 2,691
Interest expense 8,758 9,242 8,585
-------- --------- ---------
Income (loss) before income taxes $ 13,315 $ 11,951 $ (3,023)
======== ========= =========
Identifiable assets
Consumer Products $105,714 $ 76,933 $ 64,126
Nursery Products 43,948 42,881 40,636
Real Estate 60,266 69,272 71,215
-------- --------- ---------
Industry segment totals 209,928 189,086 175,977
General corporate 33,516 46,624 48,252
Net assets of discontinued operation -- 42,108 43,828
-------- --------- ---------
$243,444 $ 277,818 $ 268,057
======== ========= =========

(a) Real estate segment operating loss in 1994 includes a $3.6 million charge
for the write off of development costs expended in earlier years.
(b) General corporate expense in 1996 includes expense of $4.5 million for the
termination of a compensation plan and severance and other expenses in
contemplation of the Offering (see Note 2).

31
<PAGE>

Capital Expenditures Depreciation and Amortization
1996 1995 1994 1996 1995 1994
- --------------------------------------------------------------------------------

Consumer Products $ 8,393 $2,499 $1,455 $2,342 $2,037 $1,815
Nursery Products 1,258 789 594 1,116 1,132 912
Real Estate 1,035 248 402 1,101 1,161 1,045
------- ------ ------ ------ ------ ------
Industry segment totals 10,686 3,536 2,451 4,559 4,330 3,772
General corporate 393 152 58 775 827 860
------- ------ ------ ------ ------ ------
$11,079 $3,688 $2,509 $5,334 $5,157 $4,632
======= ====== ====== ====== ====== ======

6. Long-term Debt

Long-term debt includes:

Nov. 30, Dec. 2,
1996 1995
- --------------------------------------------------------------------------------

Credit Agreement $36,000 $40,000
Mortgages 11,862 16,013
Senior Notes -- 21,000
Exchangeable Subordinated Note,
10% (face value $15,000) -- 12,700
Obligations under capital leases 3,471 3,289
------- -------
51,333 93,002
Less: due within one year 1,408 8,913
------- -------
Total long-term debt $49,925 $84,089
======= =======

As of November 30, 1996, the annual payment requirements for the
mortgages, for the years 1997 through 2001 are $406, $450, $5,486 , $525 and
$568, respectively.

On June 5, 1996, the Corporation and its banks entered into the Second
Amended and Restated Credit Agreement (the "1996 Culbro Credit Agreement") which
replaced the previous Credit Agreement that was scheduled to terminate in
December 1996. The 1996 Culbro Credit Agreement provided $65 million for general
working capital purposes and $20 million for repayment of the Corporation's
Senior Notes. The repayment of the Senior Notes in 1996 included a scheduled
payment of $7 million with the balance repaid with a portion of the proceeds
from the sale of CMS Gilbreth.

On January 21, 1997, General Cigar entered into a $120 million Credit
Agreement (the "General Cigar Credit Agreement") with the banks that
previously were lenders under the 1996 Culbro Credit Agreement. The initial
borrowings under the General Cigar Credit Agreement were used for the
Villazon Acquisition and to repay the amount outstanding under the 1996
Culbro Credit Agreement. The General Cigar Credit Agreement is composed of a
$60 million term loan and a revolving credit facility of $60 million. The
proceeds from the Offering were used to repay the amount outstanding under
the term loan and the revolving credit facility of the General Cigar Credit
Agreement. Also, the commitment under the revolving credit facility was
reduced to $50 million. In accordance with the terms of the General Cigar
Credit Agreement, borrowings under the revolving credit facility bear
interest at the Eurodollar rate plus 0.75%. General Cigar will pay a
commitment fee of 1/4 of 1% on the unused portion of the revolving credit
facility. The General Cigar Credit Agreement includes limitations on
indebtedness, investments and other significant transactions, as defined.

32
<PAGE>

Prior to the Offering, the General Cigar Credit Agreement was
guaranteed by the Corporation and provided financing to the Corporation and all
of its subsidiaries. Subsequent to the Offering, the General Cigar Credit
Agreement will provide financing to General Cigar and the other related
subsidiaries of GC Holdings. GC Holdings is financed separately from CLR and its
subsidiaries, and the cash flow of GC Holdings is not available to CLR. As part
of the Distribution Agreement (see Note 2), GC Holdings transferred cash of $7
million to CLR immediately prior to the Offering.

In October 1996, the Corporation's real estate business satisfied a
nonrecourse mortgage of approximately $3.8 million on a commercial property by
transferring the property to the lender in satisfaction of the outstanding
mortgage. The net book value of the property was substantially equal to the
mortgage balance.

In November 1996, the Corporation exchanged the Series B Preferred Stock
of Eli Witt in satisfaction of the $15 million Subordinated Note originally due
August 1998. The exchange satisfied the principal and accrued interest on the
note. Interest expense in 1996, 1995 and 1994 included $782, $850 and $522,
respectively, for amortization of the original issue discount on the
subordinated note.

In April 1995, the Corporation entered into a $5 million mortgage on
its New York City office building. The mortgage bears interest at the
Eurodollar rate plus 2%, matures March 31, 1999 and requires periodic
payments of interest only until maturity. The proceeds were used by the
Corporation for an additional investment in Eli Witt in the form of a
subordinated note (see Note 11).

The Corporation previously entered into two interest rate swap
agreements with major banks as a hedge against interest rate exposure on its
variable rate debt. One such agreement, to fix the Corporation's borrowing
rate at 4.74% on $30 million of variable rate debt, expired in March 1996. A
similar interest rate swap agreement, that fixed the Corporation's borrowing
rate at 4.89% on an additional $20 million of variable rate debt, expired in
September 1995. The effect of these swap agreements was to decrease 1996 and
1995 interest expense by $75 and $572, respectively, reflecting payments
received from the banks under these agreements. Interest expense in 1994 was
increased by $370 under these agreements, reflecting the excess of payments
made to the banks over payments received.

Management believes that because the interest rate on the 1996 Culbro
Credit Agreement adjusted to current market rates, this debt, as stated on the
November 30, 1996 balance sheet, approximated its fair market value. Management
also believes that the amounts reflected on the balance sheet for its other debt
facilities reflect their current market values based on market interest rates
for comparable risks, maturities and collateral.

7. Shareholders' Equity

Employees Stock Option Plans

In 1996, the Corporation adopted the 1996 Stock Plan (the "1996 Plan") for
officers and key employees, under which 500,000 shares of common stock were made
available for purchase at prices equal to the fair market value at date of
grant. 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. A portion of the
options outstanding under these three plans may be exercised as Incentive Stock
Options, which under current tax laws do not provide any tax deductions to the
Corporation.

Options are not exercisable until three years from the date of grant and
may be exercised over a period ending not later than ten years (1996 Plan) and
eight years (1991 and 1992 Plans) from the date of grant. The exercise period
for each grant is determined by the Corporation's Compensation Committee.

33
<PAGE>

As of November 30, 1996, a total of 400,000 and 40,300 shares under the
1996 Plan and 1992 Plan, respectively, were available for future grant. There
are no shares available for future grant under the 1991 Plan. None of the
options outstanding at November 30, 1996 may be exercised as stock appreciation
rights. Upon consummation of the Distribution and Merger, the Corporation will
convert all employee stock options outstanding under the Employees Stock Option
Plans into options to purchase shares of common stock of GC Holdings and shares
of common stock of CLR. The number of outstanding options and exercise prices
would be adjusted to preserve the value of the options.

Transactions under the 1996, 1992 and 1991 Plans are summarized as
follows:

Number
of Shares
- ------------------------------------------------------------------------------

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
Granted during 1995 68,000
Expired, canceled and exercised (92,200)
--------
Options outstanding at Dec. 2, 1995 311,400
Granted during 1996 134,400
Expired, canceled and exercised (103,286)
--------
Options outstanding at Nov. 30, 1996 342,514
========

Options prices range between: $ 12.25
and
$ 80.00
Options exercisable:
December 3, 1994 109,000
December 2, 1995 86,100
November 30, 1996 78,114
Expiration of the 1991 Plan 2001
Expiration of the 1992 Plan 2002
Expiration of the 1996 Plan 2006
Number of option holders at Nov. 30, 1996 13

Nonemployee Directors Stock Option Plans

In 1996, the Corporation adopted the 1996 Stock Option Plan for
Nonemployee Directors (the "1996 Non-employee Plan"), under which 25,000 shares
of common stock were made available for purchase at prices equal to the fair
market value at date of grant. The 1992 Stock Option Plan for Nonemployee
Directors (the "1992 Nonemployee Plan") 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

34
<PAGE>

years from the date of grant and may be exercised over a period ending not
later than eight years from the date of grant. As of November 30, 1996,
18,000 options under the 1996 Nonemployee Plan and 3,000 options under the
1992 Nonemployee Plan remain available for future grant. None of the options
outstanding at November 30, 1996, may be exercised as stock appreciation
rights. Upon consummation of the Distribution and Merger, options granted
under the 1996 and 1992 Nonemployee Plans will be converted, after adjustment
for dilution, into options to purchase common shares of GC Holdings.
Transactions under the 1996 Nonemployee Plan and the 1992 Nonemployee Plan
are summarized as follows:

Number
of Shares
- --------------------------------------------------------------------------------

Options outstanding at Nov. 27, 1993 14,000
Granted during 1994 14,000
-------
Options outstanding at Dec. 3, 1994 28,000
Granted during 1995 14,000
-------
Options outstanding at Dec. 2, 1995 42,000
Granted during 1996 7,000
Exercised during 1996 (6,000)
-------
Optional outstanding at Nov. 30, 1996 43,000
=======

Option prices range between $ 14.38
and
$ 63.81

Number of option holders at Nov. 30, 1996 7

Stock-Based Compensation

In October 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation." This statement establishes a fair value method of
accounting for, or disclosing, stock-based compensation plans. The Corporation
has adopted the disclosure provisions of this standard which require disclosing
the pro forma effect on earnings and earnings per share of the fair value method
of accounting for stock-based compensation. The Corporation's income from
continuing operations and income per common share from continuing operations
would have been the following pro forma amounts (unaudited) under the method
prescribed by SFAS No. 123.

1996
----

Income from continuing operations, as reported $ 8,399
Income from continuing operations, pro forma (unaudited) $ 7,964

Income per common share from continuing
operations, as reported $ 1.80
Income per common share from continuing
operations, pro forma (unaudited) $ 1.71

35
<PAGE>

The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions for grants in 1996; expected volatility of approximately 30%; risk
free interest rates of 5.48%-6.61%; expected option term of 6 years and no
dividend yield for all options issued. The expected option term was developed
based on historical grant and exercise information.

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 from 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. Upon consummation of the Distribution and Merger, these options
will be converted, after adjustment for dilution, into options to purchase
common shares of GC Holdings. Compensation expense was $267, $267 and $170 in
1996, 1995 and 1994, respectively. As of November 30, 1996, 15,000 options
had been exercised and 35,000 options were exercisable.

Preferred Stock

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

36
<PAGE>

8. Retirement Benefits

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 consolidated results of operations was as
follows:

1996 1995 1994
- --------------------------------------------------------------------------------

Service costs-benefits earned
during the year $ 1,153 $ 962 $ 1,089
Interest on projected benefit
obligations 4,053 4,086 3,928
-------- -------- -------
Total benefit expense 5,206 5,048 5,017
-------- -------- -------
Actual return on pension plan's
assets (10,935) (12,886) (786)
Difference from expected
long-term return 6,516 8,439 (3,499)
-------- -------- -------
Net expected return (4,419) (4,447) (4,285)
-------- -------- -------
Special termination
benefits expense 279 -- --
Curtailment gain resulting
from sale of CMS Gilbreth (452) -- --
Amortization of net pension
obligation at adoption of
SFAS No. 87 51 51 51
Other 39 21 21
-------- -------- -------
Net pension expense $ 704 $ 673 $ 804
======== ======== =======

37
<PAGE>

The status of the Culbro Corporation Pension Plan at November 30, 1996 and
December 2, 1995 was as follows:

<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C>
Present value of benefits earned
by participants, including vested
benefits of $52,095 and $53,730
at Nov. 30, 1996 and Dec. 2, 1995,
respectively $ 52,668 $ 54,274
======== ========
Plan assets at fair value, primarily
equities 70,711 64,639
Present value of projected benefit
obligations 54,759 56,882
-------- --------
Plan assets in excess of projected
benefit obligations 15,952 7,757
Amount included on balance sheet 6,697 5,993
-------- --------
Unrecognized net asset $ 22,649 $ 13,750
======== ========
Unrecognized net asset includes:
Net gain from experience differences and assumption changes $ 23,101 $ 14,190
Changes due to plan amendments (321) (203)
Net pension obligation at adoption of SFAS No. 87 (131) (237)
-------- --------
Unrecognized net asset $ 22,649 $ 13,750
======== ========
</TABLE>

Discount rates of 7.75% and 7.50% were used to compute the present value
of pension benefits at November 30, 1996 and December 2, 1995, respectively. A
5% rate of increase in future compensation levels was used to estimate the
projected pension obligations at both November 30, 1996 and December 2, 1995.
The expected rate of return on pension plan assets in 1996, 1995 and 1994 was
estimated at 9% representing the average long-term rate expected from the
investment of plan assets.

Other Postretirement Benefits

The Corporation provides health and life insurance benefits to certain
retired employees. The components of other postretirement benefits expense
included in the consolidated statement of operations were as follows:

38
<PAGE>

1996 1995 1994
- --------------------------------------------------------------------------------

Service cost-benefits earned
during the year $ 122 $105 $110
Interest on accumulated post-
retirement benefit obligation 568 636 693
Curtailment gain related to
sale of CMS Gilbreth (335) -- --
----- ---- ----
Total expense $ 355 $741 $803
===== ==== ====

The liabilities recorded for the actuarial present value of accumulated
postretirement benefits, none of which have been funded, for the Corporation at
November 30, 1996 and December 2, 1995 were as follows:

1996 1995
- --------------------------------------------------------------------------------

Retirees $4,339 $4,954
Fully eligible active plan participants 1,847 1,890
Other active participants 466 853
Unrecognized net gain from experience
differences and assumption changes 1,120 483
------ ------
Liability for other postretirement
benefits $7,772 $8,180
====== ======

Discount rates of 7.75% and 7.50% were used to compute the accumulated
postretirement benefits obligations at November 30, 1996 and December 2, 1995,
respectively. Because the Corporation's obligation for retiree medical benefits
is fixed, any increase in the medical cost trend would have no effect on the
accumulated postretirement benefits obligation, service cost or interest cost.

39
<PAGE>

9. 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 November 30, 1996 were:

1997 $1,344
1998 1,063
1999 820
2000 473
2001 286
------
Total minimum lease payments 3,986
Less: amount representing interest 515
------
Present value of minimum lease
payments (a) $3,471
======

(a) Included on the consolidated balance sheet as current liabilities are $1,010
(1995-$814) and as long-term debt $2,461 (1995-$2,475)

At November 30, 1996, property and equipment financed with capital leases
amounted to $4,649 (1995 - $4,369), net of accumulated depreciation of $4,891
(1995-$4,757). Consolidated depreciation expense relating to capital leases was
$911 in 1996 (1995-$892;1994-$969).

Operating Leases

Future minimum rental payments under noncancellable leases as of November
30, 1996 were:

1997 $1,065
1998 1,012
1999 951
2000 792
2001 569
Later years 2,175
------
Total minimum lease payments $6,564
======

Total rental expense for all operating leases in 1996 was $731 (1995-$388;
1994-$231).

40
<PAGE>

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 November 30, 1996 were:

1997 $ 4,588
1998 4,257
1999 3,679
2000 3,544
2001 2,869
Later years 1,546
-------
Total minimum rental revenue $20,483
=======

Total rental revenue from all leases in 1996 were $5,243
(1995-$5,765;1994-$5,596).

10. Income Taxes

The income tax provision (benefit) is summarized as follows:

1996 1995 1994
- --------------------------------------------------------------------------------

Continuing operations:
Current federal $ 9,654 $3,078 $(1,078)
Current state and local 1,152 743 475
Deferred, principally federal (5,890) 626 (248)
------- ------ -------
Income tax provision (benefit)
from continuing operations 4,916 4,447 (851)
------- ------ -------
Discontinued operation:
Current federal (553) 2,057 2,374
Current state and local (277) 292 365
Deferred, principally federal (2,825) 231 (466)
------- ------ -------
Income tax (benefit) provision
from discontinued operation (3,655) 2,580 2,273
------- ------ -------
Total income tax provision $ 1,261 $7,027 $ 1,422
======= ====== =======

Income (loss) from continuing operations before income taxes in 1996,
1995, and 1994 was substantially from domestic U.S. operations. The reasons for
the differences between the United States statutory income tax rate and the
effective rates for continuing operations are shown in the following table:

41
<PAGE>

<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax expense (benefit) at statutory rates $ 4,660 $ 4,183 $(1,028)
State and local income taxes 749 483 314
Refund of prior years' income
taxes and liability adjustments -- (374) (467)
Foreign subsidiaries (106) 54 (119)
Subsidiary loss accounted for under the equity method -- -- 706
Other (387) 101 (257)
------- ------- -------
$ 4,916 $ 4,447 $ (851)
======= ======= =======
</TABLE>

The significant components of the net deferred tax asset (liability) are
as follows:

1996 1995
- ------------------------------------------------------------------------------

Depreciation and amortization $(8,405) $(9,929)
Postretirement benefit obligations 2,950 3,651
Pension liabilities 2,542 2,601
Inventories 2,328 2,254
Deferred income attributable to
deconsolidated subsidiary -- (1,483)
Other, principally deferred compensation and
benefits in 1996 3,676 (2,716)
------- -------
$ 3,091 $(5,622)
======= =======

11. Investment in Eli Witt

The Corporation owns 50.1% of the outstanding common stock of Eli Witt, a
wholesale distribution company. Prior to 1994, Eli Witt was a consolidated
subsidiary of the Corporation. In April 1994, as a result of transactions
related to an Eli Witt acquisition, the Corporation's ownership percentage of
Eli Witt decreased to its present level and the Corporation deconsolidated Eli
Witt and accounted for its investment in the common stock of Eli Witt under the
equity method of accounting. Through November 30, 1996, 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. Accordingly, the Corporation has not
recognized the results of Eli Witt subsequent to its deconsolidation in April
1994.

In 1995, the Corporation invested an additional $5 million in Eli Witt in
the form of a subordinated note due August 1, 1998. The Corporation applied this
additional investment to reduce the negative basis in its common equity
investment in Eli Witt from approximately $6.5 million to approximately $1.5
million.

42
<PAGE>

In 1996, Eli Witt filed for protection under Chapter 11 of the
Bankruptcy Code and entered into a contract to sell all of its operating
assets to another wholesale distributor. In January 1997, the sale was
approved by the Bankruptcy Court and was completed shortly thereafter. Under
the terms of the sale, shareholders of Eli Witt will not receive any
proceeds. The Corporation has no investment related to Eli Witt on its 1996
consolidated balance sheet.

12. 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
1996, 1995 and 1994 were $7,894, $7,035, and $5,555, respectively.

Selling, General and Administrative Expenses

Included in selling, general and administrative expenses in 1996 were
advertising expenses of $4,353 (1995- $2,778;1994-$1,047).

Other Expense

Other expense of $4,500 in the 1996 consolidated statement of
operations reflects accruals for the cost of terminating a long-term
compensation plan and severance for certain employees in contemplation of the
Offering of common stock of GC Holdings (see Note 2).

The other expense of $3,600 in the 1994 consolidated statement of
operations reflects a charge in the Connecticut real estate business to write
off development costs expended in earlier years for certain discontinued
projects which management decided not to proceed with as originally planned.

Income (Loss) from Equity Investments, Net

In 1996 and 1995, the Corporation's income (loss) from equity
investments reflected the results of Centaur. The Corporation's loss from
equity investment in 1994 included a net loss of $2,078 from Eli Witt's
operations through the April deconsolidation date and $350 of equity in
earnings of Centaur.

43
<PAGE>

Other Nonoperating Income, Net

Included in other nonoperating income, net, in each of the three fiscal
years presented is the accrual of dividend and accretion income on the Eli
Witt Series B Preferred Stock held by the Corporation, which is equal to the
interest expense on the subordinated note, that was satisfied by the exchange
of the preferred stock in 1996. In 1995, other nonoperating income, net, also
included expenses related to the Corporation's support of the refinancing of
Eli Witt and expenses relating to a proposed sale of a 51% interest in
General Cigar, which did not occur.

Inventories

Inventories consist of:

Nov. 30, Dec. 2,
1996 1995
---- ----

Raw materials and supplies $ 44,446 $ 31,163
Work-in-process 19,641 14,236
Finished goods 17,145 18,375
--------- ---------
$ 81,232 $ 63,774
========= =========
Property and Equipment

Property and equipment consist of:

Nov. 30, Dec. 2,
1996 1995
---- ----

Land $ 10,161 $ 10,516
Buildings 62,032 58,504
Machinery and equipment 45,807 39,730
--------- ---------
118,000 108,750
Accumulated depreciation (51,171) (47,691)
--------- ---------
$ 66,829 $ 61,059
========= =========

Depreciation expense on property and equipment in 1996 was $4,860
(1995-$4,692;1994-$4,242).

Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities include trade payables of
$11,157 (1995-$ 4,661), accrued salaries, wages and incentive compensation of
$7,050 (1995-$ 6,806) and other accrued liabilities of $9,295 (1995-$15,896).

44
<PAGE>

Supplemental Cash Flow Information

Cash paid during the year for:

1996 1995 1994
---- ---- ----

Interest $6,846 $7,004 $7,893
======== ====== ======
Income taxes $5,839 $4,110 $3,642
======== ====== ======

In 1996, the Corporation's Connecticut real estate business exchanged a
commercial property in satisfaction of the outstanding nonrecourse mortgage on
that property. Also in 1996, the Corporation exchanged the Series B Preferred
Stock of Eli Witt that it held in satisfaction of a subordinated note payable
and all accrued interest thereon. There was no cash paid or received in either
of these transactions.

13. Quarterly Results of Operations (Unaudited)

Summarized quarterly financial data are presented below.

<TABLE>
<CAPTION>
1996 Quarters 1st 2nd 3rd 4th Total
- ----------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C>
Net sales and other revenue $ 32,902 $53,772 $50,831 $67,307 $204,812
Gross profit 14,252 21,416 22,724 25,971 84,363
Income from continuing
operations 428 3,105 3,127 1,739 8,399
Income per common share from
continuing operations 0.09 0.67 0.67 0.37 1.80
Net income 924 3,377 1,816 1,739 7,856
Net income per common share 0.20 0.73 0.39 0.37 1.68
- ----------------------------------------------------------------------------------------

<CAPTION>
1995 Quarters 1st 2nd 3rd 4th Total
- ----------------------------------------------------------------------------------------

Net sales and other revenue $ 28,881 $48,636 $43,329 $48,150 $168,996
Gross profit 11,364 18,601 18,918 22,041 70,924
Income (loss) from continuing
operations (465) 3,866 2,489 1,614 7,504
Income (loss) per common share from
continuing operations (0.11) 0.90 0.55 0.35 1.69
Net income 550 4,962 3,045 2,632 11,189
Net income per common share 0.13 1.15 0.67 0.57 2.52
- ----------------------------------------------------------------------------------------
</TABLE>

45
<PAGE>

The 1996 fourth quarter includes other expense of $4.5 million
reflecting accruals for management long-term incentive compensation and
severance in contemplation of transactions described in Note 2. The 1995
fourth quarter includes a charge of $1.0 million to reserve for unsaleable
inventories in the nursery products business.

14. 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 $3.0 million assumed by the purchaser of Moll Tool.

A portion of the insurance claims related to the loss of an
administration and warehouse facility owned and operated by General Cigar was
settled in 1995, but certain claims remain outstanding. The amounts, if any,
which may be received for these claims cannot be evaluated at this time.

At November 30, 1996 the Corporation's subsidiary, General Cigar, had
entered into firm commitments for capital expenditures of approximately $5.7
million for the expansion of its manufacturing and distribution facilities
and the addition of machinery and equipment.

46
<PAGE>

Report of Independent Accountants

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 November 30, 1996 and December 2, 1995
and the results of their operations and their cash flows for the fiscal years
ended November 30, 1996, December 2, 1995 and December 3, 1994, 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 misstatements. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

/s/ Price Waterhouse LLP
New York, New York
January 28, 1997

47
<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
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 Corporation's compliance with which is monitored by senior management and
the Audit Committee.

The appointment of Price Waterhouse LLP 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. Price
Waterhouse's 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 of the Board

/s/ Edgar M. Cullman, Jr.
EDGAR M. CULLMAN, JR.
President and Chief Executive Officer

/s/ Jay M. Green
JAY M. GREEN
Executive Vice President
Chief Financial Officer and Treasurer

48
<PAGE>

Corporate Directors and Officers

Directors

Bruce A. Barnet (2),(3),(6),
President and Chief Executive Officer of
Cahners Publishing Company, publishing

John L. Bernbach (2),(6)
Chairman and Chief Executive Officer
of The Bernbach Group, Inc.

Edgar M. Cullman (1),(4),(5)
Chairman of the Board

Edgar M. Cullman, Jr. (1),(4),(6)
President and Chief Executive Officer

Frederick M. Danziger (1),(4)
Of counsel to Latham & Watkins, attorneys

John L. Ernst (1),(3),(5)
Chairman of the Board and President of Bloomingdale Properties,
Inc., investments and real estate
Chairman of the Compensation and the Nominating
Committees of the Corporation

Thomas C. Israel (2),(6)
Chairman of A.C. Israel Enterprises, Inc., investments
Chairman of the Audit Committee of the Corporation

Dan W. Lufkin (1),(2),(3),(4),(5)
Private investor
Co-Chairman of the Finance Committee of the Corporation

Graham V. Sherren (6)
Chairman and Chief Executive Officer of Centaur
Communications Limited, publisher of business magazines

Peter J. Solomon (3),(4)
Chairman of Peter J. Solomon Company Limited and Peter J.
Solomon Securities Company, Limited, investment bankers
Co-Chairman of the Finance Committee of the Corporation

Francis T. Vincent, Jr. (2),(3),(6)
Vincent Enterprises, private investor

Directors Emeritus

Bernhard L. Kohn

Judd L. Pollock

Joseph E. Whitwell

Officers

Edgar M. Cullman
Chairman of the Board

Edgar M. Cullman, Jr.
President and Chief
Executive Officer

Jay M. Green
Executive Vice President
Chief Financial Officer and Treasurer

Joseph C. Aird
Senior Vice President
Controller

A. Ross Wollen
Senior Vice President
General Counsel and Secretary

David M. Danziger
Vice President
Corporate Development

Anthony J. Galici
Vice President
Assistant Controller

Janet A. Krajewski
Vice President
Taxes

Mary L. Raffaniello
Vice President
Human Resources

(1) Executive Committee
(2) Audit Committee
(3) Compensation Committee
(4) Finance Committee
(5) Nominating Committee
(6) Strategic Planning Committee

49
<PAGE>

Corporate Data

The Companies of Culbro Corporation

CONSUMER PRODUCTS
General Cigar Co., Inc.
President - Austin T. McNamara
320 West Newberry Road
Bloomfield, Connecticut 06002

Club Macanudo, Inc.
President - Edgar M. Cullman, Jr.
387 Park Avenue South
New York, New York 10016-8899

NURSERY PRODUCTS
Imperial Nurseries, Inc.
President - Richard L. Wyckoff
90 Salmon Brook Street
Granby, Connecticut 06035

REAL ESTATE
Culbro Land Resources, Inc.
President - Edgar M. Cullman, Jr.
204 West Newberry Road
Bloomfield, CT 06002

Corporate Directory

EXECUTIVE OFFICES
Culbro Corporation
387 Park Avenue South
New York, New York 10016-8899
Tel: (212) 448-3800

INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036

SPECIAL COUNSEL
Latham & Watkins
885 Third Avenue
New York, New York 10022

REGISTRAR AND TRANSFER AGENT
ChaseMellon Shareholder Services, LLC
450 West 33rd Street
New York, New York 10001

STOCK LISTING
New York Stock Exchange, Inc.
Symbol CBO

SHAREHOLDERS' INFORMATION
The Corporation's Annual Report filed with the
Securities and Exchange Commission on Form
10-K is available upon written request to:
387 Park Avenue South
New York, New York 10016-8899
Attn: Corporate Secretary

Note: The brand names of products mentioned in this
Report are trademarks owned by Culbro Corporation
and its subsidiaries. All rights thereto are reserved.

<PAGE>

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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

FORM 10-K

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

FOR FISCAL YEAR ENDED NOVEMBER 30, 1996

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

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

CULBRO CORPORATION

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

<PAGE>

CULBRO CORPORATION

INDEX TO FINANCIAL STATEMENTS AND ADDITIONAL FINANCIAL DATA

The financial statements together with the report thereon of Price
Waterhouse LLP dated January 28, 1997, appearing in the accompanying 1996
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
1996 Annual Report to Shareholders is not to be deemed filed or incorporated
by reference as part of this report.

The following exhibits and additional financial data should be read in
conjunction with the financial statements in such 1996 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.

SCHEDULES PAGE

VIII Valuation and Qualifying Accounts and
Reserves S-1

XI Real Estate and Accumulated Depreciation S-2/S-3

Exhibit 11 - Statement Re: Computation of Earnings Per Share

Exhibit 21(A) - List of Subsidiaries

Exhibit 21(B) - Chart of Subsidiaries

Exhibit 23 - Report of Independent Accountants on Financial
Statement Schedules and Consent of Independent
Accountants

Exhibit 27 - Financial Data Schedule

<PAGE>

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

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

FOR FISCAL YEAR ENDED NOVEMBER 30, 1996
---------------------------------------

RESERVES:

<S> <C> <C> <C> <C> <C>
UNCOLLECTIBLE ACCOUNTS - TRADE 803 490 22 531(1) 784
--------- --------- --------- --------- ---------

INVENTORIES 1,000 16 300 351 (2) 965
--------- --------- --------- --------- ---------

FOR FISCAL YEAR ENDED DECEMBER 2, 1995
--------------------------------------

RESERVES:

<S> <C> <C> <C> <C> <C>
UNCOLLECTIBLE ACCOUNTS - TRADE 1,076 279 3 555(1) 803
--------- --------- --------- --------- ----------

INVENTORIES 743 1,007 - 750(2) 1,000
--------- --------- --------- --------- ----------

FOR FISCAL YEAR ENDED DECEMBER 3, 1994
--------------------------------------

RESERVES:

<S> <C> <C> <C> <C> <C>
UNCOLLECTIBLE ACCOUNTS - TRADE 751 570 22 267(1) 1,076
--------- --------- --------- --------- ----------

INVENTORIES 250 493 - - 743
--------- --------- --------- --------- ----------
</TABLE>

NOTES:
(1) ACCOUNTS RECEIVABLE WRITTEN-OFF.
(2) INVENTORIES DISPOSED.

S-1
<PAGE>

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

COST CAPITALIZED
SUBSEQUENT GROSS AMOUNT
INITIAL COST TO ACQUISITION AT NOVEMBER 30, 1996
------------ ----------------- --------------------------
ENCUM- BLDG & CARRYING BLDG &
DESCRIPTION BRANCES LAND IMPROVE IMPROVE COSTS LAND IMPROVE TOTAL
- ----------- ------- -------- -------- ------- ------- ----- ------- -----

<S> <C> <C> <C> <C> <C> <C> <C> <C>
LAND - CT $ $ 2,967 $ - $ 6,976 $ 80 $ 3,047 $ 6,976 $10,023

RESTAURANT
BLOOMFIELD, CT 1 - 1,266 - 1 1,266 1,267

RESIDENTIAL DEVELOPMENT
WINDSOR, CT 88 - 1,518 2,156 88 3,674 3,762

COMMERCIAL OFFICE BUILDING
BLOOMFIELD, CT 696 47 - 2,486 - 47 2,486 2,533

COMMERCIAL OFFICE BUILDING
BLOOMFIELD, CT 3 - 1,815 - 3 1,815 1,818

COMMERCIAL OFFICE BUILDING
BLOOMFIELD, CT 1 - 1,540 24 1 1,564 1,565

COMMERCIAL OFFICE BUILDING
BLOOMFIELD, CT 1 - 1,452 23 1 1,475 1,476

COMMERCIAL OFFICE BUILDING
BLOOMFIELD, CT - - 666 - - 666 666

COMMERCIAL OFFICE BUILDING
BLOOMFIELD, CT 5 - 2,938 40 5 2,978 2,983

COMMERCIAL OFFICE BUILDING
EAST GRANBY, CT 1,948 74 - 3,182 - 74 3,182 3,256

COMMERCIAL OFFICE BUILDING
EAST GRANBY, CT 32 1,723 185 - 32 1,908 1,940
-------- -------- ------ -------- ------- ------- -------- ------
$2,644 $3,219 $1,723 $24,024 $2,323 $3,299 $27,990 $31,289
-------- -------- ------ -------- ------- ------- -------- ------
-------- -------- ------ -------- ------- ------- -------- ------

ACCUM DATE OF DATE OF DEPR
DESCRIPTION DEPR CONSTR ACQ LIFE
- ----------- ------ ------- ------- ----

<S>
LAND - CT $(361)

RESTAURANT
BLOOMFIELD, CT (510) 1983 40 YRS

RESIDENTIAL DEVELOPMENT
WINDSOR, CT -

COMMERCIAL OFFICE BUILDING
BLOOMFIELD, CT (1,156) 1977 40 YRS

COMMERCIAL OFFICE BUILDING
BLOOMFIELD, CT (553) 1985 40 YRS

COMMERCIAL OFFICE BUILDING
BLOOMFIELD, CT (314) 1988 40 YRS

COMMERCIAL OFFICE BUILDING
BLOOMFIELD, CT (332) 1988 40 YRS

COMMERCIAL OFFICE BUILDING
BLOOMFIELD, CT (161) 1988 40 YRS

COMMERCIAL OFFICE BUILDING
BLOOMFIELD, CT (477) 1991 40 YRS

COMMERCIAL OFFICE BUILDING
EAST GRANBY, CT (1,688) 1978 40 YRS

COMMERCIAL OFFICE BUILDING
EAST GRANBY, CT ( 519) 1989 40 YRS
----------
($6,071)
----------
----------

</TABLE>

S-2

<PAGE>

CULBRO CORPORATION

SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
(dollars in thousands)

FISCAL YEAR ENDED NOVEMBER 30, 1996
- -----------------------------------
COST RESERVE
--------- ---------
Balance at beginning of period $36,138 $(6,179)
Changes during the period:
Improvements 592
Additions to reserve charged to costs and expense (822)
Tranfer to lender for outstanding mortgage (4,648) 930
Cost of sales (793)
------- -------
Balance at end of period $31,289 $(6,071)
------- -------
------- -------

FISCAL YEAR ENDED DECEMBER 2, 1995
- ----------------------------------

COST RESERVE
-------- ----------
Balance at beginning of period $36,491 $(5,118)
Changes during the period:
Improvements 802
Additions to reserve charged to costs and
expense (814)
Reclassification (247)
Cost of sales (1,155)
--------- --------
Balance at end of period $36,138 ($6,179)
------- ---------
------- ---------

FISCAL YEAR ENDED DECEMBER 3, 1994
- ----------------------------------

COST RESERVE
-------- -----------
Balance at beginning of period $39,676 ($4,338)
Changes during the period:
Improvements 1,624
Additions to reserve charged to costs and expense (780)
Cost of sales (including writeoffs) (4,809)
-------- ---------
Balance at end of period $36,491 ($5,118)
------- ---------
------- ---------

S-3

<PAGE>

EXHIBIT 11

STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(dollars in thousands, except per share data)

FISCAL YEAR ENDED
-------------------------------

Nov. 30, Dec.2, Dec.3,
PRIMARY 1996 1995 1994
- ------- ---- ---- ----

<S> <C> <C> <C>
Income (loss) from continuing operations $8,399 $7,504 $(2,172)
------ ------ --------
------ ------ --------
Net income $7,856 $11,189 $1,152
------ ------ --------
------ ------ --------
Weighted average common shares outstanding
in the 4th quarter 4,512,000 4,385,000 4,308,000
Net effect of dilutive stock options based on
the treasury stock method using average
market price 174,000 215,000 -
-------- -------- --------
Weighted average common shares and
equivalents outstanding: 4th quarter 4,686,000 4,600,000 4,308,000
3rd quarter 4,678,000 4,538,000 4,308,000
2nd quarter 4,669,000 4,312,000 4,308,000
1st quarter 4,622,000 4,308,000 4,308,000
--------- --------- ---------
18,655,000 17,758,000 17,232,000
Divided by 4 4 4
---------- ---------- ----------

Total 4,664,000 4,440,000 4,308,000
---------- ---------- ----------
---------- ---------- ----------

Income (loss) per common share from continuing
operations $1.80 $1.69 $(0.50)
----- ----- -------
----- ----- -------
Net income per common share $1.68 $2.52 $0.27
----- ----- -----
----- ----- -----

FULLY DILUTED
- -------------

Income (loss) from continuing operations $8,399 $7,504 $(2,172)
------ ------ --------
------ ------ --------
Net income $7,856 $11,189 $1,152
------ ------- ------
------ ------- ------
Weighted average common shares outstanding in
the 4th quarter 4,512,000 4,385,000 4,308,000
Net effect of dilutive stock options based on
the treasury stock method using ending market
price 176,000 228,000 -
------- ------- --------
Weighted average common shares and
equivalents outstanding: 4th quarter 4,688,000 4,613,000 4,308,000
3rd quarter 4,682,000 4,559,000 4,308,000
2nd quarter 4,669,000 4,312,000 4,308,000
1st quarter 4,646,000 4,308,000 4,308,000
--------- --------- ---------
18,685,000 17,792,000 17,232,000
Divided by 4 4 4
--------- --------- ---------

Total 4,671,000 4,448,000 4,308,000
--------- --------- ---------
--------- --------- ---------

Income (loss) per common share from
continuing operations $1.80 $1.69 $(0.50)
----- ----- -------
----- ----- -------
Net income per common share $1.68 $2.52 $0.27
----- ----- -----
----- ----- -----
</TABLE>

<PAGE>

EXHIBIT 21(A)

CULBRO CORPORATION

STATE/JURISDICTION
SUBSIDIARIES (1) OF INCORPORATION

General Cigar Co., Inc. (2) Delaware
General Cigar Holdings, Inc. Delaware
Culbro Land Resources, Inc. (3) Delaware
387 PAS Corp. New York
Imperial Nurseries, Inc. Delaware
Club Macanudo, Inc. New York
GCH Transportation, Inc. Delaware
Club Macanudo (Chicago), Inc. Illinois

(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.

<PAGE>
EXHIBIT 21(B)

The following chart illustrates the effect of the Distribution and the
Merger.

[CHART SHOWING THE STRUCTURE OF THE COMPANY AND THE PARENT FOLLOWING THE
OFFERING]

[CHART SHOWING THE STRUCTURE OF THE COMPANY AND CLR FOLLOWING THE DISTRIBUTION
AND THE MERGER]

<PAGE>

Exhibit 23

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 January 28, 1997, appearing in the 1996 Annual Report to
Shareholders of Culbro Corporation (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10K)
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.

/s/ Price Waterhouse

PRICE WATERHOUSE LLP

New York, New York
January 28, 1997

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
January 28, 1997 appearing in the 1996 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.

/s/ Price Waterhouse

PRICE WATERHOUSE LLP

New York, New York
March 12, 1997

<PAGE>
<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> NOV-30-1996
<CASH> 5,409
<SECURITIES> 0
<RECEIVABLES> 36,041
<ALLOWANCES> (784)
<INVENTORY> 81,232
<CURRENT-ASSETS> 126,730
<PP&E> 118,000
<DEPRECIATION> (51,171)
<TOTAL-ASSETS> 243,444
<CURRENT-LIABILITIES> 34,391
<BONDS> 49,925
0
0
<COMMON> 4,549
<OTHER-SE> 131,239
<TOTAL-LIABILITY-AND-EQUITY> 243,444
<SALES> 204,812
<TOTAL-REVENUES> 204,812
<CGS> 120,449
<TOTAL-COSTS> 184,959
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,758
<INCOME-PRETAX> 13,315
<INCOME-TAX> 4,916
<INCOME-CONTINUING> 8,399
<DISCONTINUED> (543)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,856
<EPS-PRIMARY> 1.68
<EPS-DILUTED> 1.68

</TABLE>

<PAGE>
This prospectus is filed under Rule 424(b)(4) and
relates to Registration Statement No. 333-18791.
PROSPECTUS
FEBRUARY 27, 1997

6,000,000 SHARES

[LOGO]
GENERAL CIGAR
CLASS A COMMON STOCK

All of the 6,000,000 shares of Class A Common Stock, par value $0.01 per
share (the "Class A Common Stock"), offered hereby (the "Offering") are being
sold by General Cigar Holdings, Inc.

Each share of Class A Common Stock entitles its holder to one vote. Each
share of Class B Common Stock, par value $0.01 per share (the "Class B Common
Stock" and, together with the Class A Common Stock, the "Common Stock"), of the
Company entitles its holder to ten votes. All of the shares of Class B Common
Stock are owned by Culbro Corporation (NYSE:CBO) ("Culbro"). Approximately 50%
of Culbro's common stock is owned by a group of individuals and trusts (the
"Cullman & Ernst Group"). Immediately after consummation of the Offering
(assuming no exercise of the over-allotment option granted to the Underwriters),
Culbro will beneficially own shares of Class B Common Stock representing
approximately 97% of the combined voting power of the outstanding shares of
Common Stock. The Company has agreed, subject to certain conditions, to a merger
with Culbro (the "Merger"), to occur after the closing of the Offering, pursuant
to which Culbro will be merged into the Company and 20,087,182 shares of the
Company's Class B Common Stock (subject to adjustment for options exercised
after the date hereof) will be issued to the shareholders of Culbro. As a result
of the Merger, the Cullman & Ernst Group will beneficially own shares of Class B
Common Stock (assuming no exercise of the over-allotment option granted to the
Underwriters) representing approximately 48% of the combined voting power of the
outstanding shares of Common Stock.

Prior to the Offering, there has been no public market for the Class A
Common Stock. See "Underwriting" for factors to be considered in determining the
initial public offering price.

The Class A Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "MPP".

SEE "RISK FACTORS" COMMENCING ON PAGE 10 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE CLASS A COMMON STOCK.
---------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS (1) COMPANY (2)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................. $18.00 $1.24 $16.76
Total (3)................................. $108,000,000 $7,440,000 $100,560,000
- -------------------------------------------------------------------------------------------
</TABLE>

(1) SEE "UNDERWRITING" FOR INDEMNIFICATION ARRANGEMENTS WITH THE UNDERWRITERS.

(2) BEFORE DEDUCTING EXPENSES ESTIMATED AT $1,500,000, WHICH WILL BE PAID BY THE
COMPANY.

(3) THE COMPANY HAS GRANTED THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP TO
900,000 ADDITIONAL SHARES AT THE PRICE TO THE PUBLIC LESS UNDERWRITING
DISCOUNTS AND COMMISSIONS, SOLELY TO COVER OVER-ALLOTMENTS, IF ANY. IF SUCH
OPTION IS EXERCISED IN FULL, THE TOTAL PRICE TO THE PUBLIC, UNDERWRITING
DISCOUNTS AND COMMISSIONS, AND PROCEEDS TO THE COMPANY WILL BE $124,200,000,
$8,556,000 AND $115,644,000, RESPECTIVELY. SEE "UNDERWRITING."

The shares are being offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters and subject to various prior
conditions, including their right to reject orders in whole or in part. It is
expected that delivery of the share certificates will be made in New York, New
York, on or about March 5, 1997.

DONALDSON, LUFKIN & JENRETTE SMITH BARNEY INC.
SECURITIES
CORPORATION
<PAGE>
[Photographs of the Company's premium and mass market cigars. Photographs of the
Company's tobacco leaves, along with photographs of men and women rolling and
packaging cigars. Additionally, there is a photograph of Ramon Cifuentes in an
advertisement for the Company's Partagas brand cigars.]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

2
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE COMBINED FINANCIAL
STATEMENTS OF THE COMPANY AND THE NOTES THERETO CONTAINED ELSEWHERE IN THIS
PROSPECTUS. CERTAIN FINANCIAL AND OPERATING DATA IN THIS PROSPECTUS ARE
PRESENTED ON A PRO FORMA BASIS TO GIVE EFFECT TO THE ACQUISITION (THE "VILLAZON
ACQUISITION") BY THE COMPANY IN JANUARY 1997 OF SUBSTANTIALLY ALL OF THE ASSETS
OF VILLAZON & COMPANY, INC. ("VILLAZON & CO.") AND ALL OF THE STOCK OF ITS
AFFILIATE, HONDURAS AMERICAN TABACO, S.A. DE C.V. ("HATSA" AND, TOGETHER WITH
VILLAZON & CO., REFERRED TO HEREIN AS "VILLAZON"). ALL REFERENCES TO A
PARTICULAR FISCAL YEAR REFER TO THE 12 MONTHS ENDED ON THE SATURDAY NEAREST
NOVEMBER 30 OF THE YEAR REFERENCED. UNLESS OTHERWISE INDICATED, THE INFORMATION
IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT
OPTION. UNLESS THE CONTEXT OTHERWISE REQUIRES, ALL REFERENCES IN THIS PROSPECTUS
TO THE "COMPANY" OR "GENERAL CIGAR" MEAN GENERAL CIGAR HOLDINGS, INC. AND ITS
SUBSIDIARIES. THE COMPANY IS A HOLDING COMPANY WITH NO BUSINESS OPERATIONS OF
ITS OWN. THE COMPANY'S ONLY MATERIAL ASSETS ARE ALL OF THE OUTSTANDING CAPITAL
STOCK OF ITS SUBSIDIARIES, GENERAL CIGAR CO., INC., GCH TRANSPORTATION, INC.,
CLUB MACANUDO, INC. AND CLUB MACANUDO (CHICAGO), INC. AND ALL OF THE OWNERSHIP
INTERESTS IN THE COMPANY'S OFFICE BUILDING IN NEW YORK CITY.

THE COMPANY

Founded in 1906, General Cigar is the largest manufacturer and marketer in
the U.S. in both units and dollar sales of brand name premium cigars (imported,
hand-made or hand-rolled cigars made with long filler and all natural tobacco
leaf). The Company's MACANUDO and PARTAGAS brands are the two top selling
premium cigar brands sold in the U.S. The Company believes that higher priced
branded premium cigars constitute the fastest growing segment of the premium
cigar market. Approximately 80% of the Company's premium cigar sales in fiscal
1996 were at suggested retail prices of $3.00 or more per unit. The Company's
unit sales at or above this price point have increased at approximately a 90%
compound annual growth rate ("CAGR") during the past four years. The Company,
through its well known brands such as GARCIA Y VEGA, also is a leading
participant in the growing mass market cigar segment. From fiscal 1993 to fiscal
1996, the Company's net sales increased from $76.8 million to $154.7 million and
operating profit increased from $2.4 million to $20.2 million, representing
CAGRs of 26.3% and 104.2%, respectively. After giving effect to the Villazon
Acquisition, on a pro forma basis, the Company's net sales and operating profit
for fiscal 1996 would have been $196.7 million and $32.3 million, respectively.

The Company markets its cigars under a number of well-known brand names. The
Company's premium cigars include the MACANUDO, PARTAGAS, TEMPLE HALL, CANARIA
D'ORO, CIFUENTES and RAMON ALLONES brands. The Company also owns the rights to
market cigars in the U.S. under the names COHIBA and BOLIVAR. The Villazon
Acquisition has added a variety of other brand names to the Company's line of
premium cigars, including PUNCH, HOYO DE MONTERREY and EL REY DEL MUNDO. The
Company, after giving effect to the Villazon Acquisition, owns the U.S.
trademark rights to seven of the top ten traditional premium Cuban brand names
ranked according to 1995 worldwide sales by all cigar marketers. MACANUDO was
rated "best cigar" by ROBB REPORT-Registered Trademark- in 1992, the first year
in which ROBB REPORT rated cigars, and "best cigar" again in 1994 and 1995 (the
category was not included in the 1993 ROBB REPORT). In 1996, ROBB REPORT chose
eight "best cigars," including MACANUDO, PARTAGAS 150 SIGNATURE, HOYO DE
MONTERREY EXCALIBUR NO. 2 and COHIBA. The Company's mass market large cigars
include GARCIA Y VEGA, WHITE OWL, ROBT. BURNS and WM. PENN. The Company's mass
market small cigars include the TIPARILLO and TIJUANA SMALLS brands, as well as
smaller sizes of its other mass market brands. The Company does not participate
in the market for little cigars, which are cigars that resemble cigarettes. The
Company also is the exclusive U.S. distributor of French made DJEEP disposable
lighters, and it operates CLUB MACANUDO, a cigar bar located in New York City.

The Company believes that increasing demand for cigars continues to offer
the Company substantial growth opportunities. Since 1993, cigar smoking has
experienced a resurgence resulting in an increase in consumption and retail
sales of cigars across all major categories, especially in the premium cigar
segment.

3
<PAGE>
This growth produced overall retail sales in the U.S. cigar market of an
estimated $1.25 billion in 1996, the largest dollar sales in the industry's
history. Based on industry estimates of 1996 results, unit sales of premium and
mass market cigars (excluding little cigars) in the U.S. have increased at CAGRs
of 35.4% and 9.6%, respectively, from 1993 to 1996, while retail dollar sales of
both categories have increased more rapidly due to price increases. The Company
believes that sales of premium cigars exceeded 270 million units in the U.S. in
1996, an increase of over 60% from 1995 unit sales.

The Company believes that this increase in cigar consumption and retail
sales is the result of a number of factors, including: (i) the improving image
of cigar smoking resulting from increased publicity, including the success of
CIGAR AFICIONADO and SMOKE magazines and the increased visibility of cigar
smoking by celebrities (such as Arnold Schwarzenegger, Mel Gibson, Demi Moore
and Jack Nicholson); (ii) the emergence of an expanding base of younger, highly
educated, affluent adults age 25 to 35 and the growing interest of this group in
luxury goods, including premium cigars; (iii) the increase in the number of
adults over the age of 40 (a demographic group believed to smoke more cigars
than any other demographic group); and (iv) the proliferation of establishments,
such as restaurants and clubs, where cigar smoking is encouraged, as well as
"cigar smokers" dinners and other special events for cigar smokers.

The Company's pro forma financial results, including the effect of the
Villazon Acquisition, reflect its strong position within the growing cigar
industry. In fiscal 1996, the Company had pro forma net sales of $196.7 million
and pro forma operating profit of $32.3 million. The Company's backorders of
cigars, excluding Villazon backorders, increased from $21.0 million at wholesale
at December 2, 1995 to $78.0 million at wholesale at November 30, 1996. During
1996, the Company discontinued accepting premium cigar orders from its nine
largest customers and currently allocates product to such customers as it
becomes available.

The Company attributes its strong market position to the following
competitive strengths: (i) well-known brand names, which in the premium cigar
market are the leading brands in their categories; (ii) a broad range of product
offerings within both the premium and mass market segments of the U.S. cigar
markets; (iii) its positioning as the only cigar manufacturer that is also a
major grower and supplier of Connecticut Shade wrapper tobacco, one of the most
popular premium wrapper tobaccos in the world; (iv) a commitment to, and
reputation for, manufacturing quality cigars; (v) its marketing expertise; (vi)
its efficient manufacturing operations; and (vii) a highly experienced
management team that includes individuals from families with up to five
generations of experience in the U.S. and Cuban cigar/tobacco businesses.

The Company believes that its competitive strengths, together with the
following strategies, will enable the Company to continue its growth, increase
its profitability and enhance its market share:

/ / INCREASE LEADING MARKET SHARE IN THE U.S. PREMIUM SEGMENT. The Company
intends to capitalize on the rapidly growing premium cigar market by:
(i) continuing to improve awareness and recognition of its premium cigar
brands through extensive advertising, increased penetration of targeted
retail outlets and professional sales management; (ii) developing and
selling more broadly certain new premium cigars that carry well
recognized traditional premium Cuban brand names, such as COHIBA and
BOLIVAR; (iii) developing line extensions in higher price categories,
such as MACANUDO VINTAGE and PARTAGAS LIMITED RESERVE, that leverage the
Company's already established premium brands; and (iv) using the
Company's national sales force and extensive channels of distribution to
increase sales of the brands acquired in the Villazon Acquisition.

/ / DEVELOP "PREMIUM" MASS MARKET CIGAR BUSINESS. The Company is seeking to
increase revenues and profits in its mass market cigar business by
extending its well-known mass market brand names into higher price
categories within the mass market segment. The Company believes that the
higher-end mass market segment recently has experienced growth similar
to that of the premium segment. The Company is attempting to capitalize
on this growth by expanding products such as the GARCIA Y VEGA

4
<PAGE>
HAND MADE cigars and by developing similar higher-end cigars under
several of its other mass market brand names, such as the WHITE OWL
SELECT, a natural leaf wrapper mass market cigar.

/ / EXPAND MASS MARKET CIGAR BUSINESS. The Company believes that the
resurgence in the premium segment also has positively affected the
demand for traditional mass market cigars. The Company's leading
high-end mass market brand, GARCIA Y VEGA, experienced a 27.9% increase
in unit growth in 1996 compared to 1995. The Company intends to increase
its sales and production of traditional mass market cigars to capitalize
on the increasing demand in the mass market segment.

/ / EXPAND PRODUCTION CAPACITY AND TOBACCO INVENTORY. The Company intends to
expand manufacturing capacity in order to meet increasing demand for its
products while adhering to its traditionally high quality standards. The
Company recently completed the expansion of its manufacturing facilities
in the Dominican Republic, has begun to expand its facilities in Jamaica
and intends to expand production at the Villazon facilities in Honduras.
In addition, the Company has implemented a unique "training center"
program at its Dominican Republic facility through which it has been
able to train a greater number of cigar rollers in a shorter period of
time and attain a higher rate of completion of the training program than
had been its experience using traditional training methods. The Company
intends to implement a similar program in its Jamaican and Honduran
facilities. The Company also has substantially increased its tobacco
inventory for making premium cigars.

/ / SELECTIVELY BROADEN CIGAR DISTRIBUTION CHANNELS. The Company intends to
broaden its existing customer relationships and actively develop new
channels and methods of distribution. With respect to premium cigars,
the Company is pursuing opportunities in a number of developing
distribution channels, including cigar bars and clubs, hotel shops, wine
shops, restaurants and upscale specialty retail stores (such as Neiman
Marcus and Orvis). With respect to mass market cigars, the Company is
seeking to enhance relations with existing retailers by acting as the
tobacco "category manager," assisting such retailers in increasing their
sales of tobacco products.

/ / EXPAND INTERNATIONAL CIGAR BUSINESS. The Company plans to increase its
international presence, particularly with respect to the MACANUDO brand.
The Company will focus its efforts in the United Kingdom, Germany,
France, Spain, China and certain countries in South America, as well as
duty free markets worldwide. The Company intends to implement this
strategy in a variety of ways, including building on its existing
relationships with major international distributors and entering into
joint ventures.

/ / DEVELOP SALES OF BRANDED SMOKING ACCESSORIES AND LIFESTYLE PRODUCTS. The
Company intends to become a leading marketer and licensor of
high-quality branded smoking accessories, such as humidors and cigar
cutters, and branded luxury lifestyle products, such as leather goods
and apparel. The Company believes such expansion will improve brand
recognition among premium cigar consumers. The Company also may open
additional CLUB MACANUDO locations, including one location in Chicago
expected to open in the spring of 1997. CLUB MACANUDO promotes the
Company's premium brands as well as cigar smoking as part of the luxury
lifestyle. The Winter 1996/97 issue of CIGAR AFICIONADO called CLUB
MACANUDO New York City's "preeminent cigar lounge," and SMOKE magazine
recently said of CLUB MACANUDO, "this place is pure 'cigar.' "

The Company's executive offices are located at 387 Park Avenue South, New
York, New York 10016-8899, and the telephone number is (212) 448-3800. Its
website is http://cigarworld.com. Information on the Company's website is not
deemed to be a part of or incorporated by reference into this Prospectus.

THE VILLAZON ACQUISITION

On January 21, 1997 the Company acquired Villazon for approximately $81.4
million, including certain direct acquisition costs and net of $9.1 million of
cash. The acquisition was funded in part by the issuance of $24.4 million
aggregate principal amount of notes (the "Seller Notes"). Through the Villazon

5
<PAGE>
Acquisition, the Company acquired facilities in Tampa, Florida, San Pedro Sula
and Danli, Honduras, and Upper Saddle River, New Jersey, as well as the U.S.
trademark rights to several traditional Cuban trademarks and widely recognized
names in the premium cigar industry, including PUNCH, HOYO DE MONTERREY and EL
REY DEL MUNDO.

The acquisition of Villazon gives the Company a broader taste spectrum in
cigars, substantially increases its manufacturing capacity and provides access
to new sources of tobacco for all of its product offerings. The addition of
cigars made in Honduras, one of the fastest-growing countries of origin for
cigars worldwide, complements the Company's Dominican and Jamaican made cigars
in addition to diversifying its manufacturing base across three countries.
Management believes that Villazon's operations complement the Company's and will
enable the Company to leverage, over time, its cost structure, its sales and
distribution networks and its marketing expertise, resulting in improved growth
and profitability.

THE ASSET TRANSFERS, THE DISTRIBUTION AND THE MERGER

Culbro has completed certain asset transfers (the "Asset Transfers"),
pursuant to which (i) all of Culbro's assets and liabilities relating to the
cigar business, including approximately 1,100 acres of land used in the tobacco
growing operations and CLUB MACANUDO, and certain other assets and liabilities,
including Culbro's corporate headquarters, were transferred to the Company, and
(ii) substantially all of Culbro's non-tobacco related assets and liabilities,
including all of its assets and liabilities relating to its nursery business and
real estate business, together with Culbro's 25% interest in Centaur
Communications Limited ("Centaur") and its interests in The Eli Witt Company
("Eli Witt") and related liabilities, were transferred to Culbro Land Resources,
Inc. ("CLR"). As a result of the Asset Transfers, Culbro is a holding company
with substantially no assets other than its ownership interests in the Company
and CLR. See "The Asset Transfers, the Distribution and the Merger."

Subsequent to the Offering, Culbro intends to effect a distribution (the
"Distribution") to the shareholders of Culbro of all issued and outstanding
shares of common stock of CLR. The Distribution will be contingent principally
upon (i) either a tax ruling or an opinion of counsel satisfactory to Culbro
that the Distribution constitutes a tax-free reorganization under Section 355 of
the Internal Revenue Code and (ii) the approval by the holders of 66 2/3% of
Culbro's common stock of the Merger. The Company will be the surviving
corporation in the Merger and will issue to the holders of the common stock of
Culbro 4.44557 shares of Class B Common Stock for each share of the Culbro
common stock outstanding on the date of the Merger, or approximately 20,087,182
shares of Class B Common Stock in the aggregate, subject to adjustment for any
options exercised prior to the Merger. The shareholders of Culbro will not vote
with respect to the adoption of the Merger until May 1997. The members of the
Cullman & Ernst Group, however, who collectively hold approximately 50% of
Culbro's common stock, have indicated that they will vote their shares of Culbro
common stock in favor of the Merger and will not sell or otherwise transfer any
of their shares of Culbro common stock prior to the earlier to occur of 180 days
after the date of this Prospectus or the consummation of the Merger. The Merger
has been approved by Culbro as the sole stockholder of the Company and,
consequently, the holders of the Class A Common Stock offered hereby will not
vote in connection with the Merger. The Merger will not take place until August
1997 without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ").

The pro forma information on pages 21 to 24 hereof gives effect to the Asset
Transfers, the Villazon Acquisition and the Offering. See page 57 for a chart
illustrating the effect of the Distribution and the Merger.

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

Macanudo-Registered Trademark-, Partagas-Registered Trademark-,
Punch-Registered Trademark-, Hoyo De Monterrey-Registered Trademark-,
Cohiba-Registered Trademark-, Excalibur-Registered Trademark-, Ramon
Allones-Registered Trademark-, Temple Hall-Registered Trademark-, El Rey Del
Mundo-Registered Trademark-, Canaria d'Oro-Registered Trademark-,
Cifuentes-Registered Trademark-, Bolivar-Registered Trademark-, Garcia y
Vega-Registered Trademark-, White Owl-Registered Trademark-,
Tiparillo-Registered Trademark-, Robt. Burns-Registered Trademark-, Tijuana
Smalls-Registered Trademark-, Wm. Penn-Registered Trademark-,
Bances-Registered Trademark-, Belinda-Registered Trademark-, Lord
Beaconsfield-Registered Trademark-, Villa De Cuba-TM-, Pedro
Iglesias-Registered Trademark-, Top Stone-Registered Trademark- and Villazon
Deluxe-Registered Trademark- are trademarks of the Company. The Djeep-TM-
trademark included in this Prospectus is owned by Societe Industrielle Du
Briquet Jetable.

6
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Class A Common Stock offered................. 6,000,000 shares

Common Stock outstanding after the 6,000,000 shares of Class A Common Stock (1)
Offering................................... 20,087,182 shares of Class B Common Stock (2)
26,087,182 total shares of Common Stock
Voting rights................................ The Class A Common Stock and Class B Common
Stock vote as a single class on all matters,
except as otherwise required by law, with
each share of Class A Common Stock entitling
its holder to one vote and each share of
Class B Common Stock entitling its holder to
ten votes. All of the shares of Class B
Common Stock are owned by Culbro. Immediately
after consummation of the Offering, Culbro
will beneficially own shares of Class B
Common Stock representing approximately 97%
of the combined voting power of the
outstanding shares of Common Stock. After
giving effect to the Merger, all shares of
Class B Common Stock will be held by the
holders of the Common Stock of Culbro
(including the Cullman & Ernst Group).

Use of proceeds.............................. The Company intends to use approximately
$84.7 million of the net proceeds from the
Offering to reduce outstanding indebtedness
under the Credit Facility ($67.1 million of
which was incurred in connection with the
closing of the Villazon Acquisition and $17.6
million of which resulted from the Liability
Assumption (as defined) portion of the Asset
Transfers) and $14.4 million of the net
proceeds will be used to repay a portion of
the Seller Notes. See "Use of Proceeds."

New York Stock Exchange symbol............... MPP (3)
</TABLE>

See "Risk Factors" beginning on page 10 for a discussion of certain risks
that should be considered in connection with an investment in the Class A Common
Stock offered hereby.

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

(1) Excludes 3,300,000 shares of Class A Common Stock reserved for issuance
under the 1997 Stock Option Plan, 570,555 of which will be subject to
options issued upon consummation of the Offering and 2,162,818 of which are
reserved for issuance upon exercise of outstanding options under Culbro's
option plans. See "Certain Employee Benefit Matters--1997 Stock Option
Plan."

(2) Each share of Class B Common Stock is convertible at any time into one share
of Class A Common Stock and converts automatically into one share of Class A
Common Stock upon a sale to any person other than a Permitted Transferee (as
defined herein). Issuance of all Class B Common Stock to the shareholders of
Culbro as a result of the Merger is not a transfer but will constitute an
issuance to a Permitted Transferee. See "Description of Capital Stock."

(3) Selected as representative of the Company's MACANUDO, PARTAGAS and PUNCH
brands.

7
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA

The summary historical data for fiscal 1992 have been derived from the
unaudited combined financial statements of the Company. The summary historical
data for fiscal 1993 have been derived from the audited combined financial
statements of the Company. The summary historical data for fiscal 1994, fiscal
1995 and fiscal 1996 have been derived from the audited Combined Financial
Statements of the Company included elsewhere in this Prospectus. The summary
unaudited combined pro forma statement of operations data for fiscal 1996 and
the summary pro forma balance sheet data as of November 30, 1996 give effect to
(i) the liability portion of the Asset Transfers pursuant to which the Company
acquired, among other assets, the stock of General Cigar Co. Inc., Club
Macanudo, Inc., 387 PAS Corp., GCH Transportation, Inc. and Club Macanudo
(Chicago), Inc., (ii) the Villazon Acquisition and (iii) the Offering. The pro
forma adjustments are based upon available information and certain assumptions
that the management of the Company believes are reasonable. The summary
unaudited combined pro forma data do not purport to represent the results of
operations or the financial position of the Company that actually would have
occurred had the liability portion of the Asset Transfers, the Villazon
Acquisition and the Offering occurred as of the dates indicated nor do they
project the financial position or results of the Company for any future date.
The following summary historical financial data should be read in conjunction
with "Selected Combined Financial Data," "Unaudited Pro Forma Combined Financial
Statements," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Combined Financial Statements of the Company and
Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996
----------------------

<CAPTION>
PRO
1992 1993 1994 1995 ACTUAL FORMA(1)
--------- --------- --------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................ $ 77,131 $ 76,825 $ 89,538 $ 124,033 $ 154,676 $ 196,694
Cost of goods sold................................... 48,651 49,165 54,285 69,683 86,240 107,650
--------- --------- --------- ---------- ---------- ----------
Gross profit......................................... 28,480 27,660 35,253 54,350 68,436 89,044
Selling, general and administrative expenses......... 27,059 25,282 27,210 36,726 44,593 53,120
Other nonrecurring expense........................... -- -- -- -- 3,600 3,600
--------- --------- --------- ---------- ---------- ----------
Operating profit..................................... 1,421 2,378 8,043 17,624 20,243 32,324
Interest expense..................................... 327 264 607 1,049 951 3,782
Income before income taxes........................... 1,393 2,248 7,413 18,564 20,145 30,074
Net income (loss) (2)................................ 814 (3,049) 4,550 11,324 12,407 18,463
Pro forma earnings per share (3)..................... $ 0.70
Pro forma number of weighted average shares
outstanding (3).................................... 26,528
</TABLE>

FOOTNOTES APPEAR ON THE FOLLOWING PAGE

8
<PAGE>
<TABLE>
<CAPTION>
NOV. 30, 1996
-----------------------------------------
<S> <C> <C> <C>
PRO FORMA
AS ADJUSTED
ACTUAL PRO FORMA (4) (5)
---------- ------------- --------------

<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....................................................... $ 65,121 $ 9,493 $ 83,863
Total assets.......................................................... 145,042 244,795 244,795
Long-term debt........................................................ 11,079 72,029 47,339
Culbro investment/stockholders' equity................................ 93,719 45,258 144,318
</TABLE>

<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------------------------------------------
1996
-------------------------
1992 1993 1994 1995 ACTUAL PRO FORMA (1)
--------- --------- ---------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
OTHER DATA:
Gross margin....................................... 36.9% 36.0% 39.4% 43.8% 44.2% 45.3%
Operating margin................................... 1.8% 3.1% 9.0% 14.2% 13.1% 16.4%
EBITDA (6)(7)...................................... $ 5,541 $ 5,923 $ 11,291 $ 23,163 $ 24,909 $ 40,454
EBITDA margin (7)(8)............................... 7.2% 7.7% 12.6% 18.7% 16.1% 20.6%
Net cash provided by (used in) operating
activities....................................... $ 8,224 $ (3,835) $ 12,683 $ 9,536 $ (4,919) --
Net cash used in investing activities.............. (4,435) (1,691) (1,384) (616) (9,701) --
Net cash (used in) provided by financing
activities....................................... (3,799) 5,526 (10,865) (9,062) 14,707 --
Capital expenditures............................... 4,435 1,691 1,884 2,841 9,701 $ 10,014
</TABLE>

- ------------------------
(1) As adjusted to give effect to the liability portion of the Asset Transfers,
the Villazon Acquisition and the Offering.

(2) Includes a $4.4 million charge, net of related taxes, to reflect the
adoption of SFAS No. 106 in 1993. Includes a pre-tax gain of $2.6 million in
fiscal 1995 to reflect an insurance settlement.

(3) The pro forma number of weighted average shares outstanding includes all of
the outstanding shares of Class A Common Stock and Class B Common Stock
expected to be outstanding after the Offering. The total number of weighted
average shares outstanding used in the computation of pro forma earnings per
share also includes the dilutive effect of additional shares issuable upon
exercise of all Culbro stock options outstanding at the Offering date. See
"Certain Employee Benefit Matters--Culbro Employee Benefit Plans to be
Assumed by the Company--Culbro Stock Option Plans."

(4) As adjusted to give effect to the liability portion of the Asset Transfers
and the Villazon Acquisition.

(5) As adjusted to give effect to the Offering.

(6) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization. EBITDA is presented because it is a widely
accepted financial indicator used by certain investors and analysts to
analyze and compare companies on the basis of operating performance. EBITDA
is not intended to represent cash flows for the period, nor has it been
presented as an alternative to operating income as an indicator of operating
performance and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with generally accepted
accounting principles. See the Combined Financial Statements and the Notes
thereto appearing elsewhere in this Prospectus.

(7) In fiscal 1995 the Company had a $2.6 million gain from an insurance
settlement. Excluding this gain, EBITDA would have been $20.6 million and
EBITDA margin would have been 16.6%. In fiscal 1996, the Company had a
nonrecurring expense of $3.6 million. Excluding this expense, EBITDA would
have been $28.5 million ($44.1 million on a pro forma basis) and EBITDA
margin would have been 18.4% (22.4% on a pro forma basis).

(8) EBITDA margin represents EBITDA as a percentage of net sales. EBITDA margin
is presented because it is a widely accepted financial indicator used by
certain investors and analysts to analyze and compare companies on the basis
of operating performance. EBITDA margin should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles. See the Combined
Financial Statements and the Notes thereto appearing elsewhere in this
Prospectus.

9
<PAGE>
RISK FACTORS

PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK OFFERED HEREBY SHOULD
CONSIDER CAREFULLY ALL OF THE INFORMATION SET FORTH IN THIS PROSPECTUS AND, IN
PARTICULAR, SHOULD EVALUATE THE FOLLOWING RISKS IN CONNECTION WITH AN INVESTMENT
IN THE CLASS A COMMON STOCK.

DECLINING MARKET FOR CIGARS THROUGH 1993

According to industry sources, the cigar industry experienced declining unit
sales between 1964 and 1993 at a compound annual rate of 3.3%. The Company
experienced similar trends in the unit volume of its cigars during such period.
While the cigar industry has experienced significantly better trends in unit
sales since 1993, there can be no assurance that the recent positive trends will
continue. Management believes that a considerable percentage of the recent
increase in cigar unit sales, especially with respect to premium cigars, is
attributable to new cigar smokers attracted by the improving image of cigar
smoking and the increased visibility of cigar smoking by celebrities. There can
be no assurance that recent increases in cigar unit sales are indicative of
long-term trends or that these new customers will continue to smoke cigars in
the future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business--Market Overview."

EXTENSIVE AND INCREASING REGULATION OF TOBACCO PRODUCTS

Cigar manufacturers, like other producers of tobacco products, are subject
to regulation at the federal, state and local levels. The recent trend is toward
increasing regulation of the tobacco industry, and the recent increase in
popularity of cigars could lead to an increase in regulation of cigars. A
variety of bills relating to tobacco issues have been introduced in the U.S.
Congress, including bills that would have (i) prohibited the advertising and
promotion of all tobacco products or restricted or eliminated the deductibility
of such advertising expenses, (ii) increased labeling requirements on tobacco
products to include, among other things, addiction warnings and lists of
additives and toxins, (iii) shifted regulatory control of tobacco products and
advertisements from the U.S. Federal Trade Commission (the "FTC") to the U.S.
Food and Drug Administration (the "FDA"), (iv) increased tobacco excise taxes
and (v) required tobacco companies to pay for health care costs incurred by the
federal government in connection with tobacco related diseases. Hearings have
been held on certain of these proposals; however, to date, none of such
proposals have been passed by Congress. Future enactment of such proposals or
similar bills may have an adverse effect on the results of operations or
financial condition of the Company.

In addition, the majority of states restrict or prohibit smoking in certain
public places and restrict the sale of tobacco products to minors. Local
legislative and regulatory bodies also have increasingly moved to curtail
smoking by prohibiting smoking in certain buildings or areas or by requiring
designated "smoking" areas. Further restrictions of a similar nature could have
an adverse effect on the sales or operations of the Company. Numerous proposals
also have been considered at the state and local level restricting smoking in
certain public areas, regulating point of sale placement and promotions and
requiring warning labels.

Although federal law has required health warnings on cigarettes since 1965
and on smokeless tobacco since 1986, there is no federal law requiring that
cigars carry such warnings. California, however, requires "clear and reasonable"
warnings to consumers who are exposed to chemicals determined by the state to
cause cancer or reproductive toxicity, including tobacco smoke and several of
its constituent chemicals. Although similar legislation has been introduced in
other states, no action has been taken. There can be no assurance that such
legislation introduced in other states will not be passed in the future or that
other states will not enact similar legislation. Consideration at both the
federal and state level also has been given to consequences of tobacco smoke on
others who are not currently smoking (so called "second-hand" smoke). There can
be no assurance that regulation relating to second hand smoke will not be
adopted or that such regulation or related litigation would not have a material
adverse effect on the Company's results of operations or financial condition.

10
<PAGE>
Increased cigar consumption and the publicity such increase has received may
increase the risk of additional regulation. There can be no assurance as to the
ultimate content, timing or effect of any additional regulation of tobacco
products by any federal, state, local or regulatory body, and there can be no
assurance that any such legislation or regulation would not have a material
adverse effect on the Company's business. See "Business--The Tobacco
Industry--Regulation."

TOBACCO INDUSTRY LITIGATION

The tobacco industry has experienced and is experiencing significant
health-related litigation involving tobacco and health issues. Plaintiffs in
such litigation have sought and are seeking compensatory and, in some cases,
punitive damages, for various injuries claimed to result from the use of tobacco
products or exposure to tobacco smoke. The Company has in the past been named in
certain health-related litigation. There can be no assurance that there would
not be an increase in health-related litigation against the cigarette and
smokeless tobacco industries or similar litigation in the future against cigar
manufacturers. The costs to the Company of defending prolonged litigation and
any settlement or successful prosecution of any material health-related
litigation against manufacturers of cigars, cigarettes or smokeless tobacco or
suppliers to the tobacco industry could have a material adverse effect on the
Company's results of operations or financial condition. The recent increase in
the sales of cigars and the publicity such increase has received may have the
effect of increasing the probability of legal claims. Also, a recent study
published in the journal SCIENCE reported that a chemical found in tobacco smoke
has been found to cause genetic damage in lung cells that is identical to damage
observed in many malignant tumors of the lung and, thereby, directly links lung
cancer to smoking. The National Cancer Institute also has announced that it will
issue a report in 1997 describing research into cigars and health. This study
and this report could affect pending and future tobacco regulation or
litigation. See "--Extensive and Increasing Regulation of Tobacco Products" and
"Business--The Tobacco Industry--Litigation."

RISKS RELATING TO THE FAILURE TO CONSUMMATE THE MERGER AND THE DISTRIBUTION

The Merger is contingent upon (i) consummation of the Distribution, which in
turn is contingent principally upon either a tax ruling or an opinion of counsel
satisfactory to Culbro that the Distribution constitutes a tax free
reorganization under Section 355 of the Internal Revenue Code and (ii) the prior
approval of the Merger by the shareholders of Culbro, which approval will not
have been obtained at the time of consummation of the Offering. See "The Asset
Transfers, the Distribution and the Merger." If the Distribution is not
consummated, the Merger will not be consummated. There can be no assurance that
the failure to consummate the Merger and the Distribution would not have a
material adverse effect on the holders of the Class A Common Stock. If the
Merger and the Distribution were not consummated, the Company would continue to
be an approximately 77% owned subsidiary of Culbro, and therefore Culbro would
continue to control approximately 97% of the votes on all matters submitted to
stockholders of the Company. Because Culbro would continue to be a publicly held
company, the market value of the Class A Common Stock offered hereby might be
adversely affected by changes in the market value of Culbro's common stock. The
interests of Culbro may differ substantially from those of the Company's other
stockholders. For example, Culbro would engage in activities that are unrelated
to the cigar business, including CLR, and that could adversely affect the
Company's business or liquidity, and Culbro may cause the Company to adopt
dividend policies (for example, to fund such unrelated activities) that are
different from those that would have been adopted by the Board of Directors of
the Company had the Merger and the Distribution taken place. In addition, there
could be a material adverse effect on the liquidity of the Class A Common Stock
if the Merger and the Distribution are not consummated.

RELATIONS WITH CUBA

Cuba historically has had, and continues to have, the highest reputation for
premium cigars in the world. Many of the Company's premium cigar brand names are
of Cuban origin. The Company acquired

11
<PAGE>
some of these brand names from their Cuban owners in the aftermath of Castro's
revolution and registered others with the U.S. Patent and Trademark Office. The
Company's rights to many of these brand names generally are limited to sales in
the U.S.

It is expected that, if and when normalization of relations between the U.S.
and Cuba occurs, manufacturers of Cuban cigars, either alone or in combination
with other manufacturers or distributors of tobacco products, will attempt to
enter the U.S. market. The entry of Cuban premium cigars into the U.S. market
could increase competition in the Company's core premium cigar market and could
have a material adverse effect on the Company's premium cigar business.

EFFECTS OF INCREASES IN EXCISE TAXES

Cigars have long been subject to federal, state and local excise taxes, and
such taxes frequently have been increased or proposed to be increased, in some
cases significantly, to fund various legislative initiatives. In particular,
there have been proposals by the federal government in the past to reform health
care through a national program to be funded principally through increases in
federal excise taxes on tobacco products. Enactment of new or significant
increases in existing federal, state or local excise taxes could result in
decreased unit sales of cigars which could have a material adverse effect on the
Company's business. See "Business--The Tobacco Industry--Excise Taxes."

RISKS RELATING TO DEMAND FOR CIGARS

The Company's ability to increase its production of premium and mass market
cigars to meet increases in demand has been, and in the future may be,
constrained by a shortage of properly aged and blended tobacco ready for
manufacturing. In general, the aging process for filler tobacco requires that
tobacco be purchased up to three years in advance of actual use in the
manufacturing process. An important part of the manufacturing process for
premium cigars involves blending flavors of different tobacco leaves, a process
that takes approximately 16 weeks. During 1996, the Company discontinued
shipping Macanudo cigars for a two month period as excessive demand led to a
shortage of properly aged and blended tobacco. Accordingly, there can be no
assurance that increases in demand beyond the Company's current expectations
would not result in similar tobacco shortfalls and thereby adversely affect the
Company's ability to manufacture its products.

The Company's ability to increase its production of premium cigars also may
be limited by a shortage of skilled laborers. Although the Company is hiring and
training new skilled laborers, the training process can take up to one year and
not all trainees are able to complete the Company's training program. While the
Company is pursuing measures to increase its production of premium cigars, there
can be no assurance that these measures will enable the Company to meet any
future level of demand for its premium cigars. Any material inability of the
Company to fill its premium cigar orders in a timely manner could have a
material adverse effect on the Company's business, including the loss of sales
by the Company and the potential loss of future sales to other brands which
consumers purchase in the absence of available supplies of the Company's brands.
See "--Social, Political and Economic Risks Associated with Foreign Operations
and International Trade" and "Business--Backorders."

While the cigar industry, including the Company, has experienced increasing
demand for cigars during the last several years, there can be no assurance that
such trends will continue. In the event anticipated industry growth does not
continue or the Company experiences a reduction in demand, the Company may
experience excess inventory or production capacity which could have an adverse
effect on the Company's business or results of operations.

SOCIAL, POLITICAL AND ECONOMIC RISKS ASSOCIATED WITH FOREIGN OPERATIONS AND
INTERNATIONAL TRADE

A substantial portion of the manufacturing operations of the Company
(including all of the Company's manufacturing operations for its premium cigars)
is located in territories and countries outside of

12
<PAGE>
the U.S., including the Dominican Republic, Jamaica and Honduras. In addition,
the Company buys tobacco directly from a large number of suppliers located in
territories and countries outside the U.S., including Brazil, Cameroon, the
Central African Republic, Germany, Italy, Turkey, the Dominican Republic, the
Philippines, Indonesia, Honduras, Ecuador and Mexico. The Company is exposed to
the risk of changes in social, political and economic conditions inherent in
foreign operations and international trade, including changes in the laws and
policies that govern foreign investment and international trade in territories
and countries where it currently has operations and conducts international
trade, as well as, to a lesser extent, changes in U.S. laws and regulations
relating to foreign investment and trade. Any such social, political or economic
changes could pose, among other things, the risk of finished product and raw
material supply interruption or significant increases in finished product and
raw material prices. In particular, political or labor unrest in the Dominican
Republic, Honduras or Jamaica could result in interruptions in production of the
Company's premium cigars, which would cause an immediate halt in shipments by
the Company due to its lack of inventory of manufactured cigars. Accordingly,
there can be no assurance that any such changes in social, political or economic
conditions will not have a material adverse effect on the Company's business.

RISKS RELATED TO DEBT ASSUMPTION

The Company has assumed debt from Culbro, estimated to be approximately
$43.8 million as of the date of the Offering, in connection with the Liability
Assumption portion of the Asset Transfers. This debt has not been reflected in
the historical financial statements of the Company and was not originally
incurred by the Company. However, the Company will be required to service this
debt from its operations in the future.

RESTRICTIONS IMPOSED BY THE TERMS OF THE COMPANY'S INDEBTEDNESS

The terms and conditions of the Credit Facility impose, and the terms and
conditions of future debt instruments of the Company or its subsidiaries may
impose, restrictions on the Company and its subsidiaries that affect, among
other things, their ability to incur debt, pay dividends or make distributions,
make acquisitions, create liens, sell assets, and make certain investments. The
terms of the Credit Facility require General Cigar Co., Inc., the wholly owned
subsidiary of the Company through which the Company conducts its material
operations, to maintain specified financial ratios and satisfy certain tests,
including maximum leverage ratios and minimum interest coverage ratios. In
addition, the Credit Facility restricts the ability of the Company to pay
dividends except under certain circumstances. As of November 30, 1996, after
giving effect to the Offering and the use of proceeds thereof, there would have
been approximately $26.3 million outstanding under the Credit Facility,
excluding $9.1 million of cash acquired in the Villazon Acquisition, a portion
of which would have been available to reduce such borrowings. The Credit
Facility will have a borrowing capacity of approximately $50.0 million following
the Offering. See "Description of the Credit Facility," "Capitalization,"
"Unaudited Pro Forma Combined Financial Statements," "Use of Proceeds" and Note
7 to the Combined Financial Statements.

The ability of the Company and its subsidiaries to comply with the terms of
their respective debt instruments can be affected by events beyond their
control, including events such as changes in prevailing economic conditions,
changes in consumer preferences and changes in the competitive environment,
which could impair the Company's operating performance. There can be no
assurance that the Company and its subsidiaries will be able to comply with the
provisions of their respective debt instruments, including compliance by General
Cigar Co., Inc. with the financial ratios and tests contained in the Credit
Facility. Breach of any of these covenants or the failure to fulfill the
obligations thereunder and the lapse of any applicable grace periods would
result in an event of default under the applicable debt instruments, and the
holders of such indebtedness could declare all amounts outstanding under their
debt instruments to be due and payable immediately. Any such declaration under a
debt instrument is likely to result in an event of default under one of the
other debt instruments of the Company and its subsidiaries. There can be no

13
<PAGE>
assurance that the assets or cash flows of the Company or its subsidiaries would
be sufficient to repay in full borrowings under their respective outstanding
debt instruments, whether upon maturity or in the event of acceleration upon an
event of default, or upon a required repurchase in the event of a change of
control, or that the Company would be able to refinance or restructure the
payments on such indebtedness. See "-- Impact of Holding Company Structure" and
"Description of the Credit Facility."

IMPACT OF HOLDING COMPANY STRUCTURE

The Company is a holding company with no business operations of its own. The
Company's only material assets are all of the outstanding capital stock of its
subsidiaries, General Cigar Co., Inc., GCH Transportation, Inc., Club Macanudo,
Inc. and Club Macanudo (Chicago), Inc., and all of the ownership interests in
the Company's office building in New York City. Accordingly, the Company is
dependent upon the earnings and cash flows of, and dividends and distributions
from, the Company's subsidiaries to pay its expenses and meet its obligations,
and to pay any cash dividends or distributions on the Common Stock that may be
authorized by the Board of Directors of the Company. There can be no assurance
that General Cigar Co., Inc. or any other subsidiary will generate sufficient
earnings and cash flows to pay dividends or distribute funds to the Company to
enable the Company to pay its expenses and meet its obligations or that
applicable state law and contractual restrictions, including negative covenants
contained in the debt instruments of the Company's subsidiaries then in effect,
will permit such dividends or distributions. See "--Restrictions Imposed by the
Terms of the Company's Indebtedness."

RISKS RELATING TO TRADEMARKS

The Company's success and ability to compete are dependent to a significant
degree on its brand names. The Company relies primarily on trademark law to
protect its brand names. Although the Company vigorously defends its trademarks
against infringement by others, including counterfeiters, policing unauthorized
use of the Company's trademarks is difficult. The illegal use of the Company's
trademarks may have an adverse effect on the Company's business, financial
condition and operating results.

The Company has registered its trademarks in the U.S. and certain foreign
countries and will continue to do so as new trademarks are developed or
acquired. The laws of countries outside of the U.S. may afford the Company
little or no effective protection of certain of its trademarks. Moreover, the
Company does not hold the right to use certain of its well-known trademarks and
brand names, including Partagas and Cohiba, in most foreign markets. Empresa
Cubana Del Tabaco, d.b.a. Cubatabaco ("Cubatabaco") filed a petition on January
15, 1997 in the United States Patent and Trademark Office ("USPTO") to cancel
the Company's two United States trademark registrations of the name Cohiba for
use in connection with cigars. Cubatobaco's petition was filed in response to
the USPTO's anticipated rejection of its attempt to register its Cohiba
trademark in the United States. If Cubatabaco were successful in this
proceeding, then the Company's U.S. registrations of the name Cohiba for use in
connection with cigars would be cancelled. Under certain circumstances, the
results of this proceeding could be used in a subsequent action to enjoin use of
the name Cohiba by the Company. See "Business--The Tobacco
Industry--Litigation."

The Company in the future may receive notices of claims of infringement of
other parties' trademarks. There can be no assurance that claims for
infringement or invalidity, or claims for indemnification resulting from
infringement claims, will not be asserted or prosecuted against the Company. Any
such claims, with or without merit, could be time-consuming to defend, result in
costly litigation and divert management's attention and resources.

MANAGEMENT OF GROWTH

The Company has experienced rapid growth over the last several years and
plans further production expansion in an effort to meet increases in demand for
premium and mass market cigars. The Company's

14
<PAGE>
rapid growth and planned expansion present numerous operational challenges to
the Company's senior management and employees. The Company faces similar
challenges with respect to the integration of Villazon into the Company's
operations. The Company's growth has placed, and will continue to place,
significant demands on the Company's management, working capital and financial
management control systems. The Company also has contracted to upgrade its
information management systems to provide for better tracking of inventories
used in manufacturing. There can be no assurance, however, that such
improvements will be adequate as demand continues to increase. In addition, the
integration of such new systems may cause disruptions in manufacturing that
could adversely affect the Company's business.

RISKS RELATING TO THE DISTRIBUTION AND THE MERGER

Pursuant to the terms of the Distribution Agreement, Tax Sharing Agreement
and Employee Benefits Allocation Agreement, certain liabilities of Culbro are
being assumed by CLR, including liabilities relating to the real estate business
and the nursery business, liabilities relating to Eli Witt (including potential
claims relating to transfer of funds to Culbro and other claims relating to Eli
Witt's Chapter 11 filing), certain specified tax liabilities and liabilities
relating to employees of CLR. Although as a result of the Asset Transfers and
the Distribution CLR will assume such liabilities, Culbro (and the Company
following the Merger) may continue to be liable to third parties with respect to
certain of such liabilities and claims.

CONTROL BY CERTAIN STOCKHOLDERS; ANTI-TAKEOVER EFFECTS OF DUAL CLASSES OF STOCK;
OTHER ANTI-TAKEOVER PROVISIONS

Upon consummation of the Offering, 20,087,182 shares of Class B Common
Stock, constituting 77% of the issued and outstanding Common Stock and
approximately 97% of the combined voting power of the outstanding Common Stock,
will be held by Culbro, and 2,237,147 shares of Culbro common stock,
constituting approximately 50% of the issued and outstanding shares of Culbro
common stock, will be held by the Cullman & Ernst Group. Following the Merger,
9,945,393 shares of Class B Common Stock, constituting 38% of the issued and
outstanding Common Stock, will be held by the Cullman & Ernst Group. The Cullman
& Ernst Group has sole voting and investment power with respect to shares of
Culbro common stock held by it and will have sole voting and investment power
with respect to the 9,945,393 shares of Class B Common Stock that it will hold
following the Merger. Each share of Class B Common Stock has ten votes with
respect to matters requiring the approval of the holders of Common Stock, while
each share of the Class A Common Stock, including shares offered hereby, has one
vote on such matters. As a result, the Cullman & Ernst Group will have
substantial control over the Company and may have the power to elect all of its
directors and to approve any action requiring stockholder approval, including
adopting amendments to the Company's certificate of incorporation and approving
mergers or sales of all or substantially all of the Company's assets. The
Schedule 13D filed by the Cullman & Ernst Group with the Securities and Exchange
Commission (the "SEC") with respect to its holdings in Culbro states that there
is no undertaking other than an informal understanding that the members of the
Cullman & Ernst Group will hold and vote their shares together. In the normal
course of business the members of the Cullman & Ernst Group have acted together
with respect to their shares of Culbro common stock. Such control by the Cullman
& Ernst Group, together with certain provisions of the Company's certificate of
incorporation and by-laws as well as certain provisions of the Delaware General
Corporation Law (the "DGCL"), could increase the difficulty of effecting a
change of control of the Company without their approval. See "Description of
Capital Stock."

DILUTION

Purchasers of the Class A Common Stock will experience immediate and
substantial dilution of $15.27 in net tangible book value per share of Common
Stock from the initial public offering price of $18.00. See "Dilution."

15
<PAGE>
NO PRIOR MARKET FOR CLASS A COMMON STOCK; DETERMINATION OF PUBLIC OFFERING PRICE

Prior to the Offering, there has been no public market for the Class A
Common Stock. There can be no assurance as to the development or liquidity of
any trading market for the Class A Common Stock following the Offering or that
investors in the Class A Common Stock will be able to resell their shares at or
above the initial public offering price. The initial public offering price for
the shares of Class A Common Stock was determined through negotiations between
the Company and the representatives of the Underwriters, and may not be
indicative of the market price of the Class A Common Stock after the Offering.
In addition, the market price of the Class A Common Stock may be affected by the
market price of Culbro's common stock prior to the consummation of the Merger.
See "Underwriting."

SHARES ELIGIBLE FOR FUTURE SALE

Upon consummation of the Offering, 6,000,000 shares of Class A Common Stock
and 4,518,472 shares of Culbro common stock (which are expected to be exchanged
for 20,087,182 shares of Class B Common Stock in the Merger) will be
outstanding. The 6,000,000 shares of Class A Common Stock sold in the Offering
will be freely transferable without restriction under the Securities Act of
1933, as amended (the "Securities Act"), except for shares acquired in the
Offering by "affiliates" of the Company, as that term is defined in Rule 144
promulgated under the Securities Act. All of the 4,518,472 shares of Culbro
common stock outstanding are freely transferable without restriction under the
Securities Act, except for shares held by affiliates of Culbro. All of the
20,087,182 shares of Class B Common Stock that will be outstanding upon
consummation of the Merger will be freely transferable without restriction under
the Securities Act, except for shares held by affiliates of the Company.
Transfers of shares of Common Stock and Culbro common stock by affiliates of the
Company and Culbro, respectively, are subject to the volume restrictions of Rule
144.

Subject to certain exceptions, the Company, the executive officers and
directors of the Company, Culbro and certain stockholders of Culbro (who in the
aggregate hold 2,276,112 shares of Culbro common stock, or 2,722,623 shares,
assuming exercise of outstanding options held by such persons) each have agreed
that they will not, without the prior written consent of DLJ, offer, sell,
contract to sell, grant any option to purchase or otherwise dispose of any
shares of Common Stock or Culbro common stock or any securities convertible into
or exercisable or exchangeable for such Common Stock or Culbro common stock or
in any other manner transfer all or a portion of the economic consequences
associated with the ownership of any such Common Stock or Culbro common stock
for a period of 180 days from the date of this Prospectus.

At the expiration of the 180-day period described above and upon
consummation of the Merger, or earlier with the written consent of DLJ, the
holders of 6,000,000 shares of Class A Common Stock will continue to have, and
holders of 20,087,182 shares of Class B Common Stock for the first time will
have the right to sell such shares without restriction under the Securities Act,
except that transfers by affiliates of the Company will be subject to the volume
limitations of Rule 144.

The Company intends to file a registration statement on Form S-8 under the
Securities Act to register the issuance of 3,300,000 shares of Class A Common
Stock reserved for issuance upon the exercise of options, including 570,555
shares of Class A Common Stock issuable upon exercise of options to be issued
upon consummation of the Offering under the 1997 Stock Option Plan and 2,162,818
shares of Class A Common Stock issuable upon exercise of Culbro options
following the Merger. As a result, any shares of Class A Common Stock issued
upon exercise of such stock options will be available, subject to special rules
for affiliates and applicable lock-up arrangements, for resale in the public
market. See "Certain Employee Benefit Matters."

No prediction can be made as to the effect, if any, that future sales of
Common Stock, or the availability of shares for future sale, will have on the
market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Class A Common Stock (including shares issued upon the
exercise of stock options or upon conversion of shares of Class B Common Stock),
or the perception that such sales could occur, could adversely affect prevailing
market prices for the Class A Common Stock.

16
<PAGE>
USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of the Class A
Common Stock offered hereby, after deducting underwriting discounts and
commissions and estimated offering expenses, are estimated to be approximately
$99.1 million. The Company intends to use approximately $84.7 million of such
net proceeds to reduce outstanding indebtedness under the Credit Facility ($67.1
million of which was incurred in connection with the closing of the Villazon
Acquisition and $17.6 million of which resulted from the Liability Assumption
portion of the Asset Transfers) and $14.4 million of such net proceeds will be
used to repay a portion of the Seller Notes incurred in connection with the
Villazon Acquisition. The indebtedness to be repaid under the Credit Facility
currently bears interest at a rate of approximately 7.44% (the Eurodollar Rate
plus 2%, adjusted monthly) and $60.0 million of such indebtedness matures in
January 1998 and is required to be prepaid at the time of, and with a portion of
the proceeds from, the Offering, while the remaining $24.7 million matures in
January 2000. The portion of the Seller Notes to be repaid with the proceeds
from the Offering bears interest at a rate of 8.75% and matures on the earlier
of thirty days following consummation of the Offering or April 2, 1997.

DIVIDEND POLICY

The Company, as a holding company with no business operations of its own, is
dependent on dividends and distributions from its subsidiaries to pay any cash
dividends or distributions on the Common Stock. The terms of the Credit Facility
limit the payment of dividends or distributions by the Company. Subject to such
restrictions, any future declaration of cash dividends will be at the discretion
of the Company's Board of Directors and will be dependent upon the Company's
results of operations, financial condition, contractual restrictions and other
factors deemed relevant by the Board of Directors of the Company. See "Risk
Factors--Restrictions Imposed by the Terms of the Company's Indebtedness" and
"Description of Credit Facility."

The Company has never declared or paid a cash dividend on the Common Stock.
Although Culbro historically has paid cash dividends, the Company currently
intends during 1997 to retain its earnings to fund the development and growth of
its business and, therefore, does not anticipate paying any cash dividends in
1997. Thereafter, the payment of cash dividends will be considered by the Board
of Directors of the Company based upon its results of operations, cash flows,
financial condition and liquidity.

17
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of
November 30, 1996 and the pro forma capitalization of the Company as of November
30, 1996, as adjusted to reflect (i) the Villazon Acquisition and the liability
portion of the Asset Transfers and (ii) the sale by the Company of the 6,000,000
shares of Class A Common Stock offered hereby. This table should be read in
conjunction with the Combined Financial Statements of the Company included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF NOVEMBER 30, 1996
-----------------------------------------
<S> <C> <C> <C>
PRO FORMA
AS ADJUSTED
ACTUAL PRO FORMA (1) (2)
---------- ------------- --------------

(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash.................................................................. $ 409 $ 9,469(3) $ 9,469(3)
---------- ------------- --------------
---------- ------------- --------------
Short-term debt:
Credit Facility (4)................................................. $ 60,000 $ --
Seller Notes (5).................................................... 14,370 --
Current portion of long-term obligations............................ $ 1,131 1,131 1,131
---------- ------------- --------------
Total short-term debt............................................. $ 1,131 $ 75,501 $ 1,131
---------- ------------- --------------
---------- ------------- --------------
Long-term debt:
Credit Facility (4)................................................. $ 50,950 $ 26,260
Seller Notes (5).................................................... 10,000 10,000
Long-term debt...................................................... $ 11,079 11,079 11,079
---------- ------------- --------------
Total long-term debt.............................................. 11,079 72,029 47,339
---------- ------------- --------------

Culbro investment/stockholders' equity:
Culbro investment................................................... 93,719 45,258
Class A Common Stock, $0.01 par value, 50,000,000 shares authorized,
0 and 6,000,000 shares issued and outstanding actual and pro forma
as adjusted, respectively (6)..................................... 60
Class B Common Stock, $0.01 par value, 25,000,000 shares authorized,
0 and 20,087,182 shares issued and outstanding actual and pro
forma as adjusted, respectively................................... 201
Additional paid-in capital.......................................... 144,057
Retained earnings................................................... 0
---------- ------------- --------------
Total Culbro investment/stockholders' equity...................... 93,719 45,258 144,318
---------- ------------- --------------
Total capitalization............................................ $ 104,798 $ 117,287 $ 191,657
---------- ------------- --------------
---------- ------------- --------------
</TABLE>

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

(1) Gives effect to the liability assumption portion of the Asset Transfers and
the Villazon Acquisition.

(2) Gives effect to the Offering and the use of the net proceeds thereof. See
"Use of Proceeds."

(3) Gives effect to approximately $9.1 million of cash acquired in the Villazon
Acquisition, a portion of which would have been available to reduce
borrowings under the Credit Facility.

(4) Upon consummation of the Villazon Acquisition, $60.0 million of the
indebtedness under the Credit Facility consisted of borrowings under the
short-term facility and $51.0 million consisted of borrowings under the
revolving credit facility. See "Description of the Credit Facility."

(5) Seller Notes consist of (i) $14.4 million payable to the sellers of Villazon
within 30 days of the closing of the Offering (but no later than April 2,
1997) and (ii) $10.0 million payable to certain sellers of Villazon in 2002.

(6) Excludes 3,300,000 shares of Class A Common Stock reserved for issuance
under the 1997 Stock Option Plan, 570,555 of which will be subject to
options issued upon consummation of the Offering and 2,162,818 of which are
reserved for issuance upon exercise of outstanding options under Culbro's
option plans. See "Certain Employee Benefit Matters--1997 Stock Option
Plan."

18
<PAGE>
DILUTION

As of November 30, 1996, after giving effect to the Asset Transfers and the
Villazon Acquisition, the Company had a pro forma deficit in net tangible book
value of $27.9 million or $1.39 per share of Common Stock. "Pro forma net
tangible book value" per share of Common Stock represents the pro forma total
amount of tangible assets of the Company, less the pro forma total amount of
liabilities of the Company, divided by the number of shares of Class B Common
Stock outstanding. Without taking into account any changes in pro forma net
tangible book value after November 30, 1996, other than to give effect to the
sale by the Company of the shares of Class A Common Stock offered hereby, the
pro forma net tangible book value of the Common Stock as of November 30, 1996
would have been $71.2 million, or $2.73 per share. This represents an immediate
dilution of $15.27 per share to new stockholders.

The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share................. $ 18.00
Pro forma net tangible book value per share
before the Offering................................... $ (1.39)
Increase per share attributable to new investors........ 4.12
---------
Pro forma net tangible book value per share
after the Offering.................................... $ 2.73
---------
Dilution per share to new investors..................... $ 15.27
---------
---------
</TABLE>

The following table sets forth, on a pro forma basis at November 30, 1996,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
the existing holders of Common Stock and by the new investors before deducting
the underwriting discounts and commissions and estimated offering expenses
payable by the Company.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- -------------- ----------- -------------
Existing stockholders............................. 20,087,182 77.0% $ 45,258,000 29.5% $ 2.25
New investors..................................... 6,000,000 23.0 108,000,000 70.5 $ 18.00
------------ ----- -------------- -----
Total......................................... 26,087,182 100.0% $ 153,258,000 100.0%
------------ ----- -------------- -----
------------ ----- -------------- -----
</TABLE>

The foregoing table (i) assumes no exercise of the Underwriters'
over-allotment option, (ii) does not reflect an aggregate of 3,300,000 shares of
Class A Common Stock reserved for issuance under the 1997 Stock Option Plan (see
"Certain Employee Benefit Matters--1997 Stock Option Plan") and (iii) reflects
the Liability Assumption portion of the Asset Transfers on a pro forma basis.

19
<PAGE>
SELECTED COMBINED FINANCIAL DATA

The Selected Combined Financial Data for fiscal 1992 have been derived from
the unaudited combined financial statements of the Company. The Selected
Combined Financial Data for fiscal 1993 have been derived from the audited
Combined Financial Statements of the Company. The Selected Combined Financial
Data for fiscal 1994, fiscal 1995 and fiscal 1996 have been derived from the
audited Combined Financial Statements of the Company included elsewhere in this
Prospectus. The following selected financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Combined Financial Statements of the Company and Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------

<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................... $ 77,131 $ 76,825 $ 89,538 $ 124,033 $ 154,676
Cost of goods sold...................................... 48,651 49,165 54,285 69,683 86,240
--------- --------- --------- --------- ---------
Gross profit............................................ 28,480 27,660 35,253 54,350 68,436
Selling, general and administrative expenses............ 27,059 25,282 27,210 36,726 44,593
Other nonrecurring expense.............................. -- -- -- -- 3,600
--------- --------- --------- --------- ---------
Operating profit........................................ 1,421 2,378 8,043 17,624 20,243
Gain on insurance settlement............................ -- -- -- 2,586 --
Other nonoperating income (expense)..................... 299 134 (23) (597) 853
Interest expense........................................ 327 264 607 1,049 951
--------- --------- --------- --------- ---------
Income before income taxes.............................. 1,393 2,248 7,413 18,564 20,145
Income tax provision.................................... 579 941 2,863 7,240 7,738
--------- --------- --------- --------- ---------
Income before cumulative effect of accounting change.... 814 1,307 4,550 11,324 12,407
Cumulative effect of accounting change for post-
retirement benefits, net of tax provision............. -- (4,356) -- -- --
--------- --------- --------- --------- ---------
Net income (loss)....................................... $ 814 $ (3,049) $ 4,550 $ 11,324 $ 12,407
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
OTHER DATA:
Gross margin............................................ 36.9% 36.0% 39.4% 43.8% 44.2%
Operating margin........................................ 1.8% 3.1% 9.0% 14.2% 13.1%
EBITDA (1)(2)........................................... $ 5,541 $ 5,923 $ 11,291 $ 23,163 $ 24,909
EBITDA margin (2)(3).................................... 7.2% 7.7% 12.6% 18.7% 16.1%
Net cash provided by (used in) operating activities..... $ 8,224 $ (3,835) $ 12,683 $ 9,536 $ (4,919)
Net cash used in investing activities................... (4,435) (1,691) (1,384) (616) (9,701)
Net cash (used in) provided by financing activities..... (3,799) 5,526 (10,865) (9,062) 14,707
Capital expenditures.................................... 4,435 1,691 1,884 2,841 9,701

BALANCE SHEET DATA (AT END OF PERIOD):
Working capital......................................... $ 35,673 $ 45,001 $ 41,176 $ 43,632 $ 65,121
Total assets............................................ 98,908 104,551 100,974 113,655 145,042
Long-term debt.......................................... 3,292 2,901 6,998 11,352 11,079
Culbro investment....................................... 75,874 78,740 68,160 66,095 93,719
</TABLE>

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

(1) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization. EBITDA is presented because it is a widely
accepted financial indicator used by certain investors and analysts to
analyze and compare companies on the basis of operating performance. EBITDA
is not intended to represent cash flows for the period, nor has it been
presented as an alternative to operating income as an indicator of operating
performance and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with generally accepted
accounting principles. See the Combined Financial Statements and the Notes
thereto appearing elsewhere in this Prospectus.

(2) In fiscal 1995 the Company had a $2.6 million gain from an insurance
settlement. Excluding this gain, EBITDA would have been $20.6 million and
EBITDA margin would have been 16.6%. In fiscal 1996 the Company had a
nonrecurring expense of $3.6 million. Excluding this expense, EBITDA would
have been $28.5 million and EBITDA margin would have been 18.4%.

(3) EBITDA margin represents EBITDA as a percentage of net sales. EBITDA margin
is presented because it is a widely accepted financial indicator used by
certain investors and analysts to analyze and compare companies on the basis
of operating performance. EBITDA margin should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles. See the Combined
Financial Statements and the Notes thereto appearing elsewhere in this
Prospectus.

20
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

In January 1997, Culbro transferred to the Company the stock of General
Cigar Co., Inc., Club Macanudo, Inc., 387 PAS Corp., Club Macanudo (Chicago),
Inc. and GCH Transportation, Inc., and General Cigar Co., Inc. acquired
Villazon. In addition, Culbro transferred approximately 1,100 acres of real
estate holdings in the Connecticut River Valley to the Company. Culbro has
transferred to the Company certain additional assets and operations of Culbro,
and the Company has assumed the related obligations of Culbro and substantially
all of its consolidated debt. These asset transfers and debt assumption are
referred to as the Asset Transfers. Related to the Asset Transfers are transfers
of the remaining assets of Culbro (other than the Common Stock) to CLR, the
Distribution and the Merger. See "The Asset Transfers, the Distribution and the
Merger." The Distribution and the Merger do not affect the Unaudited Pro Forma
Combined Financial Statements.

The Unaudited Pro Forma Combined Statement of Operations for fiscal 1996 and
the Unaudited Pro Forma Combined Balance Sheet at November 30, 1996 were
prepared to reflect (i) the liability portion of the Asset Transfers (the
"Liability Assumption"), (ii) the Villazon Acquisition and (iii) the Offering.
The column designated Company Historical reflects the results of operations and
the assets and liabilities, as appropriate, of General Cigar Co., Inc., Club
Macanudo, Inc., 387 PAS Corp., Club Macanudo (Chicago), Inc. and GCH
Transportation, Inc. on an historical combined basis. The "Pro Forma for
Liability Assumption" columns adjust the Company Historical results of
operations or financial condition, as appropriate, for the assumption of debt by
the Company pursuant to the Liability Assumption portion of the Asset Transfers.
The Villazon Historical column includes Villazon's audited results for the ten
months ended October 31, 1996 and its unaudited results for the two months ended
December 31, 1996. The "Pro Forma for Villazon Acquisition" columns adjust for
the Villazon Acquisition. The "Pro Forma As Adjusted for the Offering" columns
give effect to the Offering.

In the opinion of management, all adjustments necessary to fairly present
this pro forma information have been made. The Unaudited Pro Forma Combined
Financial Statements are based upon, and should be read in conjunction with, the
Combined Financial Statements of the Company and Notes thereto included
elsewhere in this Prospectus. The pro forma information does not purport to be
indicative of the results that would have been reported had such events actually
occurred on the dates specified, nor is it indicative of the Company's future
results if the aforementioned transactions are completed. The Company cannot
predict whether the consummation of the Asset Transfers, the Villazon
Acquisition or the Offering will conform to the assumptions used in the
preparation of the Unaudited Pro Forma Combined Financial Statements.

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR FISCAL 1996
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
PRO FORMA FOR PRO FORMA FOR FOR THE
LIABILITY ASSUMPTION VILLAZON ACQUISITION OFFERING(17)
COMPANY -------------------------- VILLAZON -------------------------- -------------
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL(16) ADJUSTMENTS PRO FORMA ADJUSTMENTS
----------- ------------- ----------- --------------- ------------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales...................... $ 154,676 $ 154,676 $ 42,018 $ 196,694
Cost of goods sold............. 86,240 86,240 21,410 107,650
----------- ------------- ----------- ------- ------------- ----------- -------------
Gross profit................... 68,436 68,436 20,608 89,044
Selling, general and
administrative expenses...... 44,593 44,593 6,004 $ 2,523(3) 53,120
Other nonrecurring expense..... 3,600 3,600 3,600
----------- ------------- ----------- ------- ------------- ----------- -------------
Operating profit............... 20,243 20,243 14,604 (2,523) 32,324
Other nonoperating income,
net.......................... 853 853 679 1,532
Interest expense............... 951 $ 3,258(1) 4,209 552 6,908(4) 11,669 $ (7,887)(5)
----------- ------------- ----------- ------- ------------- ----------- -------------
Income before income taxes..... 20,145 (3,258) 16,887 14,731 (9,431) 22,187 7,887
Income tax provision........... 7,738 (1,270)(2) 6,468 2,067(2) 8,535 3,076(2)
----------- ------------- ----------- ------- ------------- ----------- -------------
Net income..................... $ 12,407 $ (1,988) $ 10,419 $ 14,731 $ (11,498) $ 13,652 $ 4,811
----------- ------------- ----------- ------- ------------- ----------- -------------
----------- ------------- ----------- ------- ------------- ----------- -------------

Earnings per share.............

Number of weighted average
shares outstanding...........
</TABLE>

PRO FORMA
-----------

<S> <C>
Net sales...................... $ 196,694
Cost of goods sold............. 107,650
-----------
Gross profit................... 89,044
Selling, general and
administrative expenses...... 53,120
Other nonrecurring expense..... 3,600
-----------
Operating profit............... 32,324
Other nonoperating income,
net.......................... 1,532
Interest expense............... 3,782
-----------
Income before income taxes..... 30,074
Income tax provision........... 11,611
-----------
Net income..................... $ 18,463
-----------
-----------
Earnings per share............. $ 0.70(6)
Number of weighted average
shares outstanding........... 26,528(6)
</TABLE>

See Notes to Unaudited Pro Forma Combined Financial Statements.

21
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF NOVEMBER 30, 1996

<TABLE>
<CAPTION>
PRO FORMA FOR PRO FORMA FOR PRO FORMA
LIABILITY ASSUMPTION VILLAZON ACQUISITION FOR THE OFFERING(17)
COMPANY ------------------------ VILLAZON ------------------------ ------------------------
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL(16) ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ------------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash................. $ 409 $ 409 $ 9,060 $ $ 9,469 $ $ 9,469
Accounts receivable,
net................ 31,295 31,295 6,620 37,915 37,915
Inventories.......... 53,702 53,702 5,153 58,855 58,855
Other current
assets............. 3,673 3,673 876 4,549 4,549
----------- ----------- ----------- ------------- ----------- ----------- ----------- -----------
Total current
assets............. 89,079 89,079 21,709 110,788 110,788
Property and
equipment, net..... 52,507 52,507 1,350 3,000(8) 56,857 56,857
Intangible assets.... 156 71,196(9) 71,352 71,352
Other assets......... 3,456 3,456 1,342 1,000 (10 5,798 5,798
----------- ----------- ----------- ------------- ----------- ----------- ----------- -----------
Total assets......... $ 145,042 $ -- $ 145,042 $ 24,557 $ 75,196 $ 244,795 $ -- $ 244,795
----------- ----------- ----------- ------------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ------------- ----------- ----------- ----------- -----------
LIABILITIES AND
CULBRO INVESTMENT/
STOCKHOLDERS'
EQUITY
Accounts payable and
accrued
liabilities........ $ 22,827 $ 1,534(7) $ 24,361 $ 1,433 $ 25,794 $ 25,794
Current portion of
long-term debt..... 1,131 1,131 $ 74,370 (11 75,501 $ (74,370) 15) 1,131
----------- ----------- ----------- ------------- ----------- ----------- ----------- -----------
Total current
liabilities........ 23,958 1,534 25,492 1,433 74,370 101,295 (74,370) 26,925
Long-term debt....... 11,079 43,800(7) 54,879 4,370 12,780 (12 72,029 (24,690) 15) 47,339
Other noncurrent
liabilities........ 16,286 3,127(7) 19,413 6,800 (13 26,213 26,213
----------- ----------- ----------- ------------- ----------- ----------- ----------- -----------
Total liabilities.... 51,323 48,461 99,784 5,803 93,950 199,537 (99,060) 100,477
----------- ----------- ----------- ------------- ----------- ----------- ----------- -----------
Culbro investment.... 93,719 (48,461)(7) 45,258 45,258 (45,258) 15)
Common stock......... 2,318 (2,318) 14) 261 (15 261
Additional paid in
capital............ 224 (224) 14) 144,057 (15 144,057
Retained earnings.... 16,212 (16,212) 14)
----------- ----------- ----------- ------------- ----------- ----------- ----------- -----------
Total Culbro
investment/
stockholders'
equity............. 93,719 (48,461) 45,258 18,754 (18,754) 45,258 99,060 144,318
----------- ----------- ----------- ------------- ----------- ----------- ----------- -----------
Total liabilities and
Culbro investment/
stockholders'
equity............. $ 145,042 $ -- $ 145,042 $ 24,557 $ 75,196 $ 244,795 $ -- $ 244,795
----------- ----------- ----------- ------------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ------------- ----------- ----------- ----------- -----------
</TABLE>

See Notes to Unaudited Pro Forma Combined Financial Statements.

22
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

(1) Reflects estimated interest expense on approximately $43.8 million of Culbro
debt assumed by the Company in connection with the Liability Assumption
portion of the Asset Transfers. Interest expense under the Company's Credit
Facility is based on the Eurodollar rate plus 2%, which is assumed to be
7.44%.

(2) Reflects Federal income tax (35%) and state income tax of approximately 4%,
which is net of Federal tax benefits.

(3) Reflects estimated amortization expense of intangible assets to be recorded
in connection with the Villazon Acquisition and additional depreciation
expense related to the estimated increase in Villazon's property and
equipment as a result of purchase accounting adjustments. Intangible assets
of $71.2 million include trademarks and goodwill, if any, which the Company
anticipates will be amortized over 30 years on a straight line basis. The
additional depreciation expense is based on an increase of $3.0 million to
the historical cost of Villazon's property and equipment, depreciated on a
straight line basis over an average useful life of 20 years. The period used
for goodwill amortization is based on a preliminary estimate of the
reasonable period for which such costs are expected to be recovered and is
based in part on the earnings and history of the entities acquired.

(4) Reflects (i) amortization of fees relating to the Credit Facility and (ii)
estimated interest expense on $91.5 million of indebtedness (consisting of
$24.4 million of Seller Notes and $67.1 million of indebtedness incurred
under the Credit Facility) used to finance the Villazon Acquisition,
excluding interest on $4.4 million of Seller Notes which was previously
included on the Villazon historical balance sheets as long-term debt due to
owners. The Credit Facility and the Seller Notes bear interest at the
Eurodollar rate plus 2% (7.44%) and prime plus 1/2% (8.75%), respectively.
If interest rates on such debt were to increase (decrease) by 1/8 of 1%, net
income would (decrease) increase by less than $0.1 million. See "Description
of the Credit Facility."

(5) Reflects a decrease in interest expense as a result of assumed net proceeds
of $99.1 million from the Offering applied towards the repayment of (i)
$84.7 million of indebtedness under the Credit Facility bearing interest at
the Eurodollar rate plus 2% (7.44%) and (ii) $14.4 million of indebtedness
reflecting a portion of the Seller Notes bearing interest at a rate of prime
plus 1/2% (8.75%). The Credit Facility provides for a reduction of interest
rates on borrowings under the Credit Facility to the Eurodollar rate plus
3/4% upon receiving a minimum of $70.0 million of net proceeds from the
Offering. Accordingly, the assumed interest rate on the remaining $26.3
million of outstanding indebtedness under the Credit Facility would be
reduced from 7.44% to 6.19%.

(6) The pro forma number of weighted average shares outstanding includes all of
the outstanding shares of Class A Common Stock and Class B Common Stock
expected to be outstanding after the Offering. The total number of weighted
average shares outstanding used in the computation of pro forma earnings per
share also includes the dilutive effect of additional shares issuable upon
exercise of all Culbro stock options outstanding at the Offering date. See
"Certain Employee Benefit Matters--Culbro Employee Benefit Plans to be
Assumed by the Company--Culbro Stock Option Plans."

(7) Reflects the assumption of certain liabilities by the Company. The
liabilities include principally the estimated Culbro debt assumed, certain
accrued retirement obligations and other items.

(8) Reflects purchase accounting adjustments to increase property and equipment
to its estimated fair value. Based on a preliminary allocation of the
purchase price of $90.5 million (including an estimate of $1.5 million for
acquisition costs), Villazon's historical basis of property and equipment
was increased by $3.0 million representing management's preliminary
determination of estimated fair value which was based upon current prices of
comparable assets.

(9) Reflects the excess of the purchase price paid for Villazon over the fair
value of net assets acquired, primarily trademarks and goodwill, if any. As
these acquisitions were recently finalized the Company has not yet formally
allocated costs between trademarks and goodwill, if any. The Company will
finalize all purchase accounting adjustments as soon as practicable.

(10) Reflects financing fees paid to the Company's banks in connection with the
Credit Facility used to finance the Villazon Acquisition.

(11) Reflects issuance of short-term Seller Notes of $14.4 million, including
the assumption of $4.4 million of long-term debt due to owners as previously
included on Villazon's historical balance sheet and debt of $60.0 million
incurred under the Credit Facility in connection with the Villazon
Acquisition. See Note 4 to the Unaudited Pro Forma Combined Financial
Statements above.

(12) Reflects (i) the issuance of the long-term Seller Notes of $10.0 million,
(ii) borrowings under the Credit Facility of $7.1 million, less (iii) the
$4.4 million of long-term debt due to owners previously included on
Villazon's historical balance sheet. See Note 4 to the Unaudited Pro Forma
Combined Financial Statements above.

(13) Reflects deferred taxes related to purchase accounting adjustments to the
historical basis of assets acquired in the Villazon Acquisition.

(14) Reflects elimination of shareholders' equity of Villazon.

(15) Reflects net proceeds of $99.1 million applied towards the repayment of (i)
$74.4 million of short-term term debt consisting of $60.0 million under the
Credit Facility and $14.4 of Seller Notes, and (ii) $24.7 million of long
term debt outstanding under the Credit Facility.

23
<PAGE>
(16) Represents the combined totals of both Villazon & Co. and HATSA. The
unaudited pro forma combining statement of operations for 1996 and balance
sheet as of December 31, 1996 are presented below and reflect the
elimination of sales, cost of goods sold, receivables, payables and profit
in ending inventory.

UNAUDITED PRO FORMA COMBINING STATEMENT OF OPERATIONS
YEAR ENDING DECEMBER 31, 1996

<TABLE>
<CAPTION>
HATSA VILLAZON AND CO. ELIMINATIONS COMBINED
--------- ----------------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales.............................................. $ 11,520 $ 41,442 $ (10,944) $ 42,018
Cost of goods sold..................................... 6,936 25,118 (10,644) 21,410
--------- ------- ------------ -----------
Gross profit........................................... 4,584 16,324 (300) 20,608
Selling, general and administrative expenses........... 665 5,339 6,004
--------- ------- ------------ -----------
Operating profit....................................... 3,919 10,985 (300) 14,604
Other nonoperating income, net......................... 679 679
Interest expense....................................... 552 552
--------- ------- ------------ -----------
Income before income taxes............................. 3,919 11,112 (300) 14,731
Net income............................................. $ 3,919 $ 11,112 $ (300) $ 14,731
--------- ------- ------------ -----------
--------- ------- ------------ -----------
</TABLE>

UNAUDITED PRO FORMA COMBINING BALANCE SHEET
AS OF DECEMBER 31, 1996

<TABLE>
<CAPTION>
HATSA VILLAZON AND CO. ELIMINATIONS COMBINED
----------- ----------------- ------------- -----------
<S> <C> <C> <C> <C>
Cash.................................................... $ 175 $ 8,885 $ 9,060
Accounts receivable, net................................ 1,708 6,200 $ (1,288) 6,620
Inventories............................................. 2,830 2,623 (300) 5,153
Other current assets.................................... 876 876
----------- ------- ------------- -----------
Total current assets.................................... 4,713 18,584 (1,588) 21,709
Property and equipment, net............................. 426 924 1,350
Intangible assets....................................... 1 155 156
Other assets............................................ 18 1,324 1,342
----------- ------- ------------- -----------
Total assets............................................ $ 5,158 $ 20,987 $ (1,588) $ 24,557
----------- ------- ------------- -----------
----------- ------- ------------- -----------
Accounts payable and accrued liabilities................ $ 34 $ 2,687 $ (1,288) $ 1,433
Current portion of long-term debt.......................
----------- ------- ------------- -----------
Total current liabilities............................... 34 2,687 (1,288) 1,433
Long-term debt.......................................... 4,370 4,370
----------- ------- ------------- -----------
Total liabilities....................................... 34 7,057 (1,288) 5,803
----------- ------- ------------- -----------
Common stock............................................ 2,105 213 2,318
Additional paid in capital.............................. 224 224
Retained earnings....................................... 3,019 13,493 (300) 16,212
----------- ------- ------------- -----------
Stockholders' equity.................................... 5,124 13,930 (300) 18,754
----------- ------- ------------- -----------
Total liabilities and stockholders' equity.............. $ 5,158 $ 20,987 $ (1,588) $ 24,557
----------- ------- ------------- -----------
----------- ------- ------------- -----------
</TABLE>

(17) Subsequent to the Offering, substantially all of Culbro's assets will be
its investments in the Company and CLR. In the Distribution, Culbro will
distribute all of its ownership interests in CLR to Culbro's shareholders.
The Merger will be effected by the issuance to Culbro shareholders of all of
the Company's Class B shares and the cancellation of all of the outstanding
shares of Culbro and accordingly, the Merger will have no effect on the
Unaudited Pro Forma Combined Financial Statements.

24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Combined
Financial Statements and the related Notes thereto included elsewhere in this
Prospectus.

OVERVIEW

The Company was formed on December 12, 1996. The Company is a holding
company with no business operations of its own. The Company's only material
assets are all of the outstanding capital stock of its subsidiaries, General
Cigar Co., Inc., GCH Transportation, Inc., Club Macanudo, Inc. and Club Macanudo
(Chicago), Inc. and all of the ownership interests in the Company's office
building in New York City, all of which assets were acquired in the Asset
Transfers effected prior to the date of the Offering.

The Company's results in each of the periods presented include allocations
to the Company of Culbro corporate overhead of $5.5 million, $8.8 million, and
$7.2 million in fiscal 1994, fiscal 1995 and fiscal 1996, respectively. These
allocations may not necessarily reflect the additional expenses the Company
would have incurred as a separate stand-alone entity. The combined financial
statements include interest expense on debt specifically incurred by the
Company. The Company assumed an estimated $43.8 million of Culbro debt prior to
the Offering as part of the Culbro obligations assumed under the Liability
Assumption portion of the Asset Transfers. This debt was not an obligation of
the Company in earlier periods and the Company generally has been a net cash
provider to Culbro. Accordingly, this debt and related interest expense were not
part of the Company's capital structure in the combined financial statements for
any of the periods presented. These results therefore should be read in
conjunction with the unaudited combined pro forma results of operations in Note
4 of the Combined Financial Statements and the Unaudited Pro Forma Combined
Financial Statements included elsewhere in this Prospectus.

Since 1993, cigar smoking has experienced a resurgence resulting in an
increase in consumption and retail sales of cigars across all major categories,
especially in the premium cigar segment. This growth produced overall retail
sales in the U.S. cigar market of an estimated $1.25 billion in 1996, the
largest dollar sales in the industry's history. Industry unit sales of premium
and mass market cigars have increased at CAGRs of 35.4% and 9.6%, respectively,
from 1993 to 1996, while retail dollar sales in both categories have increased
more rapidly due to price increases. The Company believes that sales of premium
cigars exceeded 270 million units in the U.S. in 1996, an increase of over 60%
from 1995 unit sales. Historically, the Company has not utilized deep discounts
to generate additional volume, and does not anticipate the use of such discounts
in the forseeable future.

RESULTS OF OPERATIONS

The discussion set forth below relates to the financial condition and
results of operations of the Company as of and for fiscal 1996, fiscal 1995 and
fiscal 1994.

25
<PAGE>
Following are certain data related to the results of operations of the
Company, calculated as a percentage of net sales:

<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
Net sales..................................................... 100.0% 100.0% 100.0%
Cost of goods sold............................................ 60.6 56.2 55.8
Gross profit.................................................. 39.4 43.8 44.2
Selling, general and administrative expenses.................. 30.4 29.6 28.8
Other nonrecurring expense.................................... -- -- 2.3
Operating profit.............................................. 9.0 14.2 13.1
Interest expense.............................................. 0.7 0.8 0.6
Income before income tax...................................... 8.3 15.0 13.0
Net income.................................................... 5.1 9.1 8.0
</TABLE>

FISCAL 1996 COMPARED TO FISCAL 1995

Net sales increased 24.7%, or $30.6 million, to $154.7 million in fiscal
1996 compared to $124.0 million in fiscal 1995. This increase in net sales
reflected principally higher unit sales of premium cigars, and higher prices in
all cigar categories. Continued strong sales and prices of premium cigars, and
higher prices in the mass market cigar category more than offset slightly lower
unit volume in certain brands of mass market cigars. Nearly all of such increase
resulted from increased sales to existing customers. In response to a shortage
of properly aged and blended tobacco caused by excessive demand, the Company
elected to stop shipping MACANUDO cigars for two months in fiscal 1996 rather
than risk compromising its quality standards. Management believes that volume in
mass market cigars was adversely affected by repositioning and renaming certain
brand names.

Gross profit increased 25.9%, or $14.1 million, to $68.4 million in fiscal
1996 compared to $54.4 million in fiscal 1995. Gross margin increased to 44.2%
in fiscal 1996 from 43.8% in fiscal 1995. The increase in gross margin reflected
higher prices, benefits from mix due to relatively higher sales of premium
cigars, and lower fixed costs per unit due to the higher volume and improved
manufacturing efficiencies.

Selling, general and administrative expenses increased 21.4%, or $7.9
million, to $44.6 million in fiscal 1996 from $36.7 million for fiscal 1995.
Selling, general and administrative expenses in fiscal 1996 include
approximately $1.9 million of legal expenses incurred in connection with certain
legal proceedings. See "Legal Proceedings--Other Litigation." As a percentage of
net sales, selling, general and administrative expenses decreased to 28.8% in
fiscal 1996, from 29.6% in fiscal 1995. The decrease in selling, general and
administrative expenses as a percentage of net sales in fiscal 1996 is due
principally to these expenses increasing at a lower rate than the increase in
sales.

Other nonrecurring expense of $3.6 million in fiscal 1996 includes the
allocation to the Company of charges recorded by Culbro in connection with the
termination of a management long-term incentive compensation plan which was
based on Culbro's stock price, and the acceleration of the vesting of benefits
under the plan in anticipation of the Offering. Additionally, the other
nonrecurring expense item includes accruals for severance and related expenses
in connection with a headcount reduction at the Culbro corporate office. The
Company's allocable share of these expenses was determined substantially on the
same basis as the allocation of Culbro's general and administrative expenses and
is considered to be reasonable. See Note 5 to the Combined Financial Statements
of the Company included elsewhere herein.

Operating profit increased 14.9%, or $2.6 million, to $20.2 million for
fiscal 1996 from $17.6 million for fiscal 1995. Including the effect of the
other nonrecurring expense referred to above, operating margin decreased to
13.1% during fiscal 1996 from 14.2% during fiscal 1995.

26
<PAGE>
Net income increased 9.6%, or $1.1 million, to $12.4 million in fiscal 1996
from $11.3 million in fiscal 1995. Income in fiscal 1995 included $2.6 million
of pre-tax income from an insurance settlement.

FISCAL 1995 COMPARED TO FISCAL 1994

Net sales in fiscal 1995 increased 38.5%, or $34.5 million, to $124.0
million compared to $89.5 million in fiscal 1994. This increase reflected higher
unit volume and higher prices in all cigar categories. The increase in premium
cigar sales was higher than the increase in the mass market category and
accounted for approximately 53.0% of the Company's total increase in sales in
fiscal 1995. Nearly all of such increase resulted from increased sales to
existing customers.

Gross profit increased 54.2%, or $19.1 million, in fiscal 1995 to $54.4
million compared to $35.3 million in fiscal 1994. Gross margin increased to
43.8% from 39.4% in fiscal 1994. The increase in gross profit and margin
reflected higher unit sales and prices, a more favorable mix due to relatively
higher sales of premium cigars, and lower fixed cost per unit due to the higher
volume.

Selling, general and administrative expenses increased 35.0%, or $9.5
million, to $36.7 million in fiscal 1995, from $27.2 million in fiscal 1994. As
a percentage of net sales, selling, general and administrative expenses
decreased from 30.4% in fiscal 1994 to 29.6% in fiscal 1995. The decrease was
primarily due to selling, general and administrative expenses increasing at a
lower rate relative to the increase in net sales.

Operating profit increased 119.1%, or $9.6 million, to $17.6 million in
fiscal 1995 compared to $8.0 million in fiscal 1994. Operating margin increased
to 14.2% during fiscal 1995 from 9.0% in fiscal 1994.

Net income increased 148.9%, or $6.8 million, to $11.3 million in fiscal
1995 from $4.6 million in fiscal 1994. Income in fiscal 1995 included
approximately $2.6 million of pre-tax income resulting from the collection on an
insurance claim in connection with a fire at a Connecticut tobacco warehouse and
administrative office in 1994, partially offset by other nonoperating expenses.
Higher interest expense in fiscal 1995 related to interest under a mortgage on
387 Park Avenue South. The mortgage was incurred in fiscal 1995.

PRO FORMA FISCAL 1996 COMPARED TO ACTUAL FISCAL 1995

The Unaudited Pro Forma Combined Statement of Operations reflects higher
sales and operating profit from Villazon, partially offset by higher interest
expense from the acquisition debt and debt assumed from Culbro remaining
outstanding after the application of the net proceeds from the Offering. The
Unaudited Pro Forma Combined Balance Sheet reflects the effects of the Villazon
Acquisition, principally the acquisition of trademarks and goodwill, if any, and
the capitalization of the Company with the equity from the Offering, as well as
debt incurred under the Credit Facility and the Seller Notes.

LIQUIDITY AND CAPITAL RESOURCES

Net cash flows used in operating activities were $4.9 million for fiscal
1996 compared to net cash flows provided by operating activities of $9.5 million
in fiscal 1995. The use of cash in fiscal 1996 compared to cash flow generated
in fiscal 1995 reflected substantially higher inventory purchases to meet the
current demand for cigars and to secure certain tobacco supplies to meet the
anticipated future demand for cigars, and a greater reduction in accounts
payable due to the timing of the payment dates of certain liabilities. The
Company anticipates purchasing and carrying increased levels of tobacco
inventory over the next several years. Net cash flows provided by operating
activities were $12.7 million in fiscal 1994. In fiscal 1995, cash flows
provided by operations were lower compared to fiscal 1994 due to the net
increase in working capital related to the higher sales. The increase in working
capital in fiscal 1995 partially offset benefits of higher net income.

27
<PAGE>
The Company will fund its capital projects using internal cash flow and, if
needed, borrowings under the Credit Facility. The capital expenditures in fiscal
1994 and fiscal 1995 relate primarily to investments in cigar manufacturing
equipment and are part of the normal replacement and upgrading of the Company's
manufacturing equipment and facilities. The capital expenditures in fiscal 1996
primarily relate to investment in the Company's manufacturing facilities to meet
the increased demand for the Company's premium cigars. In order to increase
production to meet demand, the Company recently completed expansion of its
manufacturing facilities in the Dominican Republic, has begun to expand its
facilities in Jamaica and expects to increase production at its facilities in
Honduras. The Company expects that it will make capital expenditures of
approximately $10.3 million in fiscal 1997, $5.0 million of which will be made
in connection with the expansion of these facilities. The Company has increased
substantially its inventory of long filler tobacco needed for making premium
cigars.

Cash flow provided by financing activities in fiscal 1996 was $14.7 million,
and in fiscal 1995 and fiscal 1994 cash flow used in financing activities was
$9.1 million and $10.9 million, respectively. In each fiscal year, the cash
flows from financing activities reflected principally the transfer of the
Company's net cash flow to Culbro or net cash transfers from Culbro to fund the
Company's operations. The net cash transfers from Culbro in fiscal 1996
reflected the Culbro funding of the increased tobacco purchases.

During each of the fiscal years presented in the accompanying combined
financial statements, the cash management and treasury activities of the Company
were integrated with those of Culbro. The Company's cash receipts were
transferred daily into Culbro's cash account and the Company's cash disbursement
accounts were reimbursed by Culbro on a daily basis.

Culbro maintained credit facilities which it utilized to finance
transactions relating to the Company and Culbro's other subsidiaries. The
Company did not maintain its own separate credit facilities and the accompanying
financial statements do not reflect any allocation of Culbro's debt to the
Company. The Company maintained an intercompany account with Culbro in which its
net cash flow and other intercompany transactions with Culbro were recorded. See
Note 5 to the Combined Financial Statements. The intercompany account with
Culbro and the Company's retained earnings and historical capital accounts are
included in the Combined Financial Statements as "Culbro Investment."

On January 21, 1997, the Company entered into the Credit Facility to finance
the Villazon Acquisition, to fund the estimated $43.8 million of debt included
in the Liability Assumption portion of the Asset Transfers and to fund working
capital and other general business requirements. The Company intends to fund its
working capital requirements and capital expenditures with cash flow from
operations and borrowings under the Credit Facility. Management believes that
expected net cash flows from future operations and the availability of
borrowings, when necessary, will be sufficient to fund its working capital and
capital expenditures for the foreseeable future. As of November 30, 1996, after
giving effect to the Offering and the use of proceeds therefrom, there would
have been $23.7 million available under the Credit Facility, excluding $9.1
million of cash acquired in the Villazon Acquisition, a portion of which would
have been available to reduce borrowings under the Credit Facility. There can be
no assurance, however, that the Company's estimate of cash flows prior to the
consummation of the Offering will be realized; accordingly, the actual amount
available under the Credit Facility upon consummation of the Offering may vary
from the projected availability.

BACKORDERS

28
<PAGE>
believes that a portion of the backorders reflects the practice of certain
customers to order more premium cigars than needed in anticipation of a
reduction in the number of cigars included in the order when filled due to short
supplies. Accordingly, backorder figures may not reflect actual lost sales for
any of the periods shown. Although the Company has taken measures to reduce the
amount of backorders for its cigars, there can be no assurance that such
measures will be adequate.

INFLATION

The Company has historically been able to pass inflationary increases for
raw materials and other costs onto its customers through price increases and
anticipates that it will be able to do so in the future.

SEASONALITY

The Company's business is generally not seasonal. Cigar unit volume,
however, is usually higher in the fourth quarter during the Christmas shopping
season and slightly lower in the first quarter following the Christmas season.

RECENTLY ISSUED ACCOUNTING STANDARDS

In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." This Statement requires that long-lived
assets and certain intangibles held and used by a business entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company continually
reviews its long-lived assets and intangible assets, considering future
performance of those assets in assessing the need for adjustments to their
carrying values. The Company will perform such reviews in the future in
accordance with the methods prescribed by SFAS No. 121.

In October 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation." This Statement establishes a fair value method of
accounting for, or disclosing, stock-based compensation plans. The Company
intends to adopt the disclosure provisions of this standard which require
disclosing the pro forma effect on net income and earnings per share of the fair
value method of accounting for stock-based compensation. The adoption of the
disclosure provisions will not affect combined financial condition, results of
operations or cash flows.

29
<PAGE>
BUSINESS

GENERAL

Founded in 1906, General Cigar is the largest manufacturer and marketer in
the U.S. in both units and dollar sales of brand name premium cigars (imported,
hand-made or hand-rolled cigars made with long filler and all natural tobacco
leaf). The Company's MACANUDO and PARTAGAS brands are the two top selling
premium cigar brands sold in the U.S. The Company believes that higher priced
branded premium cigars constitute the fastest growing segment of the premium
cigar market. Approximately 80% of the Company's premium cigar sales in fiscal
1996 were at suggested retail prices of $3.00 or more per unit. The Company's
unit sales at or above this price point have increased at approximately a 90%
CAGR during the past four years. The Company, through its well known brands such
as GARCIA Y VEGA, also is a leading participant in the growing mass market cigar
segment. From fiscal 1993 to fiscal 1996, the Company's net sales increased from
$76.8 million to $154.7 million and operating profit increased from $2.4 million
to $20.2 million, representing CAGRs of 26.3% and 104.2%, respectively. After
giving effect to the Villazon Acquisition, on a pro forma basis, the Company's
net sales and operating profit for 1996 would have been $196.7 million and $32.3
million, respectively.

In 1906, the Company's direct predecessor, United Cigar Manufacturers
("UCM"), incorporated, sold its stock to the public and listed on the New York
Stock Exchange. The public offering notice with respect to that offering listed
the expert appraiser of UCM's cigar tobacco leaf as Joseph Cullman, the
grandfather and great grandfather, respectively, of the Company's current
Chairman and President. The Cullman family's interest and expertise in tobacco
and the cigar industry have developed for over a century and continue today.

The Company markets its cigars under a number of well-known brand names. The
Company's premium cigars include the MACANUDO, PARTAGAS, TEMPLE HALL, CANARIA
D'ORO, CIFUENTES and RAMON ALLONES brands. The Company also owns the rights to
market cigars in the U.S. under the names COHIBA and BOLIVAR. The Villazon
Acquisition has added a variety of other brand names to the Company's line of
premium cigars, including PUNCH, HOYO DE MONTERREY and EL REY DEL MUNDO. The
Company, after giving effect to the Villazon Acquisition, owns the U.S.
trademark rights to seven of the top ten traditional premium Cuban brand names
ranked according to 1995 worldwide sales by all cigar marketers. MANCANUDO was
rated "best cigar" by ROBB REPORT in 1992, the first year in which ROBB REPORT
rated cigars, and "best cigar" again in 1994 and 1995 (the category was not
included in the 1993 ROBB REPORT). In 1996, ROBB REPORT chose eight "best
cigars," including MACANUDO, PARTAGAS 150 SIGNATURE, HOYO DE MONTERREY EXCALIBUR
NO. 2 and COHIBA. The Company's mass market large cigars include GARCIA Y VEGA,
WHITE OWL, ROBT. BURNS and WM. PENN. The Company's mass market small cigars
include the TIPARILLO and TIJUANA SMALLS brands, as well as smaller sizes of its
other mass market brands. The Company does not participate in the market for
little cigars, which are cigars that resemble cigarettes. The Company also is
the exclusive U.S. distributor of French made DJEEP disposable lighters, and it
operates CLUB MACANUDO, a cigar bar located in New York City.

MARKET OVERVIEW

The cigar market is divided into three principal categories: premium cigars,
mass market cigars (large and small) and little cigars. After declining from its
peak in 1964, unit sales of cigars in the U.S. increased to 4.4 billion units in
1996 from 3.4 billion units in 1993. Unit sales of premium cigars, which had
remained essentially flat since 1981 despite continued declines in mass market
cigar unit sales, increased at a CAGR of approximately 35.4% from 1993 to 1996.
Led by growth in premium cigars, the U.S. cigar market has grown at a CAGR of
8.7% from 1993 to 1996, while retail dollar sales have grown at a CAGR of 19.9%
over the same period.

30
<PAGE>
the success of CIGAR AFICIONADO and SMOKE magazines and the increased visibility
of cigar smoking by celebrities (such as Arnold Schwarzenegger, Mel Gibson, Demi
Moore and Jack Nicholson); (ii) the emergence of an expanding base of younger,
highly educated, affluent adults age 25 to 35 and the growing interest of this
group in luxury goods, including premium cigars; (iii) the increase in the
number of adults over the age of 40 (a demographic group believed to smoke more
cigars than any other demographic group); and (iv) the proliferation of
establishments, such as restaurants and clubs, where cigar smoking is
encouraged, as well as "cigar smokers" dinners and other special events for
cigar smokers.

CATEGORIES OF CIGARS

PREMIUM CIGARS. Premium cigars are imported, hand-made or hand-rolled cigars
made with long filler and all natural tobacco leaf. Unit sales of premium cigars
in the U.S. increased by 10.7% in 1993, by 14.5% in 1994, by 30.5% in 1995 and
by an estimated 66.2% in 1996. The Dominican Republic, Honduras and Jamaica
collectively accounted for approximately 84.0% of premium cigars imported into
the U.S. in 1995. Many of the finest premium cigars sold in the U.S. trace their
roots to pre-Castro Cuba and the Cuban emigres who continued making premium
cigars in Jamaica, the Dominican Republic, Honduras and Florida. See "--Making a
General Cigar Premium Cigar."

MASS MARKET CIGARS. Mass market cigars generally are domestic, machine-made
cigars that use less-expensive short filler tobacco and are made with
homogenized tobacco binders and either homogenized sheet wrappers or natural
leaf wrappers. Unit sales of mass market cigars in the U.S. decreased by 4.3% in
1993, increased by 9.0% in 1994, increased by 8.6% in 1995 and increased by an
estimated 11.4% in 1996. Unit sales of more expensive mass market cigars, using
natural leaf wrappers, grew by 12.9% in 1995, as consumers appear to have
migrated to more expensive, higher quality mass market cigars.

LITTLE CIGARS. Little cigars are the lowest priced cigars. Little cigars
weigh less than three pounds per 1,000, are similar in size to cigarettes and
typically have filters. Little cigars are domestic, machine made cigars that use
short filler tobacco and homogenized sheet wrapper. Little cigars are not made
with binders. Unit sales of little cigars in the U.S. decreased by 1.1% in 1993,
increased by 6.1% in 1994, increased by 2.2% in 1995 and increased by an
estimated 3.8% in 1996. The Company does not participate in the market for
little cigars.

The following table sets forth certain data with respect to U.S. cigar unit
sales and retail sales for the premium, mass market and little cigar markets for
the periods shown:

<TABLE>
<CAPTION>
1993 1994 1995 1996E CAGR
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS)
Unit sales:
Premium.................................................. 110.0 125.9 164.3 273.0 35.4%
Mass market.............................................. 2,028.0 2,211.1 2,400.7 2,673.3 9.6
Little cigars............................................ 1,288.0 1,367.0 1,397.0 1,450.5 4.0
--------- --------- --------- ---------
Total.................................................. 3,426.0 3,704.0 3,962.0 4,396.8 8.7
--------- --------- --------- ---------
--------- --------- --------- ---------

Retail sales............................................... $ 725.0 $ 898.0 $ 1,054.0 $ 1,250.0 19.9%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

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

Source: Bureau of Alcohol, Tobacco and Firearms; Cigar Association of America
("CAA") Annual Survey of Cigars. 1996 figures are based on CAA
estimates. Retail sales are based in part on the Company's estimate of
sales of little cigars. Data for 1996 are based in part on the Company's
estimates.

31
<PAGE>
CIGAR TOBACCOS

Tobacco is grown around the world, but production of the finest cigar
tobaccos is concentrated in the Tropics, especially Cuba, Cameroon, Central West
Africa, the Dominican Republic, Ecuador, Honduras, Indonesia, Mexico and
Nicaragua. The Connecticut River Valley, however, produces some of the finest
wrapper tobacco in the world. Connecticut Shade wrapper tobacco is grown under a
gauze shade to produce a finer, thinner leaf with smaller veins than that of
sun-grown tobaccos. Some wrapper tobacco, as well as all high-quality binder and
filler tobacco, is exposed to the full strength of the sun throughout the
growing season, producing a thicker leaf with stronger flavors and darker
colors. Premium binder and long filler tobaccos sell for approximately $4 to $7
per pound, while premium cigar wrapper tobaccos sell for approximately $20 to
$40 per pound and the best Connecticut Shade wrapper tobaccos sell for
approximately $42 to $44 per pound.

Tobacco is grown from seeds that are germinated in greenhouses in raised
seedbeds. After six weeks, the healthiest seedlings are transplanted to fields.
Commencing six weeks after transplanting, the leaves are picked, starting with
the bottom of the stalk, three leaves at a time, once a week over a six week
period. Once harvested, the tobacco goes through a period of curing and
fermentation. In the curing stage, the wrapper tobacco is hung in tobacco sheds
for approximately five weeks to remove moisture and cause the green leaves to
turn into the desired golden brown color. In the fermentation stage, workers
carefully build slightly moistened tobacco into piles weighing approximately
3,000 pounds known as "bulks." Temperatures inside the bulks reach as high as
120 DEG.F as the tobacco "sweats" in the early stages of fermentation. The
tobacco is turned multiple times before fermentation is complete. Workers then
sort the tobacco, first according to color and clarity and then according to
size. Sorted leaves are then tied into "hands," each consisting of 40 leaves.
The hands are then "mulled," or softly fermented in cases weighing up to 130
pounds, and packed in bales, usually surrounded by burlap, to age. Premium cigar
tobaccos generally age for approximately one to three years, although "vintage"
premium tobaccos may age for up to ten years.

The Company purchases premium cigar wrapper tobacco from growers throughout
the world, including Cameroon (for use in making the PARTAGAS and RAMON ALLONES
cigars), Ecuador (for use in making the PUNCH and HOYO DE MONTERREY cigars) and
Mexico (for use in making the CANARIA D'ORO cigar). The Company is a grower and
supplier of Connecticut Shade tobacco used in making the MACANUDO and TEMPLE
HALL cigars. The Connecticut Shade tobacco used for wrapper on the Company's
cigars is sent to the Dominican Republic from Connecticut for curing and
fermentation, after which it is shipped back to the U.S. for aging in a process
known as a "winter sweat." After aging for one year, the bales of Connecticut
Shade are returned to the Dominican Republic for an additional period of
fermentation, and are then sent back to the U.S. a second time for additional
aging before being shipped to the Company's cigar manufacturing facilities in
the Dominican Republic and Jamaica.

The Company purchases all of its binder and long filler tobaccos from
growers throughout the world, primarily the Dominican Republic, Mexico and other
countries. The binder tobacco is purchased in leaf form, while the long filler
tobacco is purchased in "frog" strip form, with half of the stem removed. The
Company procures commitments for binder and long filler tobacco two years in
advance of delivery. These tobaccos grow for one year and are fermented for one
year, after which they are baled and delivered to warehouses in Pennsylvania for
aging. Binder and long filler tobacco generally is aged from one to two years.
Throughout the growing and fermenting process, representatives of the Company
periodically inspect tobacco for which the Company has received a sale
commitment.

MAKING A GENERAL CIGAR PREMIUM CIGAR

To assure that its premium cigars are consistently of the highest quality,
the Company employs a painstaking, labor-intensive process, requiring the
skilled judgment of experienced master cigar-makers and numerous intricate steps
on the part of trained craftsmen. A tobacco leaf used in the manufacture of

32
<PAGE>
any of the Company's premium cigars may be touched as many as 100 times before
it is smoked as part of a finished cigar.

THE WRAPPER. After sufficient aging, baled wrapper tobacco is opened and
examined for quality. The hands of wrapper tobacco are moistened in a process
known as "casing." Then each individual tobacco leaf is "stripped" to remove the
stem, and the half leaves are selected according to the length appropriate for
each cigar size. Finally, the sorted half leaves are counted into "pads" of 50
and sent to the cigar floor.

THE BINDER AND LONG FILLER. After aging, the binder and long filler tobacco
leaves are sent to one of the Company's cigar factories. There, the binder
tobacco is cased, stripped, sized and sorted into pads of 50 in a process
similar to that used in preparing the wrapper tobacco and is then sent to the
cigar floor. The long filler leaves are placed in a moistening hot room in order
to separate the individual leaves. The long filler leaves are then blended by
hand by placing leaf upon leaf and boxing them in cedar boxes for storage in
cedar storage rooms for three to five weeks in a process designed to marry the
various aromas of the leaves in order to create a uniform taste. Following this
blending process, the long filler tobacco is sent to the cigar floor.

MAKING THE CIGAR. Bunchers, working side by side with wrapper-rollers, take
leaves from filler boxes and, taking care to maintain the appropriate mixture of
light and heavy tobaccos, roll them by hand inside a dark, supple binder leaf.
The bunch is then placed in a wooden mold that shapes it to the specific length
and ring gauge of a particular cigar size. After approximately 30 minutes, the
bunch is removed from the mold for wrapping. The wrapper-roller places the
wrapper leaf upside down on a cutting board so that the smooth, unveined side of
the leaf will appear on the outside of the cigar and uses a "Cuban knife" to
trim each wrapper to the correct shape for a particular cigar size. The
wrapper-roller then wraps the shaped bunch in the wrapper and seals the head of
the cigar with a natural, flavorless gum from the tragacanth tree.

The finished cigars are then "bundled" in lots of 50 and inspected for
weight and firmness, as well as size, density, uniformity and texture. Finished
cigars are aged for three to 12 weeks in a cedar room. Trained selectors arrange
the finished cigars in separate groups chosen by subtle color differences.
Master cigar-makers smoke samples to assure quality. Cigars then are
individually banded and cellophaned or tubed and placed in handcrafted cigar
boxes to be shipped to the Company's customers.

BUSINESS STRATEGY

The Company believes that its competitive strengths, together with the
following strategies, will enable the Company to continue its growth, increase
its profitability and enhance its market share:

/ / INCREASE LEADING MARKET SHARE IN THE U.S. PREMIUM SEGMENT. The Company
intends to capitalize on the rapidly growing premium cigar market by:
(i) continuing to improve awareness and recognition of its premium
cigar brands through extensive advertising, increased penetration of
targeted retail outlets and professional sales management; (ii)
developing and selling more broadly certain new premium cigars that
carry well recognized traditional premium Cuban brand names, such as
COHIBA and BOLIVAR; (iii) developing line extensions in higher price
categories, such as MACANUDO VINTAGE and PARTAGAS LIMITED RESERVE, that
leverage the Company's already established premium brands; and (iv)
using the Company's national sales force and extensive channels of
distribution to increase sales of the products acquired in the Villazon
Acquisition.

/ / DEVELOP "PREMIUM" MASS MARKET CIGAR BUSINESS. The Company is seeking to
increase revenues and profits in its mass market cigar business by
extending its well-known mass market brand names into higher price
categories within the mass market segment. The Company believes that
the higher-end mass market segment recently has experienced growth
similar to that of the premium segment. The Company is attempting to
capitalize on this growth by expanding products such as the GARCIA Y
VEGA

33
<PAGE>
HAND MADE cigars and by developing similar higher-end cigars under
several of its other mass market brand names, such as the WHITE OWL
SELECT, a natural leaf wrapper mass market cigar.

/ / EXPAND MASS MARKET CIGAR BUSINESS. The Company believes that the
resurgence in the premium segment also has positively affected the
demand for traditional mass market cigars. The Company's leading
high-end mass market brand, GARCIA Y VEGA, experienced a 27.9% increase
in unit growth in 1996 compared to 1995. The Company intends to
increase its sales and production of traditional mass market cigars to
capitalize on the increasing demand in the mass market segment.

/ / EXPAND PRODUCTION CAPACITY AND TOBACCO INVENTORY. The Company intends
to expand manufacturing capacity in order to meet increasing demand for
its products while adhering to its traditionally high quality
standards. The Company recently completed the expansion of its
manufacturing facilities in the Dominican Republic, has begun to expand
its facilities in Jamaica and intends to expand production at the
Villazon facilities in Honduras. In addition, the Company has
implemented a unique "training center" program at its Dominican
Republic facility through which it has been able to train a greater
number of cigar rollers in a shorter period of time and attain a higher
rate of completion of the training program than had been its experience
using traditional training methods. The Company intends to implement a
similar program in its Jamaican and Honduran facilities. The Company
also has substantially increased its tobacco inventory for making
premium cigars.

/ / SELECTIVELY BROADEN CIGAR DISTRIBUTION CHANNELS. The Company intends to
broaden its existing customer relationships and actively develop new
channels and methods of distribution. With respect to premium cigars,
the Company is pursuing opportunities in a number of developing
distribution channels, including cigar bars and clubs, hotel shops,
wine shops (excluding jurisdictions where selling tobacco products in
businesses possessing retail liquor licenses is prohibited by law),
restaurants and upscale specialty retail stores (such as Neiman Marcus
and Orvis). With respect to mass market cigars, the Company is seeking
to enhance relations with existing retailers by acting as the tobacco
"category manager," assisting such retailers in increasing their sales
of tobacco products.

/ / EXPAND INTERNATIONAL CIGAR BUSINESS. The Company plans to increase its
international presence, particularly with respect to the MACANUDO
brand. The Company will focus its efforts in the United Kingdom,
Germany, France, Spain, China and certain countries in South America,
as well as duty free markets worldwide. The Company intends to
implement this strategy in a variety of ways, including building on its
existing relationships with major international distributors and
entering into joint ventures.

/ / DEVELOP SALES OF BRANDED SMOKING ACCESSORIES AND LIFESTYLE
PRODUCTS. The Company intends to become a leading marketer and licensor
of high-quality branded smoking accessories, such as humidors and cigar
cutters, and branded luxury lifestyle products, such as leather goods
and apparel. The Company believes such expansion will improve brand
recognition among premium cigar consumers. The Company also may open
additional CLUB MACANUDO locations, including one location in Chicago
expected to open in the spring of 1997. CLUB MACANUDO promotes the
Company's premium brands as well as cigar smoking as part of the luxury
lifestyle. The Winter 1996/97 issue of CIGAR AFICIONADO called CLUB
MACANUDO New York City's "preeminent cigar lounge," and SMOKE magazine
recently said of CLUB MACANUDO, "this place is pure 'cigar.' "

34
<PAGE>
BACKORDERS

The increased demand for premium cigars has caused the Company's backorders
of premium cigars, exclusive of Villazon, to increase from $21.0 million at
wholesale at December 2, 1995 to $78.0 million at wholesale at November 30,
1996. Currently, the Company does not accept orders from its nine largest
customers for premium cigars, but instead allocates to each of them a portion of
its production. Therefore, the Company's backorder figure at November 30, 1996
excludes any orders from its nine largest premium cigar customers, although the
figure at December 2, 1995 includes such customers' orders. The Company believes
that a portion of the backorders reflects the practice of certain customers to
order more premium cigars than needed in anticipation of a reduction in the
number of cigars included in the order when filled due to short supplies.
Accordingly, backorder figures may not reflect actual lost sales for any of the
periods shown. Although the Company has taken measures to reduce the amount of
backorders for its cigars, there can be no assurance that such measures will be
adequate. See "Risk Factors--Constraints on Ability to Satisfy Demand."

SALES AND MARKETING

The Company believes that it is recognized as one of the most successful
marketers of cigars in the U.S., having achieved ADVERTISING AGE's 1996 "Top
Marketing 100" award for the MACANUDO brand. The Company believes that it spends
considerably more on consumer advertising than its nearest competitor, even in
times when it is experiencing significant backorders.

The Company sells its cigar products throughout the U.S. to over 1,300
customers, consisting of wholesale distributors, direct buying chains (including
food, drug, mass merchant and convenience store chains), tobacconists, specialty
retailers (such as Neiman Marcus and Orvis) and consumer catalogue retailers. No
single customer accounts for more than 10% of the Company's total sales.

The Company recently has created a full-time, in-house sales analysis group,
which reviews cigar industry consumption reports prepared by national sales
audit firms, as well as sales information provided by retailers with respect to
which the Company acts as category manager. The Company also employs a direct
sales force to develop and service its sales to wholesalers, distributors,
direct buying chains and tobacconists. The Company's sales force, which has
increased by 60% since 1994, is composed of two groups, one group responsible
for the sale of all the Company's products and a separate group of "premium
specialists" focusing on the sale and promotion of premium cigars with
tobacconists, cigar clubs, restaurants, premium cigar distributors and other
specialty retailers. Both sales groups utilize a fact-based approach to category
selling designed to optimize category performance for the Company's retail
customers and improve the performance of the Company's brands. The Company
believes that the utilization of a separate premium selling group positions it
to maintain a high degree of focus on its premium product category while
enabling the sales force to serve a broad mass market customer base. The
Company's sales force operates nationally with account coverage structured
geographically to provide for close relationships with local customers.

The Company actively pursues innovative outlets for marketing its premium
cigars to the luxury goods consumer, such as golf pro shops and upscale wine
shops. The Company also has developed a program through which it markets cigars
and cigar menus directly to restaurants. With respect to its mass market brands,
the Company has adopted a program to promote its brands with certain retailers,
such as CVS and Walmart/McLane, by acting as tobacco "category manager." The
Company also provides a wide variety of cigar merchandising fixtures and
point-of-sales support to its retailers. These fixtures help to maintain an
attractive in-store product presentation and to improve shelf space and
positioning of the Company's brands.

The Company advertises its premium cigar products in magazines, such as
CIGAR AFICIONADO and SMOKE, as well as magazines targeted to an upscale audience
such as ROLLING STONE, FORBES and GOLF DIGEST and in newspapers and on radio.
The Company advertises its mass market cigar products primarily through

35
<PAGE>
newspapers, sports magazines and similar publications. In addition, the
Company's website, "cigarworld.com," was selected one of the best cigar product
websites by YAHOO magazine. The Company has substantially increased its
marketing and advertising expenditures in order to continue to build the brand
recognition of its leading premium cigar brands, as well as to support new
product introductions. Since 1993, the Company has brought to market a broad
array of new products and brand extensions primarily in connection with its
brand-oriented cigar marketing, including limited edition cigars under the
PARTAGAS 150 and multi-year MACANUDO VINTAGE offerings, MACANUDO and PARTAGAS
branded fashion apparel and branded cigar smoking accessories.

Sales of the Company's cigar products outside of the U.S. currently are not
material, although the Company plans to increase its international presence,
particularly with respect to the MACANUDO brand. The Company will focus its
efforts in the United Kingdom, Germany, France, Spain, China and certain
countries in South America, as well as duty free markets worldwide. The Company
recently became the only U.S. cigar maker to receive approval from the
government of China to market and sell its products in that country. The Company
already has begun distributing premium and mass market cigars in China.

TRADEMARKS

The Company's success and ability to compete are dependent to a significant
degree on its trademarks. The Company generally owns the trademarks under which
its products are sold. The Company has registered its trademarks in the U.S. and
many other countries and will continue to do so as new trademarks are developed
or acquired. The Company holds the right to use the MACANUDO trademark and brand
name for cigars in many countries worldwide. The Company does not, however, hold
or own the right to use certain of its well-known trademarks and brand names,
including PARTAGAS and COHIBA, in certain foreign markets. The Company's ability
to expand into such markets by capitalizing on the strength of its brand names
in the U.S. may be limited by its inability to use or acquire such brand names
in those foreign markets. The Company pays royalties to the prior owners of
certain of its trademarks. Such payments are not material. The Company owns the
U.S. trademarks listed below:

<TABLE>
<CAPTION>
PREMIUM CIGAR BRANDS MASS MARKET CIGAR BRANDS
- ------------------------------------- -------------------------------------
<S> <C>
MACANUDO GARCIA Y VEGA
PARTAGAS WHITE OWL
PUNCH TIPARILLO
HOYO DE MONTERREY ROBT. BURNS
COHIBA TIJUANA SMALLS
EXCALIBUR WM. PENN
RAMON ALLONES LORD BEACONSFIELD
TEMPLE HALL VILLA DE CUBA
EL REY DEL MUNDO PEDRO IGLESIAS
CANARIA D'ORO TOP STONE
CIFUENTES VILLAZON DELUXE
BOLIVAR
BELINDA
BANCES
</TABLE>

The Company vigorously defends its trademarks from their improper use by
others, including the manufacturers of counterfeit cigars.

36
<PAGE>
RAW MATERIALS

The Company has strong relationships with tobacco suppliers and is expanding
its commercial and technical ties with local growers to secure a variety of
sources for raw materials, ensure the quality of its raw materials and maximize
cost savings.

The most important material in the manufacture of cigars is properly aged
tobacco. Arrangements for the procurement of tobacco typically are made at the
time the tobacco is planted, approximately three to four years before the
tobacco will be manufactured into cigars. The Company buys tobacco directly from
a large number of suppliers worldwide and does not believe that it is dependent
on any single source for tobacco. During 1996, the Company discontinued shipping
MACANUDO cigars for a two month period as excessive demand led to a shortage of
properly aged and blended tobacco. The Company has experienced shortages in
Cameroon-grown natural wrapper tobacco, which is used in making PARTAGAS cigars,
due to the increase in demand for high quality natural wrapped cigars. Because
the Company is a leading grower and supplier of Connecticut Shade tobacco, which
is used in making MACANUDO cigars, the Company has not experienced similar
shortages with respect to Connecticut Shade. The increase in demand has caused
the price of natural wrapper and premium cigar tobaccos to increase. The Company
has an extensive seed development program to improve the wrapper tobacco
characteristics. The Company lost certain seed samples and records in a fire in
1994. See "Risk Factors--Constraints on Ability to Satisfy Demand," "Risk
Factors--Social, Political and Economic Risks Associated with Foreign Operations
and International Trade" and "--Backorders."

COMPETITION

The Company is the largest manufacturer and marketer in the U.S. in both
units and dollar sales of brand name premium cigars. The Company's main
competitors in the branded and private label premium markets include Davidoff,
Fuente, Consolidated Cigar Holdings Inc. and Nestor Plasencia. In addition, the
increased demand for cigars and the relatively low barriers to entry have led to
many new entrants in the premium cigar manufacturing business. The Company's
main competitors in the mass market cigar market are Swisher International Group
Inc., Consolidated Cigar Holdings, Inc., and Havatampa/Phillies Cigar
Corporation.

THE TOBACCO INDUSTRY

REGULATION

Cigar manufacturers, like other producers of tobacco products, are subject
to regulation at the federal, state and local levels. Federal law has recently
required states, in order to receive full funding for federal substance abuse
block grants, to establish a minimum age of 18 years for the purchase of tobacco
products, together with an appropriate enforcement program. The recent trend is
toward increasing regulation of the tobacco industry, and the recent increase in
popularity of cigars could lead to an increase in regulation of cigars. A
variety of bills relating to tobacco issues have been introduced in the U.S.
Congress, including bills that would have (i) prohibited the advertising and
promotion of all tobacco products or restricted or eliminated the deductibility
of such advertising expenses, (ii) increased labeling requirements on tobacco
products to include, among other things, addiction warnings and lists of
additives and toxins, (iii) shifted regulatory control of tobacco products and
advertisements from the FTC to the FDA, (iv) increased tobacco excise taxes and
(v) required tobacco companies to pay for health care costs incurred by the
federal government in connection with tobacco related diseases. Hearings have
been held on certain of these proposals; however, to date, none of such
proposals have been passed by Congress. Future enactment of such proposals or
similar bills may have an adverse effect on the results of operations or
financial condition of the Company.

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<PAGE>
In August 1996, the FDA published a final rule on tobacco in the Federal
Register. Specifically, the rule prohibits a variety of activities relating to
the sale of cigarettes and smokeless tobacco, including the distribution of
non-tobacco items, such as hats and tee shirts, that carry cigarette logos.
These regulations are not currently applicable to cigars; however, there can be
no assurance that these regulations will not be extended to include cigars in
the future. A significant portion of the Company's Djeep lighter sales is to
cigarette manufacturers who sell or give away such lighters with their
cigarettes. These regulations, if effective in this respect despite numerous
court challenges, would have a material adverse effect on the Company's Djeep
lighter business.

California, for example, requires "clear and reasonable" warnings to
consumers who are exposed to chemicals determined by the state to cause cancer
or reproductive toxicity, including tobacco smoke and several of its constituent
chemicals. In addition, legislation recently introduced in Massachusetts would,
if enacted, require warning labels on cigar boxes. Although similar legislation
has been introduced in other states, no action has been taken. Although federal
law has required health warnings on cigarettes since 1965 and on smokeless
tobacco since 1986, there is no federal law requiring that cigars carry such
warnings. There can be no assurance that such legislation introduced in other
states will not be passed in the future or that other states will not enact
similar legislation. Consideration at both the federal and state level also has
been given to consequences of tobacco smoke on non-smokers (so called
"second-hand" smoke). There can be no assurance that regulations relating to
second-hand smoke will not be adopted or that such regulations or related
litigation would not have a material adverse effect on the Company's results of
operations or financial condition. The Company has received complaints from
neighbors with respect to cigar smoke emanating from its Club Macanudo
establishment in New York City. There can be no assurance that such complaints
will not lead to fines, regulation and/or litigation that could adversely affect
Club Macanudo.

The U.S. Environmental Protection Agency (the "EPA") published a report in
January 1993 with respect to the respiratory health effects of second-hand
smoke, which concluded that widespread exposure to environmental tobacco smoke
presents a serious and substantial public health concern. Issuance of the
report, which is based primarily on studies of passive cigarette smokers, may
lead to further legislation designed to protect non-smokers. Also, a study
recently published in the journal SCIENCE reported that a chemical found in
cigarette smoke has been found to cause genetic damage in lung cells that is
identical to damage observed in many malignant tumors of the lung and, thereby,
directly links lung cancer to smoking. The National Cancer Institute also has
announced that it will issue a report in 1997 describing research into cigars
and health. The study and these reports could affect pending and future tobacco
regulation and litigation. See "--Litigation."

Increased cigar consumption and the publicity such increase has received may
increase the risk of additional regulation. There can be no assurance as to the
ultimate content, timing or effect of any additional regulation of tobacco
products by any federal, state, local or regulatory body, and there can be no
assurance that any such legislation or regulation would not have a material
adverse effect on the Company's business.

LITIGATION

Historically, the cigar industry has experienced less health-related
litigation than the cigarette and smokeless tobacco industries have experienced.

38
<PAGE>
Litigation against the cigarette industry historically has been brought by
individual cigarette smokers. In 1992, the United States Supreme Court in
Cipollone v. Liggett Group, Inc. ruled that federal legislation relating to
cigarette labeling requirements preempts claims based on failure to warn
consumers about the health hazards of cigarette smoking, but does not preempt
claims based on express warranty, misrepresentation, fraud or conspiracy. To
date, individual cigarette smokers' claims against the cigarette industry
generally have been unsuccessful. A jury in Florida, however, recently
determined that a cigarette manufacturer was negligent in the production and
sale of its cigarettes and sold a product that was unreasonably dangerous and
defective, awarding the plaintiffs a total of $750,000 in damages.

Current tobacco litigation generally falls within one of three categories:
class actions, individual actions or actions brought by individual states
generally to recover Medicaid costs allegedly attributable to tobacco-related
illnesses. The pending actions allege a broad range of injuries resulting from
the use of tobacco products or exposure to tobacco smoke and seek various
remedies, including compensatory and, in some cases, punitive damages together
with certain types of equitable relief such as the establishment of medical
monitoring funds and restitution. The major tobacco companies vigorously are
defending these actions.

In May 1996, the Fifth Circuit Court of Appeals in Castano v. American
Tobacco, et al. reversed a Louisiana district court's certification of a
nationwide class consisting essentially of nicotine dependent cigarette smokers.
Notwithstanding the dismissal, new class actions asserting claims similar to
those in Castano recently have been filed in certain states. To date, two
pending class actions against major cigarette manufacturers have been certified.
The first case is limited to Florida citizens allegedly injured by their
addiction to cigarettes; the other is limited to flight attendants allegedly
injured through exposure to secondhand smoke. See "--Legal Proceedings."

Cubatabco filed a petition on January 15, 1997 in the USPTO to cancel the
Company's two United States trademark registrations of the name Cohiba for use
in connection with cigars. Cubatobaco's petition was filed in response to the
USPTO's anticipated rejection of its attempt to register its Cohiba trademark in
the United States. The Company believes its Cohiba registrations were properly
issued by the USPTO and are valid. The Company first filed for registration of
the Cohiba trademark in the United States in 1978, which it believes was prior
to Cubatabaco's first commercial use of the mark. The Company will vigorously
defend its registrations in this proceeding, which could be pending for a number
of years. If Cubatabaco were successful in this proceeding, then the Company's
U.S. registrations of the name Cohiba for use in connection with cigars would be
cancelled and, under certain circumstances, the results of this proceeding could
be used in a subsequent action to enjoin use of the name Cohiba by the Company.
The Company's sales of Cohiba cigars represent a very small percentage of its
premium cigar sales.

EXCISE TAXES

Cigars long have been subject to federal, state and local excise taxes, and
such taxes frequently have been increased or proposed to be increased, in some
cases significantly, to fund various legislative initiatives. The federal excise
tax rate on large cigars (weighing more than three pounds per thousand cigars)
is 12.75% of the manufacturer's selling price, net of the federal excise tax and
certain other exclusions, capped at $30.00 per thousand cigars.

In the past, there have been various proposals by the federal government to
fund legislative initiatives through increases in federal excise taxes on
tobacco products. In 1993, the Clinton Administration proposed a significant
increase in excise taxes on cigars, pipe tobacco, cigarettes and other tobacco
products to fund the Clinton Administration's health care reform program. The
Company believes that the volume of cigars sold would have been dramatically
reduced if excise taxes were enacted as originally proposed as part of the
Clinton Administration's health care reform program. Future enactment of
significant increases in excise taxes, such as those initially proposed by the
Clinton Administration or other proposals not linked specifically to health care
reform, would have a material adverse effect on the

39
<PAGE>
business of the Company. The Company is unable to predict the likelihood of the
passage or the enactment of future increases in tobacco excise taxes.

Tobacco products also are subject to certain state and local taxes. Deficit
concerns at the state level continue to exert pressure to increase tobacco
taxes. The number of states that impose excise taxes on cigars is 42. State
cigar excise taxes are not subject to caps similar to the federal cigar excise
tax. From time to time, the imposition of state and local taxes has had some
impact on sales regionally. The enactment of new state excise taxes and the
increase in existing state excise taxes are likely to have an adverse effect on
regional sales as cigar consumption generally declines.

LEGAL PROCEEDINGS

TOBACCO LITIGATION

The Company is a party to lawsuits incidental to its business. The Company,
together with a variety of other tobacco product manufacturers and retailers,
has been named in eight suits in Florida since 1995; however, it has been served
in only five of these lawsuits and in four such cases was voluntarily dismissed
as a defendant (without prejudice in each such dismissed case). One of the suits
in which the Company has been named but not served is a putative class action,
filed on or about August 30, 1996, brought against the Company and 13 other
defendants on behalf of Florida residents alleged to be addicted to nicotine and
injured as a result of smoking cigarettes. In addition, the Company and 13
others were named as defendants in two "form" complaints that identified no
plaintiffs, filed in August 1996, apparently in contemplation of filing
additional complaints on behalf of individual plaintiffs. The Company has not
been served with complaints in any such cases. The Company believes that the
outcome of such legal proceedings as are pending will not in the aggregate have
a material adverse effect on the Company's consolidated financial position. The
Company carries general liability insurance but has no health hazard policy,
which, to the best of the Company's knowledge, is consistent with industry
practice. There can be no assurance, however, that there will not be an increase
in health-related litigation against the cigarette and smokeless tobacco
industries or similar litigation in the future against cigar manufacturers. The
costs to the Company of defending prolonged litigation and any settlement or
successful prosecution of any material health-related litigation against
manufacturers of cigars, cigarettes or smokeless tobacco or suppliers to the
tobacco industry could have a material adverse effect on the Company's business.
The recent increase in the consumption of cigars and the publicity such increase
has received may have the effect of increasing the probability of legal claims.

OTHER LITIGATION

In the spring of 1995, the Company discovered and immediately notified U.S.
Customs officials that packages of marijuana were passing through its Dothan,
Alabama plant, apparently secreted by persons still unknown in cigar shipping
cartons originating from the Company's Kingston, Jamaica plant. The Company has
since fully cooperated with U.S. Customs and other federal and state officials
throughout their investigation of this alleged drug trafficking.

As a result of investigating the drug shipments, the Company uncovered
information which led to the conviction of one of its senior managers on 25
counts of mail fraud. The employee is awaiting sentencing and his accomplices
now are serving prison sentences. The employee brought suit for wrongful
termination and alleged a number of illegal activities by General Cigar Co.,
Inc., including payments to officials of foreign governments, pricing practices
and election campaign contribution violations. The alleged improper campaign
contributions, aggregating $11,000, have been refunded by such campaigns and the
Company is seeking a conciliation agreement with respect thereto with the
Federal Election Commission. Subsequently, General Cigar Co., Inc. was served
with a U.S. Grand Jury subpoena in Connecticut relating to the allegations in
the lawsuit filed by the former employee. This investigation has since been
terminated.

40
<PAGE>
In May 1995, the SEC began an informal investigation into trading in Culbro
common stock in the period prior to Culbro's announcement of an agreement in
principle to sell a 51% interest in General Cigar Co., Inc. The SEC staff was
provided with numerous documents they requested and they interviewed several
officers of Culbro and the Company. The Company does not know the status of the
investigation, but it has received no communication from the SEC in several
months.

Pursuant to the terms of a Distribution Agreement between Culbro and CLR,
CLR will acquire Culbro's 50.1% interest in Eli Witt. In November 1996, Eli Witt
filed for protection under Chapter 11 of the Federal Bankruptcy Law. Prior to
February 1993, Eli Witt was a wholly-owned subsidiary of Culbro and filed
consolidated tax returns with Culbro. Culbro, Eli Witt and other parties engaged
in two complex acquisitions and reorganizations in 1993 and 1994, pursuant to
which Culbro received significant distributions from Eli Witt to repay Culbro
debt, including substantial amounts Culbro had previously borrowed from
unaffiliated third parties to fund Eli Witt's business. Culbro subsequently
loaned $5 million to Eli Witt. It is anticipated that these transactions
(including the transfer of funds to Culbro) will be reviewed by Eli Witt
creditors and other parties in interest in connection with the Chapter 11 case.
To date, one creditor has written to the unsecured creditors committee proposing
an inquiry into this matter. The Company believes that any such proceedings are
not likely to have a material adverse effect on the Company's business,
financial condition or results of operations.

EMPLOYEES

The Company employs approximately 5,000 persons, which includes 1,000
seasonal employees. At present, employees at the Company's Kingston, Jamaica
location are represented by two unions, the Trade Union Congress ("TUC"), which
represents production and maintenance workers, and the Bustamante International
Trade Union ("BITU"), which represents supervisors and office and clerical
employees. The Company's contract with TUC expires in March 1999, and its
contract with BITU expires in December 1997. On occasion, work stoppages have
occurred during the negotiation of new union contracts in Jamaica, and there can
be no assurance that such a stoppage will not occur in connection with the
negotiation of any new contract. In addition, employees at the Company's Tampa,
Florida facility are represented by the Cigar Makers' Union Local 533 of the
Retail, Wholesale and Department Store Union AFL-CIO-CLC. No other employees of
the Company are represented by unions. The Company believes that its relations
with its employees are satisfactory. Recently, the increased demand for cigars
has led to increased demand for cigar rollers, and a number of these employees
have taken advantage of employment opportunities with competitors and new market
entrants.

PROPERTIES

LAND HOLDINGS

The Company owns approximately 1,100 acres of land in the Connecticut River
Valley used in its tobacco growing operations. In addition, the Company will
lease for a ten-year period approximately 500 acres of arable land in
Connecticut. CLR at its option may terminate the lease as to 100 acres annually.

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<PAGE>
PRINCIPAL PROPERTIES

As of February 25, 1997, the principal properties owned or leased by the
Company for use in its business included:

<TABLE>
<CAPTION>
OWNED LEASE
OR EXPIRATION APPROXIMATE
LOCATION LEASED DATE NATURE OF OPERATION FLOOR SPACE(1)
- ------------------------------ ---------- ------------- ------------------------------ ----------------------
<S> <C> <C> <C> <C>
New York, New York Owned N/A Executive Offices 210,000(2)
-New York Headquarters
New York, New York Leased 8/31/05 Club Macanudo 5,000
-Cigar Bar
Kingston, Jamaica, W.I. Owned N/A Cigar Manufacturing 119,000
Dothan, Alabama Leased(3 ) 11/1/01 Cigar Manufacturing & 165,000
Warehousing
Hatfield, Massachusetts Owned N/A Tobacco Warehouse 81,000
Santiago, Dominican Leased(4 ) 10/31/01 Tobacco Processing, Cigar 384,243
Republic Manufacturing & Storage
Dominican Republic Leased 9/15/01 Tobacco Growing 80 acres
Bloomfield, Connecticut Leased 8/30/06 General Cigar Co., Inc. 11,137
Executive Offices
Bloomfield, Connecticut Leased 10/17/06 General Cigar Co., Inc. 12,500
Bloomfield Headquarters
Bloomfield, Connecticut Leased 11/30/97 Warehouse 11,644
Ellington, Connecticut Owned N/A Tobacco Growing 202 acres
Granby, Connecticut Owned N/A Tobacco Growing 449.3 acres
Suffield, Connecticut Owned N/A Tobacco Growing 204.8 acres
San Pedro Sula, Owned N/A Manufacturing & 6.9 acres(7)
Honduras Distribution
San Pedro Sula, Leased 3/31/99 Offices 421 square meters
Honduras
Danli, Honduras Owned N/A Manufacturing & 5,500 square meters
Distribution
Tampa, Florida Owned N/A Executive Offices, 57,500
Manufacturing &
Distribution
Upper Saddle River, New Jersey Leased(5 ) 12/31/00 Sales & Distribution 21,500
Chicago, Illinois Leased 9/30/01(6) Club Macanudo 11,000
-Cigar Bar
</TABLE>

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

(1) In square feet, except where indicated.

(2) The Company uses approximately 25,000 square feet. The balance is leased or
available for lease.

(3) Industrial Revenue Bond financing lease. The Company owns a 52,500 square
foot warehouse in Dothan, Alabama that is leased to a third party.

(4) The Company leases property in Santiago, Dominican Republic for its cigar
manufacturing, tobacco processing and tobacco warehousing operations. These
operations are conducted in several different facilities which are subject
to 11 different leases. The leases have expiration dates ranging from 1998
to 2001 and each is subject to a renewal option. The Company subleases
70,000 square feet of these facilities to Shade Leaf Processors.

(5) Subject to a two-year renewal at the Company's option. The Company also has
agreed to lease an additional 6,000 square feet at this facility, on the
same terms as the premises currently leased, from the earlier of July 22,
1997 and departure of the current tenant of such additional space.

(6) Subject to a five-year renewal at the Company's option.

(7) Entire area of site.

42
<PAGE>
In addition, the Company is planning to construct a new warehouse in
Bloomfield, Connecticut.

The Company believes that its existing manufacturing facilities and
distribution centers are adequate for the current level of the Company's
operations. The Company is, however, in the process of expanding its operations
to meet increasing demand. The Company recently completed the expansion of its
manufacturing space at its Dominican Republic facilities, and has begun to
expand its manufacturing space in Jamaica, through a combination of new
construction and reconfiguration of existing space at those facilities to
increase the overall square footage devoted to the manufacturing process. The
Company expects that it will make capital expenditures of approximately $5.0
million in fiscal 1997 in connection with the expansion of these facilities. As
a result of these measures, as well as additional training and the introduction
of double-shifting at certain facilities, the Company believes that its
manufacturing facilities will be capable of meeting expected demand for cigars
by the end of 1997. The Company believes that additional facilities, if
necessary, would be readily available on a timely basis on commercially
reasonable terms. Further, the Company believes that the leased space that
houses its existing manufacturing and distribution facilities is not unique and
could be readily replaced, if necessary, at the end of the terms of its existing
leases on commercially reasonable terms.

The Company believes that its facilities are well maintained and in
substantial compliance with environmental laws and regulations.

43
<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information with respect to the
Company's executive officers, directors and certain other key employees.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --------- --------------------------------------------------------------------------
<S> <C> <C>

Edgar M. Cullman 79 Chairman of the Board and Director

Edgar M. Cullman, Jr. 50 President, Chief Executive Officer and Director

Jay M. Green 49 Executive Vice President, Chief Financial Officer and Treasurer

Austin T. McNamara 42 Executive Vice President and Chief Operating Officer

A. Ross Wollen 53 General Counsel, Senior Vice President and Secretary

Joseph C. Aird 52 Senior Vice President--Controller

Robert Loftus 46 Vice President and Assistant Controller

Alfons Mayer 70 Senior Vice President of Tobacco of General Cigar Co., Inc.

Benjamin F. Menendez 60 Senior Vice President of Premium Special Projects of General Cigar Co.,
Inc.

Angel Daniel Nunez 45 Senior Vice President of Tobacco Growing and Processing of General Cigar
Co., Inc.

John M. Rano 50 Senior Vice President of Marketing and Product Development of General
Cigar Co., Inc.

Frank Fina, Jr. 54 Senior Vice President of New Business Development of General Cigar Co.,
Inc.

Raymond Hansen 47 Senior Vice President of Operations of General Cigar Co., Inc.

W. Brent Currier 36 Vice President of Sales and Field Marketing of General Cigar Co., Inc.

Bruce A. Barnet 51 Director

John L. Bernbach 52 Director

John L. Ernst 56 Director

Thomas C. Israel 52 Director

Dan W. Lufkin 65 Director

Graham V. Sherren 59 Director

Peter J. Solomon 58 Director

Francis T. Vincent, Jr. 58 Director
</TABLE>

EDGAR M. CULLMAN has been the Chairman of the Board of the Company since
December 1996. From 1962 to 1996 he served as Chief Executive Officer of Culbro.
Mr. Cullman has served as a Director of Culbro since 1961 and has been Chairman
of Culbro since 1975. He also is a Director of Centaur Communications Limited,
Bloomingdale Properties, Inc. and Eli Witt. Eli Witt filed for relief from its
creditors under Chapter 11 of the Federal Bankruptcy Code in November 1996.
Edgar M. Cullman is the father of Edgar M. Cullman, Jr. and the uncle of John L.
Ernst.

EDGAR M. CULLMAN, JR. is the President and Chief Executive Officer of both
Culbro and the Company, and he also is a Director of both Culbro and the
Company. Mr. Cullman was elected President and Chief Executive Officer of the
Company in December 1996. He was elected Chief Executive Officer of Culbro in

44
<PAGE>
1996 after serving as the Chief Operating Officer of Culbro for 12 years. He has
been President of Culbro since 1984 and has been a Director of Culbro since
1982. In 1992, 1993 and 1995 he was President of Culbro Land Resources, Inc. Mr.
Cullman is also a Director of First Financial Caribbean Corporation,
Bloomingdale Properties, Inc. and Eli Witt. Eli Witt filed for relief from its
creditors under Chapter 11 of the Federal Bankruptcy Code in November 1996.

JAY M. GREEN is the Executive Vice President, Chief Financial Officer and
Treasurer of both the Company and Culbro. He was appointed to this position with
the Company in December 1996 and has served in the same capacity with Culbro
since 1988. Mr. Green is a director of Eli Witt. Eli Witt filed for relief from
its creditors under Chapter 11 of the Federal Bankruptcy Code in November 1996.

AUSTIN T. MCNAMARA has been the Executive Vice President and Chief Operating
Officer of the Company since December 1996 and has been the President of General
Cigar Co., Inc. since 1994. He was the Senior Vice President of Sales and
Marketing of General Cigar Co., Inc. from 1993 to 1994. Prior to joining General
Cigar Co., Inc. in 1993, he was the Group Vice President, General Manager in the
Process Foods Division of Chiquita Brands International and held several Brand
Management positions at Procter & Gamble.

A. ROSS WOLLEN is the General Counsel, the Senior Vice President and
Secretary of both the Company and Culbro. He was elected in this capacity at the
Company in December 1996 and has served Culbro as General Counsel since 1980, as
Senior Vice President since 1983 and as Secretary since 1987.

JOSEPH C. AIRD is the Senior Vice President--Controller of both the Company
and Culbro. He was named to that position at the Company in December 1996, and
he assumed that office with Culbro in 1995. Mr. Aird has served as a Vice
President of Culbro since 1987. He also is a director of Eli Witt. Eli Witt
filed for relief from its creditors under Chapter 11 of the Federal Bankruptcy
Code in November 1996.

ROBERT LOFTUS has been the Vice President and Assistant Controller of the
Company since December 1996. He has been the Vice President, Finance of General
Cigar Co., Inc. since 1993. From 1988 until 1993 Mr. Loftus served as the
Controller of General Cigar Co., Inc.

ALFONS MAYER is the Senior Vice President of Tobacco of General Cigar Co.,
Inc. Throughout his 44 year tenure with General Cigar Co., Inc., he has held
positions of increasing responsibility, mostly related to the world-wide
purchasing and processing of tobacco for which he has received industry-wide
recognition, including being named Tobacco Personality of the year by the
Tobacco Journal International in 1992. Prior to his employment with General
Cigar Co., Inc., he participated in a family-owned tobacco leaf processing
company in Argentina (1945-1952).

BENJAMIN F. MENENDEZ is the Senior Vice President of Premium Special
Projects at General Cigar Co., Inc. He has held his office at General Cigar Co.,
Inc. since July 1995. Previously Mr. Menendez had served as Vice President of
Caribbean Group Operations division of General Cigar Co., Inc. from 1994 to 1995
and as Vice President of Premium Cigar Manufacturing from 1985 to 1994. Mr.
Menendez is a member of the well-known cigar family of Menendez and Garcia, the
producers of Montecristo and H. Upmann cigars in Cuba prior to Castro's
revolution. After leaving Cuba he lived in the Canary Islands and Brazil and
continued to manufacture cigars.

ANGEL DANIEL NUNEZ was appointed Senior Vice President of Tobacco Growing
and Processing of General Cigar Co., Inc. in 1992. Mr. Nunez began his tenure
with General Cigar Co., Inc. in 1980 as Manager of Culbro Vega Leaf Tobacco in
the Dominican Republic. In 1986, he was transferred to General Cigar Dominicana
(a division of the Company) as Assistant to the General Manager, assumed the
title of Assistant General Manager in 1988, and was promoted to General Manager
in 1989. He was promoted in 1990 to Vice President of Operations for the
Dominican Republic facility.

JOHN M. RANO is the Senior Vice President of Marketing and Product
Development for General Cigar Co., Inc. He was appointed to his post at General
Cigar Co., Inc. in November 1994. Previously, Mr. Rano

45
<PAGE>
had served as Vice President of Marketing General Cigar Co., Inc. from 1992 to
1994 and as Sales Development Manager from 1984 to 1992.

FRANK FINA, JR. is the Senior Vice President of New Business Development for
General Cigar Co., Inc. He has served in his capacity at General Cigar Co., Inc.
since January 1994. Mr. Fina previously served as Vice President of Domestic
Sales at General Cigar Co., Inc. from 1982 to 1994. He has been with the Company
since 1963.

RAYMOND HANSEN was appointed Senior Vice President of Operations of General
Cigar Co., Inc. in September of 1996. Mr. Hansen is responsible for General
Cigar Co., Inc.'s Operations Department, including cigar manufacturing
operations in Alabama, Jamaica and the Dominican Republic, as well as purchasing
and facilities engineering. Prior to joining General Cigar Co., Inc., Mr. Hansen
was the Senior Vice President of Corporate Operations at ADVO, Inc., where he
had responsibility for nationwide operations. In addition, Mr. Hansen worked as
a senior executive for Mission Foods, Van DeKamp's Holland Dutch Bakers, Lamour
Corporation, Max Factor & Company and Clairol, Inc.

W. BRENT CURRIER is the Vice President of Sales and Field Marketing of
General Cigar Co., Inc. He has been in his current position at General Cigar
Co., Inc. since June 1994. Prior to joining General Cigar Co., Inc., Mr. Currier
served as Vice President--Eastern Zone for E.J. Brach Corporation from 1988 to
1994, where he managed direct and broker sales forces in 17 states.

BRUCE A. BARNET is a Director of both the Company and Culbro. He has been a
Director of the Company since December 1996 and a Director of Culbro since 1990.
He is the President and Chief Executive Officer of Cahners Publishing Company, a
magazine publishing company. He was the President and Chief Executive Officer of
Cowles Enthusiast Media from March 1993 until March 1996, and was a private
investor from 1991 to 1992. Mr. Barnet is also a director of Reed Elsevier,
Inc., Batteries, Batteries Inc., Mainspring Communications and the American
Business Press.

JOHN L. BERNBACH is a Director of both the Company and Culbro. He has been a
Director of the Company since December 1996 and a Director of Culbro since 1988.
He has been the Chairman and Chief Executive Officer of The Bernbach Group,
Inc., a consulting company, since 1994. Mr. Bernbach was the Chairman and Chief
Executive Officer of North American Television, Inc. (television production and
distribution) from August 1995 to August 1996 and still serves as Non-executive
Chairman and Director. Mr. Bernbach was Vice-Chairman of DDB Needham Worldwide,
Inc., an advertising agency, from October 1993 to June 1994 and also was its
President and a director from 1986 to 1993. He is Chairman of the Board of
Avenue China, Inc. and is a director of Northbridge Programming, Inc. and an
Advisor to the Board of Wemco, Inc.

JOHN L. ERNST is a Director of both the Company and Culbro. He has been a
Director of the Company since December 1996 and a Director of Culbro since 1983.
He is the Chairman of the Board and President of Bloomingdale Properties, Inc.,
an investment and real estate company. Mr. Ernst also is a director of First
Financial Caribbean Corporation.

THOMAS C. ISRAEL is a Director of both the Company and Culbro. He has been a
Director of the Company since December 1996 and a Director of Culbro since 1989.
Mr. Israel is a director and Chairman of A.C. Israel Enterprises, Inc., an
investment company, as well as a director of Glenayre Technologies, Inc.

DAN W. LUFKIN is a Director of both the Company and Culbro. He has been a
Director of the Company since December 1996 and a Director of Culbro since 1976.
Mr. Lufkin also is a private investor and a director of Syratech, Inc.

GRAHAM V. SHERREN is a Director of both the Company and Culbro. He has been
a Director of the Company since December 1996 and a Director of Culbro since
1987. Mr. Sherren is Chairman and Chief Executive Officer of Centaur
Communications Limited, as well as a director of each of Hundred Acre Securities
Ltd., InType Ltd., Gieves Group Ltd. and Stace-Barr Holdings Ltd.

46
<PAGE>
PETER J. SOLOMON is a Director of both the Company and Culbro. He has been a
Director of the Company since December 1996 and a Director of Culbro since 1980.
Mr. Solomon also is Chairman of Peter J. Solomon Company Limited and Peter J.
Solomon Securities Company Limited. In addition, he is a director of Centennial
Cellular Corporation, Century Communications Corporation, Charrette Corporation,
Monro Muffler Brake, Inc., Office Depot, Inc. and Phillips-Van Heusen
Corporation.

FRANCIS T. VINCENT, JR. is a Director of both the Company and Culbro. He has
been a Director of the Company since December 1996 and a Director of Culbro
since 1992. Mr. Vincent currently runs Vincent Enterprises and is a private
investor. He was senior advisor to Peter J. Solomon Company Limited from 1993 to
1994 and the Commissioner of Major League Baseball from 1989 to 1992. Mr.
Vincent is a director of Horizon Group, Inc., Oakwood Homes Corp. and Time
Warner, Inc.

EXECUTIVE COMPENSATION

The Company was incorporated in December 1996. Accordingly, no compensation
was paid to any of its executive officers for fiscal 1996 or prior years. Each
of the named executive officers has, however, been employed by an affiliate of
the Company. The following table sets forth the annual and long-term
compensation for the Company's Chief Executive Officer and the four highest-paid
executive officers (the "Named Executive Officers"), as well as the total
compensation paid to each individual during the last three calendar years, in
connection with such employment.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------------- ----------------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING
NAME AND PRINCIPAL POSITION(1) YEAR SALARY BONUS COMPENSATION(2) AWARDS OPTIONS(5)
- ------------------------------------------- --------- --------- --------- ---------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Edgar M. Cullman........................... 1996 $ 400,000 $ -- $ 17,256 -- --
Chairman of the Board 1995 375,000 -- 13,689 -- --
1994 360,000 -- 23,628 -- --
Edgar M. Cullman, Jr....................... 1996 400,000 -- 30,012 -- 100,000
President and 1995 367,000 1,164,400(3) 29,871 -- --
Chief Executive Officer 1994 352,000 -- 33,716 -- --
Jay M. Green............................... 1996 355,000(4) 65,000 1,128,068 -- --
Executive Vice President, 1995 355,000 666,607(3) 24,912 -- --
Chief Financial Officer and Treasurer 1994 340,000 -- 26,714 -- 125,000
Austin T. McNamara......................... 1996 250,000 148,025 319,915 -- 10,000
Executive Vice President 1995 200,000 375,629(3) 15,712 -- 15,000
and Chief Operating Officer 1994 190,000 158,603 15,510 -- 12,400
A. Ross Wollen............................. 1996 225,000 55,000 25,589 -- 5,000
Senior Vice President, 1995 205,000 377,501(3) 109,879 -- 15,000
General Counsel and Secretary 1994 176,925 -- 30,182 -- 11,500
</TABLE>

- ------------------------------
(1) Each of the executive officers identified was employed by Culbro during each
of the last three years, except for Austin T. McNamara, who was employed by
General Cigar Co., Inc. during such period. Until April 1996, Edgar M.
Cullman was the Chief Executive Officer of Culbro. Amounts shown exclude
$778,778, $621,960 and $655,872 to be paid over three years beginning in
1997 to Messrs. Cullman, Jr., Green and Wollen, respectively, as a result of
the termination and payout of benefits under Culbro's 1995-1997 Long Term
Performance Plan. See "Certain Employee Benefit Matters--Culbro Long Term
Performance Plan."

(2) Amounts shown include matching contributions made by Culbro under its
Savings Plan and other miscellaneous cash benefits, but do not include
funding for or receipt of retirement plan benefits. No executive officer who
would otherwise have been includable in such table resigned or terminated
employment during 1996. The amounts shown in 1996 for Messrs. Green and
McNamara include value realized upon exercise of options of $1,102,163 and
$303,169, respectively.

(3) Annual and long-term bonuses were paid in 1996 with respect to performance
in 1995 and the 1993-95 cycle, respectively.

(4) All but $46,664 of such compensation was deferred pursuant to the Company's
Deferred Incentive Compensation Plan.

(5) Numbers shown are in shares of Culbro common stock. Upon consummation of the
Merger, each option will be exercisable for such number of shares of Class A
Common Stock as is equal to 4.44557 multiplied by the number of Culbro
shares shown.

47
<PAGE>
COMPENSATION OF DIRECTORS

Directors who do not receive compensation as officers or employees of the
Company or any of its affiliates will be paid an annual retainer fee of $20,000
and a fee of $900 for each meeting of the Board of Directors or any committee
thereof they attend, plus reasonable out-of-pocket expenses.

CERTAIN EMPLOYEE BENEFIT MATTERS

1997 STOCK OPTION PLAN

Prior to the consummation of the Offering, the Company adopted a new Stock
Option Plan (the "General Cigar Holdings 1997 Stock Option Plan." A total of
3,300,000 shares of Class A Common Stock will be available for issuance under
the General Cigar Holdings 1997 Stock Option Plan and existing Culbro Stock
Option Plans (which will be assumed by the Company following the Merger as
described below). The General Cigar Holdings 1997 Stock Option Plan, together
with the assumed Culbro Stock Option Plans, are referred to as the "1997 Stock
Option Plan." Options granted under the General Cigar Holdings 1997 Stock Option
Plan will be incentive stock options or nonqualified options. The General Cigar
Holdings 1997 Stock Option Plan contains a limitation on the dollar amount of
incentive stock options which may be granted to any employee and restrictions
pertaining to any grant to an employee who beneficially owns 10% or more of the
outstanding Common Stock. Prior to the Offering the Company plans to grant
options with respect to substantially all shares of Class A Common Stock
available for issuance pursuant to the General Cigar Holdings 1997 Stock Option
Plan. Options granted under the General Cigar Holdings 1997 Stock Option Plan
prior to the Offering will become exercisable with respect to one-third of the
underlying shares on each of the third, fourth and fifth anniversaries after the
date of the grant and will terminate not more than ten years following the date
of the grant. The exercise price of such options will be the price to the public
of the shares of Class A Common Stock offered hereby. Pursuant to the General
Cigar Holdings 1997 Stock Option Plan, options to purchase a number of shares of
Class A Common Stock (based on a per share exercise price equal to the price per
share to the public in the Offering) at an aggregate exercise price of $1.0
million will be granted to certain persons employed by Villazon pursuant to the
Villazon Acquisition. See "--Employment and Consulting Agreements of Frank
Llaneza, Daniel Blumenthal and Constantino Gonzalez." In addition, pursuant to
the General Cigar Holdings 1997 Stock Option Plan, an option to purchase 100,000
shares of Class A Common Stock (based on a per share exercise price equal to the
price per share to the public in the Offering) will be granted to Austin T.
McNamara.

CULBRO EMPLOYEE BENEFIT PLANS TO BE ASSUMED BY THE COMPANY

The following is a summary of certain of Culbro's employee benefit plans and
awards pursuant thereto that the Company has assumed or will assume, as of the
date of the Asset Transfers, the date of Distribution or the date of the Merger,
as the case may be, as described below. Assumption of the Culbro plans will be
effected pursuant to the Benefits and Employment Matters Allocation Agreement to
be entered into prior to the Distribution.

CULBRO STOCK OPTION PLANS

Culbro maintains three employee stock option plans (collectively, the
"Culbro Employee Stock Option Plans") under which unexercised options currently
are outstanding: (i) the Culbro Corporation 1991 Employees Incentive Stock
Option Plan (the "1991 Plan"); (ii) the Culbro Corporation 1992 Stock Plan (the
"1992 Plan"); and (iii) the Culbro Corporation 1996 Stock Plan (the "1996
Plan"). As of December 31, 1996 options for 46,114 shares, 196,400 shares, and
100,000 shares of Culbro common stock were outstanding under the 1991 Plan, the
1992 Plan and the 1996 Plan, respectively. The Culbro Employee Stock Option
Plans currently are administered by the Compensation Committee of the Board of
Directors of Culbro (the "Culbro Compensation Committee"). Options granted under
the Culbro Employee Stock Option Plans are intended to be incentive stock
options or nonqualified options. Options

48
<PAGE>
granted under the 1991 Plan and the 1992 Plan are not exercisable until three
years after the date of grant and terminate eight years from the date of the
grant. Options granted under the 1996 Plan are exercisable in equal installments
over five years beginning on the third anniversary of the date of grant at
increasing exercise prices. See "--Culbro Stock Option Information."

Culbro maintains two stock option plans for its non-employee Directors, the
1993 Stock Option Plan for Non-Employee Directors (the "1993 Director Plan") and
the 1996 Stock Option Plan for Non-Employee Directors (the "1996 Director
Plan"). Under the 1993 Director Plan, options to purchase 2,000 shares of Culbro
common stock were granted to each non-employee Director of Culbro in each of
1993, 1994 and 1995. In total, options exercisable with respect to 42,000 shares
of Culbro common stock were granted under the 1993 Director Plan, of which
options exercisable with respect to 36,000 shares were outstanding as of
December 31, 1996. Options granted under the 1993 Director Plan have exercise
prices between $14.38 and $19.50 per share. No further options will be granted
pursuant to the 1993 Director Plan. Under the 1996 Director Plan, options
exercisable for 1,000 shares of Culbro common stock will be granted annually to
non-employee Directors of Culbro. There are a total of 25,000 shares of Culbro
common stock reserved for issuance under the 1996 Director Plan, of which
options exercisable for 7,000 shares were granted in April 1996 at an exercise
price of $63.81.

Pursuant to the Benefits and Employment Matters Allocation Agreement, as of
the date of the Distribution, each current holder of an option to acquire shares
of Culbro common stock pursuant to the 1991 Plan, the 1992 Plan, the 1996 Plan,
the 1993 Director Plan or the 1996 Director Plan (together, the "Culbro Stock
Option Plans") will receive in exchange therefor two separately exercisable
options, one option to purchase shares of Culbro common stock (a "Culbro
Option") and one option to purchase shares of CLR common stock (a "CLR Option"),
each containing terms substantially equivalent in the aggregate to those of such
holder's pre-Distribution option. With respect to each holder of a nonqualified
option, the combined aggregate exercise price of the Culbro Option and the CLR
Option shall be equal to the aggregate exercise price of the pre-Distribution
option. With respect to each holder of an incentive stock option, the number of
shares with respect to which each Culbro Option and each CLR Option are
exercisable, and the exercise price for each Culbro Option and each CLR Option,
will be set so as to preserve the Exercise Ratio and the Aggregate Spread (both
as defined below) attributed to options currently outstanding, such
determination to be based on the respective trading prices of Culbro common
stock and CLR common stock following the Distribution. The "Exercise Ratio" of
the Culbro Option and the CLR Option, respectively, shall be set such that on a
share by share basis, the ratio of the exercise price of the Culbro Option and
the CLR Option to the value of Culbro common stock or CLR common stock,
respectively, shall be equal to the ratio of the pre-Distribution exercise price
to the pre-Distribution value of stock subject to the option. The "Aggregate
Spread" of an option is an amount equal to the difference between the exercise
price of an option and the price of a share of Culbro common stock immediately
prior to the Distribution multiplied by the number of shares underyling such
option.

Upon consummation of the Merger, each Culbro Option will be converted into
an option to purchase Class A Common Stock (a "Company Option"). The number of
shares with respect to which the Company Option is exercisable and the exercise
price for the Company Option will be subject to adjustment based on the ratio of
the number of shares of Class A Common Stock issuable in the Merger with respect
to each share of Culbro common stock. The Culbro Options will not be exercisable
for Class A Common Stock until the Merger has been consummated. In order to
assure that the exercise of Culbro Options between the consummation of the
Offering and the consummation of the Merger does not result in disproportionate
dilution to the Culbro shareholders, Culbro will pay to the Company the amount
of the exercise price received upon the exercise of such Culbro Option and in
exchange therefor the Company will provide to Culbro a number of shares of Class
A Common Stock equal to the number of shares of Culbro common stock issued upon
exercise of such Culbro Option multiplied by 4.44557.

49
<PAGE>
CULBRO STOCK OPTION INFORMATION

The following table sets forth the number of stock options granted to each
of the Named Executive Officers during fiscal 1996.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
INDIVIDUAL GRANTS AT ASSUMED ANNUAL
------------------------------------ RATES OF STOCK
NUMBER OF PERCENTAGE OF TOTAL PRICE APPRECIATION
SECURITIES OPTIONS FOR TEN YEAR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION --------------------
NAME GRANTED(#)(1) 1996 FISCAL YEAR ($/SHARE) DATE 5% 10%
- ------------------------------------------ ------------- --------------------- ------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>

Edgar M. Cullman, Jr...................... 100,000 74.4% (2) 1/16/04 $2,633,368 $8,422,455

A. Ross Wollen............................ 1,500 1.1% $ 59.38 2/21/04 $ 56,016 $ 141,954

A. Ross Wollen............................ 3,500 2.6% $ 46.75 1/16/04 $ 102,903 $ 260,776

Austin T. McNamara........................ 10,000 7.4% $ 59.38 2/21/04 $ 373,438 $ 946,364
</TABLE>

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

(1) Upon consummation of the Distribution, each holder of an option to acquire
shares of Culbro common stock as set forth herein will receive in exchange
therefor two separately exercisable options: a Culbro Option and a CLR
Option. See "--Culbro Stock Option Plans."

(2) 40,000 of such options are exercisable at $66.00 per share, 40,000 of such
options are exercisable at $72.60 per share and 20,000 of such options are
exercisable at $80.00 per share.

Edgar M. Cullman did not hold any options at 1996 fiscal year end. The
following table presents the value of options exercised in fiscal 1996 and the
value of unexercised options held by the other Named Executive Officers at
November 30, 1996.

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-
UNDERLYING OPTIONS MONEY OPTIONS AT
SHARES VALUE HELD AT FISCAL YEAR END(#) FISCAL YEAR END (1)
ACQUIRED ON REALIZED -------------------------- --------------------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------- ------------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>

Edgar M. Cullman, Jr. .......... -- -- -- 100,000 $ 0 $ 0

Jay M. Green.................... 24,300 $1,102,163 85,200 75,000 $3,913,825 $ 3,975,000

A. Ross Wollen.................. 12,697 $ 676,115 19,003 31,500 $ 774,249 $ 1,184,375

Austin T. McNamara.............. 6,900 $ 303,169 3,000 37,400 $ 120,750 $ 1,185,850
</TABLE>

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

(1) The amounts presented in this column have been calculated based upon the
difference between the fair market value of $57.00 of Culbro's common stock
on November 30, 1996 and the exercise price of each stock option. See
"--Culbro Stock Option Plans."

CULBRO ANNUAL INCENTIVE COMPENSATION PLAN

The Culbro Compensation Committee meets during the first quarter of each
year to assess the performance during the preceding fiscal year of the officers
of Culbro 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 1996 by the Culbro Board of
Directors, such annual incentive compensation was based upon predetermined
percentages of each recipient's annual salary and depended upon the achievement
of specified financial and strategic goals. Incentive compensation is payable in
cash subject to deferral under Culbro's Deferred Incentive Compensation Plan.
Culbro's 1996 annual plan resulted in the payments to Culbro executives set
forth under "Management--Executive Compensation." Culbro employees who do not
participate in the incentive compensation plan may be eligible for annual bonus
payments depending upon operating unit results. Following the consummation of
the Asset Transfer, the Company intends to assume and continue the Annual
Incentive Compensation Plan, subject to any adjustments necessary to reflect the
Distribution and the Merger. In addition, it is currently contemplated that
Company employees who do not participate in the incentive compensation plan may
be eligible to receive annual bonus payments depending on Company results.

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<PAGE>
CULBRO LONG TERM PERFORMANCE PLAN

In 1988, the Culbro Compensation Committee and the Culbro Board of Directors
approved the Long Term Performance Plan (the "Performance Plan") which is
intended to provide additional cash compensation to certain officers of Culbro
and senior officers of its subsidiaries selected by the Culbro Compensation
Committee. Payments under the Performance Plan are based on the financial
performance of the subsidiaries and Culbro over three-year performance cycles,
which began in 1989 and every other year thereafter. The third three-year
performance cycle which began with fiscal year 1993 resulted in the payments set
forth under "Management--Executive Compensation." The Performance Plan was
amended for the three-year performance period 1995-1997. Certain senior officers
of General Cigar Co., Inc. and certain other subsidiaries are eligible to
receive rewards based upon the return on net assets for the applicable business
unit.

In late 1996, the Culbro Board of Directors, on the recommendation of the
Compensation Committee, approved the full vesting and termination of the
1995-1997 Performance Plan as it pertains to Culbro corporate executives. These
awards total approximately $3.4 million and will be paid in installments from
1997 to 1999. See "Management--Executive Compensation."

Pursuant to the Asset Transfers, the Company assumed the Performance Plan
with respect to participants employed by General Cigar Co., Inc., subject to any
adjustments necessary to reflect the Distribution and the Merger. Employees of
subsidiaries other than General Cigar Co., Inc. are eligible to receive the
portion of their award, if any, earned through the date of the Asset Transfers,
and all such employees ceased participating in the Performance Plan following
the date of the Asset Transfers. Determination and payment of any award under
the Performance Plan with respect to participants other than participants
employed by General Cigar Co., Inc. will be made by the subsidiary for which the
employee was employed.

CULBRO DEFERRED INCENTIVE COMPENSATION PLAN

In 1982, the Culbro Board of Directors adopted the Deferred Incentive
Compensation Plan to be administered by the Culbro Compensation 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 received.
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 Culbro until such amounts actually
are paid. Pursuant to the Asset Transfers, the Company has assumed and will
continue the Deferred Incentive Compensation Plan, subject to any adjustments
necessary to reflect the Distribution and the Merger. Upon the assumption of the
Deferred Incentive Compensation Plan by the Company, participants will become
general creditors of the Company until deferred amounts credited to their
accounts are paid.

CULBRO SAVINGS PLAN

The Culbro Board of Directors adopted a Savings Plan in 1982 (the "Savings
Plan"). The Savings Plan covers salaried and hourly employees of Culbro and its
participating subsidiaries who are employed in the U.S., are over age 21 and
have six months of service. In 1996, a participating employee could have (i)
saved up to 5% of annual base salary through payroll deductions, with Culbro
contributing $0.40 on each dollar contributed and (ii) saved an additional 10%
of annual base salary without receiving any matching contributions. Highly
compensated employees are limited to an additional 3% of annual base salary
without receiving any matching contributions. Contributions made in 1996 through
payroll deductions not in excess of $9,500 per employee may have been
accumulated as pre-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. Pursuant to the
Asset Transfers, CLR is responsible for any amounts under the Savings Plan due
to its employees as of the date of the Asset Transfers.

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<PAGE>
During fiscal 1996, Culbro's matching contributions under the Savings Plan
for the accounts of the Named Executive Officers are included in the Summary
Compensation Table set forth under "Management--Executive Compensation."

Effective as of the date of the Distribution, Savings Plan participants
employed by CLR will cease to be eligible to participate in the Savings Plan.
Following the Distribution, Culbro will continue to maintain the Savings Plan.
Upon the consummation of the Merger, the Company will assume and continue to
maintain the Savings Plan.

CULBRO RETIREMENT PLAN

Retirement benefits are payable under Culbro's Employees Retirement Plan
(the "Retirement Plan") for officers and other employees of Culbro 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 1996, 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. The estimated annual benefits payable as a
life annuity upon retirement at normal retirement age, which assumes service
will continue until age 65 at 1996 base salaries, for Messrs. Cullman, Jr.,
Green, Wollen and McNamara are $101,991, $56,641, $65,324 and $59,044,
respectively. The retirement benefit of $165,544, subject to certain inflation
adjustments, for Edgar M. Cullman reflects the fact that he deferred receipt
since age 65 from 1983 to 1989.

Effective as of the Distribution, the benefits of all Retirement Plan
participants employed by CLR following the Distribution will be frozen, and such
participants will cease to accrue further benefits under the Retirement Plan.
All such participants will be fully vested in any benefits accrued through the
date of the Distribution. Following the Distribution, Culbro will continue to
maintain the Retirement Plan. Upon the consummation of the Merger, the Company
will assume and continue to maintain the Retirement Plan, and participants,
other than those employed by CLR following the Distribution, will continue to
accrue benefits in the Retirement Plan in accordance with its terms.

CULBRO INSURANCE AND HEALTH PROGRAMS

Culbro 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 Culbro provides life, hospitalization
and medical insurance for certain of its retired employees. Culbro's aggregate
contributions for such employee welfare benefit plans in fiscal 1996 amounted to
approximately $3.3 million. Culbro plans to maintain such welfare benefit plans
and insurance arrangements for all eligible pre-Asset Transfers employees, and
that upon the consummation of the Merger, the Company will assume and continue
such welfare benefit plans and insurance arrangements. Any such plan or
arrangement benefiting persons employed by CLR following the Asset Transfer Date
will be subject to certain fee sharing arrangements with CLR.

In 1976, Culbro 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, 1996 was approximately $2.8
million. The amounts paid by Culbro in fiscal 1996 as premiums totaled
approximately $80,000, which was paid in part from a loan against the cash value
of said insurance and the balance in cash.

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<PAGE>
EMPLOYMENT AGREEMENT OF JAY M. GREEN

In 1994, Culbro entered into an employment agreement with Jay M. Green,
Culbro's Chief Financial Officer (the "Employment Agreement"). The Employment
Agreement provides that Mr. Green be employed as Executive Vice
President--Finance and Administration and Treasurer for a period of five years
from April 1994 to April 1999 at a base salary of $340,000 (subject to increase
annually as determined by the Culbro Compensation Committee). If Mr. Green is
terminated by Culbro without cause, he will be entitled to receive a cash
severance payment of 150% of his annual salary. The Employment Agreement also
provides for a grant of an option (the "Option") to purchase 125,000 shares of
Culbro's common stock at an exercise price of $4 per share.

The Option vests and becomes exercisable with respect to 20% of the
underlying common stock per year, on each of the five anniversaries of the date
of the grant. The Option expires (a) on the tenth anniversary date of the date
it becomes exercisable, or (b) after the date Mr. Green ceases to be an employee
of Culbro or its subsidiaries, (i) within one year following Mr. Green's death
or disability, (ii) within three months following a voluntary termination and
(iii) immediately upon a termination for cause. The Option shall become
immediately exercisable with respect to all shares covered thereby in the event
of a termination without cause after the first 30 months of the Employment
Agreement; provided that the Option shall expire within three months of such
termination. Additionally, in the event that the Cullman & Ernst Group owns less
than 40% of Culbro's common stock (or the Common Stock, following the assumption
of the Employment Agreement by the Company), the Option shall become exercisable
in its entirety. Mr. Green may not be permitted to exercise such number of
options in any year which would result in his total compensation exceeding the
$1.0 million income tax deduction cap of Section 162(m), unless such exercises
are approved by the Section 162(m) Subcommittee of the Board of Directors of
Culbro Corporation, and the Culbro Compensation Committee and would not require
further approval of the shareholders of Culbro. Such limitation may not apply in
the final year of the Option.

The Company assumed Culbro's obligations under the Employment Agreement
pursuant to the Asset Transfers. Upon consummation of the Distribution, Mr.
Green will receive, in exchange for his Option, two separately exercisable
options: one Culbro Option and one CLR Option. Upon consummation of the Merger,
Mr. Green's Culbro Option will be converted into a Company Option. The number of
shares with respect to which the Company Option is exercisable, and the exercise
price for the Company Option, will be subject to adjustment based on the ratio
of Class A Common Stock to Culbro common stock in the Merger. See "--Culbro
Stock Option Plans."

EMPLOYMENT AND CONSULTING AGREEMENTS OF FRANK LLANEZA, DANIEL BLUMENTHAL AND
CONSTANTINO GONZALEZ

Simultaneously with the consummation of the Villazon Acquisition, General
Cigar Co., Inc. entered into employment and consulting agreements (the
"Consulting Agreements") with Frank Llaneza, Daniel Blumenthal and Constantino
Gonzalez, officers of Villazon (the "Villazon Officers"). The Consulting
Agreements provide that the Villazon Officers will act as principal executives
of General Cigar Co., Inc. and will continue to discharge the duties
historically associated with their positions at Villazon. The Villazon Officers
will serve in such positions until January 31, 2000. Each of Mr. Llaneza's and
Mr. Blumenthal's salary will be $250,000 per year, while Mr. Gonzalez's salary
will be $200,000 per year. No other payments will be made under the Consulting
Agreements. The Villazon Officers will serve as consultants with respect to all
aspects of the business, including product development and customer and supplier
relations, from February 1, 2000 until January 31, 2001. Thereafter, the
Villazon Officers will advise General Cigar Co., Inc. from time to time, until
January 31, 2002.

Upon consummation of the Offering, the Villazon Officers will be entitled to
receive options pursuant to the General Cigar Holdings 1997 Stock Option Plan.
Mr. Llaneza and Mr. Blumenthal each will be entitled to receive options for a
number of shares of Class A Common Stock with an exercise price equal to
$360,000, while Mr. Gonzalez shall be entitled to receive options for a number
of shares of Class A Common Stock with an exercise price equal to $280,000, in
each case at an exercise price per share equal to the price to the public in the
Offering. See "--1997 Stock Option Plan."

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<PAGE>
THE ASSET TRANSFERS, THE DISTRIBUTION AND THE MERGER

GENERAL

The Company, Culbro and CLR are parties to a Distribution Agreement (the
"Distribution Agreement") and other related agreements. The Distribution
Agreement provides for (i) consummation of the Asset Transfers, (ii) the
Distribution of CLR common stock to the existing shareholders of Culbro
following consummation of the Offering and (iii) the merger of Culbro with and
into the Company following the Distribution.

THE ASSET TRANSFERS

Pursuant to the Distribution Agreement, Culbro transferred to the Company
all of the common stock of General Cigar Co., Inc., Club Macanudo, Inc., Club
Macanudo (Chicago), Inc. and all of Culbro's interest in the building located at
387 Park Avenue South, New York, New York. In addition, Culbro transferred to
General Cigar Co., Inc. approximately 1,100 acres of its real estate holdings in
the Connecticut River Valley used to cultivate cigar wrapper tobacco. In
connection with these transfers, the Company received all licenses, permits,
accounts receivable, prepaid expenses, reserves and other current assets related
to the cigar business. The Distribution Agreement also provides for the transfer
to CLR of substantially all the non-tobacco related assets of Culbro, including:
(i) all of the common stock of Imperial Nurseries, Inc., a wholly-owned
subsidiary of Culbro; (ii) approximately 5,500 acres of land in Connecticut and
Florida, as well as several nursery wholesale and retail centers; (iii) Culbro's
interests in Eli Witt and assets previously owned by Eli Witt; (iv) its 25%
interest in Centaur; and (v) all licenses, permits, accounts receivable, prepaid
expenses, reserves and other current assets (other than cash) related to the
real estate and nursery business. Pursuant to the Distribution Agreement, CLR
will be allocated $7.0 million in cash.

The Distribution Agreement also provides for the assumption by the Company
of all liabilities relating to the cigar business and the assets transferred to
the Company and General Cigar Co., Inc. These liabilities include all of
Culbro's retained indebtedness, including bank and corporate debt, all expenses
related to the Asset Transfers, the Offering, the Distribution and the Merger
and certain other contingent liabilities, other than those liabilities related
to the assets transferred to CLR. Similarly, CLR assumed all liabilities
relating to the real estate business and the nursery business and relating to
the assets transferred to CLR. These liabilities include all of CLR's assumed
and retained indebtedness, including bank and corporate debt, other liabilities
relating to the assets transferred to CLR and certain additional tax
liabilities.

As a result of the Asset Transfers, Culbro is a holding company,
substantially all of the assets of which are the stock of the Company and CLR.
Pursuant to the terms of the Distribution Agreement, from and after the Offering
Date, each of the Company and CLR will operate independently of the other.

The Distribution Agreement also contains general indemnities between Culbro
(or the Company, following the Merger) and CLR and the procedures by which
indemnification may be claimed. The Distribution Agreement provides for, on the
one hand, Culbro and the Company to indemnify CLR for any losses, liabilities or
damages (including attorneys fees) in connection with any claim or action in
respect of any of the liabilities to be assumed or retained by Culbro and the
Company and, on the other hand, CLR to similarly indemnify Culbro and the
Company in connection with any claim or action in respect of any liabilities
retained or assumed by CLR. In each instance, indemnities are limited by
insurance proceeds recovered by the indemnified party that reduce the amount of
the loss, liability or damage. In addition, the Distribution Agreement contains
provisions for the administration of insurance policies shared by the parties
and provisions for the sharing of information and related services among the
parties. Upon consummation of the Merger, Culbro's obligations with respect to
such indemnities will become the obligations of the Company. With respect to
corporate governance, the Distribution Agreement requires the resignation of all
CLR directors and officers from any positions they previously held with Culbro,
the Company or General Cigar Co., Inc., and each of their respective
subsidiaries, except that

54
<PAGE>
Edgar M. Cullman, Edgar M. Cullman, Jr. and John L. Ernst will retain their
seats on the CLR board of directors notwithstanding their various positions at
Culbro and the Company, and Edgar M. Cullman will be the Chairman of the Board
of CLR.

Culbro intends to effect the Distribution because it believes that it is in
the best interests of Culbro and the Company to separate the cigar business from
the unrelated businesses of Culbro. By effecting the Distribution, Culbro
believes that shareholders will benefit by allowing its cigar business and
non-tobacco related businesses to be evaluated on a stand-alone basis.

RELATED AGREEMENTS

Pursuant to the Distribution Agreement, Culbro and CLR have entered into
certain agreements described below.

TAX SHARING AGREEMENT

Culbro and CLR have entered into a tax sharing agreement (the "Tax Sharing
Agreement") that defines the parties' rights and obligations with respect to
filing of returns, payments, deficiencies and refunds of federal, state and
other income or franchise taxes relating to Culbro's business for tax years
prior to and including the Distribution. In general, with respect to periods
ending on or before the last day of the taxable year in which the Distribution
occurs, Culbro is responsible for (i) filing both consolidated federal tax
returns for the Culbro affiliated group and combined or consolidated state tax
returns for any group that includes a member of the Culbro affiliated group,
including in each case CLR and its subsidiaries for the relevant periods of time
that such companies were members of the applicable group and (ii) paying the
taxes relating to such returns. Generally, any subsequent adjustments resulting
from the redetermination of such tax liabilities by the applicable taxing
authorities will be paid by the member or affiliated group to which the
adjustment relates, with CLR assuming responsibility for all adjustments
relating to Culbro and its affiliates other than the Company and its
subsidiaries. CLR is responsible for filing returns and paying taxes relating to
any member of the CLR affiliated group for periods that begin before and end
after the Distribution and for periods that begin after the Distribution. Culbro
and CLR have agreed to cooperate with each other and to share information in
preparing such tax returns and in dealing with other tax matters.

SERVICES AGREEMENT

Culbro and CLR have entered into a services agreement (the "Services
Agreement") pursuant to which Culbro agreed to provide a number of
administrative and other services to CLR for a period of at least one year.
These services include administration of CLR insurance policies, internal audit,
preparation of tax returns, transportation and general in-house legal services.
CLR will make an annual payment of approximately $550,000 to, and will reimburse
out-of-pocket expenses incurred by, Culbro and its subsidiaries, in connection
with such services. Culbro will make the above services available to CLR on an
as-needed basis for a period of at least one year following the Distribution.

BENEFITS AND EMPLOYMENT MATTERS ALLOCATION AGREEMENT

Culbro and CLR have entered into the Benefits and Employment Matters
Allocation Agreement which provides for the assumption by the Company of certain
Culbro employee benefit plans and the conversion of outstanding options and
other accrued benefits into outstanding options and awards of the Company and
CLR. For a discussion of the allocations to be made pursuant to the Benefits and
Employment Matters Allocation Agreement, see "Certain Employee Benefit Matters."

55
<PAGE>
LEASES

CLR as lessor and General Cigar Co., Inc. as lessee have entered into a
lease for certain agricultural real property in Connecticut and Massachusetts
(the "Agricultural Lease") and, prior to the Distribution, will enter into a
lease for certain commercial space in Connecticut (the "Commercial Lease"). The
Agricultural Lease is for approximately 500 acres of arable land allocated to
CLR for possible commercial development in the long-term, but which will provide
the Company with an important short-term source of Connecticut Shade wrapper
tobacco. General Cigar Co., Inc.'s use of the land is limited to the cultivation
of cigar wrapper tobacco. The Agricultural Lease has an initial term of ten
years and provides for the extension of the lease for additional periods
thereafter. In addition, at CLR's option the Agricultural Lease may be
terminated with respect to 100 acres of such land annually upon one year's prior
notice. The rent payable by General Cigar Co., Inc. under the Agricultural Lease
is principally equal to the aggregate amount of all taxes and other assessments
payable by CLR attributable to the land leased. The Commercial Lease will be for
approximately 25,000 square feet of office space in the Griffin Center South
office complex in Bloomfield, Connecticut. The Commercial Lease will have an
initial term of ten years and provides for the extension of the lease for
additional annual periods thereafter. The rent payable by General Cigar Co.,
Inc. under the Commercial Lease will be at market rates.

THE DISTRIBUTION

The Distribution Agreement also provides for the PRO RATA distribution by
Culbro to the shareholders of Culbro of all issued and outstanding shares of
common stock of CLR. The Distribution will occur subsequent to the Offering and
will be contingent principally upon (i) either a tax ruling or an opinion of
counsel satisfactory to Culbro that the Distribution constitutes a tax free
reorganization under Section 355 of the Internal Revenue Code and (ii) approval
of the Merger by the Culbro shareholders.

THE MERGER

Approximately 180 days following the consummation of the Offering (but no
sooner than 180 days after the Offering without the consent of DLJ) and subject
to (i) the completion of the Distribution and (ii) approval of the Merger by the
shareholders of Culbro, Culbro will be merged with and into the Company,
pursuant to an Agreement and Plan of Merger that has been approved and adopted
by the Company and by the Board of Directors of Culbro. The shareholders of
Culbro will not vote with respect to the adoption of the Merger until May 1997;
however, the members of the Cullman & Ernst Group have indicated that they will
vote their shares of Culbro common stock in favor of the Merger. The Merger has
been approved by Culbro as sole stockholder of the Company prior to the Offering
and, consequently, the holders of the Class A Common Stock offered hereby will
not vote in connection with the Merger. The Company will be the surviving
corporation in the Merger and will issue to the holders of the common stock of
Culbro 4.44557 shares of Class B Common Stock for each share of the Culbro
common stock outstanding on the date of the Merger, or approximately 20,087,182
shares of Class B Common Stock in the aggregate, subject to adjustment for any
Culbro stock options exercised prior to the Merger. Each option to purchase
Culbro common stock outstanding prior to the Merger will be converted into an
option to acquire Class A Common Stock. See "Certain Employee Benefit
Matters--Culbro Benefit Plans to be Assumed by the Company--Culbro Stock Option
Plans."

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<PAGE>
The following chart illustrates the effect of the Distribution and the
Merger.

[CHART SHOWING THE STRUCTURE OF THE COMPANY AND THE PARENT FOLLOWING THE
OFFERING]

[CHART SHOWING THE STRUCTURE OF THE COMPANY AND CLR FOLLOWING THE DISTRIBUTION
AND THE MERGER]

57
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Since December 1, 1995, Frederick M. Danziger, a member of the Cullman &
Ernst Group and the husband of Lucy C. Danziger, has been Of Counsel to the law
firm of Latham & Watkins. During Culbro's 1996 fiscal year, such firm received
fees and disbursements of approximately $1.5 million from Culbro for services
rendered. See "Principal Stockholders."

The interior design firm of Cullman & Kravis, which is part-owned by a
member of the Cullman & Ernst Group, provided interior design services for Club
Macanudo, Inc. and for renovations to Culbro's New York City facilities. In
1996, a total of approximately $526,000 was paid to such firm in reimbursement
for the purchase of furniture, fabrics and painting and for fees and
commissions.

The Company recently entered into an agreement with John L. Bernbach, a
Director of the Company, pursuant to which Mr. Bernbach will provide consulting
services to the Company with respect to its international operations, for which
the Company will pay Mr. Bernbach a fee of $75,000 per year.

Messrs. Cullman are members of the Board of Directors of Bloomingdale
Properties, Inc. of which Mr. Ernst is Chairman and President. Edgar M. Cullman
is a member of the Board of Directors of Centaur, of which Mr. Sherren is Chief
Executive Officer.

Mr. Solomon is Chairman of Peter J. Solomon Company Limited ("PJSC"), an
investment banking firm. Such firm provides Culbro with strategic and financial
advisory services as well as specific transaction-related advisory services
pursuant to an engagement letter. In 1995, PJSC was paid a retainer of $75,000
for providing such advisory services. In 1996, PJSC was paid a retainer of
$140,625 for such advisory services and was paid a transaction fee of $825,000
for services rendered as financial advisor in connection with the sale of
Culbro's CMS Gilbreth Packaging Systems, Inc. division. In addition, Culbro
reimbursed PJSC for certain expenses incurred in connection with the rendering
of such services. In connection with the Offering, at the request of the
Company, the Underwriters have agreed to pay Peter J. Solomon Securities Company
Limited, an affiliate of PJSC, a fee of $700,000. See "Underwriting."

Real estate management and advisory services have been provided to Culbro by
an affiliate of Bloomingdale Properties, Inc., with which members of the Cullman
& Ernst Group are associated. A fee of approximately $199,000 was paid by Culbro
in 1995 for management of Culbro's New York office building and for other real
estate advisory services.

PRINCIPAL STOCKHOLDERS

Culbro beneficially owns 20,087,182 shares of Class B Common Stock,
constituting all of the outstanding shares of Class B Common Stock. No shares of
Class A Common Stock will be outstanding prior to consummation of the Offering.
Following the Offering and before giving effect to the Merger, Culbro will
continue to own 20,087,182 shares of Class B Common Stock, constituting 77% of
the outstanding Common Stock and 97% of the voting power of the outstanding
Common Stock. Pursuant to the Merger, each of the 4,518,472 outstanding shares
of Culbro common stock will be converted into the right to receive 4.44557
shares of Class B Common Stock, subject to adjustment for any Culbro stock
options exercised prior to the Merger, and each share of Class B Common Stock
owned by Culbro will be canceled. As a result, the holders of Culbro common
stock immediately preceding the Merger will own 20,087,182 shares of Class B
Common Stock, constituting 77% of the outstanding Common Stock and 97% of the
voting power of the outstanding Common Stock, following the Merger. For
information regarding the Merger, see "The Asset Transfers, the Distribution and
the Merger." For a description of the Class A Common Stock and the Class B
Common Stock, see "Description of Capital Stock."

The following table sets forth certain information regarding beneficial
ownership of the (i) Culbro common stock as of February 25, 1997 and (ii) the
Common Stock as of December 31, 1996, after giving effect to the Merger, in each
case, by each person who is known by the Company to beneficially own more than
5% of the outstanding shares of Common Stock, each director and Named Executive
Officer of the

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<PAGE>
Company and all directors and executive officers of the Company as a group.
Unless otherwise indicated, all shares of Common Stock shown represent Class B
Common Stock. Unless otherwise indicted, the address of each person named in the
table below is Culbro Corporation, 387 Park Avenue South, New York, New York
10016.

<TABLE>
<CAPTION>
CULBRO COMMON STOCK COMMON STOCK OF THE
COMPANY
PRIOR TO THE MERGER FOLLOWING THE MERGER
------------------------ ------------------------
SHARES PERCENT SHARES PERCENT
BENEFICIALLY OF BENEFICIALLY OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) TOTAL OWNED TOTAL
- --------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Edgar M. Cullman (2)................................................. 974,874 21.6% 4,333,870 16.6%
Edgar M. Cullman, Jr. (2)............................................ 891,658 19.7 3,963,927 15.2
Louise B. Cullman (2)(3)............................................. 834,347 18.5 3,709,147 14.2
Susan R. Cullman (2)(3).............................................. 784,529 17.4 3,487,678 13.4
Lucy C. Danziger (2)(3).............................................. 1,051,264 23.3 4,673,467 17.9
John L. Ernst (2).................................................... 420,271 9.3 1,868,343 7.2
B. Bros. Realty Limited Partnership (4).............................. 233,792 5.2 1,039,338 4.0
Gabelli Funds, Inc. (5).............................................. 971,800 21.5 4,320,204 16.6
Dan W. Lufkin........................................................ 14,000(6) * 62,237(6) *
Thomas C. Israel..................................................... 9,000(7) * 40,010(7) *
Peter J. Solomon..................................................... 5,000(7) * 22,227(7) *
Francis T. Vincent, Jr............................................... 5,000(7) * 22,227(7) *
John L. Bernbach..................................................... 2,600(6) * 11,558(6) *
Graham V. Sherren.................................................... 2,500(6) * 11,113(6) *
Bruce A. Barnet...................................................... 4,100(7) * 18,226(7) *
Jay M. Green......................................................... 110,900(8) 2.4 493,013(8) 1.9
Austin T. McNamara................................................... 15,400(9) * 68,461(9) *
A. Ross Wollen....................................................... 43,368(10) * 192,795(10) *
All officers and directors as a group (14 persons)(11)............... 1,692,542 37.5 7,524,313 28.0
</TABLE>

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

* Less than 1%

(1) This information reflects the definition of beneficial ownership adopted by
the SEC. Beneficial ownership shown reflects 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. Includes options exercisable within 60 days
granted to directors pursuant to the Stock Option Plans for Non-employee
Directors and options exercisable within 60 days held by each Named
Executive Officer. Excluded are shares held by charitable foundations and
trusts of which members of the Cullman and Ernst Group are officers and
directors. As of December 20, 1996, 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 2,237,147 shares of
Culbro's common stock (approximately 50% of the outstanding shares of Culbro
common stock). Among others, Messrs. Cullman and Mr. Ernst 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 SEC on behalf of the
Cullman & 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. Louise B. Cullman is the wife of
Edgar M. Cullman. Susan R. Cullman and Lucy C. Danziger are the daughters of
Edgar M. Cullman and Louise B. Cullman.

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<PAGE>
(2) Included within the Culbro shares shown as beneficially owned by Edgar M.
Cullman are 863,576 shares in which he holds shared investment and/or voting
power; included within the shares shown as beneficially owned by Mr. Ernst
are 411,321 shares in which he holds shared investment and/or voting power;
and included within the shares shown as beneficially owned by Edgar M.
Cullman, Jr. are 751,490 shares in which he holds shared investment and/or
voting power. Included within the shares shown as beneficially owned by
Louise B. Cullman are 730,937 shares in which she holds shared investment
and/or voting power; included within the shares shown as beneficially owned
by Susan R. Cullman are 690,042 shares in which she holds shared investment
and/or voting power; included within the shares shown as beneficially owned
by Lucy C. Danziger are 969,422 shares in which she 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 and
Cullman, Jr. disclaim beneficial interest in all shares over which there is
shared investment and/or voting power and in all excluded shares.

(3) The address of each of Louise B. Cullman, Susan R. Cullman and Lucy C.
Danziger is c/o 641 Lexington Avenue, New York, New York.

(4) The address of B. Bros. Realty Limited Partnership is 641 Lexington Avenue,
New York, New York.

(5) The address of such person is Gabelli Funds, Inc., One Corporate Center,
Rye, New York, NY 10580. A form filed with the SEC in September 1991 by
Gabelli Funds, Inc. as subsequently amended indicates that the securities
have been acquired by Gabelli Funds, Inc. and its wholly-owned subsidiaries
on behalf of their investment advisory clients. Culbro has been informed
that no individual client of Gabelli Funds, Inc. has ownership of more than
5% of Culbro's common stock.

(6) 2,000 of such shares reflect options which, upon consummation of the
Merger, will be exercisable for 8,891 shares of Class A Common Stock.

(7) 4,000 of such shares reflect options which, upon consummation of the
Merger, will be exercisable for 17,782 shares of Class A Common Stock.

(8) 110,200 of such shares reflect options which, upon consummation of the
Merger, will be exercisable for 489,901 shares of Class A Common Stock.

(9) All of such shares reflect options which, upon consummation of the Merger,
will be exercisable for 68,461 shares of Class A Common Stock.

(10) 30,503 of such shares reflect options which, upon consummation of the
Merger, will be exercisable for 135,603 shares of Class A Common Stock.

(11) Excluding shares held by certain charitable foundations the officers and/or
directors of which include certain officers and directors of the Company.

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<PAGE>
DESCRIPTION OF CAPITAL STOCK

The Company's authorized capital stock consists of 50,000,000 shares of
Class A Common Stock, 25,000,000 shares of Class B Common Stock and 20,000,000
shares of preferred stock, par value $0.01 per share (the "Preferred Stock"), of
which 20,087,182 shares of Class B Common Stock are outstanding. The following
summary description of the capital stock of the Company is qualified in its
entirety by reference to the form of Amended and Restated Certificate of
Incorporation of the Company (the "Amended Certificate") and By-Laws of the
Company (the "By-Laws"), a copy of each of which is filed as an exhibit to the
Registration Statement (as defined herein) of which this Prospectus forms a
part.

CLASS A COMMON STOCK AND CLASS B COMMON STOCK

The Amended Certificate provides for two classes of common stock, Class A
Common Stock and Class B Common Stock, which are substantially identical, except
for disparity in voting power. See "Risk Factors--Control by Certain
Stockholders; Anti-Takeover Effects of Dual Classes of Stock; Other Anti-
Takeover Provisions."

Each share of Class A Common Stock entitles the holder of record to one vote
and each share of Class B Common Stock entitles the holder of record to ten
votes at each annual or special meeting of stockholders, in the case of any
written consent of stockholders, and for all other purposes. The holders of
Class A Common Stock and Class B Common Stock vote as a single class on all
matters submitted to a vote of the stockholders, except as otherwise provided by
law. Neither the holders of Class A Common Stock nor the holders of Class B
Common Stock have cumulative voting or preemptive rights. The Company, as a
condition to counting the votes cast by any holder of Class B Common Stock at
any annual or special meeting of stockholders, in the case of any written
consent of stockholders, or for any other purpose, may require the furnishing of
such affidavits or other proof as it may reasonably request to establish that
the Class B Common Stock held by such holder has not been converted, by virtue
of the provisions of the Amended Certificate, into Class A Common Stock.

The holders of the Class A Common Stock and Class B Common Stock are
entitled to receive dividends and other distributions as may be declared thereon
by the Board of Directors of the Company out of assets or funds of the Company
legally available therefor, subject to the rights of the holders of any series
of Preferred Stock and any other provision of the Amended Certificate. The
Amended Certificate provides that if at any time a dividend or other
distribution in cash or other property is paid on Class A Common Stock or Class
B Common Stock, a like dividend or other distribution in cash or other property
also will be paid on Class B Common Stock or Class A Common Stock, as the case
may be, in an equal amount, except that voting securities paid on the Class B
Common Stock may have ten times the number of votes per share as voting
securities paid on the Class A Common Stock. In the case of any split,
subdivision, combination or reclassification of Class A Common Stock or Class B
Common Stock, the shares of Class A Common Stock or Class B Common Stock, as the
case may be, also will be split, subdivided, combined or reclassified so that
the number of shares of Class A Common Stock and Class B Common Stock
outstanding immediately following such split, subdivision, combination or
reclassification will bear the same relationship to each other as that which
existed immediately prior thereto.

In the event of any liquidation, dissolution or winding up of the Company,
the holders of Class A Common Stock and the holders of Class B Common Stock are
entitled to receive the assets and funds of the Company available for
distribution after payments to creditors and to the holders of any Preferred
Stock of the Company that may at the time be outstanding, in proportion to the
number of shares held by them, respectively, without regard to class.

In the event of any corporate merger, consolidation, purchase or acquisition
of property or stock, or other reorganization in which any consideration is to
be received by the holders of Class A Common Stock or the holders of Class B
Common Stock, the holders of Class A Common Stock and the holders of Class B
Common Stock will receive the same consideration on a per share basis; except
that, if such consideration

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<PAGE>
shall consist in any part of voting securities (or of options or warrants to
purchase, or of securities convertible into or exchangeable for, voting
securities), the holders of Class B Common Stock may receive, on a per share
basis, voting securities with ten times the number of votes per share as those
voting securities to be received by the holders of Class A Common Stock (or
options or warrants to purchase, or securities convertible into or exchangeable
for, voting securities with ten times the number of votes per share as those
voting securities issuable upon exercise of the options or warrants to be
received by the holders of the Class A Common Stock, or into which the
convertible or exchangeable securities to be received by the holders of the
Class A Common Stock may be converted or exchanged).

The Amended Certificate provides that no person holding record or beneficial
ownership of shares of Class B Common Stock (a "Class B Holder") may transfer,
and the Company will not register the transfer of, such shares of Class B Common
Stock, except to a Permitted Transferee. For purposes of the foregoing, the
issuance of shares of Class B Common Stock to holders of Culbro common stock as
a result of the Merger will not be deemed to be a transfer. A transfer to a
Permitted Transferee generally means a transfer to an affiliate of the Class B
Holder, which may include transfers into estates, from trusts to their
beneficiaries and from owners into trusts. In certain circumstances set forth in
the Amended Certificate, the change in ownership or control of a record or
beneficial holder of Class B Common Stock will also result in the conversion of
such holder's Class B Common Stock into Class A Common Stock. Notwithstanding
the foregoing, any holder of Class B Common Stock may pledge shares of Class B
Common Stock as collateral for any indebtedness or other obligations without
triggering a conversion of such Class B Common Stock into Class A Common Stock.
The Amended Certificate also provides that the Company will not register the
transfer of any shares of Class B Common Stock unless the transferee and the
transferor of such Class B Common Stock have furnished such affidavits and other
proof as the Company reasonably may request to establish that such proposed
transferee is a Permitted Transferee. In addition, upon any purported transfer
of shares of Class B Common Stock not permitted under the Amended Certificate,
including as a result of a foreclosure upon shares of Class B Common Stock
subject to a pledge, all shares of Class B Common Stock purported to be so
transferred will be deemed to be converted into shares of Class A Common Stock,
and stock certificates formerly representing such shares of Class B Common Stock
will be deemed to represent such number of shares of Class A Common Stock as
equals the number of shares of Class A Common Stock into which such shares of
Class B Common Stock could be converted pursuant to the terms of the Amended
Certificate.

PREFERRED STOCK

The Board of Directors, without further stockholder authorization, is
authorized to issue, from time to time, Preferred Stock in one or more series,
to establish the number of shares to be included in any such series and to fix
the designations, powers, preferences and rights of the shares of each such
series and any qualifications, limitations or restrictions thereof, including
dividend rights and preferences over dividends on the Common Stock, conversion
rights, voting rights, redemption rights, the terms of any sinking fund therefor
and rights upon liquidation. The ability of the Board of Directors of the
Company to issue Preferred Stock, while providing flexibility in connection with
financing, acquisitions and other corporate purposes, could have the effect of
discouraging, deferring or preventing a change in control of the Company or an
unsolicited acquisition proposal, since the issuance of Preferred Stock could be
used to dilute the share ownership of a person or entity seeking to obtain
control of the Company. In addition, because the Board of Directors of the
Company has the power to establish the preferences, powers and rights of the
shares of any such series of Preferred Stock, it may afford the holders of any
Preferred Stock preferences, powers and rights (including voting rights) senior
to the rights of the holders of Common Stock, which could adversely affect the
rights of holders of Common Stock.

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<PAGE>
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW

Section 203 ("Section 203") of the General Corporation Law of the State of
Delaware (the "DGCL") provides, in general, that a stockholder acquiring more
than 15% of the outstanding voting stock of a corporation subject to Section 203
(an "Interested Stockholder") but less than 85% of such stock may not engage in
certain Business Combinations (as defined in Section 203) with the corporation
for a period of three years subsequent to the date on which the stockholder
became an Interested Stockholder unless (i) prior to such date the corporation's
board of directors approved either the Business Combination or the transaction
in which the stockholder became an Interested Stockholder or (ii) the Business
Combination is approved by the corporation's board of directors and authorized
by a vote of at least 66 2/3% of the outstanding voting stock of the corporation
not owned by the Interested Stockholder. The Amended Certificate contains a
provision electing not to be governed by Section 203.

LIMITATIONS ON DIRECTORS' LIABILITY

The Amended Certificate contains a provision which eliminates the personal
liability of a director to the Company and its stockholders for certain breaches
of his or her fiduciary duty of care as a director.

This provision does not, however, eliminate or limit the personal liability of a
director (i) for any breach of such director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Delaware
statutory provisions making directors personally liable, under a negligence
standard, for unlawful dividends or unlawful stock repurchases or redemptions or
(iv) for any transaction from which the director derived an improper personal
benefit. This provision offers persons who serve on the Board of Directors of
the Company protection against awards of monetary damages resulting from
breaches of their duty of care (except as indicated above), including grossly
negligent business decisions made in connection with takeover proposals for the
Company. As a result of this provision, the ability of the Company or a
stockholder thereof to successfully prosecute an action against a director for a
breach of his duty of care has been limited. However, the provision does not
affect the availability of equitable remedies such as an injunction or recision
based upon a director's breach of his duty of care. The SEC has taken the
position that the provision will have no effect on claims arising under the
federal securities laws.

In addition, the Amended Certificate and By-Laws provide mandatory
indemnification rights, subject to limited exceptions, to any person who was or
is party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding by reason of the fact that such person is
or was a director or officer of the Company, or is or was serving at the request
of the Company as a director or officer of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise. Such
indemnification rights include reimbursement for expenses incurred by such
person in advance of the final disposition of such proceeding in accordance with
the applicable provisions of the DGCL.

TRANSFER AGENT AND REGISTRAR

Chemical Mellon Shareholder Services, LLC is the transfer agent and
registrar for the Common Stock.

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<PAGE>
DESCRIPTION OF THE CREDIT FACILITY

On January 21, 1997, General Cigar Co., Inc. entered into a Credit Agreement
with certain lenders and The Chase Manhattan Bank ("Chase"), as administrative
agent, which provides for credit facilities (collectively, the "Credit
Facility") comprised of $60.0 million in term loans and a revolving credit
facility aggregating $60.0 million.

Net proceeds of the Offering of up to $70.0 million are required to be
applied to pay the term loan and to reduce the commitment under the revolving
credit facility, provided that the revolving credit facility will not be reduced
to less than $50.0 million.

At present, indebtedness under the Credit Facility is guaranteed by Culbro,
CLR, Imperial Nurseries, Inc., 387 PAS Corp., GCH Transporation, Inc., Villazon
& Company, Inc. and Club Macanudo, Inc. and is secured by the stock of such
subsidiaries of Culbro. Upon the consummation of the Offering, Culbro, CLR and
Imperial Nurseries, Inc. will be released from their guarantees and all
collateral will be released.

Prior to the consummation of the Offering, borrowings under the Credit
Facility will initially bear interest at a rate equal to 2.0% above the rate at
which eurodollar deposits for one, two, three or six months (at the Company's
option) are offered to Chase in the interbank eurodollar market (the "Eurodollar
Rate"), or 1.0% above the "ABR Rate," which is defined as the higher of (i) the
rate of interest publicly announced by Chase as its prime rate in effect at its
principal office in New York City (the "Prime Rate") and (ii) the federal funds
effective rate from time to time plus 0.5%. Following consummation of the
Offering, the rate will be the ABR Rate or 0.75% above the Eurodollar Rate.

The Credit Facility includes financial and ratio covenants, including fixed
charge coverage, current ratio and tangible net worth and maximum leverage
tests. The Credit Facility also will include negative covenants including
limitations on indebtedness, liens, guarantee obligations, mergers,
consolidations, liquidations and dissolutions, sales of assets, leases,
dividends and other payments in respect of capital stock, capital expenditures,
investments, loans and advances, optional payments and modifications of
subordinated and other debt instruments, transactions with affiliates, sale and
leasebacks, changes in fiscal year, negative pledge clauses and changes in lines
of business.

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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Immediately after consummation of the Offering, the Company will have
outstanding 6,000,000 shares of Class A Common Stock and 20,087,182 shares of
Class B Common Stock, assuming no exercise of the over-allotment option granted
to the Underwriters. Of these shares, the 6,000,000 shares of Class A Common
Stock sold in the Offering (or a maximum of 6,900,000 shares if the
over-allotment option is exercised in full) will be freely tradeable without
restrictions or further registration under the Securities Act, unless purchased
by "affiliates" of the Company (as that term is defined under the Securities
Act). All of the Class B Common Stock will be owned by Culbro and, following the
Merger, such shares of Class B Common Stock will be held directly by the former
shareholders of Culbro.

Immediately after consummation of the Offering, 570,555 shares of Class A
Common Stock (2,733,373 shares following consummation of the Merger) will be
subject to outstanding options. The Company intends to file a registration
statement on Form S-8 under the Securities Act to register the sale of 3,300,000
shares of Class A Common Stock reserved for issuance under the 1997 Stock Option
Plan, including 570,555 shares issuable upon exercise of options issued at the
time of the consummation of Offering and 2,162,818 shares of Class A Common
Stock issuable upon exercise of Culbro Options following the Merger. As a
result, any shares of Class A Common Stock issued upon exercise of such stock
options will be available, subject to special rules for affiliates, for resale
in the public market, subject to applicable lock-up arrangements.

In general, under Rule 144, as currently in effect, (i) a person (or persons
whose shares are required to be aggregated) who has beneficially owned shares of
Class A Common Stock as to which at least two years have elapsed since such
shares were sold by the Company or by an affiliate of the Company in a
transaction or chain of transactions not involving a public offering
("restricted securities") or (ii) an affiliate of the Company who holds shares
of Class A Common Stock that are not restricted securities may sell, within any
three-month period, a number of such shares that does not exceed the greater of
1% of the Class A Common Stock then outstanding or the average weekly trading
volume in the Class A Common Stock during the four calendar weeks preceding the
date on which notice of such sale required under Rule 144 was filed. Sales under
Rule 144 also are subject to certain provisions relating to the manner and
notice of sale and availability of current public information about the Company.
Affiliates of the Company must comply with the requirements of Rule 144,
including the two-year holding period requirement, to sell shares of Class A
Common Stock that are restricted securities. Furthermore, if a period of at
least three years has elapsed from the date restricted securities were acquired
from the Company or an affiliate of the Company, a holder of such restricted
securities who is not an affiliate of the Company at the time of the sale and
has not been an affiliate of the Company at any time during the three months
prior to such sale would be entitled to sell such shares without regard to the
volume limitation and other conditions described above. The SEC has adopted
amendments reducing the required two-year holding period under Rule 144 to one
year and reducing the required three-year holding period under Rule 144(k) to
two years. The amendments may be relied upon by holders of restricted securities
upon publication of the amendments in the Federal Register and will allow such
holders to sell restricted securities in the open market significantly earlier
than currently permitted.

All shares of Class B Common Stock and all shares of Class A Common Stock
issuable upon conversion of such shares of Class B Common Stock will be eligible
for sale in the public market immediately after consummation of the Merger;
provided, that all of such shares held by the members of the Cullman & Ernst
Group may be resold only pursuant to, and in accordance with, the volume, manner
of sale and other conditions of Rule 144 described above. The Company has agreed
that it will not effect the Merger without the prior written consent of DLJ on
behalf of the Underwriters for a period of 180 days after the date of this
Prospectus. See "Underwriting."

Prior to the Offering, there has been no public market for the Class A
Common Stock. Although the Company can make no prediction as to the effect, if
any, that sales of shares of Class A Common Stock by

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the Cullman & Ernst Group would have on the market price prevailing from time to
time, sales of substantial amounts of Class A Common Stock or the availability
of such shares for sale could adversely affect prevailing market prices.

Subject to certain exceptions, the Company, the executive officers and
directors of the Company, Culbro and certain stockholders of Culbro (who in the
aggregate hold 2,276,112 shares of Culbro common stock, or 2,722,623 shares,
assuming exercise of outstanding options held by such person) each have agreed
that they will not, without the prior written consent of DLJ, offer, sell,
contract to sell, grant any option to purchase or otherwise dispose of any
shares of Common Stock or Culbro common stock or any securities convertible into
or exercisable or exchangeable for such Common Stock or Culbro common stock or
in any other manner transfer all or a portion of the economic consequences
associated with the ownership of any such Common Stock or Culbro common stock
for a period of 180 days from the date of this Prospectus.

UNDERWRITING

Subject to certain conditions contained in the Underwriting Agreement, a
syndicate of underwriters named below (the "Underwriters"), for whom DLJ and
Smith Barney Inc. are acting as representatives (the "Representatives"), have
severally agreed to purchase from the Company an aggregate of 6,000,000 shares
of Class A Common Stock. The number of shares of Class A Common Stock that each
Underwriter has agreed to purchase is set forth opposite its name below:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ----------------------------------------------------------------------------------------------------- ----------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.................................................. 2,115,000
Smith Barney Inc..................................................................................... 2,115,000
Cowen & Co........................................................................................... 60,000
ABN Amro Chicago Corporation......................................................................... 60,000
Bear, Stearns & Co. Inc.............................................................................. 60,000
Alex. Brown & Sons Incorporated...................................................................... 60,000
Dean Witter Reynolds Inc............................................................................. 60,000
Deutsche Morgan Grenfell Inc......................................................................... 60,000
Dillon, Read & Co. Inc............................................................................... 60,000
A.G. Edwards & Sons, Inc............................................................................. 60,000
Furman Selz LLC...................................................................................... 60,000
Goldman, Sachs & Co.................................................................................. 60,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated................................................... 60,000
Montgomery Securities................................................................................ 60,000
Morgan Stanley & Co. Incorporated.................................................................... 60,000
Oppenheimer & Co., Inc............................................................................... 60,000
Prudential Securities Incorporated................................................................... 60,000
Salomon Brothers Inc................................................................................. 60,000
Anderson & Strudwick, Inc............................................................................ 30,000
Arnhold and S. Bleichroeder, Inc..................................................................... 30,000
Brean Murray, & Co., Inc............................................................................. 30,000
Chatsworth Securities LLC............................................................................ 30,000
Cleary Gull Reiland & McDevitt Inc................................................................... 30,000
Doft & Co., Inc...................................................................................... 30,000
First of Michigan Corporation........................................................................ 30,000
Gabelli & Company, Inc............................................................................... 30,000
Gerard Klauer Mattison & Co., LLC.................................................................... 30,000
Interstate/Johnson Lane Corporation.................................................................. 30,000
Johnston, Lemon & Co. Incorporated................................................................... 30,000
</TABLE>

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<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ----------------------------------------------------------------------------------------------------- ----------
<S> <C>
Legg Mason Wood Walker, Incorporated................................................................. 30,000
McDonald & Company Securities, Inc................................................................... 30,000
Nutmeg Securities Ltd................................................................................ 30,000
Ohio Company......................................................................................... 30,000
Ormes Capital Markets, Inc........................................................................... 30,000
Parker/Hunter Incorporated........................................................................... 30,000
Pennsylvania Merchant Group Ltd...................................................................... 30,000
Pryor, McClendon, Counts & Co., Inc.................................................................. 30,000
Raymond James & Associates, Inc...................................................................... 30,000
Redwine & Company, Inc............................................................................... 30,000
Rickel and Associates, Inc........................................................................... 30,000
Roney & Co., L.L.C................................................................................... 30,000
Ryan, Beck & Co...................................................................................... 30,000
Sands Brothers & Co., Ltd............................................................................ 30,000
Van Kasper & Company................................................................................. 30,000
H. C. Wainwright & Co., Inc.......................................................................... 30,000
----------
Total................................................................................................ 6,000,000
----------
----------
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase the shares of Class A Common Stock offered hereby are
subject to approval of certain legal matters by their counsel and to certain
other conditions. If any of the shares of Class A Common Stock are purchased by
the Underwriters pursuant to the Underwriting Agreement, the Underwriters are
obligated to purchase all such shares (other than those covered by the
over-allotment option described below).

Of the shares of Class A Common Stock offered hereby, 300,000 shares have
been reserved (the "Reserved Shares") for sale to certain individuals, including
employees of the Company and members of their families. The Reserved Shares will
be sold at a price per share equal to the Price to the Public set forth on the
cover page of this Prospectus. The number of shares available to the general
public will be reduced to the extent those persons purchase Reserved Shares. Any
shares not so purchased will be offered in the Offering at the price to the
public set forth on the cover page of this Prospectus.

Prior to this Offering, there has been no established trading market for the
Class A Common Stock. The initial price to the public for the Class A Common
Stock set forth on the cover page of this Prospectus has been determined by
negotiation between the Company and the Representatives. The principal factors
considered in determining the initial price to the public were the information
set forth in this Prospectus and otherwise available to the Representatives, the
history and prospects for the industry in which the Company competes, the
ability of the Company's management, the past and present operations of the
Company, the historical results of operations, the prospects for future earnings
of the Company, the present state of the Company's development, the general
condition of the securities markets at the time of the offering and the recent
market prices and the demand for publicly traded common stock of generally
comparable companies.

The Company has been advised by the Underwriters that they propose to offer
the shares of Class A Common Stock to the public initially at the price to the
public set forth on the cover page of this Prospectus and to certain dealers
(who may include the Underwriters) at such price, less a concession not in
excess of $0.71 per share. The Underwriters may allow, and such dealers may
re-allow, a concession not in excess of $0.10 per share to certain other
dealers. After the initial public offering, the price to the public, the
concession and the discount to dealers may be changed by the Representatives.

The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 900,000 additional
shares of Class A Common Stock at the initial price to the

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<PAGE>
public less underwriting discounts and commissions, solely to cover
over-allotments. To the extent that the Underwriters exercise such option, each
of the Underwriters will be committed, subject to certain conditions, to
purchase a number of option shares proportionate to such Underwriter's initial
commitment as indicated in the preceding table.

In the Underwriting Agreement, the Company and the Underwriters have agreed
to indemnify each other against certain liabilities, including liabilities under
the Securities Act.

Subject to certain exceptions, the Company, the executive officers and
directors of the Company, Culbro and certain stockholders of Culbro each have
agreed that they will not, without the prior written consent of DLJ, offer,
sell, contract to sell, grant any option to purchase or otherwise dispose of any
shares of Common Stock or Culbro common stock or any securities convertible into
or exercisable or exchangeable for such Common Stock or Culbro common stock or
in any other manner transfer all or a portion of the economic consequences
associated with the ownership of any such Common Stock or Culbro common stock
for a period of 180 days from the date of this Prospectus.

From time to time in the ordinary course of their businesses, affiliates of
certain of the Underwriters have engaged and may in the future engage in general
financing and banking transactions with the Company and its affiliates.

At the request of the Company, the Underwriters have agreed to pay Peter J.
Solomon Securities Company Limited a fee of $700,000 related to its acting as a
financial advisor to the Company in connection with the Offering. Peter J.
Solomon, a Director of the Company, is the Chairman of Peter J. Solomon
Securities Company Limited.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Latham & Watkins, New York, New York. Frederick M. Danziger, Of
Counsel to Latham & Watkins, is a Director and shareholder of Culbro and a
member of the Cullman & Ernst Group. See "Certain Relationships and Related
Transactions." Certain legal matters will be passed upon for the Underwriters by
Gibson, Dunn & Crutcher LLP, New York, New York.

EXPERTS

The Combined Financial Statements of General Cigar Holdings, Inc. as of
December 2, 1995 and November 30, 1996 and for each of the fiscal years ended
December 3, 1994, December 2, 1995 and November 30, 1996 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.

The Consolidated Financial Statements of Villazon & Company, Inc. and
Subsidiary as of December 31, 1995 and October 31, 1996 and for each of the
years ended December 31, 1994 and 1995 and the ten months ended October 31, 1996
included in this Prospectus have been so included in reliance on the report of
Price Waterhouse LLP, independent certified public accountants, given on the
authority of said firm as experts in auditing and accounting.

The Financial Statements of Honduras American Tabaco, S.A. de C.V. as of
December 31, 1995 and October 31, 1996, and for each of the years ended December
31, 1994 and 1995 and the ten months ended October 31, 1996 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

68
<PAGE>
ADDITIONAL INFORMATION

The Company has filed with the SEC, Washington, D.C. 20549, a Registration
Statement on Form S-1 under the Securities Act with respect to the shares of
Common Stock offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and such
Common Stock, reference is made to the Registration Statement and to the
exhibits and schedules filed therewith. Statements contained in this Prospectus
as to the contents of any contract or other document referred to are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document as filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. A copy of
the Registration Statement may be inspected by anyone without charge at the
SEC's principal office in Washington D.C., at the regional offices of the SEC
located at 7 World Trade Center, New York, New York 10048 and 500 West Madison
Street, Chicago, Illinois 60661 and through the SEC's internet site at
www.sec.gov. Copies of all or any part of the Registration Statement may be
obtained from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of certain fees prescribed by the SEC.

69
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
GENERAL CIGAR HOLDINGS, INC.
Report of Independent Accountants.......................................................................... F-2
Combined Balance Sheet as of December 2, 1995 and November 30, 1996........................................ F-3
Combined Statement of Operations for the Fiscal Years Ended December 3, 1994, December 2, 1995 and November
30, 1996................................................................................................. F-4
Combined Statement of Cash Flows for the Fiscal Years Ended December 3, 1994, December 2, 1995 and November
30, 1996................................................................................................. F-5
Notes to Combined Financial Statements..................................................................... F-6

VILLAZON & COMPANY, INC. AND SUBSIDIARY
Report of Independent Certified Public Accountants......................................................... F-21
Consolidated Balance Sheets as of December 31, 1995 and October 31, 1996................................... F-22
Consolidated Statements of Income for the Years Ended December 31, 1994 and 1995 and for the Ten Months
Ended October 31, 1996................................................................................... F-23
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1994 and 1995
and for the Ten Months Ended October 31, 1996............................................................ F-24
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994 and 1995 and for the Ten Months
Ended October 31, 1996................................................................................... F-25
Notes to Consolidated Financial Statements................................................................. F-26

HONDURAS AMERICAN TABACO, S.A. DE C.V.
Report of Independent Accountants.......................................................................... F-33
Balance Sheets as of December 31, 1995 and October 31, 1996................................................ F-34
Statements of Operations and Retained Earnings for the Years Ended December 31, 1994 and 1995 and for the
Ten Months Ended October 31, 1996........................................................................ F-35
Statements of Cash Flows for the Years Ended December 31, 1994 and 1995 and for the Ten Months Ended
October 31, 1996......................................................................................... F-36
Notes to Financial Statements.............................................................................. F-37
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholder
of General Cigar Holdings, Inc.

In our opinion, the accompanying combined balance sheet and the related
combined statements of operations and of cash flows present fairly, in all
material respects, the combined financial position of General Cigar Holdings,
Inc. (a wholly-owned subsidiary of Culbro Corporation) at December 2, 1995 and
November 30, 1996 and the results of their combined operations and their
combined cash flows for each of the fiscal years ended December 3, 1994,
December 2, 1995 and November 30, 1996 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with 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.

PRICE WATERHOUSE LLP

New York, New York
January 28, 1997

F-2
<PAGE>
GENERAL CIGAR HOLDINGS, INC.

COMBINED BALANCE SHEET

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 2, NOVEMBER 30,
1995 1996
------------ ------------ PRO FORMA FOR
LIABILITY
ASSUMPTION
NOVEMBER 30,
1996 (1)
-------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash................................................................. $ 322 $ 409 $ 409
Accounts receivable, less allowance of $465 and $482................. 23,840 31,295 31,295
Inventories.......................................................... 37,843 53,702 53,702
Other current assets................................................. 3,312 3,673 3,673
------------ ------------ -------------
Total current assets................................................. 65,317 89,079 89,079

Property and equipment, net.......................................... 46,492 52,507 52,507
Other assets......................................................... 1,846 3,456 3,456
------------ ------------ -------------
Total assets......................................................... $ 113,655 $ 145,042 $ 145,042
------------ ------------ -------------
------------ ------------ -------------
LIABILITIES AND CULBRO INVESTMENT
CURRENT LIABILITIES
Accounts payable and accrued liabilities............................. $ 20,740 $ 22,827 $ 24,361
Current portion of long-term debt.................................... 945 1,131 1,131
------------ ------------ -------------
Total current liabilities............................................ 21,685 23,958 25,492

Long-term debt....................................................... 11,352 11,079 54,879
Accrued retirement benefits.......................................... 12,100 12,525 15,409
Deferred income taxes................................................ 2,121 1,057 --
Other noncurrent liabilities......................................... 302 2,704 4,004
------------ ------------ -------------
Total liabilities.................................................... 47,560 51,323 99,784

Commitments and contingencies (See Note 13).......................... -- -- --

Culbro Investment.................................................... 66,095 93,719 45,258
------------ ------------ -------------
Total liabilities and Culbro Investment.............................. $ 113,655 $ 145,042 $ 145,042
------------ ------------ -------------
------------ ------------ -------------
</TABLE>

See Notes to Combined Financial Statements.

(1) Reflects the assumption of certain liabilities by the Company. The
liabilities include principally the estimated Culbro debt of $43.8 million
to be assumed, certain accrued retirement obligations and other items.

F-3
<PAGE>
GENERAL CIGAR HOLDINGS, INC.

COMBINED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED,
--------------------------------------
<S> <C> <C> <C>
DECEMBER 3, DECEMBER 2, NOVEMBER 30,
1994 1995 1996
----------- ----------- ------------
Net sales............................................................... $ 89,538 $ 124,033 $ 154,676
Cost of goods sold...................................................... 54,285 69,683 86,240
----------- ----------- ------------
Gross profit............................................................ 35,253 54,350 68,436
Selling, general and administrative expenses............................ 27,210 36,726 44,593
Other nonrecurring expense.............................................. -- -- 3,600
----------- ----------- ------------

Operating profit........................................................ 8,043 17,624 20,243
Gain on insurance settlement............................................ -- 2,586 --
Other nonoperating (expense) income..................................... (23) (597) 853
Interest expense........................................................ 607 1,049 951
----------- ----------- ------------
Income before income taxes.............................................. 7,413 18,564 20,145
Income tax provision.................................................... 2,863 7,240 7,738
----------- ----------- ------------
Net income.............................................................. $ 4,550 $ 11,324 $ 12,407
----------- ----------- ------------
----------- ----------- ------------
</TABLE>

See Notes to Combined Financial Statements.

F-4
<PAGE>
GENERAL CIGAR HOLDINGS, INC.

COMBINED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED,
--------------------------------------
<S> <C> <C> <C>
DECEMBER 3, DECEMBER 2, NOVEMBER 30,
1994 1995 1996
----------- ----------- ------------
OPERATING ACTIVITIES:
Net income.............................................................. $ 4,550 $ 11,324 $ 12,407
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization......................................... 3,271 3,550 3,813
Gain on insurance settlement.......................................... -- (2,586) --
Deferred income taxes................................................. 43 (236) (1,064)
Changes in assets and liabilities which increase (decrease) cash:
Accounts receivable................................................. 302 (10,600) (7,492)
Inventories......................................................... 1,571 (733) (15,859)
Other current assets................................................ (212) (1,204) (361)
Accounts payable and accrued liabilities............................ 2,000 9,834 2,087
Accrued retirement benefits......................................... 453 843 425
Other, net............................................................ 705 (656) 1,125
----------- ----------- ------------
Net cash provided by (used in) operating activities..................... 12,683 9,536 (4,919)
----------- ----------- ------------
INVESTING ACTIVITIES:
Additions to property and equipment..................................... (1,884) (2,841) (9,701)
Proceeds from insurance settlement...................................... 500 2,225 --
----------- ----------- ------------
Net cash used in investing activities................................... (1,384) (616) (9,701)
----------- ----------- ------------
FINANCING ACTIVITIES:
Net transactions with Culbro............................................ (15,131) (13,389) 15,217
Increase in debt........................................................ 5,000 5,000 476
Repayment of indebtedness............................................... (734) (673) (563)
Class A Common Stock issuance costs..................................... -- -- (423)
----------- ----------- ------------
Net cash (used in) provided by financing activities..................... (10,865) (9,062) 14,707
----------- ----------- ------------
Net increase (decrease) in cash......................................... 434 (142) 87
Cash at beginning of period............................................. 30 464 322
----------- ----------- ------------
Cash at end of period................................................... $ 464 $ 322 $ 409
----------- ----------- ------------
----------- ----------- ------------
</TABLE>

See Notes to Combined Financial Statements.

F-5
<PAGE>
GENERAL CIGAR HOLDINGS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS

1. CERTAIN TRANSACTIONS

The accompanying combined financial statements include the accounts of
General Cigar Holdings, Inc. (the "Company")(See Note 3--Basis of Presentation),
and reflect its financial position, results of operations and cash flows after
elimination of intercompany accounts and transactions. The Company, a
wholly-owned subsidiary of Culbro Corporation ("Culbro"), was formed on December
12, 1996 and holds all of the outstanding stock of General Cigar Co., Inc.
("General Cigar"). The Company has no business operations of its own and its
principal asset is all of the outstanding stock of General Cigar. In January
1997, in addition to the transfer of all of the outstanding Common Stock of
General Cigar Co., Inc., certain other assets, including principally 1,100 acres
of land, all of the outstanding common stock of 387 PAS Corp. ("387 PAS"), Club
Macanudo, Inc., Club Macanudo (Chicago), Inc. and GCH Transportation, Inc. were
transferred to the Company (the "Additional Asset Transfers") and the Company
assumed certain related liabilities and substantially all of the debt of Culbro
in accordance with the terms of a Distribution Agreement (the "Distribution
Agreement") among the Company, Culbro and Culbro Land Resources, Inc. ("CLR").
The Additional Asset Transfers are reflected in the accompanying combined
financial statements at Culbro's historical cost. The Additional Asset
Transfers, the transfer of General Cigar Stock and the assumption by the Company
of the liabilities and debt of Culbro referred to above are herein collectively
referred to as the "Asset Transfers." The Distribution Agreement also provides
for the assumption of employee benefit arrangements of Culbro by the Company,
for a tax sharing agreement and for a potential distribution of the stock (the
"Distribution") of CLR to Culbro's shareholders. Following the Distribution,
subject to certain conditions, Culbro will be merged (the "Merger") with and
into the Company. Such transactions are not reflected in the accompanying
combined financial statements.

2. VILLAZON ACQUISITION

On January 21, 1997, the Company completed its acquisition of two affiliated
companies, Villazon and Company, Inc., a U.S. corporation, and Honduras American
Tabaco, S.A. de C.V., a Honduran corporation (collectively "Villazon"), for
approximately $81.4 million consisting of $90.5 million of purchase price and
direct acquisition costs, less $9.1 million of cash acquired. $64.6 million of
cash was paid at closing and $24.4 million aggregate principal amount of seller
notes were issued (the "Villazon Acquisition"). Both companies are engaged in
the cigar business. The Villazon Acquisition will be accounted for using the
purchase method of accounting. Cost in excess of the fair value of net assets
acquired, primarily trade names and other intangible assets, is expected to be
approximately $71 million. The Company secured a loan to finance the
acquisition, and anticipates that the loan will be repaid either entirely or
partially, with the proceeds from the expected Offering. (See Notes 4 and 7)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying combined financial statements of the Company include the
accounts of General Cigar, Club Macanudo, Inc. ("Club Macanudo") and 387 PAS.
Club Macanudo was incorporated in 1995 and operates a cigar bar in New York
City, which opened on May 1, 1996. 387 PAS holds Culbro's corporate headquarters
which is approximately 80% leased to unrelated commercial tenants. Club Macanudo
and 387 PAS were not material to the Company's results of operations in any of
the periods presented. Subsequent to November 30, 1996, the Company formed Club
Macanudo (Chicago), Inc., which will operate a cigar bar in Chicago and GCH
Transportation, Inc., a non operating entity which owns certain of the Company's
transportation equipment.

F-6
<PAGE>
GENERAL CIGAR HOLDINGS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The combined financial statements have been presented as if the Company had
operated as an independent stand-alone entity for all periods presented. Such
financial statements may not necessarily present the financial position, results
of operations and cash flows the Company would have reported had it actually
operated as a stand-alone entity. See Note 4 for unaudited combined condensed
pro forma financial information.

FISCAL YEAR

The Company's fiscal year ends on the Saturday nearest November 30. Fiscal
1994, 1995 and 1996 ended on December 3, 1994, December 2, 1995 and November 30,
1996, respectively. Fiscal 1994 contained 53 weeks and fiscal 1995 and 1996
contained 52 weeks.

RECLASSIFICATION

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

INVENTORIES

The Company's inventories are stated at the lower of cost or market using
the first-in, first-out ("FIFO") method. Raw materials include tobacco in the
process of aging, a substantial amount of which will not be used or sold within
one year. It is industry practice 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 Company does
not include such duties in inventories until paid.

PROPERTY AND EQUIPMENT

Property and equipment are carried 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.

REVENUE RECOGNITION

Sales and the related cost of sales are recognized upon shipment of
products. The Company generally accepts returns of cigars that are stale or
damaged in transit. Sales revenue is recorded net of anticipated returns based
on historical experience. Sales returns are not material.

ADVERTISING AND PROMOTION EXPENSE

Advertising and promotion costs are expensed when incurred. Production costs
of future media advertising are deferred until the advertising first occurs.

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 Company's
other financial instruments are discussed in Note 7.

F-7
<PAGE>
GENERAL CIGAR HOLDINGS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE

The Company is a wholly-owned subsidiary of Culbro and its historical
capital structure does not permit a meaningful presentation of earnings per
share. Accordingly, earnings per share are not presented herein.

RECENTLY ISSUED ACCOUNTING STANDARDS

USE OF ESTIMATES

4. COMBINED CONDENSED PRO FORMA FINANCIAL INFORMATION (UNAUDITED)

The following combined condensed unaudited pro forma financial information
reflects the Company as if the liability portion of the Asset Transfers had
occurred and the Villazon Acquisition had been consummated. The unaudited pro
forma combined condensed statement of operations assumes that the transactions
took place at the beginning of fiscal 1996. The unaudited pro forma combined
condensed balance sheet assumes that the items discussed above occurred at the
balance sheet date. The unaudited pro forma financial information presented
herein may not necessarily reflect the results of operations and financial
position had these items discussed above actually taken place on these dates.
The pro forma financial information reflects the elimination of intercompany
accounts.

F-8
<PAGE>
GENERAL CIGAR HOLDINGS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

4. COMBINED CONDENSED PRO FORMA FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
COMBINED CONDENSED PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED) (DOLLARS IN
THOUSANDS)

<TABLE>
<CAPTION>
NOVEMBER 30,
1996
------------
<S> <C>
Net sales....................................................................... $ 196,694
------------
Operating profit................................................................ 32,324
Other nonoperating income, net.................................................. 1,532
Interest expense................................................................ 11,669
------------
Income before income taxes...................................................... 22,187
Income tax provision............................................................ 8,535
------------
Net income...................................................................... $ 13,652
------------
------------
</TABLE>

COMBINED CONDENSED PRO FORMA BALANCE SHEET (UNAUDITED) (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
NOVEMBER 30,
1996
------------
<S> <C>
Current assets.................................................................. $ 110,788
Property and equipment, net..................................................... 56,857
Intangible assets............................................................... 71,352
Other assets.................................................................... 5,798
------------
Total assets.................................................................... $ 244,795
------------
------------
Current liabilities............................................................. $ 101,295
Long-term debt.................................................................. 72,029
Other noncurrent liabilities.................................................... 26,213
------------
Total liabilities............................................................... 199,537
Culbro Investment............................................................... 45,258
------------
Total liabilities and Culbro Investment......................................... $ 244,795
------------
------------
</TABLE>

5. RELATED PARTY TRANSACTIONS

CULBRO INVESTMENT

The Company maintained an intercompany account with Culbro in which the
intercompany transactions including cash transfers and the liability for benefit
and insurance costs and allocated general and administrative expenses described
below were recorded. The balance in the intercompany account at the end of each
period presented has been included in Culbro Investment in the combined balance
sheet. The

F-9
<PAGE>
GENERAL CIGAR HOLDINGS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

5. RELATED PARTY TRANSACTIONS (CONTINUED)
Culbro Investment account also includes the cumulative net earnings of the
Company and its capital stock. The changes in the Culbro Investment account are
summarized as follows:

<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED,
--------------------------------------
DECEMBER 3, DECEMBER 2, NOVEMBER 30,
1994 1995 1996
----------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance beginning of year............................................... $ 78,741 $ 68,160 $ 66,095
Net income............................................................ 4,550 11,324 12,407
----------- ----------- ------------
83,291 79,484 78,502
----------- ----------- ------------
Transactions with Culbro:
Net operating cash flow transferred to Culbro......................... (23,483) (29,409) (3,290)
Allocated Culbro general and administrative expenses.................. 5,489 8,780 7,169
Allocated Culbro other nonrecurring expense........................... -- -- 3,600
Intercompany income taxes............................................. 2,863 7,240 7,738
----------- ----------- ------------
Total transactions with Culbro, net..................................... (15,131) (13,389) 15,217
----------- ----------- ------------
Balance end of year..................................................... $ 68,160 $ 66,095 $ 93,719
----------- ----------- ------------
----------- ----------- ------------
Average intercompany balance due from Culbro............................ $ (5,097) $ (19,357) $ (18,443)
----------- ----------- ------------
----------- ----------- ------------
</TABLE>

At the end of each month during the three year period ended November 30,
1996, the Company provided cumulative cash flow to Culbro.

TREASURY

Through the date of the expected Offering, the Company's treasury activities
will remain integrated into Culbro's cash management system. The Company's cash
receipts are transferred daily into Culbro's cash account and the Company's cash
disbursement accounts are reimbursed by Culbro on a daily basis. The difference
between cash transferred by the Company to Culbro and reimbursements by Culbro
to the Company's disbursement accounts has been reflected in Culbro Investment
in the combined balance sheet.

INTERCOMPANY ACTIVITIES

The Company's employees participate in certain benefit programs which are
sponsored and administered by Culbro. See Note 8 for discussion of employee
benefit plan costs. The Company's risk insurance and employee medical coverage
are provided through insurance policies and programs purchased by Culbro on
behalf of the Company and Culbro's other subsidiaries. The cost of these items
was allocated based on the specific insurance data related to each subsidiary.
All direct charges relating to the Company for these services, and the Company's
participation in these plans have been charged to the Company by Culbro, and
included in the Company's combined financial statements.

A substantial amount of Culbro management time and resources were related to
the operations of the Company, and Culbro also performed certain specific
administrative functions for the Company, including legal, tax, treasury, human
resources and internal audit. In addition to the direct charges above for
employee benefits and risk insurance, the combined statement of operations
reflects general and administrative expenses of $5.5 million, $8.8 million and
$7.2 million for 1994, 1995 and 1996, respectively,

F-10
<PAGE>
GENERAL CIGAR HOLDINGS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

5. RELATED PARTY TRANSACTIONS (CONTINUED)
allocated by Culbro to the Company for these services. These charges were based
principally on the Company's proportionate share of expenses relating to the
Culbro corporate activities associated with the Company's operations and are
considered by management to be reasonable. These amounts may not necessarily be
indicative of the additional general and administrative expenses the Company
would have incurred had it operated independently during the years presented.

No interest has been charged or paid to Culbro on the net investment
account, and accordingly intercompany interest expense has not been included in
the combined statements of operations. See Notes 4 and 7.

OTHER RELATED PARTY TRANSACTIONS

During 1996, the Company entered into transactions in the ordinary course of
business, with entities with which certain stockholders and board of directors
members of Culbro are associated. In 1996 the aggregate cost of such services to
these firms was approximately $2.3 million.

6. INTERCOMPANY INCOME TAXES

All current tax liabilities were paid by Culbro and accordingly the
Company's current tax liabilities are reflected in the Culbro Investment
account.

Historically, the combined results of operations of the Company were
included in Culbro's consolidated U.S. federal income tax returns, and will be
included in such returns until the Distribution and Merger are consummated. The
income tax provisions and deferred tax liabilities have been calculated in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109
"Accounting for Income Taxes" as if the Company had filed separate tax returns.
The provision for income taxes is summarized as follows:

<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal........................................................ $ 2,374 $ 6,435 $ 7,647
State and local................................................ 446 1,041 1,155
Deferred, principally federal.................................... 43 (236) (1,064)
--------- --------- ---------
$ 2,863 $ 7,240 $ 7,738
--------- --------- ---------
--------- --------- ---------
</TABLE>

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

<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Tax expense at statutory rates................................... $ 2,520 $ 6,497 $ 7,051
State and local income taxes..................................... 294 677 751
Other............................................................ 49 66 (64)
--------- --------- ---------
$ 2,863 $ 7,240 $ 7,738
--------- --------- ---------
--------- --------- ---------
</TABLE>

F-11
<PAGE>
GENERAL CIGAR HOLDINGS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

6. INTERCOMPANY INCOME TAXES (CONTINUED)
The significant components of net deferred tax liabilities are as follows:

<TABLE>
<CAPTION>
1995 1996
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Depreciation............................................................ $ 7,094 $ 7,015
Postretirement benefit liabilities...................................... (2,303) (2,367)
Pension liabilities..................................................... (1,826) (1,901)
Other................................................................... (844) (1,690)
--------- ---------
$ 2,121 $ 1,057
--------- ---------
--------- ---------
</TABLE>

In connection with the expected Offering, Culbro and the Company will enter
into a Tax Sharing Agreement which will provide, among other things, for the
allocation between CLR and the Company of federal, state, local and foreign tax
liabilities for all periods through the Distribution and Merger. With respect to
the consolidated tax returns filed by Culbro, the Tax Sharing Agreement will
provide that the Company will be liable for any amounts that it would have been
required to pay with respect to any deficiencies assessed, generally as if it
had filed separate tax returns.

7. LONG-TERM DEBT

Long-term debt includes:

<TABLE>
<CAPTION>
DECEMBER 2, NOVEMBER 30,
1995 1996
----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Building mortgage................................................. $ 5,000 $ 5,000
Equipment loan.................................................... 4,488 4,218
Capital leases.................................................... 2,809 2,992
----------- ------------
Total............................................................. 12,297 12,210
Less: due within one year......................................... 945 1,131
----------- ------------
Total long-term debt.............................................. $ 11,352 $ 11,079
----------- ------------
----------- ------------
</TABLE>

As of November 30, 1996, the annual payment requirements under the terms of
the building mortgage and equipment loan, for the years 1997 through 2001 are
$0.3 million, $0.4 million, $5.4 million, $0.4 million and $0.4 million,
respectively. The building mortgage is on the 387 PAS corporate office building
which had a net book value of $29.5 million at November 30, 1996. The mortgage,
which bears interest at 2.0% above LIBOR, matures in March 1999 and requires
periodic payments of only interest until maturity. The equipment loan was
entered into in January 1994, and 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. The
equipment had a net book value of $3.0 million at November 30, 1996.

On January 21, 1997, the Company entered into a Credit Agreement with
certain banks which provided financing of $120.0 million for the Villazon
Acquisition, for repayment of the Culbro debt obligation assumed by the Company
in the liability portion of the Asset Transfers and for general working capital
purposes. The Credit Agreement includes a $60.0 million term loan, due on
January 20, 1998 that is required to be prepaid at the time of and with a
portion of the proceeds from the expected Offering, and a revolving credit
facility of $60.0 million, which expires in January 2000. Proceeds from the
expected

F-12
<PAGE>
GENERAL CIGAR HOLDINGS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

7. LONG-TERM DEBT (CONTINUED)
Offering will be used to repay the term loan and reduce amounts outstanding
under the revolving credit facility. In accordance with the terms of the Credit
Agreement, during the period prior to the completion of the expected Offering,
the borrowings under the term loan and revolving credit facility will bear
interest, at the Company's option, of either (1) 1% above the Alternate Base
Rate ("ABR"), which is defined as the greater of the Prime Rate or the Federal
Funds Effective Rate plus 0.5%, (2) the Eurodollar rate plus 2%, or (3) a
combination thereof. After completion of the expected Offering, provided that
the Offering generates proceeds of at least $70.0 million, the borrowings under
the revolving credit facility will bear interest, at the Company's option, of
either (1) the ABR, (2) the Eurodollar rate plus 0.75% or (3) a combination
thereof. The Company will pay a commitment fee of 3/8 of 1% on the unused
portion of the revolving credit facility prior to the expected Offering and 1/4
of 1% after the expected Offering provided the Offering generates proceeds of at
least $70 million. The Credit Agreement includes limitations on indebtedness,
investments and other significant transactions, as defined.

The Company expects to assume approximately $43.8 million of Culbro debt
prior to the Offering as part of the Culbro obligations assumed under the
liability portion of the Asset Transfers. This debt was not an obligation of the
Company in earlier periods and the Company generally has been a net cash
provider to Culbro. Accordingly, this debt and its related interest expense were
not part of the Company's capital structure in the combined financial statements
for any of the periods presented.

Management believes that the amounts reflected on the balance sheet for debt
obligations reflect their current market values based on market interest rates
for comparable risks, maturities and collateral.

F-13
<PAGE>
GENERAL CIGAR HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

8. RETIREMENT BENEFITS

PENSION PLAN

The Company's employees participate in Culbro's noncontributory defined
benefit pension plan, which covers substantially all employees of Culbro and its
subsidiaries. The plan's benefits are 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 of
$0.6 million, $0.4 million and $0.7 million for 1994, 1995 and 1996,
respectively, included in the combined statement of operations reflects the
Company's proportionate share of Culbro's consolidated pension expense based on
the benefit costs attributable to its employees, as determined by the plan's
actuaries. Pension expense in 1996 included $0.3 million related to early
retirement of certain of the Company's employees.

The Company intends to maintain this plan and will be directly responsible
for all of the pension obligations of the plan, including those relating to its
employees and its former employees, as well as all vested employees of Culbro
and its subsidiaries under the plan. The Company expects to continue to provide
its current employees with the existing level of benefits under the plan; all
other Culbro employees will cease to be active participants in the plan. In
connection with the Distribution and Merger, the Company and CLR will enter into
an Employee Benefits Administration Agreement for the purpose of defining the
responsibilities for the administration of the plan. As of November 30, 1996,
the Plan was overfunded and Culbro has not made any contributions to the plan in
the past five years. The pro forma unaudited financial information in Note 4
reflects the effect of the Company's assumption of the Culbro Plan assets and
obligations as if it had occurred on the dates noted therein.

The status of the Culbro pension plan as determined by the plan's actuaries
at December 2, 1995 and November 30, 1996 was as follows (dollars in thousands):

<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Present value of benefits earned by participants including vested
benefits of $53,730 and $52,095 at December 2, 1995 and November
30, 1996, respectively............................................. $ 54,274 $ 52,668
--------- ---------
--------- ---------
Plan assets at fair value, primarily equities........................ $ 64,639 $ 70,711
Present value of projected benefit obligations....................... 56,882 54,759
--------- ---------
Plan assets in excess of projected benefit obligations............... 7,757 15,952
Amount included on Culbro balance sheet.............................. 5,993 6,697
--------- ---------
Unrecognized net asset............................................... $ 13,750 $ 22,649
--------- ---------
--------- ---------
Unrecognized net asset includes:
Net gain from experience differences and assumption changes.......... $ 14,190 $ 23,101
Less: Changes due to plan amendments................................. (203) (321)
Net pension obligation at adoption of SFAS No. 87............... (237) (131)
--------- ---------
Unrecognized net asset............................................... $ 13,750 $ 22,649
--------- ---------
--------- ---------
</TABLE>

Discount rates of 7.50% and 7.75% were used to compute the present value of
pension benefits at December 2, 1995 and November 30, 1996, respectively. A 5%
rate of increase in future compensation levels was used to estimate the
projected pension obligations at both December 2, 1995 and November 30, 1996.
The expected rate of return on pension plan assets in 1994, 1995 and 1996 was
estimated at 9% representing the average long-term rate expected from the
investment of plan assets.

F-14
<PAGE>
GENERAL CIGAR HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

8. RETIREMENT BENEFITS (CONTINUED)
OTHER POSTRETIREMENT BENEFITS

Through the date of the Offering, the Company's employees will participate
in Culbro's postretirement benefits program, which provides principally health
and life insurance benefits to certain of its retired employees. The cost of
such benefits attributable to the Company's employees under the plan's benefit
formula was $0.5 million in fiscal 1994 and in fiscal 1995, respectively, and
$0.4 million in fiscal 1996.

The Company's proportionate share of the present value of the liabilities
for accumulated postretirement benefits, as determined by the Plan's actuaries,
is shown below. None of these liabilities have been funded at December 2, 1995
and November 30, 1996.

<TABLE>
<CAPTION>
1995 1996
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Retirees................................................................ $ 3,678 $ 3,434
Fully eligible active participants...................................... 1,474 1,530
Other active participants............................................... 608 361
Unrecognized net gain from experience differences and
assumption changes.................................................... 308 907
--------- ---------
Liability for other postretirement benefits............................. $ 6,068 $ 6,232
--------- ---------
--------- ---------
</TABLE>

The Company expects that it will continue to provide its employees with the
same level of retiree medical benefits as those provided under the Culbro
program. Additionally, the Company will assume approximately $1.1 million of
retiree medical benefits related to former Culbro employees.

Discount rates of 7.50% and 7.75% were used to compute the accumulated
postretirement benefit obligations at December 2, 1995 and November 30, 1996,
respectively. Because the Company's obligation for retiree 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 in 1993 has not had an adverse effect on cash
flows because postretirement benefits are funded as incurred.

9. STOCK OPTION PLANS

Upon consummation of the Merger and Distribution, the Company intends to
convert all employee stock options outstanding under Culbro's stock option plans
into options to purchase shares of common stock of the Company and shares of
common stock of CLR. The number of outstanding options and exercise prices would
be adjusted to preserve the value of the options. The combined financial
statements of the Company do not reflect any effects that these plans have had
in Culbro's consolidated financial statements. The status of, and transactions
in, the Culbro stock option plans for the periods presented are as summarized
below:

EMPLOYEES STOCK OPTION PLANS

The Culbro 1996 Stock Plan (the "1996 Plan"), 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 500,000, 300,000 and 210,000 shares
of common stock, respectively, for purchase at prices equal to the fair market
value at date of grant. A portion of 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 Culbro.

F-15
<PAGE>
GENERAL CIGAR HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

9. STOCK OPTION PLANS (CONTINUED)
Options are not exercisable until three years from the date of grant and may
be exercised over a period ending not later than ten years from the date of
grant. The exercise period for each grant was determined by Culbro's
Compensation Committee.

At November 30, 1996, a total of 400,000 and 40,300 shares under the 1996
Plan and 1992 Plan, respectively, were available for future grant. There are no
shares available for future grant under the 1991 Plan. None of the options
outstanding at November 30, 1996 may be exercised as stock appreciation rights.
Transactions under the 1996, 1992 and 1991 Plans are summarized as follows:

<TABLE>
<S> <C>
Options outstanding at November 27, 1993.................................. 280,700
Granted during 1994....................................................... 88,300
Expired, canceled and exercised........................................... (33,400)
-----------
Options outstanding at December 3, 1994................................... 335,600
Granted during 1995....................................................... 68,000
Expired, canceled and exercised........................................... (92,200)
-----------
Options outstanding at December 2, 1995................................... 311,400
Granted during 1996....................................................... 134,400
Expired, canceled and exercised........................................... (103,286)
-----------
Options outstanding at November 30, 1996.................................. 342,514
-----------
-----------

Option prices range between:......................................... $12.25 and $80.00

Options exercisable:
December 3, 1994.......................................................... 109,000
December 2, 1995.......................................................... 86,100
November 30, 1996......................................................... 78,114
Expiration of the 1991 Plan............................................... 2001
Expiration of the 1992 Plan............................................... 2002
Expiration of the 1996 Plan............................................... 2006
Number of option holders at November 30, 1996............................. 13
</TABLE>

CULBRO NONEMPLOYEE DIRECTORS STOCK OPTION PLAN

Options granted under the 1996 Stock Option Plan for Nonemployee Directors
(the "1996 Non-employee Plan") and the 1992 Stock Option Plan for Nonemployee
Directors (the "1992 Nonemployee Plan") will also be converted, after adjustment
for dilution, into options to purchase common shares of the Company. Under these
plans 70,000 options have been made available to purchase shares of Culbro
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. As of November
30, 1996, 18,000 options remained available for future grant under the 1996
Nonemployee Plan and 3,000 options remained available for future grant under the
1992 Nonemployee Plan. None of the options outstanding at November 30, 1996 may
be exercised as stock appreciation rights.

F-16
<PAGE>
GENERAL CIGAR HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

9. STOCK OPTION PLANS (CONTINUED)
Transactions under the 1996 and 1992 Nonemployee Plans are as follows:

<TABLE>
<S> <C>
Options outstanding at November 27, 1993.................................. 14,000
Granted during 1994....................................................... 14,000
-----------
Options outstanding at December 3, 1994................................... 28,000
Granted during 1995....................................................... 14,000
-----------
Options outstanding at December 2, 1995................................... 42,000
Granted during 1996....................................................... 7,000
Exercised during 1996..................................................... (6,000)
-----------
Options outstanding at November 30, 1996.................................. 43,000
-----------
-----------

Options prices range between......................................... $14.38 and $63.81

Number of option holders at November 30, 1996............................. 7
</TABLE>

EMPLOYMENT AGREEMENT

Upon consummation of the Distribution and Merger, an employment agreement
entered into in May 1994 between Culbro and an officer of Culbro will become an
obligation of the Company. The agreement provides for the issuance of 125,000
Culbro stock options, exercisable at the rate of 25,000 per year from 1995
through 1999 at an option price of $4.00 per share. These options will become
options to purchase shares of the Company, and the option price will be adjusted
to reflect the dilutive effect referred to above. Through November 30, 1996,
15,000 of these options had been exercised under this agreement. The annual
compensation expense for this agreement is $267,000 through April 1999
reflecting the amortization of the difference between the option price and the
quoted market price at the date of grant.

10. LEASES

The Company has the following noncancelable 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 November 30, 1996 were:

<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C>
1997............................................................................. $ 1,124
1998............................................................................. 907
1999............................................................................. 707
2000............................................................................. 430
2001............................................................................. 286
-----------
Total minimum lease payments..................................................... 3,454
Less: Amounts representing interest.............................................. 462
-----------
Present value of minimum lease payments (a)...................................... $ 2,992
-----------
-----------
</TABLE>

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

(a) Includes current portion of $0.8 million on November 30, 1996.

F-17
<PAGE>
GENERAL CIGAR HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

10. LEASES (CONTINUED)
At December 2, 1995 and November 30, 1996, buildings, machinery and
equipment included capital leases amounting to $3.9 million and $4.2 million,
respectively, which is net of accumulated depreciation of $3.1 million and $3.4
million, respectively. Depreciation expense relating to capital leases was $0.7
million in 1994, 1995 and 1996.

OPERATING LEASES

Future minimum rental payments under noncancellable leases as of November
30, 1996 were:

<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C>
1997............................................................................. $ 802
1998............................................................................. 771
1999............................................................................. 735
2000............................................................................. 687
2001............................................................................. 544
Later years...................................................................... 2,175
-----------
Total minimum lease payments..................................................... $ 5,714
-----------
-----------
</TABLE>

Total rental expense for all operating leases in 1994, 1995 and 1996 was
$0.1 million, $0.1 million and $0.6 million, respectively.

11. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION

NET SALES

Excise taxes paid on cigar sales of $5.5 million, $7.0 million and $7.9
million for 1994, 1995 and 1996, respectively, are included in net sales and
cost of goods sold.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE

Included in selling, general and administrative expenses were advertising
expenses of $1.0 million, $2.8 million and $4.4 million for 1994, 1995 and 1996,
respectively.

OTHER NONRECURRING EXPENSE

Other nonrecurring expense in 1996 includes the allocation to the Company of
charges recorded by Culbro in connection with the termination of a management
long-term incentive compensation plan which was based on Culbro's stock price,
and the acceleration of the vesting of benefits under the plan, in anticipation
of the expected Offering. Additionally, the other nonrecurring expense item
includes accruals for severance and related expenses in connection with a
headcount reduction at the Culbro corporate office. The Company's allocable
share of these expenses was determined substantially on the same basis as the
allocation of Culbro's general and administrative expenses referred to in Note 5
and is considered to be reasonable.

GAIN ON INSURANCE SETTLEMENT

The gain on insurance settlement in the 1995 statement of operations
reflects the settlement of a property insurance claim related to a 1994 fire
that destroyed an administration and warehouse facility owned and operated by
General Cigar. The gain reflected total proceeds of $2.7 million less the book
value of the destroyed building.

F-18
<PAGE>
GENERAL CIGAR HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

11. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION (CONTINUED)
OTHER NONOPERATING INCOME (EXPENSE)

Other nonoperating income (expense) includes principally the net results of
leasing activity in the 387 PAS office building. In 1995, the net expense
included a breakup fee paid and certain other expenses incurred by General Cigar
to terminate a proposed agreement to sell approximately fifty percent of its
business.

INVENTORIES

Inventories consists of:

<TABLE>
<CAPTION>
DECEMBER 2, NOVEMBER 30,
1995 1996
----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Raw materials and supplies........................................ $ 30,640 $ 43,704
Work-in-process................................................... 2,633 4,529
Finished goods.................................................... 4,570 5,469
----------- ------------
$ 37,843 $ 53,702
----------- ------------
----------- ------------
</TABLE>

PROPERTY AND EQUIPMENT

Property and equipment consist of:

<TABLE>
<CAPTION>
DECEMBER 2, NOVEMBER 30, ESTIMATED
1995 1996 USEFUL LIVES
----------- ------------ ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Land........................................... $ 2,542 $ 2,534
Buildings and improvements..................... 54,592 58,225 10 to 40 years
Machinery and equipment........................ 27,830 33,470 3 to 7 years
----------- ------------
84,964 94,229
Accumulated depreciation....................... (38,472) (41,722)
----------- ------------
$ 46,492 $ 52,507
----------- ------------
----------- ------------
</TABLE>

Included in land and buildings is the Company's New York City headquarters
building, which had a cost of $39.5 million and accumulated depreciation of
$10.0 million at November 30, 1996.

Total depreciation expense was $3.2 million, $3.5 million and $3.7 million
for 1994, 1995, and 1996, respectively.

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities include trade payables of $8.0
million and $11.5 million for 1995 and 1996, respectively, accrued salaries,
wages and other compensation of $5.8 million and $4.5 million for 1995 and 1996,
respectively, and other accrued liabilities of $7.0 million and $6.8 million for
1995 and 1996, respectively, primarily accrued workers compensation and general
liability insurance.

SUPPLEMENTAL CASH FLOW INFORMATION

Tax payments were made by Culbro on behalf of the Company. General Cigar has
been included in Culbro's consolidated federal income tax returns (see Note 6).
Accordingly, tax payments made by Culbro are reflected in net transactions with
Culbro on the combined statement of cash flows. Interest paid by the Company was
$0.6 million, $1.0 million and $1.0 million for 1994, 1995 and 1996,
respectively.

F-19
<PAGE>
GENERAL CIGAR HOLDINGS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

12. BUSINESS SEGMENT INFORMATION

The Company's operations are conducted within one business segment
comprising the manufacturing and marketing of cigars, sold primarily in the
United States, and related activities including the distribution of lighters,
and the operation of a cigar bar. The Company's export sales are not material.

13. COMMITMENTS AND CONTINGENCIES

A portion of the insurance claims related to the loss of an administration
and warehouse facility owned and operated by General Cigar was settled in 1995
(see Note 11), but certain claims remain outstanding. The amounts, if any, for
which these claims will be settled cannot be evaluated at this time.

In connection with the sale of a former subsidiary by Culbro, the Company
remains liable on a machinery lease obligation of approximately $3.0 million
assumed by the purchaser of that former subsidiary.

At November 30, 1996 the Company has entered into firm commitments for
capital expenditures of approximately $5.7 million for the expansion of its
manufacturing and distribution facilities and the addition of machinery and
equipment.

The Company believes that the outcome of currently pending legal proceedings
will not, in the aggregate, have a material adverse effect on the Company's
combined financial position.

F-20
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Shareholders and Directors
of Culbro Corporation

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Villazon & Company, Inc. and Subsidiary at December 31, 1995 and at October 31,
1996, and the results of their operations and their cash flows for years ended
December 31, 1994 and 1995 and the ten months ended October 31, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
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 disclosed in the consolidated financial statements, the Company has extensive
transactions and relationships with related parties. Because of these
relationships, it is possible that the terms of these transactions are not the
same as those that would result from transactions among wholly unrelated
parties.

PRICE WATERHOUSE LLP

Tampa, Florida

December 20, 1996

F-21
<PAGE>
VILLAZON & COMPANY, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $5,132,784 $ 9,121,536
Accounts receivable:
Trade--less allowance for uncollectible accounts of $3,477 and $0................ 3,951,477 6,372,234
Related party receivables........................................................ 17,587 411,300
Insurance claim receivable....................................................... 104,110 --
Inventories...................................................................... 4,053,521 4,220,111
Advances to suppliers............................................................ -- 593,949
Prepaid expenses................................................................. 203,607 260,106
------------ ------------
Total current assets........................................................... 13,463,086 20,979,236
Cash surrender value of insurance on lives of officers, net of policy loans of
$55,027 and $0..................................................................... 867,186 1,084,949
Available-for-sale securities........................................................ 41,121 46,261
Property, plant and equipment, net................................................... 996,658 926,744
Trademarks, at cost, less amortization of $38,886, and $33,139....................... 99,736 151,504
------------ ------------
Total assets................................................................... $15,467,787 $ 23,188,694
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Debt due within one year........................................................... $ 479,736 $ 194,590
Accounts payable................................................................... 1,247,268 1,323,496
Related party payables............................................................. 12,662 1,287,223
Income taxes payable............................................................... 34,303 175,978
Accrued liabilities:
Bonuses, vacation, salaries and wages............................................ 196,294 428,543
Contribution to profit-sharing plan.............................................. 224,099 186,749
Other............................................................................ 1,423 72,743
------------ ------------
Total current liabilities...................................................... 2,195,785 3,669,322
------------ ------------
Excess of fair market value over cost of net assets acquired......................... 170,635 161,747
Long-term debt....................................................................... 3,267,205 5,396,729
Minority interest.................................................................... 290,636 344,765
------------ ------------
Total liabilities.............................................................. 5,924,261 9,572,563
------------ ------------
Commitments and contingencies (Notes 8, 9 and 11).................................... -- --

Stockholders' equity:
Common stock, $50 par value: authorized 10,000 shares; issued and outstanding 4,264
shares........................................................................... 213,200 213,200
Capital in excess of par value..................................................... 223,659 223,659
Unrealized gains on securities..................................................... 41,121 46,261
Retained earnings.................................................................. 9,065,546 13,133,011
------------ ------------
Total stockholders' equity..................................................... 9,543,526 13,616,131
------------ ------------
Total liabilities and stockholders' equity..................................... $15,467,787 $ 23,188,694
------------ ------------
------------ ------------
</TABLE>

The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.

F-22
<PAGE>
VILLAZON & COMPANY, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS
DECEMBER 31, ENDED
---------------------------- OCTOBER 31,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net sales........................................................... $ 22,464,641 $ 27,241,820 $ 34,674,257
------------- ------------- -------------
Costs and expenses:
Cost of sales..................................................... 14,184,218 17,030,427 20,785,924
Selling, general and administrative............................... 4,656,384 5,102,164 4,607,815
------------- ------------- -------------
18,840,602 22,132,591 25,393,739
------------- ------------- -------------
Operating income.................................................... 3,624,039 5,109,229 9,280,518
------------- ------------- -------------
Other income (expense):
Interest income................................................... 32,222 135,937 172,823
Interest expense.................................................. (279,817) (455,815) (475,384)
Other............................................................. 60,276 41,224 94,524
------------- ------------- -------------
(187,319) (278,654) (208,037)
------------- ------------- -------------
Income from continuing operations before income taxes and minority
interest.......................................................... 3,436,720 4,830,575 9,072,481
------------- ------------- -------------
Income taxes:
Current........................................................... 89,758 129,220 276,160
Deferred.......................................................... (3,987) 7,643 --
------------- ------------- -------------
Total income taxes.................................................. 85,771 136,863 276,160
------------- ------------- -------------
Income before minority interest in earnings......................... 3,350,949 4,693,712 8,796,321
Minority interest share of earnings of consolidated subsidiary...... (16,172) (32,652) (54,129)
------------- ------------- -------------
Net income.......................................................... $ 3,334,777 $ 4,661,060 $ 8,742,192
------------- ------------- -------------
------------- ------------- -------------
Earnings per share.................................................. $ 782.08 $ 1,093.12 $ 2,050.23
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.

F-23
<PAGE>
VILLAZON & COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 1994 AND 1995,

AND TEN MONTHS ENDED OCTOBER 31, 1996

<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN TOTAL
----------------------- EXCESS OF UNREALIZED RETAINED STOCKHOLDERS'
SHARES AMOUNT PAR VALUE GAINS EARNINGS EQUITY
----------- ---------- ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993.................. 4,264 $ 213,200 $ 223,659 $ -- $ 5,685,093 $ 6,121,952
Net income for the year 1994................ 3,334,777 3,334,777
Distributions to stockholders............... (1,314,685) (1,314,685)
----- ---------- ---------- ----------- ------------- -------------
Balance at December 31, 1994.................. 4,264 213,200 223,659 7,705,185 8,142,044
Change in unrealized gains on
available-for-sale securities............. 41,121 41,121
Net income for the year 1995................ 4,661,060 4,661,060
Distributions to stockholders............... (3,300,699) (3,300,699)
----- ---------- ---------- ----------- ------------- -------------
Balance at December 31, 1995.................. 4,264 213,200 223,659 41,121 9,065,546 9,543,526
Change in unrealized gains on
available-for-sale securities............. 5,140 5,140
Net income for the ten months ended October
31, 1996.................................. 8,742,192 8,742,192
Distributions to stockholders............... (4,674,727) (4,674,727)
----- ---------- ---------- ----------- ------------- -------------
Balance at October 31, 1996................... 4,264 $ 213,200 $ 223,659 $ 46,261 $ 13,133,011 $ 13,616,131
----- ---------- ---------- ----------- ------------- -------------
----- ---------- ---------- ----------- ------------- -------------
</TABLE>

The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.

F-24
<PAGE>
VILLAZON & COMPANY, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS
DECEMBER 31, ENDED
-------------------------- OCTOBER 31,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................................. $ 3,334,777 $ 4,661,060 $ 8,742,192
Adjustments to reconcile net income to net cash provided by operating
activities:
Gain on sale of assets.................................................... (21,000) -- --
Depreciation and amortization............................................. 123,370 143,910 144,840
Provision for deferred income taxes....................................... (3,987) 7,643 --
Minority interest in earnings............................................. 16,172 32,652 54,129
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable--trade.............................................. (535,237) (575,468) (2,420,757)
Accounts receivable--related parties.................................... 24,650 (2,586) (393,713)
Insurance claims receivable............................................. -- (104,110) 104,110
Inventories............................................................. 1,052,671 136,697 (166,590)
Advances to suppliers................................................... -- -- (593,949)
Prepaid expenses........................................................ 56,153 (54,300) (56,499)
Trademarks.............................................................. (29,296) (34,069) (60,764)
Increase (decrease) in liabilities:
Accounts payable........................................................ 306,319 178,439 76,228
Related party payables.................................................. (690,458) (77,500) 1,274,561
Income taxes payable.................................................... 10,989 9,346 141,675
Accrued liabilities..................................................... (8,484) 16,198 266,219
------------ ------------ ------------
Net cash provided by operating activities................................... 3,636,639 4,337,912 7,111,682
------------ ------------ ------------

INVESTING ACTIVITIES:
Decrease (increase) in cash surrender value of insurance on lives of
officers.................................................................. 96,546 (51,655) (217,763)
Purchase of property, plant and equipment................................... (46,290) (558,320) (74,818)
Proceeds from sale of property, plant and equipment......................... 21,000 -- --
------------ ------------ ------------
Net cash provided by (used in) investing activities......................... 71,256 (609,975) (292,581)
------------ ------------ ------------

FINANCING ACTIVITIES:
Net payments on related party debt.......................................... (9,219) (45,334) (285,146)
Net proceeds from long-term debt............................................ 367,844 686,052 2,129,524
Distributions to stockholders............................................... (1,314,685) (3,300,699) (4,674,727)
------------ ------------ ------------
Net cash used by financing activities....................................... (956,060) (2,659,981) (2,830,349)
------------ ------------ ------------

Net increase in cash........................................................ 2,751,835 1,067,956 3,988,752
Cash and cash equivalents at beginning of year.............................. 1,312,993 4,064,828 5,132,784
------------ ------------ ------------
Cash and cash equivalents at end of year.................................... $ 4,064,828 $ 5,132,784 $ 9,121,536
------------ ------------ ------------
------------ ------------ ------------

SUPPLEMENTAL DISCLOSURES:
Cash paid for income taxes.................................................. $ 67,217 $ 121,228 $ 133,168
------------ ------------ ------------
------------ ------------ ------------
Cash paid for interest...................................................... $ 278,395 $ 455,770 $ 434,704
------------ ------------ ------------
------------ ------------ ------------

NONCASH INVESTING AND FINANCING ACTIVITIES:
Available-for-sale securities received as a result of demutualization of
insurance company......................................................... $ -- $ 41,121 $ 5,140
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.

F-25
<PAGE>
VILLAZON & COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS

Villazon & Company, Inc. (the "Company") is a Florida corporation based in
Tampa, Florida. The Company manufactures and sells cigars and related products.
The manufacturing operations are located in Tampa, Florida. The distribution
operations are based in Upper Saddle River, New Jersey. The principal markets
for the Company are within the United States. Approximately 80% of the labor
force is covered by a collective bargaining agreement which expires in March
1997.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements of the Company include the accounts of
the Company and its majority-owned (79.01%) subsidiary, James B. Russell, Inc.
("JBR"), a New Jersey corporation based in Upper Saddle River, New Jersey. All
material intercompany accounts and transactions have been eliminated.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on deposit in time deposit accounts
which mature within 90 days of purchase.

INVENTORIES

Supplies, work in process and finished goods are valued at the lower of cost
(using the first-in, first-out method) or market. Leaf tobacco is valued at the
lower of cost (using the specific identification method) or market.

Leaf tobacco includes tobacco in the process of aging, a substantial amount
of which may not be used within one year. It is industry practice to include
such inventories as current assets. Leaf tobacco also includes tobacco in bond
which is subject to customs duties upon withdrawal from bond. Following industry
practice, the Company does not include such duties in inventories until paid.

AVAILABLE-FOR-SALE SECURITIES

Management determines the appropriate classification of securities at the
time of acquisition and re-evaluates such designation as of each balance sheet
date. Marketable equity securities are classified as available-for-sale.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses reported in a separate component of stockholders' equity.
Available-for-sale securities at December 31, 1995, and October 31, 1996 are
equity securities in an insurance company issued at the time of conversion from
a mutual to a stock company with zero cost basis and estimated fair value of
$41,121 and $46,261, respectively.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are recorded at cost and depreciated using
accelerated methods. Maintenance and repairs are charged to expense as incurred.

TRADEMARKS

Trademarks consist of registered tradenames of cigars or other tobacco
brands, and are initially capitalized at acquisition cost. Costs associated with
renewal of trademark registrations are also capitalized. Trademarks are being
amortized on a straight line basis over 5 to 15 years. Related amortization
expense of $4,343, $10,339 and $8,996 for the years ended December 31, 1994 and
1995 and the ten months ended October 31, 1996, respectively, is included in
selling, general and administrative expenses.

F-26
<PAGE>
VILLAZON & COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EXCESS OF FAIR MARKET VALUE OVER THE COST OF NET ASSETS ACQUIRED

The excess of the fair market value over the cost of net assets acquired
(negative goodwill) resulted from the acquisition of certain JBR stock and is
being amortized on the straight-line basis over 20 years. The related
amortization of $10,665, $10,665 and $8,888 for the years ended December 31,
1994 and 1995 and the ten months ended October 31, 1996, respectively, is
included as a reduction of selling, general and administrative expenses.

REVENUE RECOGNITION

Sales and the related costs of sales are recognized primarily upon shipment
of products. Excise taxes for the years ended December 31, 1994 and 1995, and
for the ten months ended October 31, 1996, were approximately $1,005,000,
$1,149,000 and $1,232,000, respectively, and are included in net sales and cost
of sales in the consolidated statements of income.

EARNINGS PER SHARE

Earnings per share of common stock is computed by dividing net income by the
weighted average number of common shares outstanding during the period. Primary
and fully diluted earnings per share are equivalent.

ESTIMATES

Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements. Actual results could
differ from the estimates.

FINANCIAL INSTRUMENTS

The Company's financial instruments include cash and cash equivalents,
accounts receivable, advances to suppliers, cash surrender value of insurance on
lives of officers, available-for-sale securities, notes payable, accounts
payable and long-term debt. In the opinion of management, the carrying amount of
these financial instruments approximates their fair value.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of accounts receivable. The Company's customers
are geographically dispersed but are concentrated in the tobacco industry. The
Company historically has had no material losses on its accounts receivable from
customers in excess of allowances provided. The Company's two largest customers
accounted for approximately $3,516,139 (16%) and $3,136,208 (14%), $4,048,250
(15%) and $3,633,613 (13%), and $7,292,041 (21%) and $3,848,001 (11%) of net
sales for the years ended December 31, 1994 and 1995, and for the ten months
ended October 31, 1996, respectively.

3. INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Leaf tobacco..................................................... $ 502,959 $ 917,842
Work in process.................................................. 899,229 1,010,458
Finished goods................................................... 2,218,363 1,832,677
Supplies......................................................... 432,970 459,134
------------ ------------
$4,053,521 $ 4,220,111
------------ ------------
------------ ------------
</TABLE>

F-27
<PAGE>
VILLAZON & COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. ADVANCES TO SUPPLIERS

Advances to suppliers at October 31, 1996 consist of the following:

<TABLE>
<S> <C>
Advances to tobacco grower........................................ $ 390,000
Advances--other................................................... 203,949
---------
$ 593,949
---------
---------
</TABLE>

During 1996, the Company, under a three year verbal agreement with a tobacco
supplier, advanced $390,000 to finance the growing, harvesting, curing and
sorting of tobacco. The Company will be reimbursed for its advances from annual
proceeds from the sale of crop. In addition, annual net income, if any, of the
supplier during the term of the arrangement will be divided equally between the
supplier and the financiers of the tobacco growing venture. The Company will
have the right of first refusal to purchase its proportionate share of tobacco
grown during the term of the arrangement. The Company is at risk for potential
crop loss. As of October 31, 1996, no tobacco has been purchased by the Company
from the supplier.

The Company has also advanced approximately $204,000 to two tobacco
suppliers in South America and Mexico during 1996 as a deposit on future
purchases.

5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment and related accumulated depreciation and
amortization of capital leases are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1995 1996
------------- -------------
<S> <C> <C>
Land............................................................ $ 51,526 $ 51,526
Buildings and improvements...................................... 434,145 434,145
Machinery and equipment......................................... 555,244 550,960
Transportation equipment........................................ 543,423 543,423
Office furniture and equipment.................................. 489,576 518,694
Leasehold improvements.......................................... 205,752 201,130
Ground lease rights............................................. 132,214 132,214
------------- -------------
2,411,880 2,432,092
Less accumulated depreciation................................... (1,415,222) (1,505,348)
------------- -------------
$ 996,658 $ 926,744
------------- -------------
------------- -------------
</TABLE>

Depreciation is determined on the straight-line and accelerated methods
using estimated useful lives as follows:

<TABLE>
<S> <C>
5--31 1/2
Buildings and improvements.................................... years
Machinery and equipment....................................... 4--15 years
Transportation equipment...................................... 3--12 years
Office furniture and equipment................................ 5--10 years
Leasehold improvements........................................ 5--10 years
</TABLE>

Ground lease rights, including land and building, were acquired in a 1980
acquisition of a cigar company with 72 years of the original 99 year lease term
remaining. The portion of the purchase price related to the building is included
in buildings and improvements above. The lease rights related to the land are
amortized based on the straight-line method over the remaining life of the lease
which is 72 years.

Depreciation expense was $129,692 and $144,236 in 1994 and 1995,
respectively and $144,732 for the ten months ended October 31, 1996.

F-28
<PAGE>
VILLAZON & COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. DEBT

<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Prime plus 1/2% (8.75% at October 31, 1996) unsecured demand notes payable to related
parties............................................................................ $ 461,352 $ 182,649
Prime plus 1/2% (8.75% at October 31, 1996) unsecured notes payable to officers and
stockholders, due in 1999 or payable 13 months after notice........................ 3,256,370 5,394,043
12.07% capital lease obligation on vehicles due $1,203 per month through 1997........ 18,685 9,165
10.38% capital lease obligation on UPS manifest system, due $1,912 per quarter
through 1997....................................................................... 10,534 5,462
------------ ------------
3,746,941 5,591,319
Less amount due within one year...................................................... (479,736) (194,590)
------------ ------------
Long-term debt due after one year.................................................... $3,267,205 $ 5,396,729
------------ ------------
------------ ------------
</TABLE>

Total interest expense to related parties was $267,634 in 1994, $445,180 in 1995
and $469,569 for the ten months ended October 31, 1996.

The maturities of long-term debt at October 31, 1996 are as follows:

7. RELATED PARTY TRANSACTIONS

The Company has had transactions in the normal course of business with
various other corporations, certain of whose directors or officers are also
directors of the Company.

HATSA

Certain stockholders of the Company hold a 45% interest in Honduras American
Tabaco, S.A. ("HATSA"). The Company purchases cigars, boxes and tobacco leaf
from HATSA, and the Company sells tobacco and other supplies purchased from
third parties to HATSA. Purchases and sales are netted, resulting in a net
receivable or payable to HATSA. The net receivable (payable) was approximately
$17,587 at December 31, 1995 and ($1,287,223) at October 31, 1996. Payments to
HATSA are made when requested by HATSA. Approximately $5,668,000 in purchases
were made in 1994, $7,450,000 in 1995 and $9,637,000 as of October 31, 1996, and
approximately $1,590,000 in sales were made in 1994, $2,141,000 in 1995 and
$2,618,000 as of October 31, 1996.

NATSA

Nicaragua American Tabaco, S.A. ("NATSA") was formed in 1996 and is owned by
parties related to the Company including a minority stockholder and an employee.
The Company began purchasing cigars from NATSA in 1996 and, at October 31, 1996,
is the only customer. The Company has advanced money to NATSA for future
purchases and sells tobacco purchased from other suppliers to NATSA, resulting
in a net receivable from NATSA of approximately $411,300.

MANUFACTURERS BANK

Certain stockholders and members of the Company's Board of Directors are
also stockholders and members of the Board of Directors of The Manufacturers
Bank of Florida. The Company uses banking

F-29
<PAGE>
VILLAZON & COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. RELATED PARTY TRANSACTIONS (CONTINUED)
services provided by and purchases certificates of deposit issued by The
Manufacturers Bank of Florida. Fees paid to The Manufacturers Bank of Florida
were immaterial.

TINDER BOX INTERNATIONAL

A major stockholder of the Company owns 37.5% of Tinder Box International,
Ltd. ("TBI"). In August 1989, the Company entered into a ten-year license
agreement with TBI which provides the Company the right to sell and distribute
specialized products. In consideration of the license granted, the Company
remits a royalty to TBI based on a percentage of net sales of the products sold
under the license. The license agreement provides for a 6% royalty percentage
which will increase to 7% or 8% if related sales during any twelve-month period
exceed $3,000,000 or $5,000,000, respectively. Prior to 1994, the license
agreement was verbally amended to reduce the royalty percentage to 3% on sales
$3,000,000 and less. Royalty expense for the years ended December 31, 1994 and
1995 was approximately $37,000 and $43,000, respectively, and was $51,000 for
the ten months ended October 31, 1996 (at 3% of the related sales).

The terms of the license agreement also contain certain covenants whereby at
the option of the licensee or licensor, the license agreement may be terminated.
These terms include the sale of majority ownership of the Company or a sale of
all or a substantial portion of the Company's stock. Additionally, the Company
has agreed that if TBI is sold, the Company will terminate its ownership of
Tinderbox Wholesale Division which was originally purchased from TBI. TBI shall
purchase all of the Company's inventories of Tinder Box Products, at licensee's
cost, and all of the equipment, fixtures and supplies which the Company
purchased from TBI at the lesser of market value or depreciated cost.

OTHER

Rentals paid to related parties were approximately $302,500 in 1994 and
1995, and $246,500 for the ten months ended October 31, 1996. See Note 11 for
related party leases.

See Note 6 for related party debt.

8. STOCK PURCHASE AGREEMENT AND PROPOSED SALE

Under an agreement between the Company and its stockholders, any stockholder
desiring to pledge, encumber or otherwise dispose of his stock in the Company
during his lifetime shall first obtain the written consent of the Company and
the stockholders. Stock may be sold, however, if the stock is first offered to
the Company and the nonselling stockholders at the same price and on the same
terms and conditions as those offered to the third party. The offered shares may
be sold to any other person if both the Company and the remaining stockholders
do not exercise their rights. Under terms of the agreement, the purchase price
of each share of stock purchased in a transfer upon death shall be $3,517.82
unless redetermined by agreement of the Company and the stockholders.

The stock purchase agreement also calls for the Company to maintain life
insurance policies to insure or partially insure its obligations under the
agreement. Additionally, in the event a stockholder sells all of his stock in
the Company, the stockholder shall have the right to purchase from the Company
the insurance policies on his life for a price equal to the cash surrender value
and accumulated dividends, less the balance of any outstanding loans.

F-30
<PAGE>
VILLAZON & COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. EMPLOYEE BENEFITS

All factory employees are participants in the Cigar Makers' Union Local 533,
Retail, Wholesale and Department Store Union Plan which is a multi-employer
defined benefit plan. The Company's contribution is based on the rate of $0.70
per hour for the first 40 hours per week per employee in 1994, 1995 and 1996.
Under the Employee Retirement Income Security Act of 1974, as amended by the
Multi-employer Pension Plan Amendments Act of 1980, an employer is liable for a
proportionate part of the plan's unfunded vested benefits. The relative position
of each employer with respect to actuarial present value of accumulated benefits
and net assets available for benefits, however, is not available to the Company.

Profit-sharing plans cover nonunion employees who meet certain eligibility
requirements. The plans are funded by discretionary contributions from the
Company and JBR. Contributions to the profit-sharing plans were $216,584 and
$224,099 in 1994 and 1995, respectively, and $186,749 for the ten months ended
October 31, 1996.

The expenses of these plans are as follows:

<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS
DECEMBER 31, ENDED
---------------------- OCTOBER 31,
1994 1995 1996
---------- ---------- -----------
<S> <C> <C> <C>
Union plan charge to cost of sales........................................... $ 128,976 $ 143,234 $ 117,000
Profit-sharing plan charged to selling, general and administrative
expenses................................................................... 216,584 224,099 186,749
---------- ---------- -----------
$ 345,560 $ 367,333 $ 303,749
---------- ---------- -----------
---------- ---------- -----------
</TABLE>

10. INCOME TAXES

The Company has elected by unanimous consent of its stockholders to be taxed
under the provisions of Subchapter S of the Internal Revenue Code. Under those
provisions, the Company generally does not pay federal corporate income taxes on
its taxable income. Instead, the stockholders are liable for individual federal
income taxes on their respective share of the Company's taxable income. Certain
states do not recognize the Subchapter S election and, accordingly, require the
payment of taxes by the Company.

JBR is subject to income tax under Subchapter C of the Internal Revenue
Code. No significant differences exist between book and taxable income and,
accordingly, JBR's effective tax rate approximates the combined state and
federal statutory rate.

The provision (benefit) for income taxes for the years ended December 31,
1994 and 1995, respectively, and the ten months ended October 31, 1996 consisted
of the following:

<TABLE>
<CAPTION>
TEN MONTHS
YEARS ENDED ENDED
DECEMBER 31, OCTOBER
--------------------- 31,
1994 1995 1996
--------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal.................................................. $ 43,716 $ 62,107 $ 142,307
State.................................................... 46,042 67,113 133,853
Deferred................................................... (3,987) 7,643 --
--------- ---------- ----------
$ 85,771 $ 136,863 $ 276,160
--------- ---------- ----------
--------- ---------- ----------
</TABLE>

F-31
<PAGE>
VILLAZON & COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

The Company occupies premises in Upper Saddle River, New Jersey. The
building is owned by Glordiane Realty, a partnership of the principals of the
Company. A ten year lease, effective December 1, 1984, provided for rent of
approximately $24,000 per month effective July 1, 1985 plus a proportionate
share of any increase in realty taxes and expenses. The lease was renewed for an
additional five years under the same terms and conditions as of December 1, 1994
and expires on December 1, 1999.

Future minimum rental commitments for all noncancelable operating leases are
as follows:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, TOTAL
- ---------------------------------------------------------------------------------- ----------
<S> <C>
1997.............................................................................. $ 314,500
1998.............................................................................. 292,500
1999.............................................................................. 292,500
</TABLE>

LITIGATION

The Company is party to litigation in the normal course of business. While
the result of litigation cannot be predicted with certainty, the Company
believes that the final outcome of all litigation will not have a material
adverse effect on the Company's consolidated financial condition.

ENVIRONMENTAL CLAIM

In May 1995, the Company and other parties were notified by the Metropolitan
Dade Environmental Resource Management Office of alleged environmental
contamination on a parcel of land of which Villazon is a lessee/sub-lessor. The
Company contends that they are not the cause of the contamination at this site.
The ultimate resolution of this matter is not known at this time.

12. SUBSEQUENT EVENT

On November 25, 1996, the Company entered into a preliminary agreement to
sell substantially all of the assets of the Company to General Cigar Co., Inc.
The purchase agreement and related terms have not been finalized.

F-32
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Directors of
Culbro Corporation

In our opinion, the accompanying balance sheets and the related statements of
operations and retained earnings and of cash flows present fairly, in all
material respects, the financial position of Honduras American Tabaco, S.A. de
C.V. at December 31, 1995, and October 31, 1996 and the results of its
operations and its cash flows for the years ended December 31, 1994 and 1995 and
the ten months ended October 31, 1996 in conformity with generally accepted
accounting principles in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

As discussed in the financial statements, the Company has extensive transactions
and relationships with related parties. Because of these relationships, it is
possible that the terms of these transactions are not the same as those that
would result from transactions among wholly unrelated parties.

PRICE WATERHOUSE

Tegucigalpa, Honduras
December 20, 1996

F-33
<PAGE>
HONDURAS AMERICAN TABACO, S.A. DE C.V.

BALANCE SHEETS

(EXPRESSED IN U.S. DOLLARS)

<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash............................................................................... $ 611,512 $ 579,423
Accounts receivable--trade......................................................... 115,314 110,712
Related party receivables.......................................................... -- 1,287,823
Inventories........................................................................ 3,670,742 4,296,294
Prepaid expenses................................................................... 14,424 47,365
------------ ------------
Total current assets............................................................. 4,411,992 6,321,617

Property, plant and equipment, net................................................. 395,808 561,381
Other assets....................................................................... 6,000 6,000
------------ ------------
Total assets..................................................................... $4,813,800 $ 6,888,998
------------ ------------
------------ ------------

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities........................................... $ 83,020 $ 678,877
Related party payables............................................................. 280,623 102,237
Dividends payable.................................................................. -- 374,960
------------ ------------
Total current liabilities........................................................ 363,643 1,156,074
------------ ------------
Commitments (Note 9)................................................................. -- --

STOCKHOLDERS' EQUITY
Common stock....................................................................... 2,105,328 2,105,328
Retained earnings.................................................................. 2,344,829 3,627,596
------------ ------------
Total stockholders' equity....................................................... 4,450,157 5,732,924
------------ ------------
Total liabilities and stockholders' equity....................................... $4,813,800 $ 6,888,998
------------ ------------
------------ ------------
</TABLE>

The accompanying notes to financial statements are an integral part
of these financial statements.

F-34
<PAGE>
HONDURAS AMERICAN TABACO, S.A. DE C.V.

STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

(EXPRESSED IN U.S. DOLLARS)

<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS
DECEMBER 31, ENDED
--------------------------- OCTOBER 31,
1994 1995 1996
------------ ------------- -------------
<S> <C> <C> <C>
Net sales............................................................. $ 5,832,953 $ 7,282,830 $ 10,197,501
------------ ------------- -------------
Cost and expenses
Cost of goods sold.................................................. 3,818,682 5,249,450 6,758,968
Administrative expenses............................................. 168,099 202,965 214,444
------------ ------------- -------------
Operating profit...................................................... 1,846,172 1,830,415 3,224,089
Other income (expense)................................................ 9,048 (2,045) (35,490)
Foreign currency losses............................................... (344,818) (337,799) (54,643)
------------ ------------- -------------
Net income............................................................ 1,510,402 1,490,571 3,133,956
Retained earnings--beginning of the period............................ 1,562,881 2,302,035 2,344,829
Distribution to stockholders.......................................... (771,248) (1,447,777) (1,851,189)
------------ ------------- -------------
Retained earnings--end of the period.................................. $ 2,302,035 $ 2,344,829 $ 3,627,596
------------ ------------- -------------
------------ ------------- -------------
Earnings per share.................................................... $ 7.55 $ 7.45 $ 15.67
------------ ------------- -------------
------------ ------------- -------------
</TABLE>

The accompanying notes to financial statements are an integral part
of these financial statements.

F-35
<PAGE>
HONDURAS AMERICAN TABACO, S.A. DE C.V.

STATEMENTS OF CASH FLOWS

(EXPRESSED IN U.S. DOLLARS)

<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS
DECEMBER 31, ENDED
---------------------------- OCTOBER 31,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income......................................................... $ 1,510,402 $ 1,490,571 $ 3,133,956
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation....................................................... 78,900 78,359 72,991
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable--trade....................................... 66,124 (32,426) 4,602
Related party receivables........................................ 930,820 77,500 (1,287,823)
Inventories...................................................... (840,352) (608,206) (625,552)
Prepaid expenses................................................. 7,503 (4,485) (32,941)
Increase (decrease) in liabilities:
Related party payables........................................... 23,050 107,438 (178,386)
Accounts payable and accrued liabilities......................... (248,452) (38,105) 595,857
------------- ------------- -------------
Net cash provided by operating activities............................ 1,527,995 1,070,646 1,682,704
------------- ------------- -------------
INVESTING ACTIVITIES:
Purchase of property, plant and equipment.......................... (290,381) (76,672) (238,564)
------------- ------------- -------------
Net cash used in investing activities................................ (290,381) (76,672) (238,564)
------------- ------------- -------------
FINANCING ACTIVITIES:
Paid in capital.................................................... -- 475,698 --
Distributions to stockholders...................................... (771,248) (1,447,777) (1,476,229)
------------- ------------- -------------
Net cash used in financing activities................................ (771,248) (972,079) (1,476,229)
------------- ------------- -------------
Net (decrease) increase in cash...................................... 466,366 21,895 (32,089)
Cash at beginning of the period...................................... 123,251 589,617 611,512
------------- ------------- -------------
Cash at end of the period............................................ $ 589,617 $ 611,512 $ 579,423
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

The accompanying notes to financial statements are an integral part
of these financial statements.

F-36
<PAGE>
HONDURAS AMERICAN TABACO, S.A. DE C.V.

NOTES TO FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS

Honduras American Tabaco, S.A. de C.V. (the "Company") manufactures and
sells cigars and related tobacco products. The Company sells approximately 95%
of its production to Villazon & Company, Inc., a related party company located
in the United States.

The Company's maximum authorized fully paid common stock is L 10,000,000
(Honduran Lempiras (L)) (equivalent to $2,105,328 at October 31, 1996)
represented by 200,000 shares of par value L 50 each.

2. SIGNIFICANT ACCOUNTING POLICIES

A summary of significant accounting policies adopted by the Company, in
accordance with generally accepted accounting principles in the United States,
are summarized as follows:

TRANSLATION OF FINANCIAL STATEMENTS INTO U.S. DOLLARS

The Company's records are maintained in Honduran Lempiras (L), consequently
a translation into U.S. dollars has been applied to the local currency prepared
financial statements in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 52, "Foreign Currency Translation." The U.S. dollar has
been established as the functional currency for purposes of the translation.
Monetary assets and liabilities are translated at year-end exchange rates and
non-monetary items are translated at historical rates. Income and expense
accounts are translated at the average rates in effect during the year, except
for depreciation and cost of product sales which are translated at historical
rates. Gains and losses from changes in exchange rates are recognized in income
in the year of occurrence.

INVENTORIES

Supplies, work in process and finished goods are stated at the lower of cost
or market using the first-in, first-out method. Leaf tobacco is valued at the
lower of cost or market using the specific identification method. Leaf tobacco
includes tobacco in the process of aging, a substantial amount of which may not
be used within one year. It is industry practice to include such inventories as
current assets.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are recorded at cost. Depreciation is
determined on a straight-line basis over the estimated useful asset lives for
financial statement reporting purposes. Expenditures for maintenance and repairs
are charged to expense when incurred.

REVENUE RECOGNITION

Sales and the related costs of sales are recognized primarily upon shipment
of products. Sales are presented net of goods returned by customers.

EARNINGS PER SHARE

Earnings per share of common stock is computed by dividing net income by the
number of common shares outstanding during the period.

F-37
<PAGE>
HONDURAS AMERICAN TABACO, S.A. DE C.V.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ESTIMATES

FINANCIAL INSTRUMENTS

The Company's financial instruments include cash, accounts receivable and
accounts payable. In the opinion of management, the carrying amount of these
financial instruments approximates their fair value.

CONCENTRATION OF CREDIT RISKS

Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of accounts receivable. The Company
historically has had no material losses on its accounts receivable in excess of
allowances provided. The Company's largest customer is Villazon & Company, Inc.
which accounted for approximately 92%, 95% and 92% of net sales for the years
ended December 31, 1994, 1995 and the ten months ended October 31, 1996,
respectively.

SEVERANCE COMPENSATION

Accrued severance compensation for employees under the terms of the Honduran
Labor Code may be payable to them in the event of dismissal. A definite
liability in this respect exists at October 31, 1996 in the amount of $147,038.
This amount is included in the accounts payable and accrued liabilities balance.
It is the Company's policy to pay this compensation to its employees regardless
of dismissal events at year-end.

ADJUSTMENTS AND RECLASSIFICATIONS

Certain adjustments and reclassifications in the financial statements have
been made to comply with accounting principles generally accepted in the United
States.

3. INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Leaf tobacco...................................................... $ 2,747,267 $ 2,646,532
Work in process................................................... -- 38,143
Finished goods.................................................... -- 293,022
Supplies.......................................................... 914,982 1,031,464
Leaf tobacco in transit........................................... -- 241,165
Goods in transit.................................................. 8,493 45,968
------------ ------------
$ 3,670,742 $ 4,296,294
------------ ------------
------------ ------------
</TABLE>

F-38
<PAGE>
HONDURAS AMERICAN TABACO, S.A. DE C.V.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment and related accumulated depreciation are
summarized as follows:

<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Land.............................................................. $ 36,595 $ 157,835
Building and improvements......................................... 422,731 451,427
Machinery and equipment........................................... 486,496 564,702
Transportation equipment.......................................... 127,967 127,966
Office furniture and equipment.................................... 91,128 101,551
------------ ------------
1,164,917 1,403,481
Less--Accumulated depreciation.................................... (769,109) (842,100)
------------ ------------
$ 395,808 $ 561,381
------------ ------------
------------ ------------
</TABLE>

Depreciation is determined on the straight-line method using estimated
useful lives as follows:

<TABLE>
<S> <C>
Buildings and improvements........................................ 10 years
Machinery and equipment........................................... 4-5 years
Transportation equipment.......................................... 5 years
Office furniture and equipment.................................... 4-5 years
</TABLE>

5. RELATED PARTY TRANSACTIONS

Certain stockholders of the Company have a combined 92.5% ownership interest
in Villazon & Company, Inc. ("Villazon"). The Company purchases tobacco, boxes
and other supplies used in production from Villazon and from Oliva Tobacco
Company through Villazon. The Company also sells cigars, boxes and tobacco leaf
to Villazon. Balances of receivable and payables with related parties are
presented as follows:

<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Receivable:
Villazon & Company, Inc......................................... $ -- $ 1,287,823
------------ ------------
------------ ------------
Payables:
Villazon & Company, Inc......................................... $ 17,587 $ --
Compania Agricola La Venta S.A.................................. 52,497 16,248
Tabacalera Rio Jagua S.A........................................ 30,272 24,841
Procesadora de Tabaco S.A....................................... -- 39,381
Officials and employees......................................... 180,267 21,767
------------ ------------
$ 280,623 $ 102,237
------------ ------------
------------ ------------
</TABLE>

Payments from Villazon are made when requested by the Company. Approximately
$5,668,000, $7,450,000 and $9,637,000 in sales were made in 1994, 1995 and as of
October 31, 1996, respectively to Villazon, and approximately $1,590,000,
$2,141,000 and $2,618,000 in purchases were made in 1994, 1995 and as of October
31, 1996, respectively from Villazon. Also, purchases from Oliva Tobacco Company
amounted to approximately $2,081,000, $2,531,000 and $2,648,000 for 1994, 1995
and as of October 31, 1996, respectively.

F-39
<PAGE>
HONDURAS AMERICAN TABACO, S.A. DE C.V.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6. STOCK PURCHASE AGREEMENT AND PROPOSED SALE

Under an agreement between the Company and its stockholders, any stockholder
desiring to pledge, encumber or otherwise dispose of his stock in the Company
during his lifetime shall first obtain the written consent of the Company and
the stockholders. Stock may be sold, however, if the stock is first offered to
the nonselling stockholders at the same price and on the same terms and
conditions as those offered to the third party. The offered shares may be sold
to any other person if both the Company and the remaining stockholders do not
exercise their rights. Under terms of the agreement, no purchase price has been
predetermined for each share of stock purchased in a transfer upon death.

7. TAX BENEFITS

The Company is eligible to benefit from the Temporary Import Regime (RIT)
through resolutions issued by the Ministry of Economy, which expire in the year
1998. Tax benefits include:

a) Exemption from payment of certain taxes and customs duties on imports of
equipment and raw materials used in the production and exportation of
cigars and related products.

b) Exemption from payment of income tax, for a 10 year period, on profits
generated by cigars and related products exports to foreign countries,
excluding the Central American region.

8. OPERATING LEASES

Future minimum rental payments under a noncancellable lease agreement with a
related party as of October 31, 1996 are:

Total rental expenses for operating leases were approximately $12,000,
$16,000 and $27,800 in 1994, 1995 and 1996, respectively.

9. COMMITMENTS

On November 25, 1996, the Company's shareholders entered into a preliminary
agreement to sell all of their stock of the Company to General Cigar Co., Inc.
for $20 million. The purchase agreement and related terms have not been
finalized.

F-40
<PAGE>
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THAT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SHARES BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 10
Use of Proceeds................................. 17
Dividend Policy................................. 17
Capitalization.................................. 18
Dilution........................................ 19
Selected Combined Financial Data................ 20
Unaudited Pro Forma Combined Financial
Statements.................................... 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 25
Business........................................ 30
Management...................................... 44
Certain Employee Benefit Matters................ 48
The Asset Transfers, The Distribution and The
Merger........................................ 54
Certain Relationships and Related
Transactions.................................. 58
Principal Stockholders.......................... 58
Description of Capital Stock.................... 61
Description of the Credit Facility.............. 64
Shares Eligible for Future Sale................. 65
Underwriting.................................... 66
Legal Matters................................... 68
Experts......................................... 68
Additional Information.......................... 69
Index to Financial Statements................... F-1
</TABLE>

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

UNTIL MARCH 24, 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENT OR
SUBSCRIPTIONS.

6,000,000 SHARES

[LOGO]

GENERAL CIGAR

CLASS A COMMON STOCK

-----------------
PROSPECTUS
-----------------

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

SMITH BARNEY INC.

FEBRUARY 27, 1997

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