LIGGETT GROUP INC /DE/, 10-Q, 1996-05-15

LIGGETT GROUP INC /DE/
10-Q, 1996-05-15
CIGARETTES

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<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996

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

For the transition period from _____________ to_________________

Commission File Number 33-75224

LIGGETT GROUP INC.
(Exact name of registrant as specified in its charter)

DELAWARE 56-1702115
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

700 WEST MAIN STREET, DURHAM, NORTH CAROLINA 27702
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (919) 683-9000

EVE HOLDINGS INC.
(Exact name of registrant as specified in its charter)

DELAWARE 56-1703877
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

100 SOUTHEAST SECOND STREET, MIAMI, FLORIDA 33131
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (305) 539-9460

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

As of May 14, 1996 there were outstanding 1,000 shares of common stock, par
value $0.10 per share, of Liggett Group Inc. and 100 shares of common stock,
par value $1.00 per share, of Eve Holdings Inc.

<PAGE> 2

INDEX

<TABLE>
<Caption
PAGE
----
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

LIGGETT GROUP INC.

<S> <C>
Consolidated Balance Sheets as of March 31, 1996 and
December 31, 1995....................................................... 3
Consolidated Statements of Operations for the three months
ended March 31, 1996 and 1995........................................... 5
Consolidated Statements of Cash Flows for the three months
ended March 31, 1996 and 1995........................................... 6
Notes to Consolidated Financial Statements.................................. 7

EVE HOLDINGS INC.

Balance Sheets as of March 31, 1996 and December 31, 1995................... 19
Statements of Operations for the three months ended March 31,
1996 and 1995........................................................... 20
Statements of Cash Flows for the three months ended March 31,
1996 and 1995........................................................... 21
Notes to Financial Statements............................................... 22

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................... 23

PART II - OTHER INFORMATION

Item 1. Legal Proceedings............................................................. 32

Item 6. Exhibits and Reports on Form 8-K.............................................. 32

SIGNATURES............................................................................. 33
</TABLE>

<PAGE> 3

PART 1 - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LIGGETT GROUP INC.

CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except per share amounts)

ASSETS

<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Current assets:
Accounts Receivable:
Trade less allowances of $451 and $815, respectively............................. $ 12,352 $ 22,279
Other............................................................................. 1,334 1,367
Affiliates........................................................................ 914 1,105

Inventories......................................................................... 56,457 54,342

Assets under agreements for sale (Note 4)........................................... 1,025 713

Deferred income taxes............................................................... 3,800 3,800

Other current assets................................................................ 899 990
-------- --------
Total current assets......................................................... 76,781 84,596

Property, plant and equipment, at cost, less accumulated
depreciation of $27,265 and $26,545, respectively................................. 18,418 18,352

Intangible assets, at cost, less accumulated amortization
of $16,093 and $15,661, respectively.............................................. 4,608 5,036

Other assets and deferred charges, at cost, less accumulated
amortization of $5,933 and $5,440, respectively................................... 4,838 5,330
-------- --------

Total assets................................................................. $104,645 $113,314
======== ========
</TABLE>

(continued)

<PAGE> 4

LIGGETT GROUP INC.

CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
(Dollars in thousands, except per share amounts)

LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)

March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt............................................... $ 39,583 $ 50
Cash overdraft..................................................................... 3,817 3,761
Accounts payable, principally trade................................................ 16,550 18,921
Accrued expenses:
Promotional...................................................................... 23,119 25,519
Compensation and related items................................................... 154 1,175
Taxes, principally excise taxes.................................................. 4,765 7,006
Estimated allowance for sales returns............................................ 5,000 5,000
Interest......................................................................... 3,365 8,412
Other............................................................................ 5,398 5,728
-------- --------
Total current liabilities...................................................... 101,751 75,572

Long-term debt, less current maturities.............................................. 144,720 173,251

Non-current employee benefits and other liabilities.................................. 18,670 19,197

Commitments and contingencies (Notes 5 and 8)

Stockholder's equity (deficit):
Redeemable preferred stock (par value $1.00 per share;
authorized 1,000 shares; no shares issued and out-
standing)
Common stock (par value $0.10 per share; authorized
2,000 shares; issued and outstanding 1,000 shares)
and contributed capital.......................................................... 53,240 53,240
Accumulated deficit................................................................ (213,736) (207,946)
-------- --------
Total stockholder's equity (deficit)........................................... (160,496) (154,706)
-------- --------
Total liabilities and stockholder's equity (deficit)........................... $104,645 $113,314
======== ========
</TABLE>

The accompanying notes are an integral part
of these financial statements.

<PAGE> 5

LIGGETT GROUP INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands)

<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
---- ----

<S> <C> <C>
Net sales(*) . . . . . . . . . . . . . . . . . . . . . . . . $78,488 $93,760

Cost of sales(*) . . . . . . . . . . . . . . . . . . . . . . 36,292 45,354
--------- -------
Gross profit . . . . . . . . . . . . . . . . . . . . . . 42,196 48,406

Selling, general and administrative expenses . . . . . . . . 42,118 43,193
--------- -------
Operating income . . . . . . . . . . . . . . . . . . . . 78 5,213

Other income (expense):
Interest expense . . . . . . . . . . . . . . . . . . . . (5,856) (5,851)
Miscellaneous, net . . . . . . . . . . . . . . . . . . . (12) (333)
--------- -------
Loss before income taxes . . . . . . . . . . . . . . . (5,790) (971)

Income tax benefit . . . . . . . . . . . . . . . . . . . . - (339)
--------- -------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . $ (5,790) $ (632)
========= =======
</TABLE>

(*)Net sales and cost of sales include federal excise taxes of $21,197 and
$26,392, respectively.

The accompanying notes are an integral part
of these financial statements.

<PAGE> 6

LIGGETT GROUP INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)

<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss ....................................................... $(5,790) $ (632)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization................................. 1,990 2,025
Deferred income taxes......................................... (57) -
Loss on sale of equipment..................................... 16 7
Changes in assets and liabilities:
Accounts receivable........................................... 10,151 13,682
Inventories................................................... (2,115) (4,672)
Accounts payable.............................................. (2,335) 1,849
Accrued expenses.............................................. (10,982) (14,147)
Non-current employee benefits................................. (348) 135
Other, net.................................................... (187) (155)
------- -------
Net cash used in operating activities................... (9,657) (1,908)
------- -------
Cash flows from investing activities:
Proceeds from sale of equipment................................. - 34
Capital expenditures............................................ (1,350) (334)
------- -------
Net cash used in investing activities................... (1,350) (300)
------- -------
Cash flows from financing activities:
Repayments of long-term debt.................................... (64) (225)
Net borrowings under revolving credit facility.................. 11,015 1,478
Increase in cash overdraft...................................... 56 955
------- -------
Net cash provided by financing activities............... 11,007 2,208
------- -------
Net change in cash and cash equivalents........................... - -
Cash and cash equivalents:
Beginning of period............................................. - -
------- -------
End of period................................................... $ - $ -
======= =======
Supplemental cash flow information:
Cash payments (refunds) during the period for:
Interest...................................................... $10,793 $10,615
Income taxes.................................................. $ 15 $ (8)
</TABLE>

The accompanying notes are an integral part
of these financial statements.

<PAGE> 7

LIGGETT GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)

1. The Company

Liggett Group Inc. ("Liggett" or the "Company") is a wholly-owned
subsidiary of BGLS Inc. ("BGLS"), a wholly-owned subsidiary of Brooke Group
Ltd. ("BGL"). Liggett is engaged primarily in the manufacture and sale of
cigarettes, principally in the United States.

The consolidated financial statements included herein are unaudited and,
in the opinion of management, reflect all adjustments necessary (which are
normal and recurring) to present fairly the Company's consolidated financial
position, results of operations and cash flows. The December 31, 1995 balance
sheet has been derived from audited financial statements. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements included in the Company's Annual Report on Form 10-K
(Commission File No. 33-75224) as filed with the Securities and Exchange
Commission on April 16, 1996. The results of operations for interim periods
should not be regarded as necessarily indicative of the results that may be
expected for the entire year.

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. Liggett had a net
capital deficiency of $160,496 as of March 31, 1996 and is highly leveraged.
Due to the many risks and uncertainties associated with the cigarette industry,
impact of recent tobacco litigation settlements and increased tobacco costs,
there can be no assurance that the Company will be able to meet its future
earnings goals. Consequently, the Company could be in violation of certain debt
covenants and if the lenders were to exercise acceleration rights under the
revolving credit facility or senior secured notes indentures or refuse to lend
under the revolving credit facility, the Company would not be able to satisfy
such demands or its working capital requirements.

2. Estimates and Assumptions

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

3. Per Share Data

All of the Company's common shares (1,000 shares, issued and outstanding
for all periods presented herein) are owned by BGLS. Accordingly, earnings and
dividends per share data are not presented in these consolidated financial
statements.

4. Assets Under Agreements for Sale

On April 9, 1996, Liggett executed a definitive agreement with the County
of Durham for the sale by Liggett to the County of Durham of certain surplus
realty for a sale price of $4,300. It is anticipated that closing will occur
on or before May 31, 1996. The net book value of those assets for which the
agreement was signed have been classified as current assets on the Company's
Consolidated Balance Sheets as of March 31, 1996 and December 31, 1995.

On April 29, 1996, Liggett executed a definitive agreement with Blue Devil
Ventures, a North Carolina limited liability partnership, for the sale by
Liggett to Blue Devil Ventures of certain surplus realty for a sale price of
$2,200. While it is anticipated that closing will occur on or before July 31,
1996, Blue Devil Ventures has the option, if it determines that its development
project is not feasible, to forfeit its deposit and not close. The net book
value of those assets for which the agreement was signed have been classified
as current assets on the Company's Consolidated Balance Sheet as of March 31,
1996.

<PAGE> 8

5. Inventories

<TABLE>
<CAPTION>
Inventories consist of the following:
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Finished goods............................................. $23,139 $18,240
Work-in-process............................................ 3,676 3,331
Raw materials.............................................. 22,974 24,946
Replacement parts and supplies............................. 3,945 3,926
------- -------
Inventories at current cost................................ 53,734 50,443

LIFO adjustment............................................ 2,723 3,899
------- -------
Inventories at LIFO cost................................... $56,457 $54,342
======= =======
</TABLE>

The Company has a leaf inventory management program whereby, among other
things, it is committed to purchase certain quantities of leaf tobacco. The
purchase commitments are for quantities not in excess of anticipated
requirements and are at prices, including carrying costs, established at the
date of the commitment. Liggett normally purchases all of its tobacco
requirements from domestic and foreign leaf tobacco dealers, much of it under
long-term purchase commitments of which approximately 67% of current
commitments expire in December 1996. Liggett had leaf tobacco purchase
commitments of approximately $27,500 at March 31, 1996 compared to
approximately $25,500 at December 31, 1995.

6. Property, Plant and Equipment

Property, plant and equipment consist of the following:
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Land and improvements............................... $ 455 $ 542
Buildings........................................... 5,538 6,011
Machinery and equipment............................. 39,690 38,344
------- -------
Property, plant and equipment....................... 45,683 44,897

Less accumulated depreciation....................... (27,265) (26,545)
------- -------
Property, plant and equipment, net.................. $18,418 $18,352
======= =======
</TABLE>

<PAGE> 9

7. Long-Term Debt

Long-term debt consists of the following:

March 31, December 31,
1996 1995
--------------------
Estimated Carrying Carrying
Fair Value Value Value
---------- -------- --------

<C> <C> <C> <C>
11.5% Senior Secured Notes due February 1, 1999,
net of unamortized discount of $0, $576 and $627,
respectively........................................................... $106,299 $119,536 $119,485
Variable Rate Series C Senior Secured Notes due
February 1, 1999....................................................... 32,602 32,279 32,279
Borrowings outstanding under revolving credit
facility............................................................... 32,032 32,032 21,017
Other.................................................................... 456 456 520
-------- -------- --------
171,389 184,303 173,301
Current portion.......................................................... (6,892) (39,583) (50)
-------- -------- --------
Amount due after one year................................................ $164,497 $144,720 $173,251
======== ======== ========
</TABLE>

Senior Secured Notes

On February 14, 1992, Liggett issued $150,000 in Senior Secured Notes (the
"Series B Notes"). Interest on the Series B Notes is payable semiannually on
February 1 and August 1 at an annual rate of 11.5%. The Series B Notes and
Series C Notes referred to below (collectively, the "Notes") require mandatory
principal redemptions of $7,500 on February 1 in each of the years 1993 through
1997 and $37,500 on February 1, 1998 with the balance of the Notes due on
February 1, 1999. The Notes are collateralized by substantially all of the
assets of the Company, excluding accounts receivable and inventory. Eve is a
guarantor for the Notes. The Notes may be redeemed, in whole or in part, at a
price equal to 104%, 102% and 100% of the principal amount in the years 1996,
1997 and 1998, respectively, at the option of the Company at any time on or
after February 1, 1996. The Notes contain restrictions on Liggett's ability to
declare or pay cash dividends, incur additional debt, grant liens and enter
into any new agreements with affiliates, among others.

On January 31, 1994, the Company issued $22,500 of Variable Rate Series C
Senior Secured Notes (the "Series C Notes"). The Series C Notes have the same
terms (other than interest rate) and stated maturity as the Series B Notes.
The Series C Notes bore a 16.5% interest rate, which was reset on February 1,
1995 to 19.75%. The Company had received the necessary consents from the
required percentage of holders of its Series B Notes allowing for an aggregate
principal amount up to but not exceeding $32,850 of Series C Notes to be issued
under the Series C Notes indenture. In connection with the consents, holders
of Series B Notes received Series C Notes totaling two percent of their
current Series B Notes holdings. The total principal amount of such Series C
Notes issued was $2,842. On November 20, 1994, the Company issued the
remaining $7,508 of Series C Notes in exchange for an equal amount of Series B
Notes and cash of $375. The Series B Notes so exchanged were credited against
the mandatory redemption requirements for February 1, 1995.

BGLS purchased $4,500 of the Series C Notes which were subsequently sold.

<PAGE> 10

Revolving Credit Facility

On March 8, 1994, Liggett entered into a revolving credit facility ("the
facility") under which it can borrow up to $40,000 (depending on the amount of
eligible inventory and receivables as determined by the lenders) from a
syndicate of commercial lenders. Availability under the facility was
approximately $4,510 based upon eligible collateral at March 31, 1996. The
facility expires on March 8, 1997 and is collateralized by all accounts
receivable and inventories of the Company. Borrowings under the facility bear
interest at a rate equal to 1.5% above Philadelphia National Bank's (the
indirect parent of Congress Financial Corporation, the lead lender) prime rate,
which was 8.75% at March 31, 1996. The facility requires Liggett's compliance
with certain financial and other covenants and limits the amount of cash
dividends and payments which can be made by Liggett.

8. Commitments and Contingencies

Since 1954, Liggett and other United States cigarette manufacturers have
been named as defendants in a number of direct and third-party actions
predicated on the theory that they should be liable for damages from cancer and
other adverse health effects alleged to have been caused by cigarette smoking
or by exposure to secondary smoke (environmental tobacco smoke, "ETS") from
cigarettes. These cases are reported hereinafter as though having been
commenced against Liggett (without regard to whether such actually were
commenced against Brooke Group Ltd. in its former name or in its present name
or against Liggett), since all involve the tobacco manufacturing and marketing
activities currently performed by Liggett. New cases continue to be commenced
against Liggett and other cigarette manufacturers. As new cases are commenced,
the costs associated with defending such cases and the risks attendant to the
inherent unpredictability of litigation continue to increase. The Company has
been receiving certain financial and other assistance from others in the
industry in defraying the costs and other burdens incurred in the defense of
smoking and health litigation and related proceedings. The future financial
benefit to the Company is not quantifiable at this time since the arrangements
for assistance can be terminated on limited notice, or under certain
circumstances, certain of which have occurred, without notice, and the amount
of assistance received, if any, would be a function of the level of costs
incurred. Certain joint defense arrangements, and the financial benefits
incident thereto, have ended. No assurances can be made that other
arrangements will continue. Liggett expects that the level of financial and
other assistance which it may receive, if any, will be clarified over the
ensuing months. To date a number of such actions, including several against
Liggett, have been disposed of favorably to the defendants, and no plaintiff
has ultimately prevailed in trial for recovery of damages in any such action.

In the action entitled Cipollone v. Liggett Group Inc., et al., the United
States Supreme Court, on June 24, 1992, issued an opinion regarding federal
preemption of state law damage actions. The Supreme Court in Cipollone
concluded that The Federal Cigarette Labeling and Advertising Act (the "1965
Act") did not preempt any state common law damage claims. Relying on The
Public Health Cigarette Smoking Act of 1969 (the "1969 Act"), however, the
Supreme Court concluded that the 1969 Act preempted certain, but not all,
common law damage claims. Accordingly, the decision bars plaintiffs from
asserting claims that, after the effective date of the 1969 Act, the tobacco
companies either failed to warn adequately of the claimed health risks of
cigarette smoking or sought to neutralize those claimed risks in their
advertising or promotion of cigarettes. It does permit, however, claims for
fraudulent misrepresentation (other than a claim of fraudulently neutralizing
the warning), concealment (other than in advertising and promotion of
cigarettes), conspiracy and breach of express warranty after 1969. The Court
expressed no opinion as to whether any of these claims are viable under state
law but assumed arguendo that they are viable.

In addition, bills have been introduced in Congress on occasion to
eliminate the federal preemption defense. Enactment of any federal legislation
with such an effect could result in a significant increase in claims,
liabilities and litigation costs.

<PAGE> 11

On September 10, 1993, an action entitled Sackman v. Liggett Group Inc.,
United States District Court, Eastern District of New York, was filed against
Liggett alone alleging as injury lung cancer. Fact discovery closed on August
31, 1995 and expert discovery is scheduled to close on July 3, 1996. It is
possible that the case will be scheduled for trial during late 1996. On March
19, 1996, the Magistrate Judge assigned to the case ordered Liggett to produce
certain of its documents with respect to which Liggett has asserted various
claims of privilege. Liggett intends to appeal the decision and order. Upon
Liggett's motion, the Court enlarged the time to and including May 15, 1996 for
Liggett to file its appeal. The other major cigarette manufacturers and The
Council for Tobacco Research-U.S.A., Inc. have moved to intervene.

On May 11, 1993, in the case entitled Wilks v. The American Tobacco
Company, No. 91-12, 355, Circuit Court of Washington County, State of
Mississippi (a case in which Liggett was not a defendant), the trial court
granted plaintiffs' motion to impose absolute liability on defendants for the
manufacture and sale of cigarettes and struck defendants' affirmative defenses
of assumption of risk and comparative fault/contributory negligence. The trial
court ruled that the only issues to be tried in the case were causation and
damages. No other court has ever imposed absolute liability on a manufacturer
of cigarettes. After trial, the jury returned a verdict for defendants,
finding no liability. The Company is and has been a defendant in other cases
in Mississippi and it cannot be stated that other courts will not apply the
Wilks ruling as to absolute liability.

On May 12, 1992, an action entitled Cordova v. Liggett Group Inc., et al.,
Superior Court of the State of California, City of San Diego, was filed against
Liggett and others. In her complaint, plaintiff, purportedly on behalf of the
general public, alleges that defendants have been engaged in unlawful, unfair
and fraudulent business practices by allegedly misrepresenting and concealing
from the public scientific studies pertaining to smoking and health funded by,
and misrepresenting the independence of, the Council for Tobacco Research and
its predecessor. The Complaint seeks equitable relief against the defendants,
including the imposition of a corrective advertising campaign, restitution of
funds, disgorgement of revenues and profits and the imposition of a
constructive trust. The case is presently in the discovery phase.

On October 31, 1991, an action entitled Broin, et al. v. Philip Morris
Companies, Inc., et al., Circuit Court of the 11th Judicial District in and
for Dade County, Florida, was filed against Liggett and others. This case was
the first class action commenced against the industry, and has been brought by
plaintiffs on behalf of all flight attendants that have worked or are presently
working for airlines based in the United States and who have never regularly
smoked cigarettes but allege that they have been damaged by involuntary
exposure to ETS. On December 12, 1994, plaintiffs' motion to certify the
action as a class action was granted. Defendants appealed this ruling and on
January 3, 1996, the Third District of the Florida Court of Appeals affirmed
the ruling of the trial court. On January 18, 1996, defendants filed a
petition for rehearing, for rehearing en banc and for certification to the
Florida Supreme Court. On May 10, 1996, defendants' petition was denied. The
defendants intend to appeal this decision to the Florida Supreme Court.

On March 25, 1994, an action entitled Castano, et al. v. The American
Tobacco Company, et al., United States District Court, Eastern District of
Louisiana, was filed against Liggett and others. The class action complaint was
brought on behalf of plaintiffs and residents of the United States who claim to
be addicted to tobacco products and survivors who claim their decedents were
also so addicted. The complaint is based upon the claim that defendants
manipulated the nicotine levels in their tobacco products with the intent to
addict plaintiffs and the class members and, inter alia, fraud, deceit,
negligent misrepresentation, breach of express and implied warranty, strict
liability and violation of consumer protection statutes. Plaintiffs seek
compensatory and punitive damages, equitable relief including disgorgement of
profits from the sale of cigarettes and creation of a fund to monitor the
health of class members and to pay for medical expenses allegedly caused by
defendants, attorneys' fees and costs. On February 17, 1995, the Court issued
an Order that granted in part plaintiffs' motion for class certification for
certain claims, together with punitive damages to the end of establishing a
multiplier to compute

<PAGE> 12
punitive damage awards. Defendants' application for discretionary appeal to the
Court of Appeals for the Fifth Circuit was granted. Oral argument was held on
April 2, 1996.

On May 5, 1994, an action entitled Engle, et al. v. R. J. Reynolds Tobacco
Company, et al., Circuit Court of the 11th Judicial District in and for Dade
County, Florida, was filed against Liggett and others. The class action
complaint was brought on behalf of plaintiffs and all persons in the United
States who allegedly have become addicted to cigarette products and allegedly
have suffered personal injury as a result thereof. Plaintiffs seeks
compensatory and punitive damages, together with equitable relief including but
not limited to a medical fund for future health care costs, attorney's fees and
costs. On October 31, 1994, plaintiffs' motion to certify the action as a
class action was granted. Defendants appealed this ruling. On January 31,
1996, the Third District of the Florida Court of Appeals affirmed the ruling of
the trial court certifying the action as a class action, but modified the trial
court ruling to limit the class to Florida citizens and residents. Defendants
have filed a petition for rehearing, for rehearing en banc and for
certification to the Florida Supreme Court. On May 10, 1996, defendants'
petition was denied. The defendants intend to appeal this decision to the
Florida Supreme Court.

On May 3, 1996, an action entitled Norton, et al. v. R. J. Reynolds
Tobacco Company, et al., Superior Court of Madison County, State of Indiana,
was filed against Liggett and others. The class action complaint was brought
on behalf of plaintiffs and all similarly situated citizens of the State of
Indiana who allegedly have become addicted to cigarette products as a result of
defendants allegedly having controlled and manipulated the amount of nicotine
in the cigarettes manufactured by them for the purpose of addicting users and
sustaining such addiction. Plaintiffs seek compensatory and punitive damages,
together with equitable relief including, but not limited to, disgorgement of
profits received from the sale of such cigarettes and the creation of a medical
monitoring fund, attorneys' fees and costs. The action presently is in the
pleading stage and discovery has not as yet commenced.

On March 12, 1996, BGL and Liggett entered into an agreement to settle the
Castano class action tobacco litigation. The settlement undertakes to release
BGL and Liggett from all current and future addiction-based claims, including
claims by a nationwide class of smokers in the Castano class action pending in
Louisiana federal court as well as claims by narrower statewide classes in the
Engle class action pending in Florida state court and in the recently filed
Norton class action pending in Indiana state court. The settlement is subject
to and conditioned upon the approval of the United States District Court for
the Eastern District of Louisiana. The Company is unable to determine at this
time when the Court will review the settlement, and no assurance can be given
that the settlement will be approved by the Court. Certain items of the
settlement are summarized below.

Under the settlement, the Castano class would receive up to 5% of
Liggett's pretax income (income before income taxes) each year (up to a
maximum of $50,000 per year) for the next twenty-five years, subject to certain
reductions provided for in the agreement, together with reasonable fees and
expenses of the Castano Plaintiffs Legal Committee. Settlement funds received
by the class would be used to pay half the cost of smoking-cessation programs
for eligible class members. While neither consenting to FDA jurisdiction nor
waiving their objections thereto, BGL and Liggett also have agreed to phase in
compliance with certain of the proposed interim FDA regulations regarding
smoking by children and adolescents, including a prohibition on the use of
cartoon characters in tobacco advertising and limitations on the use of
promotional materials and distribution of sample packages where minors are
present.

BGL and Liggett have the right to terminate the Castano settlement if the
remaining defendants succeed on the merits or in the event of a full and final
denial of class action certification. The terms of the settlement would still
apply if the Castano plaintiffs or their lawyers were to institute a
substantially similar new class action against the tobacco industry. BGL and
Liggett may also terminate the settlement if they conclude that too many class
members have chosen to opt out of the settlement. In the event of any such
termination by BGL and Liggett, the named plaintiffs would be at liberty to
renew the prosecution of such civil action against BGL and Liggett.

<PAGE> 13

On March 14, 1996, BGL and the Castano Plaintiffs Legal Committee and the
Castano plaintiffs entered into a letter agreement. According to the terms
of the letter agreement, for the period ending nine months from the date of
Final Approval of the Castano settlement or, if earlier, the completion of a
combination by BGL or Liggett with certain defendants or an affiliate thereof
in Castano, the Castano plaintiffs agree not to enter into any settlement
agreement with any Castano defendant which would reduce the terms of the
Castano settlement agreement. If the Castano plaintiffs enter into any such
settlement during this period, they shall pay BGL $250,000 within thirty days
of the more favorable agreement and offer BGL and Liggett the option to enter
into a settlement on terms at least as favorable as those included in such
other settlement. The letter agreement further provides that during the same
time period, and if the Castano settlement agreement has not been earlier
terminated by BGL in accordance with its terms, BGL and its affiliates will not
enter into any business transaction with any third party which would cause the
termination of the Castano settlement agreement. If BGL enters into any such
transaction, then the Castano plaintiffs will be entitled to receive $250,000
within thirty days from the transacting party.

An action entitled Yvonne Rogers v. Liggett Group Inc., et al., Superior
Court, Marion County, Indiana, was filed by the plaintiff on March 27, 1987
against Liggett and others. The plaintiff seeks compensatory and punitive
damages for cancer alleged to have been caused by cigarette smoking. Trial
commenced on January 31, 1995. The trial ended on February 22, 1995 when the
trial court declared a mistrial due to the jury's inability to reach a verdict.
The Court directed a verdict in favor of the defendants as to the issue of
punitive damages during the trial of this action. A second trial has been
scheduled to commence August 5, 1996.

On May 23, 1994, an action entitled Mike Moore, Attorney General, ex rel
State of Mississippi v. The American Tobacco Company, et al., Chancery Court
for the County of Jackson, State of Mississippi, was filed against Liggett and
others. The State of Mississippi seeks restitution and indemnity for medical
payments and expenses made or incurred by it on behalf of welfare patients for
tobacco related illnesses. Similar actions (although not identical) have been
filed by the State of Minnesota (together with Minnesota Blue Cross-Blue
Shield), by the State of West Virginia and more recently by the Commonwealth
of Massachusetts, the State of Louisiana, the State of Texas and the State of
Maryland. In West Virginia, the trial court, in a ruling issued on May 3,
1995, dismissed eight of the ten counts of the complaint filed therein, leaving
only two counts of an alleged conspiracy to control the market and market price
of tobacco products and an alleged consumer protection claim. In a subsequent
ruling, the trial court adjudged the contingent fee agreement entered into by
the State of West Virginia and its counsel to be unconstitutional under the
Constitution of the State of West Virginia. In Mississippi, the Governor has
recently commenced an action in the Mississippi Supreme Court against the
Attorney General of the state, making application for a writ of prohibition to
bar further prosecution and to seek dismissal of the suit brought by the
Attorney General of the state for such restitution and indemnity, alleging that
the commencement and prosecution of such a civil action by the Attorney
General of the state was and is outside the authority of the Attorney General.

On November 28, 1995, each of the major manufacturers in the industry,
including Liggett, filed suit in both the Commonwealth of Massachusetts and in
the State of Texas seeking declaratory relief to the effect that the
commencement of any such litigation (as had been filed by Mississippi, West
Virginia and Minnesota and now by Massachusetts, Louisiana, Texas and Maryland)
seeking to recover Medicaid expenses against the manufacturers by either the
Commonwealth of Massachusetts or the State of Texas would be unlawful. On
January 22, 1996, a suit seeking substantially similar declaratory relief was
filed in the State of Maryland.

<PAGE> 14
legislation would impose on the tobacco industry, if ultimate liability of the
industry is established in litigation, liability based upon market share for
such payments made as a result of such smoking-related diseases. Although a
suit has been commenced to challenge the constitutionality of the Florida
legislation, no assurance can be given that it will be successful. On May 6,
1995, the Florida legislature voted in favor of a bill to repeal this
legislation, but the Governor of Florida vetoed this repealer bill. On March 13,
1996, the Florida legislature considered taking certain action to override the
veto of the repealer bill if the requisite vote could be attained, but decided
not to take formal action when it was determined that it could not attain the
requisite vote. On February 22, 1995, suit was commenced pursuant to the
above-referenced enabling statute by the State of Florida acting through the
Agency for Health Care Administration against Liggett and others, seeking
restitution of monies expended in the past and which may be expended in the
future by the State of Florida to provide health care to Medicaid recipients for
injuries and ailments allegedly caused by the use of cigarettes and other
tobacco products. Plaintiffs also seek a variety of other forms of relief
including a disgorgement of all profits from the sale of cigarettes in Florida.

The Commonwealth of Massachusetts has enacted legislation authorizing
lawsuits similar to the suits filed by the States of Mississippi, Minnesota,
West Virginia, Louisiana, Texas and Maryland. Aside from the Florida and
Massachusetts statutes, legislation authorizing the state to sue a company or
individual to recover the costs incurred by the state to provide health care to
persons allegedly injured by the company or individual also has been introduced
in a number of other states. These bills contain some or all of the following
provisions: eliminating certain affirmative defenses, permitting the use of
statistical evidence to prove causation and damages, adopting market share
liability and allowing class action suits without notification to class
members.

On March 15, 1996, BGL and Liggett entered into a settlement of tobacco
litigation with the Attorneys General of the states of Florida, Louisiana,
Massachusetts, Mississippi and West Virginia. The settlement with the
Attorneys General releases BGL and Liggett from all tobacco-related claims by
these states including claims for Medicaid reimbursement and concerning sales
of cigarettes to minors. The settlement provides that additional states which
commence similar Attorney General actions may agree to be bound by the
settlement prior to six months from the date thereof (subject to extension of
such period by the settling defendants). Certain of the terms of the
settlement are summarized below.

Under the settlement, the states would share an initial $5,000 ($1,000 of
which was paid on March 22, 1996, with the balance payable over nine years and
indexed and adjusted for inflation), provided that any unpaid amount will be
due sixty days after either a default by Liggett in its payment obligations
under the settlement or a merger or other transaction by Liggett with another
defendant in the lawsuits. In addition, Liggett will be required to pay the
states a percentage of Liggett's pretax income (income before income taxes)
each year from the second through the twenty-fifth year. This annual
percentage would range from 2-1/2% to 7-1/2% of Liggett's pretax income,
depending on the number of additional states joining the settlement. All of
Liggett's payments are subject to certain reductions provided for in the
agreement. Liggett has also agreed to pay to the states $5,000 if BGL or
Liggett fails to consummate a merger or other transaction with another
defendant in the lawsuits within three years of the date of the settlement. At
December 31, 1995, the Company accrued approximately $4,000 for the settlement
with the Attorneys General.

Settlement funds received by the Attorneys General will be used to
reimburse the states' smoking-related healthcare costs. While neither
consenting to FDA jurisdiction nor waiving their objections thereto, BGL and
Liggett also have agreed to phase in compliance with certain of the proposed
interim FDA regulations on the same basis as provided in the Castano
settlement.

<PAGE> 15

many states have filed Attorney General actions and have not resolved such
cases as to the settling defendants by joining in the settlement.

Currently in addition to Cordova, approximately 94 product liability
lawsuits, which have been filed in various jurisdictions, are pending and
active in which Liggett is a defendant. Of these, approximately 74 are pending
in the State of Florida. In most of these lawsuits, plaintiffs seek punitive
as well as compensatory damages. In the product liability lawsuits presently
pending in Florida against Liggett and others, three of such which are pending
in the Circuit Court of Duval County (Jacksonville), Florida are scheduled for
trial during 1996, these being: Clark, August, 1996; Thompson, October, 1996;
and Walters, November, 1996, and another, Weisholtz, which is pending in the
United States District Court for the Southern District of Florida, is
scheduled for trial commencing November 12, 1996.

A grand jury investigation presently is being conducted by the office of
the United States Attorney for the Eastern District of New York regarding
possible violations of criminal law relating to the activities of The Council
for Tobacco Research-USA, Inc. The Company was a sponsor of The Council for
Tobacco Research-USA, Inc. at one time. The Company is unable at this time
to predict the outcome of this investigation.

Liggett has been responding to a civil investigative demand from the
Antitrust Division of the United States Department of Justice which requests
certain information from Liggett. The request appears to focus on United
States tobacco industry activities in connection with product development
efforts regarding, in particular, "fire-safe" or self-extinguishing
cigarettes. It also requests certain general information addressing Liggett's
involvement with and relationship to its competitors. Liggett is unable at this
time to predict the outcome of this investigation.

In March and April 1994, the Health and the Environmental Subcommittee of
the Energy and Commerce Committee of the House of Representatives held hearings
regarding nicotine in cigarettes. On March 25, 1994, Commissioner David A.
Kessler of the Food and Drug Administration (the "FDA") gave testimony as to
the potential regulation of nicotine under the Food, Drug and Cosmetic Act, and
the potential for jurisdiction over the regulation of cigarettes to be accorded
to the FDA. In response to Commissioner Kessler's allegations about
manipulation of nicotine by cigarette manufacturers, the chief executive of
each of the major cigarette manufacturers, including Liggett, testified before
the subcommittee on April 14, 1994, denying Commissioner Kessler's claims. An
FDA advisory panel has stated that it believes nicotine is addictive. On
August 10, 1995, the FDA filed in the Federal Register a Notice of Proposed
Rule-Making (the "Proposed Rule-Making") which would classify tobacco as a
drug, assert jurisdiction by the FDA over the manufacture and marketing of
tobacco products and impose restrictions on the sale, advertising and promotion
of tobacco products. The FDA's stated objective and focus for its initiative
is to limit access to cigarettes by minors by measures beyond the restrictions
either mandated by existing federal, state and local laws or voluntarily
implemented by major manufacturers in the industry. Liggett and the other
major manufacturers in the industry responded by filing a civil action in the
United States District Court for the Middle District of North Carolina
challenging the legal authority of the FDA to assert such jurisdiction. In
addition thereto, Liggett and the other four major cigarette manufacturers, as
well as others, have filed comments in opposition to the Proposed Rule-Making.
Management is unable to predict whether such a classification will be made.
Management is also unable to predict the effects of such a classification, were
it to occur, or of such regulations, if implemented, on Liggett's operations,
but such actions could have an unfavorable impact thereon.

On March 12, 1996, Liggett, together with BGL, entered into an agreement
to settle the Castano class action tobacco litigation, and on March 15, 1996,
Liggett, together with BGL, entered into an agreement with the Attorneys
General of the State of West Virginia, State of Florida, State of Mississippi,
Commonwealth of Massachusetts and the State of Louisiana to settle certain
actions brought against Liggett by such states. In these two settlements,
Liggett and BGL, while neither consenting to FDA jurisdiction nor waiving their
objections thereto, agreed to withdraw their objections and opposition to the
Proposed Rule-Making and to phase in compliance with certain of the proposed
interim FDA regulations.

<PAGE> 16
See discussions of the Castano Settlement Agreement and the Attorneys General
Settlement Agreement appearing hereinabove.

The Omnibus Budget Reconciliation Act of 1993 ("OBRA") required each
United States cigarette manufacturer to use at least 75% domestic tobacco in
the aggregate of the cigarettes manufactured by it in the United States,
effective January 1, 1994, on an annualized basis or pay a "marketing
assessment" based upon price differentials between foreign and domestic tobacco
and, under certain circumstances, make purchases of domestic tobacco from the
stabilization cooperatives organized by the United States government. OBRA
was repealed retroactively (as of December 31, 1994) coincident in time with
the issuance of a Presidential proclamation, effective September 13, 1995,
imposing tariffs on imported tobacco in excess of certain quotas.

On February 14, 1995, Liggett filed with the United States Department of
Agriculture (the "USDA") its certification as to usage of domestic and imported
tobaccos during 1994, and an audit was conducted by the USDA to verify this
certification. Liggett has received from the USDA the results of the audit,
which states that Liggett did not satisfy the 75% domestic tobacco usage
requirement for 1994 and therefore may be subject to a marketing assessment
estimated at approximately $5,500, which amount is disputed by the Company. It
is the understanding of the Company that the levels of domestic tobacco
inventories currently on hand at the tobacco stabilization organizations are
below reserve stock levels, and for such reason, the Company is of the opinion
that it will not be obligated to make such purchases of domestic tobacco from
the tobacco stabilization cooperatives. The Company is currently engaged in
negotiations with the USDA in an effort to resolve this matter on satisfactory
terms. At December 31, 1995, the Company accrued approximately $4,900
representing its best estimate for the USDA marketing assessment.

On February 20, 1996, the United States Trade Representative issued an
"advance notice of rule making" concerning how tobaccos imported under the TRQ
should be allocated. Currently, tobacco imported under the TRQ is allocated on
a "first-come, first-served" basis, meaning that entry is allowed on an open
basis to those first requesting entry in the quota year. Others in the
cigarette industry have suggested an "end-user licensing" system under which
the right to import tobacco under the quota would be initially assigned on the
basis of domestic market share. Such an approach, if adopted, could have a
materially adverse effect on the Company. The Company believes it is unlikely
that an end-user licensing system will be adopted because it would likely lead
to another GATT proceeding. The end-user licensing system has not been
authorized by legislation and it could create significant problems for United
States exports in other product markets. However, no assurances can be made
that an end-user licensing system will not be adopted.

On March 15, 1996, an action entitled Spencer J. Volk v. Liggett Inc. was
filed in the United States District Court for the Southern District of New
York, Case No. 96-CIV-1921, wherein the plaintiff, who was formerly employed as
Liggett's President and Chief Executive officer, seeks recovery of certain
monies allegedly owing by Liggett to him for long-term incentive compensation.
The action presently is in the pleading stage and discovery has not as yet
commenced.

As to each of the cases referred to above which is pending against the
Company, the Company believes, and has been so advised by counsel handling the
respective cases, that the Company has a number of valid defenses to the claim
or claims asserted against the Company. Litigation is subject to many
uncertainties, and it is possible that some of these actions could be decided
unfavorably. An

<PAGE> 17
unfavorable outcome of a pending smoking and health case could encourage the
commencement of additional similar litigation. Recently, there have been a
number of restrictive regulatory actions, adverse political decisions and other
unfavorable developments concerning cigarette smoking and the tobacco industry,
including the commencement of the purported class actions referred to above.
These developments generally receive widespread media attention. The Company is
not able to evaluate the effect of these developing matters on pending
litigation or the possible commencement of additional litigation.

The Company is unable to make a meaningful estimate of the amount or range
of loss that could result from an unfavorable outcome of the cases pending
against the Company. It is possible that the Company's financial position,
results of operations and cash flows could be materially adversely affected by
an ultimate unfavorable outcome in any of such pending litigation.

There are several other proceedings, lawsuits and claims pending against
Liggett unrelated to product liability. Management is of the opinion that the
liabilities, if any, ultimately resulting from such proceedings, lawsuits and
claims should not materially affect Liggett's financial position, results of
operations or cash flows.

9. Related Party Transactions

Liggett provides certain administrative and technical support to
Liggett-Ducat Ltd., a Russian joint stock company, which is majority owned by
an affiliate, in exchange for which such company provides assistance to Liggett
in its pursuit of selling cigarettes in the Russian Republic. The expenses
associated with Liggett's activities amounted to $2 and $26 for the three
months ended March 31, 1996 and 1995, respectively.

Liggett is a party to an agreement dated February 26, 1991, as amended
October 1, 1995, with entities related through common control, to provide
various management and administrative services to the Company in consideration
for an annual management fee of $900 paid in monthly installments and annual
overhead reimbursements of $864 paid in quarterly installments. The expenses
associated with Liggett's activities amounted to $441 in both of the
three-month periods ended March 31, 1996 and 1995.

Effective January 1, 1992, Liggett entered into a Corporate Services
Agreement with BGLS wherein BGLS agreed to provide corporate services to the
Company at an annual fee of $2,600 paid in monthly installments. Corporate
services provided by BGLS under this agreement include the provision of
administrative services related to Liggett's participation in its parent
company's multi-employer benefit plan, external publication of financial
results, preparation of consolidated financial statements and tax returns and
such other administrative and managerial services as may be reasonably
requested by Liggett. The agreement had an initial term of one year, with
annual renewals thereafter subject to a 5% fee increase. The expenses
associated with Liggett's activities amounted to $790 and $752 for the three
months ended March 31, 1996 and 1995, respectively. This fee is in addition to
the management fee and overhead reimbursements described above.

Since April 1994, the Company has leased equipment from BGLS for $50 per
month.

Accounts receivable from affiliates relate principally to advances for
expenses paid by Liggett on behalf of its affiliates. The Company expects to
be reimbursed in the near term.

10. Restructuring Charges

During the first quarter of 1995, Liggett, in an effort to reduce costs,
offered voluntary retirement programs to eligible employees, among other
things, and reduced the Company's headcount by

<PAGE> 18
approximately 63 positions. In connection therewith, the Company recorded a
$487 charge to operations (which is included as a component of cost of sales) in
the first quarter of 1995.

11. Subsequent Events

On April 8, 1996, Philip Morris announced a list price increase on all
brands of 40 cents per carton. The other manufacturers, including Liggett,
matched the price increase.

<PAGE> 19

EVE HOLDINGS INC.

BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
ASSETS

<S> <C> <C>
Cash................................................................... $ 3 $ 8

Office equipment....................................................... 2 2

Trademarks, at cost, less accumulated amortization of
$16,018 and $15,593, respectively.................................... 4,395 4,820
------- ------
Total assets................................................... $ 4,400 $4,830
======= ======

LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)

Federal income taxes currently payable to parent....................... $ 1,142 $ 164

Dividends payable...................................................... 2,122 2,536

Deferred income taxes.................................................. 1,538 1,687
------- -------
Total liabilities.............................................. 4,802 4,387
------- -------
Stockholder's equity (deficit):
Common stock (par value $1.00 per share; authorized,
issued and outstanding 100 shares) and contributed
capital............................................................ 47,377 47,653

Receivables from parent:
Note receivable - interest at 14%, due no sooner
than February 1, 1999.............................................. (44,520) (44,520)

Other................................................................ (3,259) (2,690)
------- -------
Total stockholder's equity (deficit)........................... (402) 443
------- -------
Total liabilities and stockholder's equity (deficit)........... $ 4,400 $ 4,830
======= =======
</TABLE>

The accompanying notes are an integral part
of these financial statements.

<PAGE> 20

EVE HOLDINGS INC.

STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands)

<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
1996 1995
---- ----
<S> <C> <C>
Revenues:
Royalties - parent......................................... $1,713 $2,186
Interest - parent.......................................... 1,576 1,576
------ ------
3,289 3,762
Expenses:
Amortization of trademarks................................. 425 425
Miscellaneous.............................................. 24 11
------ ------
Income before income taxes................................. 2,840 3,326

Income tax provision......................................... 994 1,170
------ ------
Net income................................................. $1,846 $2,156
====== ======
</TABLE>

The accompanying notes are an integral part
of these financial statements.

<PAGE> 21

EVE HOLDINGS INC.

STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)

<TABLE>
Caption>

Three Months Ended
March 31,
---------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................... $1,846 $2,156
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.......................................... 425 425
Deferred income taxes.................................................. (149) (149)
Changes in assets and liabilities:
Federal income taxes currently payable................................. 978 1,310
Dividends payable...................................................... - (318)
------ ------
Net cash provided by operating activities............................ 3,100 3,424
------ ------
Cash flows from financing activities:
Dividends/capital distributions.......................................... (2,536) (2,432)
Increase in due from parent.............................................. (569) (992)
------ ------
Net cash used in financing activities................................ (3,105) (3,424)
------ ------
Net increase (decrease) in cash............................................ (5) -

Cash:
Beginning of period...................................................... 8 2
------ ------
End of period............................................................ $ 3 $ 2
====== ======
Supplemental cash flow information:
Payments of income taxes through receivable from parent.................. $ 164 $ -
Dividends/capital distributions declared but not paid.................... $2,122 $ -
</TABLE>

The accompanying notes are an integral part
of these financial statements.

<PAGE> 22

EVE HOLDINGS INC.

NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)

1. The Company

Eve Holdings Inc. ("Eve") is a wholly-owned subsidiary of Liggett Group
Inc. ("Liggett"). Eve, formed in June 1990, is the proprietor of, and has all
right, title and interest in, certain federal trademark registrations (the
"Trademarks"). Eve has entered into an exclusive licensing agreement with
Liggett (effective until 2010) whereby Eve grants the use of the Trademarks to
Liggett in exchange for royalties, computed based upon Liggett's annual net
sales, excluding excise taxes. The Trademarks are pledged as collateral for
Liggett's borrowings under the notes indentures (see Note 3).

2. Per Share Data

All of Eve's common shares (100 shares authorized, issued and outstanding
for all periods presented herein) are owned by Liggett. Accordingly, earnings
and dividends per share data are not presented in these financial statements.

3. Guarantee of Liggett Notes

On February 14, 1992, Liggett issued $150,000 of Senior Secured Notes (the
"Series B Notes"). In connection with the issuance of the Series B Notes, the
Trademarks were pledged as collateral. In addition, Eve is a guarantor for
the Series B Notes.

During 1994, Liggett issued $32,850 of Series C Senior Secured Notes (the
"Series C Notes"). Eve is a guarantor for the Series C Notes.

<PAGE> 23

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

(DOLLARS IN THOUSANDS, EXCEPT SELLING PRICES)

INTRODUCTION

Liggett Group Inc. ("Liggett" or the "Company") is the operating successor
to the Liggett & Myers Tobacco Company formed in 1873. Liggett is the fifth
largest manufacturer of cigarettes in the United States in terms of unit sales.

The following discussion provides an assessment of Liggett's consolidated
results of operations and capital resources and liquidity and should be read in
conjunction with the consolidated financial statements of Liggett and notes
thereto included elsewhere in this Report on Form 10-Q. The operating results
of the periods presented were not significantly affected by inflation.

Eve Holdings Inc. ("Eve") is a wholly-owned subsidiary of Liggett. Eve's
sole business is to hold certain federal trademark registrations used by, and
to license them on an exclusive basis to, Liggett and to hold a certain note
receivable from Liggett. Accordingly, Management's Discussion and Analysis of
Financial Condition and Results of Operations of Eve are not presented herein
because they are not material to Liggett's operations.

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. Liggett had a net
capital deficiency of $160,496 as of March 31, 1996 and is highly leveraged.
Due to the many risks and uncertainties associated with the cigarette industry,
impact of recent tobacco litigation settlements and increased tobacco costs,
there can be no assurance that the Company will be able to meet its future
earnings goals. Consequently, the Company could be in violation of certain
debt covenants and if the lenders were to exercise acceleration rights under
the revolving credit facility or senior secured notes indentures or refuse to
lend under the revolving credit facility, the Company would not be able to
satisfy such demands or its working capital requirements.

RECENT DEVELOPMENTS IN THE CIGARETTE INDUSTRY

Pricing Activity

On May 5, 1995, R.J. Reynolds Tobacco Company ("RJR") initiated a list
price increase on all brands of 30 cents per carton. Philip Morris, Inc.
("Philip Morris") and Brown & Williamson Tobacco Corporation ("B&W"), which
together with RJR comprise approximately 90% of the market, matched the price
increase on the same day. Liggett followed on May 9, 1995.

On April 8, 1996, Philip Morris announced a list price increase on all
brands of 40 cents per carton. The other manufacturers, including Liggett,
matched the price increase.

Legislation and Litigation

New cases continue to be commenced against Liggett and other cigarette
manufacturers. As new cases are commenced, the costs associated with defending
such cases and the risks attendant to the inherent unpredictability of
litigation continue to increase. Recently, there have been a number of
restrictive regulatory actions, adverse political decisions and other
unfavorable developments concerning cigarette smoking and the tobacco industry,
including the commencement of class actions. These developments generally
receive widespread media attention. The Company is not able to evaluate the
effect of these developing matters on pending litigation or the possible
commencement of additional

<PAGE> 24
litigation, but it is possible that the Company's financial position, results of
operations and cash flows could be materially adversely affected by an ultimate
unfavorable outcome in any of such pending litigation. See Note 8 to the
Company's consolidated financial statements for a description of legal
proceedings.

The Omnibus Budget Reconciliation Act of 1993 ("OBRA") required each
United States cigarette manufacturer to use at least 75% domestic tobacco in
the aggregate of the cigarettes manufactured by it in the United States,
effective January 1, 1994, on an annualized basis or pay a "marketing
assessment" based upon price differentials between foreign and domestic tobacco
and, under certain circumstances, make purchases of domestic tobacco from the
tobacco stabilization cooperatives organized by the United States government.
OBRA was repealed retroactively (as of December 31, 1994) coincident in time
with the issuance of a Presidential proclamation, effective September 13, 1995,
imposing tariffs on imported tobacco in excess of certain quotas.

On September 13, 1995, the President of the United States, after
negotiations with the affected countries, declared a tariff rate quota ("TRQ")
on certain imported tobacco, imposing extremely high tariffs on imports of
flue-cured and burley tobacco in excess of certain levels which vary from
country to country. Oriental tobacco is exempt from the quota as well as all
tobacco originating from Canada, Mexico or Israel. Management believes that
the TRQ levels are sufficiently high to allow Liggett to operate without
material disruption to its business. However, increasing tobacco costs due to
reduced worldwide supply of tobacco and a reduction in the average discount
available to Liggett from leaf tobacco dealers on tobacco purchased under prior
years' purchase commitments could have an unfavorable impact on Liggett's
operations during 1996.

On February 20, 1996, the United States Trade Representative issued an
"advance notice of rule making" concerning how tobaccos imported under the TRQ
should be allocated. Currently, tobacco imported under the TRQ is allocated on
a "first-come, first-served" basis, meaning that entry is allowed on an open
basis to those first requesting entry in the quota year. Others in the
cigarette industry have suggested an "end-user licensing" system under which
the right to import tobacco under the quota would be initially assigned on the
basis of domestic market share. Such an approach, if adopted, could have a
material adverse effect on the Company. The Company believes it is unlikely
that an end-user licensing system will be adopted because it would likely lead
to another GATT proceeding. The end-user licensing system has not been
authorized by legislation and it could create significant problems for United
States exports in other product markets. However, no assurances can be made
that an end-user licensing system will not be adopted.

In January 1993, the United States Environmental Protection Agency (the
"EPA") released a report on the respiratory effect of environmental tobacco
smoke ("ETS") which concludes that ETS is a known human lung carcinogen in
adults, and in children causes increased respiratory tract disease and middle
ear disorders and increases the severity and frequency of asthma. In June
1993, the two largest of the major domestic cigarette manufacturers, together
with other segments of the tobacco and distribution

<PAGE> 25
industries, commenced a lawsuit against the EPA seeking a determination that
the EPA did not have the statutory authority to regulate ETS, and that given the
current body of scientific evidence and the EPA's failure to follow its own
guidelines in making the determination, the EPA's classification of ETS was
arbitrary and capricious. Whatever the outcome of this litigation, issuance of
the report may encourage efforts to limit smoking in public areas.

The Food and Drug Administration (the "FDA") has announced that it is
considering classifying tobacco as a drug, and an FDA advisory panel has stated
that it believes nicotine is addictive. On August 10, 1995, the FDA announced
that it intended to propose regulations (the "Proposed Rule-Making") under
which the FDA would assert jurisdiction over the manufacture and marketing of
tobacco products. Liggett and the other major manufacturers in the industry
responded by the filing of a civil action in the United States District Court
for the Middle District of North Carolina challenging the legal authority of
the FDA to assert such jurisdiction. In addition thereto, Liggett and the
other four major cigarette manufacturers, as well as others, have filed
comments in opposition to the Proposed Rule-Making. Management is unable to
predict whether such a classification will be made. Management is also unable
to predict the effects of such a classification, were it to occur, or of such
regulations, if implemented, on Liggett's operations, but such actions could
have an unfavorable impact thereon.

In 1994, four class action lawsuits were brought against Liggett and other
cigarette manufacturers, representing the first time class actions were brought
against the cigarette industry. In the three of these cases which remain
pending, plaintiffs' motions for class certification were granted in whole or
in part, and the defendants have appealed each of these rulings. In two of
these cases, the rulings of the trial courts certifying a class have been
affirmed by an intermediate appellate court. In both of these cases,
defendants have filed petitions for rehearing, for rehearing en banc, and for
further discretionary appellate review. On May 10, 1996, defendants' petitions
were denied. The defendants intend to appeal these decisions. On May 3, 1996,
another class action lawsuit was brought against Liggett and other cigarette
manufacturers. This action presently is in the pleading stage and discovery
has not as yet commenced.

<PAGE> 26

adolescents, including a prohibition on the use of cartoon characters in tobacco
advertising and limitations on the use of promotional materials and distribution
of sample packages where minors are present.

The foregoing summary of the settlement and letter agreements with the
Castano plaintiffs is qualified in its entirety by reference to the text of
such agreements, which was incorporated as Exhibit 10.23 to Liggett's Report on
Form 10-K for the year ended December 31, 1995 and is incorporated herein by
reference.

The State of Florida enacted legislation effective July 1, 1994 allowing
certain state authorities or entities to commence litigation seeking recovery
of certain Medicaid payments made on behalf of Medicaid recipients as a result
of diseases (including, but no limited to, diseases allegedly caused by
cigarette smoking) allegedly caused by liable third parties (including, but not
limited to, the tobacco industry). This statute purportedly abrogates certain
defenses typically available to defendants. This legislation would impose on
the tobacco industry, if ultimate liability of the industry is established in
litigation, liability based upon market share for such payments made as a
result of such smoking-related diseases. Although a suit has been commenced
to challenge the constitutionality of the Florida legislation, no assurance can
be given that it will be successful. On May 6, 1995, the Florida legislature
voted in favor of a bill to repeal this legislation, but the Governor of
Florida vetoed this repealer bill. On March 13, 1996, the Florida legislature
considered taking certain action to override the veto of the repealer bill if
the requisite vote could be attained, but decided not to take formal action
when it was determined that it could not attain the requisite vote. On
February 22, 1995, suit was commenced pursuant to the above-referenced enabling
statute by the State of Florida acting through the Agency for Health Care
Administration against Liggett and others, seeking restitution of monies
expended in the past and which may be expended in the future by the State of
Florida to provide health care to Medicaid recipients for injuries and ailments
allegedly caused by the use of cigarettes and other tobacco products.
Plaintiffs also seek a variety of other forms of relief including a
disgorgement of all profits from the sale of cigarettes in Florida.

The States of Mississippi, Minnesota, West Virginia, Massachusetts,
Louisiana, Texas and Maryland also have brought actions against Liggett and
other cigarette manufacturers seeking restitution and indemnity for certain
Medicaid costs allegedly incurred as a result of tobacco-related illnesses. In

<PAGE> 27

West Virginia, the trial court, in a ruling issued on May 3, 1995, dismissed
eight of the ten counts of the complaint filed therein, leaving only two counts
of an alleged conspiracy to control the market and the market price of tobacco
products and an alleged consumer protection claim. In a recent ruling, the trial
court has adjudged the contingent fee agreement entered into by the State of
West Virginia and its counsel to be unconstitutional under the Constitution of
the State of West Virginia. In Mississippi, the Governor has recently commenced
an action in the Mississippi Supreme Court against the Attorney General of the
state, making application for a writ of prohibition to bar further prosecution
and to seek dismissal of the suit brought by the Attorney General of the state
for such restitution and indemnity, alleging that the commencement and
prosecution of such a civil action by the Attorney General of the state was and
is outside the authority of the Attorney General.

The Commonwealth of Massachusetts has enacted legislation authorizing
lawsuits similar to the suits filed by the States of Mississippi, Minnesota,
West Virginia, Texas and Maryland. Aside from the Florida and Massachusetts
statutes, legislation authorizing the state to sue a company or individual to
recover the costs incurred by the state to provide health care to persons
allegedly injured by the company or individual also has been introduced in a
number of other states. These bills contain some or all of the following
provisions: eliminating certain affirmative defenses, permitting the use of
statistical evidence to prove causation and damages, adopting market share
liability and allowing class action suits without notification to class
members.

On November 28, 1995, each of the major manufacturers in the industry,
including Liggett, filed suit in both the Commonwealth of Massachusetts and in
the State of Texas seeking declaratory relief to the effect that the
commencement of any such litigation (as had been filed by Florida, Mississippi,
West Virginia and Minnesota and now by Massachusetts, Louisiana, Texas and
Maryland) seeking to recover Medicaid expenses against the manufacturers by
either the Commonwealth of Massachusetts or the State of Texas would be
unlawful. On January 22, 1996, a suit seeking substantially similar
declaratory relief was filed in the State of Maryland.

On March 15, 1996, BGL and Liggett entered into a settlement of tobacco
litigation with the Attorneys General of the States of Florida, Louisiana,
Massachusetts, Mississippi and West Virginia. The settlement with the
Attorneys General releases BGL and Liggett from all tobacco-related claims by
these states including claims for Medicaid reimbursement and concerning sales
of cigarettes to minors. The settlement provides that additional states which
commence similar Attorney General actions may agree to be bound by the
settlement prior to six months from the date thereof (subject to extension of
such period by the settling defendants). Certain of the terms of the
settlement are summarized below.

<PAGE> 28

BGL and Liggett have the right to terminate the settlement with respect to
any state participating in the settlement if any of the remaining defendants in
the litigation succeed on the merits in that state's Attorney General action.
BGL and Liggett may also terminate the settlement if they conclude that too many
states have filed Attorney General actions and have not resolved such cases as
to the settling defendants by joining in the settlement.

The foregoing summary of the settlement agreement with the Attorneys
General is qualified in its entirety by reference to the text of such
agreement, which was incorporated as Exhibit 10.24 to Liggett's Report on Form
10-K for the year ended December 31, 1995 and is incorporated herein by
reference.

The Company has been receiving certain financial and other assistance from
others in the industry in defraying the costs and other burdens incurred in the
defense of smoking and health litigation and related proceedings. The future
financial benefit to the Company is not quantifiable at this time since the
arrangements for assistance can be terminated on limited notice, or under
certain circumstances, certain of which have occurred, without notice, and the
amount of assistance received, if any, would be a function of the level of
costs incurred. Certain joint defense arrangements, and the financial benefits
incident thereto, have ended. No assurances can be made that other
arrangements will continue. Liggett expects that the level of financial and
other assistance which it may receive, if any, will be clarified over the
ensuing months.

RESULTS OF OPERATIONS

1995 Restructuring

During the first quarter of 1995, the Company reduced its headcount by
approximately 63 positions and recorded a $487 restructuring charge to
operations (which is included as a component of cost of sales) for severance
programs, primarily salary continuation and related benefits for terminated
employees. The anticipated savings of the restructuring relate primarily to
reduced payroll and benefits expenses in future periods.

Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995

Net sales were $78,488 for the three months ended March 31, 1996 compared
to $93,760 for the same period in 1995. This 16.3% decrease in revenues was
primarily due to a 20.4% decrease in unit sales volume, partially offset by the
effects of the May 9, 1995 list price increase (see "- Recent Developments in
the Cigarette Industry - Pricing Activity"). The decrease in unit sales volume
was comprised of declines within the premium segment of 16.6% and discount
segment (which includes generic, control label and branded discount products)
of 21.0%. The decline in premium and discount unit sales volume was due
primarily to the aggressive trade programs offered by the Company at the end of
the fourth quarter of 1995 and due to certain competitors continuing leveraging
rebate programs tied to their products.

Gross profit was $42,196 for the three months ended March 31, 1996, a
decrease of $6,210 from $48,406 for the same period in 1995 due primarily to
the decline in unit sales volume discussed above. As a percent of revenues
(excluding federal excise taxes), gross profit increased to 73.7% for the three
months ended March 31, 1996 compared to 71.9% for the same period in 1995.
This increase is the result of the May 9, 1995 list price increase and the 1995
restructuring discussed above, partially offset by increased tobacco costs due
to reduced worldwide supply of tobacco and a reduction in the average discount
available to Liggett from leaf tobacco dealers on tobacco purchased under prior
years' purchase commitments.

Operating income decreased to $78 for the three months ended March 31,
1996 from $5,213 for the same period in 1995 due primarily to the decrease in
gross profit discussed above. The negative

<PAGE> 29
effects on operating income were partially offset by reduced legal expenses due
to the financial assistance Liggett has been receiving from others in the
industry in defraying the costs incurred in the defense of smoking and health
litigation (see "- Recent Developments in the Cigarette Industry - Legislation
and Litigation" and "- Capital Resources and Liquidity").

Net interest expense was $5,856 for the three months ended March 31, 1996
compared to $5,851 for the same period in 1995. This increase in interest
expense was due to higher average outstanding balances under the revolving
credit facility along with the higher interest rate on the Series C Notes which
was reset from 16.5% to 19.75% on February 1, 1995, partially offset by the
redemption of $7,000 Series B Notes in December 1995.

Net loss amounted to $5,790 for the three months ended March 31, 1996
compared to $632 for the same period in 1995. This decline was primarily the
result of the same factors affecting operating income discussed above.

CAPITAL RESOURCES AND LIQUIDITY

Cash used in operations was $9,657 for the three months ended March 31,
1996 compared to $1,908 for the same period in 1995 due primarily to the
decline in net sales (see "- Results of Operations"), increased inventories and
a decline in accrued promotional expenses, partially offset by reduced legal
expenses.

Management is of the opinion that the positive effects on cash flow from
operations resulting from the April 1996 price increase (see "- Recent
Developments in the Cigarette Industry - Pricing Activity") and the continuing
effects of the Company's 1995 restructuring programs (see "- Results of
Operations - 1995 Restructuring") will be offset by increased tobacco costs,
the USDA marketing assessment, increased legal expense and settlement of
certain tobacco litigation. Further, the Castano settlement agreement commits
the Company to pay legal fees to the plaintiffs' attorneys in the Castano class
action. The amount and timing of such payment is unknown.

Cash used in investing activities for the three months ended March 31,
1996 and 1995 related primarily to capital expenditures which amounted to
approximately $1,350 and $334 for the respective periods. The expenditures
were principally to maintain production facilities and for operational
efficiencies. Capital expenditures of approximately $3,600, primarily for
production facilities and further equipment modernization, are projected for
1996. These expenditures are expected to be funded with cash flow from
operations, borrowings under the revolving credit facility and proceeds from
the sale of certain surplus realty.

<PAGE> 30

Cash provided by financing activities for the three months ended March 31,
1996 and 1995 of $11,007 and $2,208, respectively, resulted primarily from net
borrowings under the revolving credit facility.

On March 8, 1994, Liggett entered into a revolving credit facility (the
"facility") under which it can borrow up to $40,000 (depending on the amount of
eligible inventory and receivables as determined by the lenders) from a
syndicate of commercial lenders. Availability under the facility was
approximately $4,510 based upon eligible collateral at March 31, 1996. The
facility expires on March 8, 1997 and is collateralized by all accounts
receivable and inventories of the Company. Borrowings under the facility bear
interest at a rate equal to 1.5% above Philadelphia National Bank's (the
indirect parent of Congress Financial Corporation, the lead lender) prime rate,
which was 8.75% at March 31, 1996. The facility requires Liggett's compliance
with certain financial and other covenants and limits the amount of cash
dividends and payments which can be made by Liggett. At March 31, 1996, the
Company was in compliance with all debt covenants under the facility.
Management anticipates the facility will be refinanced with substantially
similar terms in March 1997, although there can be no assurance that this will
be accomplished. Since the facility's outstanding balance is due within the
next twelve months, approximately $32,000 was reclassified to current
liabilities at March 31, 1996. Management believes that the facility, along
with cash flows from operations, will continue to adequately address the
Company's liquidity requirements.

On February 14, 1992, Liggett issued $150,000 in Senior Secured Notes (the
"Series B Notes"). From the proceeds of $148,244, net of an original issue
discount, $144,054 was dividended to BGLS (which reduced stockholder's equity)
and $4,190 was paid as financing fees. Interest on the Series B Notes is
payable semiannually on February 1 and August 1 at an annual rate of 11.5%.
The Series B Notes and Series C Notes referred to below (collectively, the
"Notes") require mandatory principal redemptions of $7,500 on February 1 in
each of the years 1993 through 1997 and $37,500 on February 1, 1998 with the
balance of the Notes due on February 1, 1999. The Notes are collateralized by
substantially all of the assets of the Company, excluding accounts receivable
and inventory. Eve is a guarantor for the Notes. The Notes may be redeemed,
in whole or in part, at a price equal to 104%, 102% and 100% of the principal
amount in the years 1996, 1997 and 1998, respectively, at the option of the
Company at any time on or after February 1, 1996. The Notes contain
restrictions on Liggett's ability to declare or pay cash dividends, incur
additional debt, grant liens and enter into any new agreements with affiliates,
among others. At March 31, 1996, the Company was in compliance with all debt
covenants under the Notes indentures.

On January 31, 1994, the Company issued $22,500 of Variable Rate Series C
Senior Secured Notes (the "Series C Notes"). Liggett received $15,000 from
the issuance in cash and received $7,500 in Series B Notes which were credited
against the mandatory redemption requirements for February 1, 1994. The Series
C Notes have the same terms (other than interest rate) and stated maturity as
the Series B Notes. The Series C Notes bore a 16.5% interest rate, which was
reset on February 1, 1995 to 19.75%. The Company had received the necessary
consents from the required percentage of holders of its Series B Notes allowing
for an aggregate principal amount up to but not exceeding $32,850 of Series C
Notes to be issued under the Series C Notes indenture. In connection with the
consents, holders of Series B Notes received Series C Notes totaling two
percent of their current Series B Notes holdings. The total principal amount
of such Series C Notes issued was $2,842. On November 20, 1994, the Company
issued the remaining $7,508 of Series C Notes in exchange for an equal amount
of Series B Notes and cash of $375. The Series B Notes so exchanged were
credited against the mandatory redemption requirements for February 1, 1995.

<PAGE> 31

In December 1995, $7,000 of Series B Notes were purchased using revolver
availability and credited against the mandatory redemption requirements for
February 1, 1996. The remaining $500 mandatory redemption requirement for
February 1, 1996 was met by retiring the $500 Series C Notes held in treasury.
Management anticipates that the 1997 mandatory redemption will be funded by
cash flows from operations and borrowings under the facility. There are no
definite plans as yet for funding the 1998 mandatory redemption requirement.

SEPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The Company and its representatives may from time to time make oral or
written "forward-looking statements" within the meaning of the Private
Securities Reform Act of 1995 (the "Reform Act"), including any statements that
may be contained in the foregoing discussion in "Management's Discussion and
Analysis of Financial Condition and Results of Operations", and in this report
and other filings with the Securities and Exchange Commission and in its
reports to securityholders which reflect management's current views with
respect to future events and financial performance. These forward-looking
statements are subject to certain risks and uncertainties and, in connection
with the "safe-harbor" provisions of the Reform Act, the Company is hereby
identifying important factors that could cause actual results to differ
materially from those contained in any forward-looking statement made by or on
behalf of the Company. The Company continues to be subject to risk factors
endemic to the domestic tobacco industry including, without limitation, health
concerns relating to the use of tobacco products and exposure to ETS,
legislation, including tax increases, governmental regulation, privately
imposed smoking restrictions, governmental and grand jury investigations and
litigation. Furthermore, the Company is subject to intense competition,
changes in consumer preferences, the effects of changing prices for its raw
materials and local economic conditions. In addtion, the Company has a high
degree of leverage and substantial near term debt service requirements, as well
as a net worth deficiency and recent net losses. The Series C Notes contain
restrictions on the Company's ability to incur additional debt, grant liens,
enter into any new agreements with affiliates and declare or pay cash
dividends, among others. Due to such uncertainties and risks, readers are
cautioned not place undue reliance on such forward-looking statements, which
speak only as of the date such statements are made. The Company does not
undertake to update any forward-looking statement that may be made from time
to time by or on behalf of the Company.

<PAGE> 32

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Reference is made to information entitled "Commitments and
Contingencies" in Note 8 to the Company's consolidated financial statements
included elsewhere in this Report on Form 10-Q.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a). Exhibits

27.1 - Liggett Group Inc.'s Financial Data Schedule (for SEC use only)

27.2 - Eve Holdings Inc.'s Financial Data Schedule (for SEC use only)

(b). Reports on Form 8-K

The Company filed no reports on Form 8-K for the three months ended
March 31, 1996.

<PAGE> 33

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized on May 14, 1996.

LIGGETT GROUP INC.

By: /s/ David P. Sheets
--------------------------------
David P. Sheets
Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Financial and Principal
Accounting Officer)

EVE HOLDINGS INC.

By: /s/ Joselynn D. Van Siclen
--------------------------------
Joselynn D. Van Siclen
Vice President, Treasurer and Assistant Secretary
(Principal Financial and Principal
Accounting Officer)

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