UNITED STATES
                    SECURITIES AND EXCHANGE COMMISSION

                          Washington, D.C. 20549


                                 FORM 8-K

                              CURRENT REPORT

                  Pursuant to Section 13 or 15(d) of the
                      Securities Exchange Act of 1934




                   January 5, 1995  (December 22, 1994)
- ---------------------------------------------------------------------------
             Date of Report (Date of earliest event reported)



                           AMERICAN BRANDS, INC.
- ---------------------------------------------------------------------------
          (Exact name of registrant as specified in its charter)



             Delaware                     1-9076            13-3295276
- ---------------------------------------------------------------------------
   (State or other jurisdiction        (Commission        (IRS Employer
         of incorporation)             File Number)    Identification No.)



    l700 East Putnam Avenue, Old Greenwich, Connecticut      06870-0811
- ---------------------------------------------------------------------------
         (Address of principal executive offices)            (Zip Code)



Registrant's telephone number, including area code   (203) 698-5000
                                                     ----------------------


                 INFORMATION TO BE INCLUDED IN THE REPORT


Item 2.   Acquisition or Disposition of Assets.
- ------    ------------------------------------

          (a)  On December 22, 1994, Registrant sold all of the issued and
outstanding shares of Common Stock, par value $1.00 per share (the
"Shares"), of The American Tobacco Company, a Delaware corporation and
wholly-owned subsidiary of Registrant (the "Company"), to B.A.T Industries
p.l.c., a public limited company incorporated under the laws of England
("B.A.T").  The sale was made pursuant to a previously reported Stock
Purchase Agreement dated as of April 26, 1994 between Registrant and B.A.T
(the "Stock Purchase Agreement").

          For the Shares, B.A.T paid Registrant $1,000,000,000 in cash.
The aggregate amount of the consideration was arrived at by arm's-length
negotiation between Registrant and B.A.T.

          Registrant is not aware of any material relationship between
B.A.T and Registrant or any of its affiliates, any director or officer of
Registrant or any associate of any such director or officer that existed at
the date of the sale by Registrant of the Shares pursuant to the Stock
Purchase Agreement.

          The Stock Purchase Agreement is filed herewith as Exhibit 2 and
is incorporated herein by reference.


Item 7.   Financial Statements, Pro Forma
- ------    Financial Information and Exhibits.
          ----------------------------------

          (b)  Pro Forma Financial Information.
               -------------------------------

               The following unaudited pro forma financial information of
               Registrant is attached hereto as Appendix A:

               (i)    Introductory paragraphs;

               (ii)   Pro Forma Condensed Balance Sheet (Unaudited) at
                      September 30, 1994;

               (iii)  Pro Forma Condensed Statement of Income (Unaudited)
                      for the year ended December 31, 1993;

               (iv)   Pro Forma Condensed Statement of Income (Unaudited)
                      for the nine months ended September 30, 1994; and

               (v)    Notes to Unaudited Pro Forma Condensed Financial
                      Statements.


          (c)  Exhibits.
               --------

               2.     Stock Purchase Agreement dated as of April 26, 1994
                      between Registrant and B.A.T Industries p.l.c.*








































- --------------------------
*    Pursuant to Item 601(b)(2) of Regulation S-K, the exhibits and
schedules to Exhibit 2 are omitted.  Exhibit 2 contains a list identifying
the contents of its exhibits and schedules, and Registrant agrees to
furnish supplementally copies of such exhibits and schedules to the
Securities and Exchange Commission upon request.






                                    -2-


          This Current Report shall not be construed as a waiver of the
right to contest the validity or scope of any or all of the provisions of
the Securities Exchange Act of 1934 under the Constitution of the United
States, or the validity of any rule or regulation made or to be made under
such Act.


                                 SIGNATURE
                                 ---------


          Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this Current Report to be
signed on its behalf by the undersigned thereunto duly authorized.


                                        AMERICAN BRANDS, INC.
                                        ---------------------
                                             (Registrant)


                                        By  Robert L. Plancher
                                          --------------------------------
                                          Robert L. Plancher
                                          Senior Vice President and
                                             Chief Accounting Officer



Date:  January 5, 1995


                                                                 APPENDIX A
                           AMERICAN BRANDS, INC.

            UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS


The following unaudited pro forma condensed financial statements are

presented for informational purposes only and do not purport to be

indicative of the financial position which would actually have existed or

the results of operations which would actually have been obtained if the

transactions had occurred in the periods indicated below or which may exist

or be obtained in the future.  The ultimate use of the proceeds may differ

from the assumptions used herein.

The following unaudited pro forma condensed statements of income for the

year ended December 31, 1993 and the nine months ended September 30, 1994

give effect to: (i) the elimination of the results of operations of The

American Tobacco Company ("American Tobacco"), a wholly-owned subsidiary of

American Brands, Inc. ("American Brands"), which was sold, as described in

Note (A), (ii) the elimination of the results of operations of American

Franklin Company ("Franklin"), a wholly-owned subsidiary of American

Brands, which is expected to be sold, as described in Note (E), and (iii)

the related pro forma adjustments described in the Notes thereto.  The pro

forma results of operations are presented as though these disposals

occurred on January 1, 1993.

The following unaudited pro forma condensed balance sheet as of September

30, 1994 gives effect to the disposal of American Tobacco and Franklin and

the related pro forma adjustments described in the Notes thereto.  Such

balance sheet is presented as though the disposals occurred at September

30, 1994.

These statements should be read in conjunction with the Notes thereto and

with the historical financial statements of American Brands and the notes

thereto.


                                    AMERICAN BRANDS, INC. AND SUBSIDIARIES
                                PRO FORMA CONDENSED BALANCE SHEET (Unaudited)
                                              SEPTEMBER 30, 1994
                                                (IN MILLIONS)
AMERICAN AMERICAN PRO FORMA BRANDS TOBACCO FRANKLIN ADJUSTMENTS PRO FORMA -------- -------- -------- ----------- --------- Assets Consumer products and corporate Cash and cash equivalents $ 92.6 $ 11.2 $ 103.8 Accounts receivable, net 1,334.4 (17.4) 1,317.0 Inventories 1,702.7 (385.5) 1,317.2 Other current assets 279.4 (51.3) 228.1 --------- ------- -------- Total consumer products and corporate current assets 3,409.1 (443.0) 2,966.1 --------- ------- -------- Property, plant and equipment, net 1,386.3 (163.0) 1,223.3 Intangibles resulting from business acquisitions, net 3,578.0 3,578.0 Other assets 414.6 (71.8) 342.8 --------- ------- -------- Total consumer products and corporate assets 8,788.0 (677.8) 8,110.2 --------- ------- -------- Life insurance Investments 6,238.8 $(6,238.8) - Cash and cash equivalents 92.7 (92.7) - Deferred policy acquisition costs 499.3 (499.3) - Present value of future profits, net 177.2 (177.2) - Other assets 364.9 (364.9) - --------- --------- -------- Total life insurance assets 7,372.9 (7,372.9) - --------- ------- --------- -------- Total assets $16,160.9 $(677.8) $(7,372.9) $8,110.2 ========= ======= ========= ======== See Accompanying Notes to Unaudited Pro Forma Condensed Financial Statements.
2 AMERICAN BRANDS, INC. AND SUBSIDIARIES PRO FORMA CONDENSED BALANCE SHEET (Unaudited) SEPTEMBER 30, 1994 (IN MILLIONS)
AMERICAN AMERICAN PRO FORMA BRANDS TOBACCO FRANKLIN ADJUSTMENTS PRO FORMA -------- -------- -------- ----------- --------- Current liabilities Consumer products and corporate Notes payable to banks $ 167.7 $(167.7) (A) $ - Commercial paper 300.8 (300.8) (A) - Accounts payable and accrued expenses and other liabilities 1,051.4 $ (1.5) 40.0 (A) 1,089.9 Accrued excise and other taxes 1,077.6 (179.9) 88.5 (A) 986.2 (156.5) (A) Current portion of long-term debt 303.6 (0.7) (146.4) (E) - --------- ------- -------- --------- Total consumer products and corporate current liabilities 2,901.1 (182.1) (642.9) 2,076.1 --------- ------- -------- --------- Long-term debt 2,120.5 (648.6) (E) 1,471.9 Deferred income taxes 121.8 (1.1) 120.7 Postretirement and other liabilities 511.3 (159.4) 351.9 --------- ------- -------- --------- Total consumer products and corporate liabilities 5,654.7 (342.6) (1,291.5) 4,020.6 --------- ------- -------- --------- Life insurance Policy reserves and claims 2,723.8 $(2,723.8) - Investment-type contract deposits 2,849.1 (2,849.1) - Other liabilities 447.3 (447.3) - --------- --------- -------- --------- Life insurance total liabilities 6,020.2 (6,020.2) - --------- --------- -------- --------- 3 Convertible preferred stock redeemable at Company's option 16.0 16.0 --------- --------- Common stockholders' equity Common stock, par value $3.125 per share, 229.6 shares issued 717.4 717.4 529.7 (A) Paid-in capital 170.6 (529.7) (845.1) 845.1 (E) 170.6 Unrealized depreciation on available-for-sale investments (7.0) 7.0 - Foreign currency adjustments (234.6) (234.6) (194.5) (A) 536.3 (A) 514.6 (E) Retained earnings 4,556.3 194.5 (514.6) (189.7) (E) 4,902.9 (375.0) (A) Treasury stock, at cost (732.7) (375.0) (E) (1,482.7) --------- ------- --------- -------- --------- Total Common stockholders' equity 4,470.0 (335.2) (1,352.7) 1,291.5 4,073.6 --------- ------- --------- -------- --------- Total liabilities and stockholders' equity $16,160.9 $(677.8) $(7,372.9) $ - $ 8,110.2 ========= ======= ========= ======== ========= See Accompanying Notes to Unaudited Pro Forma Condensed Financial Statements.
4 AMERICAN BRANDS, INC. AND SUBSIDIARIES PRO FORMA CONDENSED STATEMENT OF INCOME (Unaudited) YEAR ENDED DECEMBER 31, 1993 (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
AMERICAN AMERICAN PRO FORMA BRANDS TOBACCO FRANKLIN ADJUSTMENTS PRO FORMA -------- -------- -------- ----------- --------- Revenues Consumer products $12,630.5 $(1,501.5) $11,129.0 Life insurance 1,070.9 $(1,070.9) - --------- --------- --------- --------- 13,701.4 (1,501.5) (1,070.9) 11,129.0 --------- --------- --------- --------- Operating expenses Cost of products sold 3,587.6 (345.3) 3,242.3 Excise taxes on products sold 5,413.9 (360.9) 5,053.0 Insurance benefits 654.2 (654.2) - Advertising, selling and administrative expenses Consumer products 2,315.2 (626.1) 1,689.1 Life insurance 188.2 (188.2) - Amortization of intangibles 103.6 (11.2) 92.4 Restructuring charges 40.8 40.8 --------- --------- --------- --------- 12,303.5 (1,332.3) (853.6) 10,117.6 --------- --------- --------- --------- Operating income 1,397.9 (169.2) (217.3) 1,011.4 --------- --------- --------- --------- $ (37.5) (C) Interest and related charges 244.2 (1.6) (16.6) (47.7) (G) 140.8 Corporate administrative expenses 78.1 78.1 Other (income) expenses, net (0.5) 1.1 0.6 --------- --------- --------- ------- --------- 321.8 (0.5) (16.6) (85.2) 219.5 --------- --------- --------- ------- --------- Income before income taxes 1,076.1 (168.7) (200.7) 85.2 791.9 13.1 (D) Income taxes 407.9 (46.6) (73.7) 16.7 (H) 317.4 --------- --------- --------- ------- --------- Income from continuing operations $ 668.2 $ (122.1) $ (127.0) $ 55.4 $ 474.5 ========= ========= ========= ======= ========= 5 Income from continuing operations Per Common share Primary $ 3.30 $ 2.60 (I) ========= ========= Fully diluted $ 3.23 $ 2.56 (I) ========= ========= Average number of Common shares outstanding Primary 201.8 181.8 (I) ========= ========= Fully diluted 213.7 193.7 (I) ========= ========= See Accompanying Notes to Unaudited Pro Forma Condensed Financial Statements.
6 AMERICAN BRANDS, INC. AND SUBSIDIARIES PRO FORMA CONDENSED STATEMENT OF INCOME (Unaudited) NINE MONTHS ENDED SEPTEMBER 30, 1994 (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
AMERICAN AMERICAN PRO FORMA BRANDS TOBACCO FRANKLIN ADJUSTMENTS PRO FORMA -------- -------- -------- ----------- --------- Revenues Consumer products $ 9,396.4 $(1,207.4) $8,189.0 Life insurance 785.3 $ (785.3) - --------- --------- -------- -------- 10,181.7 (1,207.4) (785.3) 8,189.0 --------- --------- -------- -------- Operating expenses Cost of products sold 2,862.7 (283.6) 2,579.1 Excise taxes on products sold 3,825.1 (313.8) 3,511.3 Insurance benefits 540.1 (540.1) - Advertising, selling and administrative expenses Consumer products 1,738.5 (435.8) 1,302.7 Life insurance 139.3 (139.3) - Amortization of intangibles 80.9 (9.0) 71.9 --------- --------- -------- -------- 9,186.6 (1,033.2) (688.4) 7,465.0 --------- --------- -------- -------- Operating income 995.1 (174.2) (96.9) 724.0 --------- --------- -------- -------- $ (28.1) (C) Interest and related charges 177.9 (1.2) (12.4) (35.8) (G) 100.4 Corporate administrative expenses 52.7 52.7 Other (income) expenses, net 6.4 (0.8) 5.6 --------- --------- -------- ------- -------- 237.0 (2.0) (12.4) (63.9) 158.7 --------- --------- -------- ------- -------- Income before income taxes 758.1 (172.2) (84.5) 63.9 565.3 9.8 (D) Income taxes 293.1 (69.4) (32.6) 12.5 (H) 213.4 --------- --------- -------- ------- -------- Income from continuing operations $ 465.0 $ (102.8) $ (51.9) $ 41.6 $ 351.9 ========= ========= ======== ======= ======== 7 Income from continuing operations Per Common share Primary $ 2.30 $ 1.93 (I) ========= ======== Fully diluted $ 2.25 $ 1.90 (I) ========= ======== Average number of Common shares outstanding Primary 201.6 181.6 (I) ========= ======== Fully diluted 213.6 193.6 (I) ========= ======== See Accompaning Notes to Unaudited Pro Forma Condensed Financial Statements.
8 AMERICAN BRANDS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS The American Brands column in the pro forma condensed balance sheet at September 30, 1994 and the pro forma condensed statements of income for the year ended December 31, 1993 and the nine months ended September 30, 1994 include American Tobacco's and Franklin's results for the full periods. The American Tobacco and Franklin columns in the pro forma condensed financial statements reflect their respective amounts which are included in the American Brands columns. THE AMERICAN TOBACCO COMPANY - ---------------------------- (A) On December 22, 1994, American Brands sold American Tobacco to B.A.T Industries p.l.c. for $1 billion in cash. Such sale is reflected in the pro forma condensed balance sheet pro forma adjustments column which assumes a $625 million reduction of short-term debt and a purchase of 10 million shares of American Brands' Common stock, at a cost of $37.50 per share (closing market price on December 30, 1994), or $375 million. The share purchase is reflected as an increase in Treasury stock, at cost. Retained earnings reflects an estimated gain of $536.3 million (net of estimated accrued expenses of $40 million and $88.5 million of taxes) on the sale as though the disposal occurred at September 30, 1994. The actual gain to be recorded as of the closing date will differ from the estimated pro forma gain assumed in the September 30, 1994 pro forma balance sheet. 9 AMERICAN BRANDS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS (Continued) (B) The pro forma condensed statements of income pro forma adjustments columns for the year ended December 31, 1993 and nine months ended September 30, 1994 reflect the related interest expense adjustment on the short-term debt reduction as follows: Year ended Nine Months ended December 31, 1993 September 30, 1994 ----------------- ------------------ (In millions) (C) Reduction in interest expense at an assumed average interest rate of 6%. $ 37.5 $ 28.1 ====== ====== (D) Increase in provisions for income taxes relates to the reduction in interest expense. $ 13.1 $ 9.8 ====== ====== The pro forma condensed statements of income do not reflect the estimated gain on the sale. AMERICAN FRANKLIN COMPANY - ------------------------- (E) On November 30, 1994, American Brands announced that it had executed a definitive agreement to sell Franklin to American General Corporation for $1.17 billion in cash. The transaction is subject to antitrust and insurance regulatory approvals and other customary conditions and is expected to close during the first quarter of 1995. The Franklin transaction represents a disposal of a business segment and will be treated as a discontinued operation. The Franklin column in the pro forma condensed statements of income includes an allocation of interest expense 10 AMERICAN BRANDS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS (Continued) from continuing to discontinued operations based on a normal debt to equity ratio for a life insurance company. Such expected sale is reflected in the pro forma condensed balance sheet pro forma adjustments column which assumes a $146.4 million reduction of short-term debt, a $648.6 million reduction of long-term debt and a purchase of 10 million shares of American Brands' Common stock, at a cost of $37.50 per share (closing market price on December 30, 1994), or $375 million. The share purchase is reflected as an increase in Treasury stock, at cost. Retained earnings reflects an estimated loss of $189.7 million on the sale as though the disposal occurred at September 30, 1994. (F) The pro forma condensed statements of income pro forma adjustments columns for the year ended December 31, 1993 and the nine months ended September 30, 1994 reflect the related interest expense adjustment on the short-term and long-term debt reductions as follows: Year ended Nine Months ended December 31, 1993 September 30, 1994 ----------------- ------------------ (In millions) (G) Reduction in interest expense at an assumed average interest rate of 6%. $ 47.7 $ 35.8 ====== ====== (H) Increase in provisions for income taxes relates to the reduction in interest expense. $ 16.7 $ 12.5 ====== ====== 11 AMERICAN BRANDS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS (Concluded) The pro forma condensed statements of income do not include the estimated loss on the sale. The estimated loss including provision for net income during the phase-out period from November 30 through the anticipated closing of the transaction, is expected to be approximately $220 million. (I) Pro forma income from continuing operations per Common share and Average number of Common shares outstanding also reflect the assumed purchase of 20 million Common shares. 12 EXHIBIT INDEX Sequentially Exhibit Numbered Page - ------- ------------- 2. Stock Purchase Agreement dated as of April 26, 1994 between Registrant and B.A.T Industries p.l.c.* - -------------------------- * Pursuant to Item 601(b)(2) of Regulation S-K, the exhibits and schedules to Exhibit 2 are omitted. Exhibit 2 contains a list identifying the contents of its exhibits and schedules, and Registrant agrees to furnish supplementally copies of such exhibits and schedules to the Securities and Exchange Commission upon request.
                                                                  EXHIBIT 2
                                                                  ---------

                                                             EXECUTION COPY






===========================================================================








                         STOCK PURCHASE AGREEMENT


                                  between


                           AMERICAN BRANDS, INC.


                                    and


                          B.A.T INDUSTRIES P.L.C.



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

                        Dated as of April 26, 1994

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


                                  SALE OF
                       THE AMERICAN TOBACCO COMPANY








===========================================================================


                             TABLE OF CONTENTS


                                                          Page in Executed
SECTION                                           Page         Version
- -------                                           ----     ---------------
 1.  Purchase and Sale of the Shares               1                 1
 2.  Closing                                       1                 1
 3.  Conditions to Closing                         1                 2
 4.  Representations and Warranties of Seller      4                 5
 5.  Covenants of Seller                          26                38
 6.  Representations and Warranties of Buyer      36                52
 7.  Covenants of Buyer                           37                53
 8.  Mutual Covenants                             37                54
 9.  Employee and Related Matters                 42                61
10.  Further Assurances                           44                63
11.  Indemnification                              44                63
12.  Tax Matters                                  54                77
13.  Assignment                                   59                84
14.  No Third-Party Beneficiaries                 59                85
15.  Termination                                  59                85
16.  Survival of Representations                  60                86
17.  Expenses                                     60                86
18.  Amendments; Waivers                          60                87
19.  Notices                                      61                87
20.  Interpretation; Exhibits and Schedules;
       Certain Definitions                        62                88
21.  Counterparts                                 62                89
22.  Entire Agreement                             62                89
23.  Fees                                         63                90
24.  Severability                                 63                90
25.  Consent to Jurisdiction                      63                90
26.  Commencement of Action, Suit or Proceeding   63                91
27.  Governing Law                                64                91

Exhibit A     Form of Opinion of Counsel to Seller
Exhibit B-1   Form of Opinion of Counsel to Buyer
Exhibit B-2   Form of Opinion of Counsel to B&W
Exhibit C     Form of Opinion of The Solicitor of Buyer
Exhibit D     Form of Opinion of General Counsel to B&W
Exhibit E     Form of Indemnification Agreement
Exhibit F     Form of Section 5(g)(iii) Certificate
Exhibit G     Form of Co-Existence Agreement


                                                             EXECUTION COPY

                    STOCK PURCHASE AGREEMENT dated as of April 26, 1994,
               between AMERICAN BRANDS, INC., a Delaware corporation
               ("Seller"), and B.A.T INDUSTRIES P.L.C., a public limited
               company incorporated under the laws of England ("Buyer").


          Buyer desires to purchase from Seller, and Seller desires to sell
to Buyer, all the issued and outstanding shares of Common Stock, par value
$1.00 per share (the "Shares"), of The American Tobacco Company, a Delaware
corporation and wholly owned subsidiary of Seller (the "Company").

          Accordingly, Seller and Buyer hereby agree as follows:

          1.  PURCHASE AND SALE OF THE SHARES.  On the terms and subject to
the conditions of this Agreement, Seller shall sell, transfer and deliver
to Buyer, and Buyer shall purchase from Seller, the Shares for an aggregate
purchase price of $1,000,000,000 (the "Purchase Price"), payable as set
forth below in Section 2.

          2.  CLOSING.  The closing (the "Closing") of the purchase and
sale of the Shares shall be held at the offices of Chadbourne & Parke, 30
Rockefeller Plaza, New York, New York at 10:00 a.m. on the date that is
four business days after the expiration or termination of the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act") or, if the other conditions to the Closing set forth in
Section 3 shall not have been satisfied by such date, as soon as
practicable after such conditions shall have been satisfied (the date on
which the Closing occurs being hereinafter referred to as the "Closing
Date").  At the Closing, (i) Buyer shall deliver to Seller, by wire
transfer to a bank account designated in writing by Seller at least two
business days prior to the Closing Date, immediately available funds in an
amount equal to the Purchase Price and (ii) Seller shall deliver or cause
to be delivered to Buyer certificates representing the Shares, duly
endorsed in blank or accompanied by stock powers duly endorsed in blank in
proper form for transfer, with appropriate transfer stamps, if any,
affixed.

          3.  CONDITIONS TO CLOSING.  (a)  Buyer's Obligation.  The
obligation of Buyer to purchase and pay for the Shares is subject to the
satisfaction (or waiver by Buyer) as of the Closing of the following
conditions:

          (i)  The representations and warranties of Seller made in this
     Agreement shall be true and correct in all respects as of the date of
     this Agreement and as of the time of the Closing as though made as of
     such time (except to the extent such representations and warranties
     expressly relate to an earlier date, in which case such
     representations and warranties shall be true and correct in all
     respects as of such earlier date), except that it shall not be a
     condition of the Closing if such representations and warranties are
     untrue or incorrect in respects that, in the aggregate, would not have
     a Material Adverse Effect (as hereinafter defined).  Seller shall have
     performed or complied in all material respects with all obligations
     and covenants required by this Agreement to be performed or complied
     with by Seller by the time of the Closing.  Seller shall have


     delivered to Buyer a certificate dated the Closing Date and signed by
     an authorized executive officer of Seller confirming the foregoing.

          (ii)  Since the date of this Agreement, there shall not have been
     any material adverse change in the business, assets, financial
     condition or results of operations or prospects of the Company and the
     Subsidiaries (as hereinafter defined), taken as a whole, including any
     such change arising out of adverse developments in any lawsuit or
     proceeding pending or threatened against the Company or any of the
     Subsidiaries.

          (iii)  Buyer shall have received an opinion dated the Closing
     Date of Chadbourne & Parke, counsel to Seller, substantially in the
     form of Exhibit A.

          (iv)  No statute, law, ordinance, rule, regulation, executive
     order, decree, temporary restraining order, preliminary or permanent
     injunction or other order, judgment or decree enacted, entered,
     promulgated, enforced or issued by any Federal, state, local or
     foreign government or any court of competent jurisdiction,
     administrative agency or commission or other governmental authority or
     instrumentality, domestic or foreign (a "Governmental Entity"), which
     restrains or prohibits the purchase and sale of the Shares or which
     imposes any prohibition, limitation or other requirement of the type
     set forth in clauses (B), (C) and (D) of Section 3(a)(v) shall be in
     effect.

          (v)  There shall not be pending or threatened by any Federal
     Governmental Entity any suit, action or proceeding (or pending by any
     state Governmental Entity any suit, action or proceeding which has a
     reasonable likelihood of success) (A) challenging or seeking to
     restrain or prohibit the purchase and sale of the Shares or any of the
     other transactions contemplated by this Agreement or seeking to obtain
     from Buyer or any of its subsidiaries in connection with the purchase
     and sale of the Shares any material damages, (B) seeking to prohibit
     or limit the ownership or operation by Buyer, the Company or any of
     their respective subsidiaries of any material portion of the business
     or assets of Buyer and its subsidiaries, taken as a whole, or Brown &
     Williamson Tobacco Corporation, a Delaware corporation ("B&W"), or the
     Company and the Subsidiaries, taken as a whole, or seeking to compel
     Buyer, the Company or any of their respective subsidiaries to dispose
     of or hold separate any material portion of the business or assets of
     Buyer and its subsidiaries, taken as a whole, or B&W, or the Company
     and the Subsidiaries, taken as a whole, in each case as a result of
     the purchase and sale of the Shares or any of the other transactions
     contemplated by this Agreement, (C) seeking to impose limitations on
     the ability of Buyer or any of its subsidiaries to acquire or hold, or
     exercise full rights of ownership of, the Shares, including the right
     to vote the Shares on all matters properly presented to the
     stockholders of the Company, or (D) seeking to prohibit Buyer or any
     of its subsidiaries from effectively controlling in any material
     respect the business or operations of the Company and the
     Subsidiaries, taken as a whole.

          (vi)  The waiting period under the HSR Act shall have expired or
     been terminated.

                                     2



          (vii)  The closing of the transactions contemplated by the
     Business Purchase Agreement dated April 22, 1994, between British
     American Tobacco Company Limited and Seller's English Company (as
     hereinafter defined) shall occur in accordance with its terms
     simultaneously with the Closing, except that it shall not be a
     condition of the Closing if such closing shall not occur by reason of
     a default thereunder by Buyer.

          (b)  SELLER'S OBLIGATION.  The obligation of Seller to sell and
deliver the Shares to Buyer is subject to the satisfaction (or waiver by
Seller) as of the Closing of the following conditions:

          (i)  The representations and warranties of Buyer made in this
     Agreement shall be true and correct in all respects as of the date of
     this Agreement and as of the time of the Closing as though made as of
     such time (except to the extent such representations and warranties
     expressly relate to an earlier date, in which case such
     representations and warranties shall be true and correct in all
     respects as of such earlier date), except that it shall not be a
     condition of the Closing if such representations and warranties are
     untrue or incorrect in respects that, in the aggregate, would not have
     a material adverse effect on Buyer's ability to effect the
     transactions contemplated hereby.  Buyer shall have performed or
     complied in all material respects with all obligations and covenants
     required by this Agreement to be performed or complied with by Buyer
     by the time of the Closing.  Buyer shall have delivered to Seller a
     certificate dated the Closing Date and signed by an authorized senior
     officer of Buyer confirming the foregoing.

          (ii)  Seller shall have received (A) an opinion dated the Closing
     Date of Cravath, Swaine & Moore, counsel to Buyer, substantially in
     the form of Exhibit B-1, (B) an opinion dated the Closing Date of King
     & Spalding, counsel to B&W, substantially in the form of Exhibit B-2,
     (C) an opinion dated the Closing Date of Stuart P. Chalfen, The
     Solicitor of Buyer, substantially in the form of Exhibit C, and (D) an
     opinion dated the Closing Date of F. Anthony Burke, Esq., General
     Counsel of B&W, substantially in the form of Exhibit D.

          (iii)  No statute, law, ordinance, rule, regulation, executive
     order, decree, temporary restraining order, preliminary or permanent
     injunction or other order, judgment or decree enacted, entered,
     promulgated, enforced or issued by any Governmental Entity which
     restrains or prohibits the purchase and sale of the Shares shall be in
     effect.

          (iv)  There shall not be pending or threatened by any Federal
     Governmental Entity any suit, action or proceeding (or pending by any
     state Governmental Entity any suit, action or proceeding which has a
     reasonable likelihood of success), seeking to obtain material damages
     from Seller or any of its subsidiaries in connection with the purchase
     and sale of the Shares.

          (v)  The waiting period under the HSR Act shall have expired or
     been terminated.


                                     3


          (vi)  B&W shall have executed and delivered to Seller an
     indemnification agreement in the form of Exhibit E.

          4.  REPRESENTATIONS AND WARRANTIES OF SELLER.  Seller hereby
represents and warrants to Buyer as follows:

          (a)  AUTHORITY.  Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
Seller has all requisite corporate power and authority to enter into this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby.  All corporate acts and other proceedings
required to be taken by Seller to authorize the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly and properly taken.  This Agreement has
been duly executed and delivered by Seller and constitutes a legal, valid
and binding obligation of Seller, enforceable against Seller in accordance
with its terms, subject to the qualification, however, that enforcement of
the rights and remedies created hereby is subject to bankruptcy and other
similar laws of general application relating to or affecting the rights and
remedies of creditors and that the remedy of specific enforcement or of
injunctive relief is subject to the discretion of the court before which
any proceeding therefor may be brought.

          (b)  NO CONFLICTS; CONSENTS.  Except as set forth in Schedule
4(b), the execution and delivery of this Agreement by Seller do not, and
the consummation of the transactions contemplated hereby and compliance
with the terms hereof will not, conflict with, or result in any violation
of or default (with or without notice or lapse of time, or both) under, or
give rise to a right of termination, cancellation or acceleration of any
obligation of any person or to loss of a material right under (other than
to the possible loss of a material right under a contract or agreement that
by its terms is terminable at will under any circumstances), or to
increased, additional, accelerated or guaranteed rights or entitlements of
any person under, or result in the creation of any lien, claim,
encumbrance, security interest, option, charge or restriction of any kind
upon any of the properties or assets of the Company or any Subsidiary
under, any provision of (i) the Certificate of Incorporation or By-laws of
Seller or the Company or the comparable governing instruments of any
Subsidiary, (ii) any of the Contracts (as hereinafter defined) or any other
material note, bond, mortgage, indenture, deed of trust, license, lease,
contract, commitment, agreement or arrangement to which Seller, the Company
or any Subsidiary is a party or by which any of their respective properties
or assets are bound or (iii) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable as of the date hereof, or any
decree entered into or otherwise consented to by Seller, the Company or any
Subsidiary after the execution of this Agreement and on or prior to the
Closing Date applicable as of the Closing Date, to Seller, the Company or
any Subsidiary or their respective properties or assets (clauses (i), (ii)
and (iii), the "Documents and Laws"), other than, in the case of clause
(ii) above, any such items that, individually or in the aggregate, would
not have a material adverse effect on the business, assets, financial
condition or results of operations or prospects of the Company and the
Subsidiaries, taken as a whole, or on the ability of Seller to consummate
the transactions contemplated hereby (a "Material Adverse Effect").  Except
as set forth in Schedule 4(b), no consent, approval, license, permit, order
or authorization of, or registration, declaration or filing with, any

                                     4


Governmental Entity is required to be obtained or made by or with respect
to Seller, the Company or any Subsidiary or any of their respective
affiliates or Buyer or any of its subsidiaries in connection with the
execution, delivery and performance of this Agreement or the consummation
of the transactions contemplated hereby other than (I) compliance with and
filings under the HSR Act, (II) compliance with and filings under
Section 13(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), (III) compliance with and filings and notifications under
applicable environmental laws, (IV) the obtaining of any permits from the
Bureau of Alcohol, Tobacco and Firearms ("ATF") required under 27 C.F.R.
S 270 and (V) those that may be required solely by reason of Buyer's (as
opposed to any other third party's) participation in the transactions
contemplated hereby.

          (c)  THE SHARES.  Seller has good and valid title to the Shares,
free and clear of any liens, claims, encumbrances, security interests,
options, charges and restrictions of any kind.  Assuming Buyer has the
requisite power and authority to be the lawful owner of the Shares, upon
delivery to Buyer at the Closing of certificates representing the Shares,
duly endorsed by Seller for transfer to Buyer, and upon Seller's receipt of
the Purchase Price, good and valid title to the Shares will pass to Buyer,
free and clear of any liens, claims, encumbrances, security interests,
options, charges and restrictions of any kind, other than those arising
from acts of Buyer or its affiliates.  Other than this Agreement, the
Shares are not subject to any voting trust agreement or other contract,
agreement, arrangement, commitment or understanding, including any such
agreement, arrangement, commitment or understanding restricting or
otherwise relating to the voting, dividend rights or disposition of the
Shares.

          (d)  ORGANIZATION AND STANDING; BOOKS AND RECORDS.  (i)  Each of
the Company and the Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, which jurisdiction is set forth in Schedule 4(d).  Each of
the Company and the Subsidiaries has full corporate power and authority to
own, lease or otherwise hold its properties and assets and to carry on its
business as presently conducted.  Each of the Company and the Subsidiaries
is duly qualified and in good standing to do business as a foreign
corporation in each jurisdiction in which the conduct or nature of its
business or the ownership, leasing or holding of its properties makes such
qualification necessary, except such jurisdictions where the failure to be
so qualified or in good standing, individually or in the aggregate, would
not have a Material Adverse Effect.  A list of the jurisdictions in which
the Company and the Subsidiaries are so qualified as of the date hereof is
set forth in Schedule 4(d).  Neither the Company nor any of the
Subsidiaries is subject to, bound by or a party to any contract, agreement
or other instrument, or subject to any charter or other corporate
restriction, which has or is reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect.  The term "Subsidiary" means each
person of which a majority of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by the
Company.

          (ii)  Seller has prior to the execution of this Agreement
delivered to Buyer true and complete copies of (A) the Certificate of
Incorporation and By-laws, each as amended to date, of the Company and

                                     5


(B) the comparable governing instruments, each as amended to date, of each
Subsidiary.  Except as set forth in Schedule 4(d), the stock certificates
and stock certificate books and minute books of the Company and each
Subsidiary (which have been made available for inspection by Buyer prior to
the date hereof) are true and complete.

          (e)  CAPITAL STOCK OF THE COMPANY AND THE SUBSIDIARIES.  The
authorized capital stock of the Company consists of 1,000 shares of Common
Stock, par value $1.00 per share, all of which, constituting the Shares,
are duly authorized and validly issued and outstanding, fully paid and
nonassessable.  Seller is the record and beneficial owner of the Shares.
Except for the Shares, there are no shares of capital stock or other equity
securities of the Company outstanding.  Schedule 4(e) sets forth for each
Subsidiary the amount of its authorized capital stock, the amount of its
outstanding capital stock and the record and beneficial owners of its
outstanding capital stock.  All the outstanding shares of capital stock of
each Subsidiary have been duly authorized and validly issued and are fully
paid and nonassessable.  Except as set forth in Schedule 4(e), there are no
shares of capital stock or other equity securities of any Subsidiary
outstanding.  Neither the Shares nor any shares of capital stock of any
Subsidiary have been issued in violation of, and none of the Shares or such
shares of capital stock are subject to any purchase option, call, right of
first refusal or, except as set forth in Schedule 4(e), preemptive,
subscription or similar right under, any provision of any applicable
Documents and Laws.  There are no outstanding warrants, options, rights,
"phantom" stock rights, agreements, convertible or exchangeable securities
or other commitments (other than this Agreement) (i) pursuant to which
Seller, the Company or any Subsidiary is or may become obligated to issue,
sell, purchase, return or redeem any shares of capital stock or other
securities of the Company or any Subsidiary or (ii) that give any person
the right to receive or benefit from any voting rights, dividend rights,
liquidation rights or capital appreciation rights similar to those which
the holders of shares of capital stock of the Company or any Subsidiary
have or could have the right to receive or benefit from.  Except as set
forth in Schedule 4(e), there are no equity securities of the Company or
any Subsidiary reserved for issuance for any purpose.  The Company has good
and valid title, directly or through one or more wholly owned subsidiaries,
to all the outstanding shares of capital stock of each Subsidiary, free and
clear of any liens, claims, encumbrances, security interests, options,
charges and restrictions of any kind.  There are no outstanding bonds,
debentures, notes or other indebtedness having the right to vote on any
matters on which stockholders of the Company or any Subsidiary may vote.

          (f)  EQUITY INTERESTS.  Except for the Subsidiaries and as set
forth in Schedule 4(f), the Company does not directly or indirectly own any
capital stock of or other equity interests in any corporation, partnership
or other person and neither the Company nor any of the Subsidiaries is a
member of or participant in any partnership, joint venture or similar
person.  Except as set forth in Schedule 4(f) and except for Gallaher
Limited ("Seller's English Company") and its subsidiaries, neither Seller
nor any of its affiliates (other than the Company and the Subsidiaries)
owns any capital stock of or other equity interest in any corporation,
partnership or other person, or is a member of or participant in any
partnership, joint venture or similar person, that is engaged in the
tobacco business.


                                     6


          (g)  FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES.  (i) Schedule
4(g) sets forth (A) the audited balance sheet of the Company as of December
31, 1992, and the audited statements of income and retained earnings and
cash flows of the Company for the year then ended and (B) the audited
consolidated balance sheet of the Company and the Subsidiaries as of
December 31, 1993, and the audited consolidated statements of income and
retained earnings and cash flows of the Company and the Subsidiaries for
the year then ended, in each case together with the notes to such financial
statements and the report of the independent auditors thereon (the
financial statements described above, together with the notes to such
financial statements, collectively, the "Financial Statements", and the
audited consolidated balance sheet of the Company and the Subsidiaries as
of December 31, 1993, the "Balance Sheet").  The Financial Statements have
been prepared in conformity with United States generally accepted
accounting principles ("GAAP") consistently applied (except as indicated in
the notes thereto) and fairly present, respectively, the financial
condition and results of operations of the Company, and the consolidated
financial condition and results of operations of the Company and the
Subsidiaries, as of the respective dates thereof and for the respective
periods indicated.

          (ii)  Schedule 4(g) sets forth the pro forma consolidated balance
sheet of the Company and the Subsidiaries as of December 31, 1993, which
makes the pro forma adjustments described in the notes thereto to the
historical financial information contained in the Balance Sheet, together
with the examination report of the independent auditors thereon.  The
assumptions utilized in connection with such pro forma balance sheet
provide a reasonable basis for presenting the effects of the events
relating to such adjustments, such adjustments give appropriate effect to
such assumptions and the pro forma financial information reflects the
proper application of such adjustments to the Balance Sheet.  Such
adjustments only relate to (x) the assignment of the rights and obligations
under the European Trademark Agreements as contemplated by Section 5(j) and
(y) the settlement of intercompany accounts contemplated by Section 8(e).

          (iii)  As of the date hereof, the Company and the Subsidiaries do
not have any material liabilities or obligations of any nature (whether
accrued, absolute, contingent, unasserted or otherwise) except (1) as
disclosed, reflected or reserved against in the Balance Sheet or the notes
thereto, (2) for liabilities or obligations of a nature which, in
accordance with GAAP consistently applied, are not required to be
disclosed, reflected or reserved against on a consolidated balance sheet of
the Company and the Subsidiaries or in the notes thereto, (3) for
liabilities or obligations set forth in the Schedules and (4) for
liabilities and obligations incurred in the ordinary course of business
consistent with past practice since the date of the Balance Sheet and not
in violation of this Agreement.

          (h)  TAXES.  (i)  For purposes of this Agreement, (A) "Tax" or
"Taxes" shall mean all Federal, state, county, local, municipal, foreign
and other taxes, assessments, duties or similar charges of any kind
whatsoever, including  all corporate franchise, income, sales, use, ad
valorem, receipts, value added, profits, license, withholding, payroll,
employment, excise, premium, property, customs, net worth, capital gains,
transfer, stamp, documentary, social security, payroll, environmental,
alternative minimum, occupation, recapture and other taxes, and including

                                     7


any interest, penalties and additions imposed with respect to such amounts;
(B) "Income Tax" or "Income Taxes" shall mean all Taxes (i) based upon,
measured by, or calculated with respect to, gross or net income or gross or
net receipts or profits (including, but not limited to, any capital gains
taxes, minimum taxes and any Taxes on items of tax preference, but not
including sales, use, real property gains, real or personal property
transfer or other similar Taxes) and (ii) based upon, measured by, or
calculated with respect to, multiple bases (including, but not limited to,
corporate franchise, doing business or occupation Taxes) if one or more of
the bases upon which such Tax may be based upon, measured by, or calculated
with respect to, is described in clause (i); (C) "Tax for a Tax
Indemnification Period" or "Taxes for a Tax Indemnification Period" shall
mean, in the case of Income Taxes, any Tax or Taxes with respect to a
taxable period ending on or before the date of this Agreement or with
respect to the portion ending on the date of this Agreement of any taxable
period that includes (but does not end on) such date or, in the case of
Taxes other than Income Taxes, any Tax or Taxes with respect to any taxable
period ending on or before December 31, 1993 and any Tax or Taxes the due
date for payment of which to the relevant Taxing Authority (as defined
below), determined with regard to extensions, is on or before the date of
this Agreement; (D) "Relevant Taxes" shall mean any Income Taxes and any
corporate franchise, sales, use, excise, property, net worth or capital
Taxes; (E) "Tax for the Post-Tax Indemnification Period" or "Taxes for the
Post-Tax Indemnification Period" shall mean, in the case of Income Taxes,
any Tax or Taxes for any taxable period (or portion of any taxable period)
includible in the Post-Tax Indemnification Period, or, in the case of Taxes
other than Income Taxes, any Tax or Taxes the due date for payment of which
to the relevant Taxing Authority, determined with regard to extensions, is
after the date of this Agreement (but, in each case, only to the extent
such Income Tax or other Tax or Income Taxes or other Taxes do not
constitute a "Tax for the Tax Indemnification Period" or "Taxes for the Tax
Indemnification Period", as the case may be); (F) "Post-Tax Indemnification
Period" shall mean (i) any taxable period that begins after the date of
this Agreement and (ii) the portion beginning on the day after the date of
this Agreement of any taxable period that begins on or prior to the date of
this Agreement but ends after such date; (G) "Code" shall mean the Internal
Revenue Code of 1986, as amended; (H) "Taxing Authority" shall mean any
domestic, foreign, federal, national, state, county or municipal or other
local government, any subdivision, agency, commission or authority thereof,
or any quasi-governmental body exercising any taxing authority or any other
authority exercising tax regulatory authority; and (I) "Return" or
"Returns" shall mean all returns, declarations of estimated tax payments,
reports, estimates, information returns and statements, including any
related or supporting information with respect to any of the foregoing,
filed or to be filed with any Taxing Authority in connection with the
determination, assessment, collection or administration of any Taxes.

          (ii)  Except as set forth in Schedule 4(h), the Company and each
of the Subsidiaries, and any consolidated, combined or unitary group of
which the Company or any of the Subsidiaries is or has ever been a member
(an "Affiliated Group"), has timely filed, with the relevant Taxing
Authority all material Returns that (x) relate to material Taxes, (y) in
the case of any Affiliated Group, are for a taxable period or periods
during which the Company or any of the Subsidiaries was a member of such
Affiliated Group and (z) are for a taxable period or periods with respect
to which the statute of limitations (including any extensions thereto) has

                                     8


not yet expired.  Each such Return correctly reflected in all material
respects the facts regarding the income, business, assets, operations,
activities and status of the Company and the Subsidiaries and any other
information required to be shown thereon relating to the Company and the
Subsidiaries.

          (iii)  Except as otherwise set forth in Schedule 4(h) and except
as previously disclosed to Buyer, all material Taxes for which the statute
of limitations (including any extensions thereto) has not yet expired
(including Taxes for which no Returns are required to be filed, and
including payroll and wage withholding Taxes) of the Company, any of the
Subsidiaries or any Affiliated Group (but, in the case of an Affiliated
Group, only for such taxable period or periods during which the Company or
any of the Subsidiaries was a member of such Affiliated Group), or for
which the Company or any of the Subsidiaries are or could otherwise be held
liable, or which are or could otherwise become chargeable as an encumbrance
upon any property or assets of the Company or any of the Subsidiaries have
been timely paid to the relevant Taxing Authority.

          (iv)  Seller has delivered to Buyer or made available to Buyer
for inspection (A) complete and correct copies of all material returns of
the Company, each of the Subsidiaries and each Affiliated Group (but, in
the case of an Affiliated Group, only the portions of such returns relating
to the Company or any of the Subsidiaries) relating to Relevant Taxes, that
have been filed for taxable periods ending after December 31, 1987, and for
all other taxable periods for which the statute of limitations has not yet
expired and (B) complete and correct copies of all private letter rulings,
revenue agent reports, information document requests, notices of proposed
deficiencies, deficiency notices, protests, petitions, closing agreements,
settlement agreements, pending ruling requests, and any similar documents,
submitted by, received by or agreed to by or on behalf of the Company or
any of the Subsidiaries, or, to the extent related to the income, business,
assets, operations, activities or status of the Company or any of the
Subsidiaries, submitted by, received by or agreed to by or on behalf of any
Affiliated Group, and relating to Relevant Taxes for taxable periods ending
after December 31, 1987, or for any other taxable period for which the
statute of limitations has not yet expired.

          (v)  Except as set forth on Schedule 4(h), no liens for Taxes
have been filed and are currently outstanding with respect to any of the
assets or properties of any of the Subsidiaries or the Company.  The
Federal income tax returns of the Company, each of the Subsidiaries for
which Federal income tax returns have been required to have been filed, and
each Affiliated Group (but, in the case of any Affiliated Group, only with
respect to such taxable period or periods during which the Company or any
of the Subsidiaries was a member of such Affiliated Group) have been
examined by the Internal Revenue Service, or the statute of limitations
with respect to the relevant Tax liability has expired, for all taxable
periods through and including the taxable period ending December 31, 1987.
Schedule 4(h) sets forth the taxable period through which the statute of
limitations has expired with respect to state and local income and
franchise Taxes.  Seller has made available to Buyer documents setting
forth the date of the most recent audit or examination by any Taxing
Authority with respect to state and local income, franchise and sales and
use Taxes for taxable periods for which the statute of limitations has not
yet expired.  Except as set forth on Schedule 4(h), each deficiency

                                     9


resulting from any audit or examination relating to Relevant Taxes by any
Taxing Authority has been paid and, to the knowledge of Seller, no material
issues were raised by the relevant Taxing Authority during any such audit
or examination that might apply to taxable periods other than the taxable
period to which such audit or examination related.  Except as set forth on
Schedule 4(h), (A) no other Returns with respect to Federal income Taxes
are currently under audit or examination by the Internal Revenue Service,
(B) no audit or examination relating to Relevant Taxes is currently being
conducted by the Internal Revenue Service or any other Taxing Authority and
(C) neither the Internal Revenue Service nor any other Taxing Authority has
given notice (either orally or in writing) that it will commence any such
audit or examination.

          (vi)  Except as set forth in Schedule 4(h), no Taxing Authority
is now asserting (either orally or in writing), or, to the knowledge of
Seller, threatening to assert (either orally or in writing), any deficiency
or claim for Relevant Taxes or any adjustment to any item of income, gain,
deduction, loss, credit or Tax basis entering into the computation of
Relevant Taxes of the Company or any of the Subsidiaries, or, to the extent
related to the income, business, assets, operations, activities or status
of the Company or any of the Subsidiaries, of any Affiliated Group.  Except
as set forth in Schedule 4(h), none of the Company, any of the Subsidiaries
or any Affiliated Group is a party to any action for assessment or
collection of Relevant Taxes.

          (vii)  Except as set forth in Schedule 4(h), (A) no person has
made with respect to the Company or any of the Subsidiaries, or with
respect to any property held by the Company or any of the Subsidiaries, any
consent under Section 341 of the Code, (B) no property of the Company or
any of the Subsidiaries is "tax exempt use property" within the meaning of
Section 168(h) of the Code, (C) neither the Company nor any of the
Subsidiaries is a party to any lease made pursuant to Section 168(f)(8) of
the Internal Revenue Code of 1954, as amended and in effect prior to the
date of enactment of the Tax Equity and Fiscal Responsibility Act of 1982,
and (D) none of the assets of the Company or any of the Subsidiaries is
subject to a lease under Section 7701(h) of the Code or under any
predecessor.

          (viii)  Except as set forth in Schedule 4(h), there is no
agreement or waiver currently in effect extending the period of assessment
or collection of any Relevant Taxes and no power of attorney with respect
to any Relevant Taxes of the Company or any of its Subsidiaries has been
executed or filed with the Internal Revenue Service or any other Taxing
Authority and is currently in effect.

          (ix)  Except as set forth in Schedule 4(h), none of the Company
or any of the Subsidiaries has been a member for any taxable period ending
after December 31, 1987, of any affiliated, consolidated, combined or
unitary group for purposes of filing Returns or paying Taxes.
Schedule 4(h) lists each jurisdiction in which the Company or any of the
Subsidiaries joins or has joined for any taxable period ending after
December 31, 1987, in filing any consolidated, combined or unitary Return
and lists the common parent corporation or the individual members of the
consolidated, combined or unitary group filing such Return.



                                    10


          (x)  Except as set forth in Schedule 4(h), none of the Company or
any of the Subsidiaries is a party to or is bound by any agreement,
arrangement or practice with respect to Taxes (including any Tax sharing
agreements with Seller or any of its other affiliates, any agreements with
any Taxing Authority and any Tax indemnification agreements with any third
parties, and including any agreement, arrangement or practice binding on
the Company or any of the Subsidiaries by reason of its membership in any
Affiliated Group).  Seller has delivered to Buyer complete and accurate
copies of any such written agreement, arrangement or practice, and complete
and accurate descriptions of any such oral agreement, arrangement or
practice.

          (xi)  The purchase and sale of the Shares pursuant to this
Agreement will not constitute a "change in ownership or control" as defined
in proposed Treasury Regulation Section 1.280G-1.

          (xii)  None of the Company or any of the Subsidiaries will be
required to include in a taxable period ending after the date of this
Agreement taxable income attributable to income that economically accrued
in a taxable period ending on or before the date of this Agreement as a
result of the installment method of accounting, the completed contract
method of accounting or the cash method of accounting.

          (xiii)  Except as set forth on Schedule 4(h), none of the Company
or any of the Subsidiaries will be required in a taxable period ending
after the date of this Agreement to include any amount in income pursuant
to Section 481 of the Code (or any comparable provision of state, county,
local, municipal or foreign law), by reason of a change in accounting
method or otherwise, as a result of actions taken prior to the date of this
Agreement.

          (xiv)  Schedule 4(h) lists each state, county, local, municipal
or foreign jurisdiction in which the Company or any of the Subsidiaries
files or has filed a Return relating to state and local income, franchise,
license, excise, net worth, property, litter and sales and use Taxes for
taxable periods ending within the calendar years 1991, 1992 and 1993.

          (xv)  The Company is not, and has not been during the five-year
period ending on the date hereof or the Closing Date, as the case may be, a
United States real property holding corporation within the meaning of
Section 897 of the Code.

          (xvi)  Seller has authorized access by Buyer to copies of the
workpapers of the outside auditors of the Company and the Subsidiaries with
respect to the components of the accrual for deferred Taxes reflected on
the Balance Sheet under the captions "Deferred income taxes--current
portion" and "Deferred income taxes".  Schedule 4(h) sets forth certain
information with respect to the tax basis of fixed assets and inventory of
the Company and Golden Belt Manufacturing Company.

          (xvii)  As a result of the sale of the Shares and the other
transactions contemplated hereby and other than as a result of the
assignment of the rights and obligations under the European Trademark
Agreements as contemplated by Section 5(j), none of Seller, the Company,
any of the Subsidiaries or any other affiliate of Seller will recognize any


                                    11


gain or income pursuant to Treasury Regulation Section 1.1502-13 (deferred
intercompany gain) or 1.1502-19 (excess loss accounts).

          (xviii)  Except as set forth in Schedule 4(h), there are no
amounts or obligations owing by the Company to any Subsidiary that is
incorporated or otherwise organized outside of the United States.

          (xix)  Since January 1, 1993, none of Seller, the Company, any of
the Subsidiaries or any other affiliate of Seller has made any material tax
election (other than under Section 13261(g)(2) of the Revenue
Reconciliation Act of 1993) or, other than in the ordinary course of
business, engaged in any transaction (other than the acquisition, licensing
to Seller's English Company, and, as contemplated by Section 5(j),
assignment of the European Trademark Agreements) or operated the business
of the Company and the Subsidiaries in a manner that would (directly or
indirectly, and other than solely by reason of Treasury Regulation Section
1.1502-6 or any comparable provision of state, local or foreign Tax law)
result in any liability of the Company or any of the Subsidiaries for Taxes
for the Post-Tax Indemnification Period in excess of the amount of Taxes
that would have been imposed on the income, business, assets, operations or
activities of the Company and the Subsidiaries in the ordinary course of
business.

          (xx)  Since January 1, 1994, the Company, each of the
Subsidiaries and each Affiliated Group of which the Company or any of the
Subsidiaries was a member on or after such date have filed all Returns and
paid all Taxes in the ordinary course of business and in a manner
consistent with past practice.

          (i)  ASSETS OTHER THAN REAL PROPERTY INTERESTS.  The Company or a
Subsidiary has good and valid title to all assets (other than deferred
income taxes and prepaid pension costs) reflected on the Balance Sheet or
thereafter acquired, except those sold or otherwise disposed of since the
date of the Balance Sheet in the ordinary course of business consistent
with past practice and not in violation of this Agreement, in each case
free and clear of all mortgages, liens, security interests or encumbrances
of any kind except (i) mechanics', carriers', workmen's, repairmen's or
other like liens arising or incurred in the ordinary course of business and
liens for Taxes which are not due and payable or which thereafter may be
paid without penalty and (ii) other immaterial imperfections of title or
encumbrances, if any (the mortgages, liens, security interests,
encumbrances and imperfections of title described in clauses (i) and (ii)
above are hereinafter referred to collectively as "Permitted Liens").

          The tangible personal property of the Company and the
Subsidiaries has been maintained in all material respects in accordance
with the past practice of the Company and the Subsidiaries.  Except as set
forth in Schedule 4(i), the tangible personal property of the Company and
the Subsidiaries is in all material respects in satisfactory operating
condition and repair, ordinary wear and tear excepted, for the requirements
of the business of the Company and the Subsidiaries as currently conducted.
The leased personal property of the Company and the Subsidiaries is in all
material respects in the condition required of such property by the terms
of the leases applicable thereto.



                                    12


          This Section 4(i) does not relate to real property or interests
in real property, Intellectual Property or accounts receivable, such items
being the subject of Section 4(j), Section 4(k) and Section 4(s)(i),
respectively.

          (j)  TITLE TO REAL PROPERTY.  Schedule 4(j) sets forth a complete
list of all real property and interests in real property owned in fee by
the Company or one of the Subsidiaries (individually, an "Owned Property").
Schedule 4(j) sets forth a complete list of all real property and interests
in real property leased by the Company or one of the Subsidiaries as of the
date hereof (individually and, along with any real property and  interests
in real property leased by the Company or one of the Subsidiaries pursuant
to leases permitted by Section 5(b)(xvi), a "Leased Property") other than
(A) leases or similar agreements with a term not in excess of three years
in respect of offices for field sales representatives employed or otherwise
retained by the Company or one of the Subsidiaries and (B) leases or
similar agreements with a term not in excess of 90 days in respect of
storage facilities for point of sale displays and other promotional
materials of the Company or one of the Subsidiaries.  The Company or a
Subsidiary has (i) good and insurable fee title to all Owned Property and
(ii) good and valid title to the leasehold estates in all Leased Property
(an Owned Property or Leased Property being sometimes referred to herein,
individually, as a "Company Property" and, collectively, as "Company
Properties"), in each case free and clear of all mortgages, liens, security
interests, encumbrances, leases, assignments, subleases, easements,
covenants, rights-of-way and other similar restrictions of any nature
whatsoever, except (A) such as are set forth in Schedule 4(j), (B) leases,
subleases and similar agreements set forth, or expressly not required by
the terms of Section 4(l)(v) to be set forth, in Schedule 4(l),
(C) Permitted Liens, (D) easements, covenants, rights-of-way and other
similar restrictions of record, (E) any state of facts which would be
disclosed by a current, accurate survey  and (F)(I) zoning, building and
other similar restrictions, (II) mortgages, liens, security interests,
encumbrances, easements, covenants, rights-of-way and other similar
restrictions that have been placed by any developer, landlord or other
third party on property over which the Company or any Subsidiary has
easement rights or on any Leased Property and subordination or similar
agreements relating thereto, and (III) unrecorded easements, covenants,
rights-of-way and other similar restrictions, none of which items set forth
in clauses (D), (E) or (F)(I), (II) or (III), individually or in the
aggregate, impair the continued use and operation (and, in the case of
items set forth in clause (E), none of which impair the value) of the
property to which they relate in a material respect in the business of the
Company and the Subsidiaries as presently conducted.  The current use by
the Company and the Subsidiaries of the plants, offices and other
facilities located on Company Property does not violate any material local
zoning or similar land use or government regulations or other Applicable
Laws (as hereinafter defined), provided that this sentence shall not relate
to environmental matters, which are the subject of Section 4(q)(ii).

          (k)  INTELLECTUAL PROPERTY.  The Company and the Subsidiaries own
the trademark and service mark registrations, trade names, copyright
registrations and patents and have filed the trademark, service mark,
copyright and patent applications set forth in Schedule 4(k).  With respect
to registered trademarks, Schedule 4(k) sets forth by trademark a list of
all jurisdictions in which such trademarks are registered or applied for

                                    13


and all registration and application numbers and the dates of such
registrations or applications.  Except for the trademark and service mark
registrations and applications, copyright registrations and applications,
patents and patent applications, trade names, and unregistered label
designs and trade dress of the Company set forth in Schedule 4(k) (the
"Intellectual Property"), as of the date hereof there are no trademarks,
trade names, service marks, copyrights or patents that are material to the
business of the Company and the Subsidiaries as currently conducted.
Except as set forth in Schedule 4(k), as of the date hereof (i) the Company
has the exclusive right to the lawful use of the trademarks PALL MALL,
LUCKY STRIKE, TAREYTON, CARLTON, MONTCLAIR and MISTY for cigarettes sold in
the United States (the "Major U.S. Marks"), subject, with respect to the
trademark MISTY, to the filing and acceptance of a combined affidavit under
Sections 8 and 15 of the United States Trademark Act, 15 U.S.C. SS 1058 and
1065, (ii) no claim or demand has been received from any person, and no
proceeding is pending or threatened, which challenges the rights of the
Company or any of the Subsidiaries in respect of the Major U.S. Marks and
(iii) none of the Company or any of the Subsidiaries has granted any
license, option, release or material covenant not to sue or non-assertion
assurance to any third person with respect to, or granted any lien or
security interest in, any of the Major U.S. Marks.  To the knowledge of
Seller, except as set forth in Schedule 4(k), as of the date hereof there
is no claim or demand of any person or any proceedings which are pending or
threatened which challenge the rights of the Company or any of the
Subsidiaries in respect of any Intellectual Property.  Except as set forth
in Schedule 4(k), as of the date hereof none of the Intellectual Property
is subject to any outstanding order, ruling, decree or judgment of any
court, arbitrator or administrative agency.  Except as set forth in
Schedule 4(k), as of the date hereof none of the Company or any of the
Subsidiaries (i) has granted any license, option or release or material
covenant not to sue or non-assertion assurance to any third person with
respect to, or granted any lien or security interest in, any of the
Intellectual Property or (ii) is a party to or bound by any license or
option or other material agreement in respect of any trademarks, service
marks, copyrights or patents of any other person.  Except as set forth in
Schedule 4(k), as of the date hereof none of the Company or any of the
Subsidiaries is a party to any license or option or other material
agreement pursuant to which any Business know-how (as defined below) used
by the Company or any Subsidiary in its business as currently conducted is
licensed (i) by the Company or any Subsidiary to any other person or
(ii) to the Company or any Subsidiary.  Except as set forth in
Schedule 4(v), after the Closing Seller and its affiliates will not retain
any intellectual property rights in respect of the Business.

          The Company and the Subsidiaries have, or will have prior to the
Closing, all the Business know-how described in clauses (i) and (ii) below
in documentary form.  None of the Business know-how in documentary form is
held by Seller or any of its affiliates (other than the Company and the
Subsidiaries) and Seller and its affiliates (other than the Company and the
Subsidiaries) do not own or have any right to use, execute, reproduce,
display, perform, modify, enhance, distribute, prepare derivative works of
or sublicense any of the Business know-how.  As used in this paragraph,
"Business know-how" shall mean (i) those recipes used by the Company or any
of the Subsidiaries for each of the Business Products (as defined below)
comprising the tobacco formulation (meaning the percentage of tobacco by
stem, lamina, expanded materials, sheet and other constituents, the type

                                    14


(e.g., flue cured, burley, etc.) and country of origin) together with the
particular recipes for casings and flavorings for each of them and the
supplier thereof, (ii) all primary processing specifications for tobacco
products (i.e., cigarette weight, circumference and length, paper type,
plug wrap type, type of toe and filter type and weight, but not including
matters such as machine settings) and (iii) the confidential and
proprietary sales and marketing and market research information in the
possession of the Company and the Subsidiaries and any other information
used by or for the benefit of the Company or any of the Subsidiaries in
relation to the manufacture, sale, marketing or development of any of the
Business Products, and "Business Products" shall mean cigarettes, other
tobacco products and other products as manufactured, distributed, licensed
or sold at any time in the two years immediately prior to the date of this
Agreement by or on behalf of the Company or any of the Subsidiaries under
or by reference to or through utilization of any of the Intellectual
Property.

          (l)  CONTRACTS.  Except as set forth in Schedule 4(1), as of the
date hereof neither the Company nor any Subsidiary is a party to or bound
by any:

          (i)  agreement, contract or other arrangement with any current or
     former officer, director or employee of the Company, any Subsidiary,
     Seller or any affiliate of Seller (including any employment agreement
     or employment contract) that has an aggregate future liability in
     excess of $100,000;

          (ii)  employee collective bargaining agreement or other contract
     with any labor union;

          (iii)  covenant of the Company or a Subsidiary not to compete or
     other covenant of the Company or a Subsidiary restricting the
     development, manufacture, marketing or distribution of the products
     and services of the Company or any Subsidiary;

          (iv)  agreement, contract or other arrangement with Seller or any
     affiliate of Seller (other than the Company or a Subsidiary) other
     than any individual purchase orders in the ordinary course of business
     consistent with past practice for products manufactured by such an
     affiliate to be acquired on arm's length terms in any such case for an
     aggregate price not in excess of $100,000;

          (v)  lease, sublease or similar agreement with any person (other
     than the Company or a Subsidiary) under which the Company or a
     Subsidiary is a lessor or sublessor of, or makes available for use to
     any person (other than the Company or a Subsidiary), (A) any Company
     Property or (B) any portion of any premises otherwise occupied by the
     Company or a Subsidiary, in any such case which has an aggregate
     future receivable in excess of $250,000, unless terminable by the
     Company or a Subsidiary by notice of not more than 90 days without
     penalty or cost (other than de minimis administrative costs);

          (vi)  lease or similar agreement with any person (other than the
     Company or a Subsidiary) under which (A) the Company or a Subsidiary
     is lessee of, or holds or uses, any machinery, equipment, vehicle or
     other tangible personal property owned by any person or (B) the

                                    15


     Company or a Subsidiary is a lessor or sublessor of, or makes
     available for use by any person, any tangible personal property owned
     or leased by the Company or a Subsidiary, in any such case which has
     an aggregate future liability or receivable, as the case may be, in
     excess of $250,000, unless terminable by the Company or a Subsidiary
     by notice of not more than 90 days without penalty or cost (other than
     de minimis administrative costs);

          (vii)  (A) continuing agreement or contract for the future
     purchase of materials, supplies, equipment or products manufactured by
     parties other than the Company or any of the Subsidiaries (other than
     purchase contracts and orders for inventory in the ordinary course of
     business consistent with past practice, provided that any such
     contract or order, when taken together with all other purchase
     contracts and orders for inventory relating to the ordered item, would
     not require the Company or any Subsidiary to acquire a quantity of
     such item that could not reasonably be expected to be used in the
     ordinary course of business of the Company and the Subsidiaries
     within, in the case of any grade of tobacco leaf, two years and, in
     the case of any other item, six months after the date of execution or
     entry of such purchase contract or order for inventory) or (B)
     service, processing, consulting, management or other similar type of
     agreement or contract, in any such case which has an aggregate future
     liability in excess of $250,000, unless terminable by the Company or a
     Subsidiary by notice of not more than 90 days without penalty or cost
     (other than de minimis administrative costs);

          (viii)  continuing agreement or contract for the distribution of
     any products manufactured by the Company or any of the Subsidiaries,
     including by franchise arrangement, in any such case which has an
     aggregate future liability in excess of $250,000, unless terminable by
     the Company or a Subsidiary by notice of not more than 90 days without
     penalty or cost (other than de minimis administrative costs);

          (ix)  continuing agreement or contract for the manufacture of
     products by the Company or any of the Subsidiaries on behalf of
     parties other than the Company or any of the Subsidiaries, in any such
     case which has an aggregate future receivable in excess of $250,000,
     unless terminable by the Company or a Subsidiary by notice of not more
     than 90 days without penalty or cost (other than de minimis
     administrative costs);

          (x)  agreement, contract or arrangement for the placement of
     advertising or other promotional activities, in any such case which
     has an aggregate future liability in excess of $250,000, unless
     terminable by the Company or a Subsidiary by notice of not more than
     90 days without penalty or cost (other than de minimis administrative
     costs);

          (xi)  except as set forth in Schedule 4(k), any material license,
     option or other agreement of any kind relating in whole or in part to
     Intellectual Property;

          (xii)  agreement, contract or other instrument under which the
     Company or a Subsidiary has borrowed any money from, or issued any
     note, bond, debenture or other evidence of indebtedness to, any person

                                    16


     (other than the Company or a Subsidiary) or any other note, bond,
     debenture or other evidence of indebtedness (other than accounts
     payable of the Company or a Subsidiary arising in the ordinary course
     of business in connection with its acquisition of goods or services)
     issued to any person (other than the Company or a Subsidiary), in any
     such case which, individually, is in excess of $100,000;

          (xiii)  agreement, contract or other instrument (including so-
     called take-or-pay or keepwell agreements) under which (A) any person
     (including the Company or a Subsidiary) has directly or indirectly
     guaranteed indebtedness, liabilities or obligations of the Company or
     a Subsidiary or (B) the Company or a Subsidiary has directly or
     indirectly guaranteed indebtedness, liabilities or obligations of any
     person (in each case other than endorsements for the purpose of
     collection in the ordinary course of business), in any such case
     which, individually, is in excess of $100,000;

          (xiv)  agreement, contract or other instrument under which the
     Company or a Subsidiary has, directly or indirectly, made any advance,
     loan, extension of credit (other than trade credit extended in the
     ordinary course of business consistent with past practice) or capital
     contribution to, or other investment in, any person (other than the
     Company or a Subsidiary), in any such case which, individually, is in
     excess of $100,000;

          (xv)  mortgage, pledge, security agreement, deed of trust or
     other instrument granting a lien or other encumbrance upon any Company
     Property, which lien or other encumbrance is set forth in
     Schedule 4(i) or 4(j);

          (xvi)  agreement, contract or instrument providing for
     indemnification of any person with respect to liabilities relating to
     any former business of the Company, a Subsidiary or any predecessor
     person;

          (xvii)  agreement, contract or instrument providing for
     indemnification of any person with respect to liabilities relating to
     any current business of the Company or a Subsidiary, other than (A)
     any agreement to indemnify purchasers of the products of the Company
     or any Subsidiary in respect of product liability matters entered into
     in the ordinary course of business consistent with past practice, (B)
     standard provisions of purchase orders or order acknowledgment forms
     and (C) provisions of any contract providing for indemnification
     solely in respect of breaches of such contract; or

          (xviii)  other agreement, contract, lease, license, commitment or
     instrument to which the Company or any Subsidiary is a party or by or
     to which it or any of its assets or business is bound or subject
     (other than leases or similar agreements (A) with a term not in excess
     of three years in respect of offices for field sales representatives
     employed or otherwise retained by the Company or any Subsidiary and
     (B) with a term not in excess of 90 days in respect of storage
     facilities for point of sale displays and other promotional materials
     of the Company or one of the Subsidiaries) which has an aggregate
     future liability in excess of $500,000, unless terminable by the


                                    17


     Company or a Subsidiary by notice of not more than 90 days without
     penalty or cost (other than de minimis administrative costs).

Except as set forth in Schedule 4(1) and except as of the Closing Date for
those which in accordance with their terms in effect on the date hereof
were scheduled to expire prior to the Closing, all agreements, contracts,
leases or similar agreements, licenses, commitments or instruments of the
Company or any Subsidiary listed in Schedule 4(j), Schedule 4(k) or
Schedule 4(l) or described in clauses (vii), (xvi) and (xix) through
(xxxiv) of Section 5(b) and entered into with Buyer's prior written consent
(collectively, the "Contracts") are valid, binding and in full force and
effect and are enforceable by the Company or the relevant Subsidiary in
accordance with their respective terms, subject to the qualification,
however, that enforcement of the rights and remedies created thereby is
subject to bankruptcy and other similar laws of general application
relating to or affecting the rights and remedies of creditors and that the
remedy of specific enforcement or of injunctive relief is subject to the
discretion of the court before which any proceeding therefor may be
brought.  To the knowledge of Seller, except as set forth in Schedule 4(1),
Seller, the Company and the Subsidiaries have performed all material
obligations required to be performed by them to date under the Contracts
and they are not (with or without the lapse of time or the giving of
notice, or both) in breach or default in any material respect thereunder
and as of the date hereof no other party to any of the Contracts is (with
or without the lapse of time or the giving of notice, or both) in breach or
default in any material respect thereunder.  Seller has made available for
inspection by Buyer prior to the date hereof a true and correct copy of
each of the Contracts, except for those Contracts (or portions thereof) not
made available because of their competitively sensitive nature or because
disclosure to Buyer under the circumstances of this Agreement is prohibited
by confidentiality agreements and, in either case, identified with two
asterisks on Schedule 4(l), which Contracts will be made available for
inspection by Buyer at the Closing.

          (m)  LITIGATION.  Schedule 4(m) sets forth a list of all lawsuits
and proceedings pending against the Company or any Subsidiary as of the
date hereof.  Schedule 4(m) also sets forth a list of all lawsuits or
proceedings, to the knowledge of Seller, threatened against the Company or
any Subsidiary as of the date hereof (i) which seek damages of more than
$250,000, (ii) which seek any injunctive relief, (iii) which relate to the
transactions contemplated by this Agreement or (iv) with respect to which
there is a reasonable likelihood of an adverse determination which would
have a Material Adverse Effect.  Except as expressly set forth on Schedule
4(m), as of the date hereof no lawsuit or proceeding pending against the
Company or any Subsidiary as to which there is at least a reasonable
likelihood of adverse determination would have, if so determined,
individually or in the aggregate, a Material Adverse Effect.  To the
knowledge of Seller, except as set forth in Schedule 4(m), neither the
Company nor any Subsidiary is in default under any judgment, order,
injunction or decree of any Governmental Entity or arbitration tribunal
applicable to it or any of its respective properties, assets, operations or
business.  Except as set forth in Schedule 4(m), as of the date hereof
neither the Company nor any Subsidiary is a party or subject to any
judgment, order, injunction or decree of any Governmental Entity or
arbitration tribunal applicable to it or any of its respective properties,
assets, operations or business.  Except as set forth in Schedule 4(m), as

                                    18


of the date hereof there is no material lawsuit or proceeding by the
Company or a Subsidiary pending, or, to the knowledge of Seller, which the
Company or a Subsidiary intends to initiate, against any other person.
Except as set forth in Schedule 4(m), to the knowledge of Seller, as of the
date hereof there is no pending or threatened investigation (other than
routine and customary tax audits) of the Company or a Subsidiary by any
Governmental Entity (except for any such investigation involving or
affecting the U.S. tobacco industry generally and not the Company or a
Subsidiary in particular).

          (n)  INSURANCE.  Seller or the Company and the Subsidiaries
maintain policies of fire and casualty, liability and other forms of
insurance in such amounts, with such deductibles and against such risks and
losses as are customary in accordance with past practice of Seller, the
Company and the Subsidiaries.  The insurance policies maintained with
respect to the Company and the Subsidiaries and their respective assets and
properties as of the date hereof are listed in Schedule 4(n).  As of the
date hereof, all such policies are in full force and effect, all premiums
due and payable thereon have been paid (other than retroactive or
retrospective premium adjustments that are not yet, but may be, required to
be paid with respect to any period ending prior to the Closing Date) and no
notice of cancellation or termination has been received with respect to any
such policy which has not been replaced on substantially similar terms
prior to the date of such cancellation.  Neither the Company nor any
Subsidiary has conducted any of its activities or operations in a manner so
as to materially limit the coverage provided by any applicable insurance
policies.

          (o)  BENEFIT PLANS.  (i)  Schedule 4(o) contains a list of each
"employee pension benefit plan" (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) (hereinafter
a "Pension Plan"), "employee welfare benefit plan" (as defined in Section
3(1) of ERISA, hereinafter a "Welfare Plan"), each voluntary employees'
beneficiary association ("VEBA") and each other plan, arrangement or policy
relating to stock options, stock purchases, compensation, deferred
compensation, severance, fringe benefits or other employee benefits,
maintained or contributed to, or required to be maintained or contributed
to, by Seller, the Company, any of the Subsidiaries or any other person or
entity that, together with the Company, is treated as a single employer
under Section 414(b), (c), (m) or (o) of the Code (each a "Commonly
Controlled Entity"), or by any employee organization, in each case for the
benefit of any present or former officers, employees, agents, directors or
independent contractors of the Company or any of the Subsidiaries (all the
foregoing being herein called "Benefit Plans").  Seller has delivered to
Buyer true, complete and correct copies of (1) each Benefit Plan (or, in
the case of any unwritten Benefit Plans, descriptions thereof), (2) the
most recent annual report on Form 5500 filed with the Internal Revenue
Service with respect to each Benefit Plan (if any such report was required
by applicable law), (3) the most recent summary plan description (or
similar document) for each Benefit Plan for which such a summary plan
description is required by applicable law or was otherwise provided to plan
participants or beneficiaries and (4) each trust agreement and insurance or
annuity contract relating to any Benefit Plan.  To the knowledge of Seller,
each such Form 5500 and each such summary plan description (or similar
document) was and is as of the date hereof true, complete and correct in
all material respects.

                                    19



          (ii)  Except to the extent set forth in Schedule 4(o), each
Benefit Plan has been administered in all material respects in accordance
with its terms, and the Company, the Subsidiaries and all the Benefit Plans
are in compliance in all material respects with the applicable provisions
of ERISA, the Code and all other applicable Federal, state, county,
municipal and local laws.  Except to the extent set forth in Schedule 4(o),
all reports, returns and similar documents with respect to the Benefit
Plans required to be filed with any Governmental Entity or distributed to
any Benefit Plan participant have been duly and timely filed or
distributed, and, to the knowledge of Seller, all reports, returns and
similar documents actually filed or distributed were true, complete and
correct in all material respects.  Except as set forth in Schedule 4(o),
there are no termination proceedings or other claims (except claims for
benefits payable in the normal operation of the Benefit Plans), suits,
proceedings or, to the knowledge of Seller, investigations by any
governmental agency against or involving any Benefit Plan or asserting any
rights or claims to benefits under any Benefit Plan that could give rise to
any material liability, and there are not any facts that could give rise to
any material liability in the event of any such investigation, claim, suit
or proceeding.

          (iii)  (1) All contributions to, and payments from, the Benefit
Plans that may have been required to be made in accordance with the terms
of the Benefit Plans, any applicable collective bargaining agreement and,
when applicable, Section 302 of ERISA or Section 412 of the Code, have been
timely made, (2) there has been no application for or waiver of the minimum
funding standards imposed by Section 412 of the Code with respect to any
Benefit Plan that is a Pension Plan (hereinafter a "Company Pension Plan")
and (3) no Company Pension Plan had an "accumulated funding deficiency"
within the meaning of Section 412(a) of the Code as of the end of the most
recently completed plan year.  All such contributions to, and payments
from, the Benefit Plans, except those payments to be made from a trust
qualified under Section 401(a) of the Code, for any period ending before
the Closing Date that are not yet, but will be, required to be made, are
properly accrued and reflected in the Balance Sheet to the extent required
by GAAP consistently applied.

          (iv)  Each Company Pension Plan that is intended to be a tax-
qualified plan has been the subject of a determination letter from the
Internal Revenue Service to the effect that such Company Pension Plan is
qualified and exempt from Federal income taxes under Sections 401(a) and
501(a), respectively, of the Code; no such determination letter has been
revoked, and, to the knowledge of Seller, revocation has not been
threatened; except to the extent set forth in Schedule 4(o), no event has
occurred and no circumstances exist that would affect the qualification of
any such Company Pension Plan under Section 401(a) of the Code; and no such
Company Pension Plan has been amended since the effective date of its most
recent determination letter in any respect that might adversely affect its
qualification, materially increase its cost (except as specifically
designated in Schedule 4(o) under the headings "Additional Payments or
Benefits or Acceleration of Time of Payment or Vesting of any Benefits as a
Result of Transactions Contemplated by this Agreement" and "List of
Amendments to Pension Plans Since Effective Date of Most Recent
Determination Letter Which Might Materially Increase Cost") or require
security under Section 307 of ERISA.  Seller has delivered to Buyer a copy

                                    20


of the most recent determination letter received with respect to each
Company Pension Plan for which such a letter has been issued, as well as a
copy of any pending application for a determination letter.  Seller has
also provided to Buyer a list of all Company Pension Plan amendments as to
which a favorable determination letter has not yet been received.  No event
has occurred that could subject any Company Pension Plan to tax under
Section 511 of the Code.

          (v)  Schedule 4(o) discloses whether: (1) any "prohibited
transaction" (as defined in Section 4975 of the Code or Section 406 of
ERISA) has occurred that involves the assets of any Benefit Plan; (2) any
prohibited transaction has occurred that is reasonably likely to subject
the Company, the Subsidiaries or any of their employees, agents or
directors, or, to the knowledge of Seller, any trustee, administrator or
other fiduciary of any trust created under any Benefit Plan, to the tax or
sanction on prohibited transactions imposed by Section 4975(a) or (b) of
the Code or Section 502(i) or (l) of ERISA; (3) any of the Company Pension
Plans has been terminated or has been within the three-year period prior to
the date hereof the subject of a "reportable event" (as defined in Section
4043 of ERISA and the regulations thereunder); and (4) the Company or any
Subsidiary or, to the knowledge of Seller, any trustee, administrator or
other fiduciary of any Benefit Plan, or any employee, agent or director of
any of the foregoing, has engaged in any transaction or acted in a manner
that could, or failed to act so as to, subject the Company, any Subsidiary
or any trustee, administrator or other fiduciary to any liability for
breach of fiduciary duty under ERISA or any other applicable law, provided
that such disclosure shall be as of the date of this Agreement with respect
to any such trustee, administrator or other fiduciary or any employee,
agent or director thereof, in each case that is not an employee, agent,
director or affiliate of Seller, the Company or any Subsidiary or any other
affiliate of Seller and that has so engaged in such a transaction or so
acted without direction or instruction from Seller, the Company, any
Subsidiary or any other affiliate of Seller.

          (vi)  Seller's actuary has estimated that the amount of "unfunded
benefit liabilities" (as defined in Section 4001(a)(18) of ERISA and using
annuity purchase rates) for each Company Pension Plan that is a "defined
benefit plan" (as defined in Section 3(35) of ERISA) (hereinafter a
"Defined Benefit Plan") does not exceed the amount set forth in Schedule
4(o) with respect to such Defined Benefit Plan.  Such estimates were made
without performing a complete plan termination valuation under Part 4 of
ERISA.  The assumptions used by Seller's actuary in calculating such
estimates, which are set forth in Schedule 4(o), were reasonable and
complete, and the data used in calculating such estimates were accurate and
complete in all material respects, and, to the knowledge of Seller, there
is no reason to believe such estimates are incorrect.  Seller has furnished
to Buyer the most recent actuarial report or valuation with respect to each
Defined Benefit Plan.  The information supplied to the actuary for use in
preparing those reports or valuations was complete and accurate in all
material respects and, to the knowledge of Seller, there is no reason to
believe that the conclusions expressed in those reports or valuations are
incorrect.

          The notes to the Balance Sheet set forth with respect to each
Defined Benefit Plan the amount of the projected benefit obligation as
calculated in accordance with GAAP (the "PBO") as of December 31, 1993,

                                    21


based upon the assumptions set forth in Schedule 4(o), which assumptions
were reasonable and complete, and using data (from the January 1, 1993,
actuarial valuation projected to December 31, 1993) that was accurate and
complete in all material respects.  Such amounts set forth in notes to the
Balance Sheet fairly present the PBO as of the date thereof.  Schedule 4(o)
further discloses with respect to each such Defined Benefit Plan (a) any
factors or changes in circumstances since December 31, 1993, that would
cause the PBO if calculated as of the date of this Agreement to exceed the
amount set forth in the notes to the Balance Sheet, (b) the monetary impact
of such factors or changes, (c) the fair market value of the assets of such
Defined Benefit Plan as of March 31, 1994 and (d) the amount of
contributions made to such Defined Benefit Plan and the amount of benefits
and expenses paid from such Defined Benefit Plan during the period
beginning January 1, 1994, and ending on March 31, 1994.

          (vii)  No Commonly Controlled Entity has incurred any liability
to a Pension Plan (other than for contributions not yet due) or to the
Pension Benefit Guaranty Corporation (other than for the payment of
premiums not yet due), which liability has not been fully paid as of the
date hereof.

          (viii)  No Commonly Controlled Entity has (a) engaged in a
transaction described in Section 4069 of ERISA that is reasonably likely to
subject the Company or any of the Subsidiaries to material liability at any
time after the date hereof or (b) acted in a manner that could, or failed
to act so as to, reasonably result in material fines, penalties, taxes or
related charges under (x) Section 502(c), Section 502(i) or Section 502(l)
of ERISA, (y) Section 4071 of ERISA or (z) Chapter 43 of the Code.

          (ix)  None of the Company or any of the Subsidiaries is currently
required to contribute to any multiemployer plan or has withdrawn from any
"multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) where such
withdrawal has resulted or would result in any "withdrawal liability"
(within the meaning of Section 4201 of ERISA) that has not been fully paid
as of the date hereof.  No Commonly Controlled Entity has announced an
intention to withdraw, but has not yet completed withdrawal, from such a
multiemployer plan; and no action has been taken, and no circumstances
exist, that alone or with the passage of time is reasonably likely to
result in either a partial or complete withdrawal from such a multiemployer
plan by any Commonly Controlled Entity.

          (x)  The list of Welfare Plans in Schedule 4(o) discloses whether
each such Welfare Plan is (i) unfunded, (ii) funded through a "welfare
benefit fund", as such term is defined in Section 419(e) of the Code, or
other funding mechanism or (iii) insured.   Except with respect to those
benefits set forth in Schedule 4(o) under the heading "Additional Payments
or Benefits or Acceleration of Time of Payment or Vesting of any Benefits
as a Result of Transactions Contemplated by this Agreement", neither Seller
nor, to the knowledge of Seller, the Company or any Subsidiary has made any
representation to any participant or beneficiary under any such Welfare
Plan that such Welfare Plan may not be amended or terminated without
material liability.  The Company and the Subsidiaries comply with the
applicable requirements of Section 4980B(f) of the Code with respect to
each Benefit Plan that is a group health plan, as such term is defined in
Section 5000(b)(1) of the Code.


                                    22


          (xi)  Except as set forth in Schedule 4(o), no employee of the
Company and the Subsidiaries will be entitled to any additional payments or
benefits or any acceleration of the time of payment or vesting of any
benefits under any Benefit Plan as a result of the transactions
contemplated by this Agreement.

          (xii)  Except as provided in Schedule 4(o), during the period
beginning on January 1, 1994, and ending on the date of this Agreement,
there has been no change (a) in any actuarial or other assumption used to
calculate funding obligations with respect to any Company Pension Plan or
(b) in the manner in which contributions to any Company Pension Plan are
made or the basis on which such contributions are determined.

          (p)  ABSENCE OF CHANGES OR EVENTS.  Except as set forth in
Schedule 4(p), since the date of the Balance Sheet to the date of this
Agreement, there has not been any material adverse change in the business,
assets, financial condition or results of operations or prospects of the
Company and the Subsidiaries, taken as a whole.  Except as set forth in
Schedule 4(p), since the date of the Balance Sheet to the date of this
Agreement, (i) the business of the Company and the Subsidiaries has been
conducted in the ordinary course consistent with past practice and neither
the Company nor any of the Subsidiaries has taken any action that, if taken
after the date of this Agreement, would constitute a breach of any of the
covenants set forth in clauses (v), (vii), (ix), (xi), (xii), (xiv), (xv),
(xviii) and (xxxv) (to the extent such clause (xxxv) relates to any of the
foregoing) of Section 5(b), (ii) the Company has not declared or paid any
dividend or made any other distribution to its stockholders whether or not
upon or in respect of any of the Shares and (iii) except for short-term
extensions of credit (and related principal and interest payments) made in
the ordinary course of business consistent with past practice for cash
management purposes, neither the Company nor any of the Subsidiaries has
taken any action that, if taken after the date of this Agreement, would
constitute a breach of any of the covenants set forth in clause (x) of
Section 5(b).

          (q)  COMPLIANCE WITH APPLICABLE LAWS.  (i)  The Company and the
Subsidiaries are, to the extent material, in compliance with all applicable
statutes, laws, ordinances, rules, orders and regulations of any
Governmental Entity ("Applicable Laws"), including those relating to
occupational health and safety.  Except as set forth in Schedule 4(q), to
the knowledge of Seller, none of Seller, the Company or a Subsidiary has
received any written communication during the five years prior to the date
hereof from a Governmental Entity that alleges that the Company or a
Subsidiary is not in compliance in any material respect with any Applicable
Laws.  Except as set forth in Schedule 4(q), to the knowledge of Seller,
none of Seller, the Company or a Subsidiary has received any oral
communication during the two years prior to the date hereof from a
Governmental Entity that alleges that the Company or a Subsidiary is not in
compliance in any material respect with any Applicable Laws.  This
Section 4(q)(i) does not relate to matters with respect to Taxes, which are
the subject of Section 4(h), to environmental matters, which are the
subject of Section 4(q)(ii), or to any matters as to which the U.S. tobacco
industry generally (and not the Company or a Subsidiary in particular) is
not in compliance to a similar extent, or alleged not to be in compliance
to a similar extent, with Applicable Laws.


                                    23


          (ii)  Except as set forth in Schedule 4(q) (A) during the five
years prior to the date of this Agreement none of Seller, the Company or
any of the Subsidiaries has received any written communication from a
Governmental Entity that alleges that the Company or any Subsidiary is not
in compliance in all material respects with any Environmental Laws (as
hereinafter defined); (B) the Company and the Subsidiaries hold, and are in
compliance in all material respects with the terms and conditions of, all
permits, licenses and governmental authorizations required under any
Environmental Laws for the conduct of the business of the Company and the
Subsidiaries as currently conducted; (C) the Company and the Subsidiaries
are in compliance in all material respects with all Environmental Laws; (D)
as of the date hereof the Company and the Subsidiaries have not received
notice of or entered into any judgment, decree or order issued by any
Governmental Entity pertaining to the conduct of the business of the
Company and the Subsidiaries as currently conducted relating to compliance
with any Environmental Law or to investigation or cleanup of Contaminants
(as hereinafter defined) under any Environmental Law; (E) neither the
Company nor any of the Subsidiaries has during the five years prior to the
date of this Agreement received any written communication alleging that the
Company or any Subsidiary has any liability, contingent or otherwise,
including any obligation as an indemnitor with respect to environmental
matters or any obligation under Environmental Laws, relating in any manner
to the Release (as hereinafter defined) of Contaminants from the operation
of the business of the Company or any Subsidiary at any facilities formerly
owned by the Company or any Subsidiary; (F) there are no non-naturally
occurring radioactive materials, underground storage tanks or
polychlorinated biphenyls ("PCBs") at, under or on any Company Property;
and (G) there have been no Releases (other than pursuant to license, permit
or other governmental authorization) from the operation of the business of
the Company or any Subsidiary of any Contaminants at, under or on any
Company Property in respect of which remediation is required under any
Environmental Law.

          As used in this Agreement, the term "Environmental Laws" means
any and all applicable treaties, laws, regulations, enforceable
requirements, binding determinations, orders, decrees, judgments,
injunctions, permits, approvals, authorizations, licenses, variances,
permissions, notices or binding agreements issued, promulgated or entered
into by any Governmental Entity, relating to the environment, preservation
or reclamation of natural resources, or to the management, Release or
threatened Release of Contaminants in each case as in effect on the date
hereof.  As used in this Agreement, the term "Contaminants" means those
materials, substances or wastes that are regulated by, or form the basis of
liability under, any Environmental Law, including PCBs, pollutants, solid
wastes, explosive or regulated radioactive materials or substances,
hazardous or toxic materials, substances, wastes or chemicals, petroleum
(including crude oil or any fraction thereof) or petroleum distillates,
asbestos or asbestos containing materials, materials listed in 49 C.F.R.
S 172.101 and materials defined as hazardous substances pursuant to Section
101(14) of the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended to the date hereof ("CERCLA").  As used
in this Agreement, the term "Release" shall have the meaning set forth in
Section 101(22) of CERCLA.

          (r)  EMPLOYEE AND LABOR MATTERS.  Except as set forth in
Schedule 4(r), (i) there is as of the date hereof, and during the two years

                                    24


prior to the date hereof there has been, no labor strike, work stoppage,
labor-related product boycott or lockout pending, or, to the knowledge of
Seller, threatened, against the Company or a Subsidiary; (ii) to the
knowledge of Seller, as of the date hereof no union organizational campaign
is in progress with respect to the employees of the Company or a Subsidiary
and no question concerning representation exists respecting such employees;
(iii) to the knowledge of Seller, neither the Company nor a Subsidiary is
engaged in any unfair labor practice; (iv) as of the date hereof there is
no unfair labor practice charge or complaint against the Company or a
Subsidiary pending, or, to the knowledge of Seller, threatened, before the
National Labor Relations Board; (v) as of the date hereof there are no
pending, or, to the knowledge of Seller, threatened, union grievances
against the Company or a Subsidiary as to which there is a reasonable
likelihood of a material adverse determination; (vi) as of the date hereof
there are no pending, or, to the knowledge of Seller, threatened, charges
against the Company, a Subsidiary or any current or former employee,
officer or director of the Company or a Subsidiary before the Equal
Employment Opportunity Commission or any state or local agency responsible
for the prevention of unlawful employment practices which relate to the
business of the Company or a Subsidiary; and (vii) to the knowledge of
Seller, none of Seller, the Company and the Subsidiaries has received
notice during the two years prior to the date hereof of the intent of any
Governmental Entity responsible for the enforcement of labor or employment
laws to conduct an investigation or audit of the Company or a Subsidiary
and, to the knowledge of Seller, as of the date hereof no such
investigation or audit is in progress.

          (s)  CUSTOMER ACCOUNTS RECEIVABLE; INVENTORIES.  (i)  To the
knowledge of Seller, all customer accounts receivable of the Company and
the Subsidiaries, whether reflected on the Balance Sheet or subsequently
created, have arisen from bona fide transactions in the ordinary course of
business consistent with past practice.  The Company and the Subsidiaries
have good and marketable title to their respective accounts receivable,
free and clear of all liens, except as set forth in Schedule 4(s).  During
the two year period prior to the date hereof, neither the Company nor any
of the Subsidiaries has sold, pledged or otherwise disposed of any of its
accounts receivable in connection with any receivables-type financing or
factoring-type financing or similar transaction.  Nothing in this Agreement
shall be deemed to constitute a guaranty by Seller of the collectibility of
any accounts receivable of the Company or any of the Subsidiaries.

          (ii)  To the knowledge of Seller, the inventories of the Company
and the Subsidiaries, whether reflected on the Balance Sheet or
subsequently acquired, are generally of a quality and quantity usable
and/or salable in the ordinary course of business of the Company and the
Subsidiaries as currently conducted, except for obsolete materials and
materials of below-standard quality, all of which have been written down to
net realizable value or for which adequate reserves have been provided on
the Balance Sheet or, with respect to any subsequently acquired
inventories, the relevant balance sheet of the Company prepared in
accordance with GAAP consistently applied.  The inventories of the Company
and the Subsidiaries are reflected on the Balance Sheet and in their
respective books and records in accordance with GAAP applied on a basis
consistent with past practice.



                                    25


          (t)  LICENSES; PERMITS.  Schedule 4(t) sets forth a true and
complete list of all material licenses, permits and authorizations issued
or granted by Governmental Entities to the Company and the Subsidiaries
which are necessary as of the date hereof for the conduct of the business
of the Company and the Subsidiaries as currently conducted.  Except as set
forth in Schedule 4(t), all material licenses, permits and authorizations
necessary for the conduct of the business of the Company and the
Subsidiaries as currently conducted are validly held by the Company or the
relevant Subsidiary, the Company and the Subsidiaries have, to the extent
material, complied  with all terms and conditions thereof and the same will
not be subject to suspension, modification, revocation or nonrenewal as a
result of the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby, except where the same can be cured
without penalty or cost (other than de minimis administrative costs).  All
such licenses, permits and authorizations which are held in the name of any
employee, officer, director, stockholder, agent or otherwise on behalf of
the Company or a Subsidiary shall be deemed included under this warranty.
This Section 4(t) does not relate to environmental matters, which are the
subject of Section 4(q)(ii).

          (u)  POWERS OF ATTORNEY.  Schedule 4(u) sets forth a true and
correct list as of the date hereof of all currently effective powers of
attorney granted by or with respect to the Company or one of the
Subsidiaries and those persons authorized to act thereunder, other than
powers of attorney that are terminable at will.

          (v)  TRANSACTIONS WITH AFFILIATES.  Except as set forth in
Schedule 4(v), none of the agreements, contracts or other arrangements set
forth in Schedule 4(k) or 4(l) between the Company or any Subsidiary, on
the one hand, and Seller or any of its affiliates (other than the Company
or a Subsidiary), on the other hand, will continue in effect subsequent to
the Closing.  Except as set forth in Schedule 4(v), after the Closing
neither Seller nor any of its affiliates will have any interest in any
property (real or personal, tangible or intangible) or contract used in or
pertaining to the business of the Company or a Subsidiary or the Business.
Except as set forth in Schedule 4(v), neither Seller nor, to the knowledge
of Seller, any of its affiliates has any direct or indirect ownership
interest in any person (other than through the Company or any Subsidiary)
in which the Company or a Subsidiary has any direct or indirect ownership
interest or with which the Company or a Subsidiary competes or has a
business relationship.  Except as set forth in Schedule 4(v), Seller
provides no material services to the Company or any of the Subsidiaries.

          (w)  CERTAIN CONTRACTS.  As of the date of this Agreement, there
have not been any claims made, and there are no claims pending or, to the
knowledge of Seller,  threatened, for indemnification in respect of any of
the agreements set forth in Schedule 4(w).

          (x)  AVA DISTRIBUTOR AGREEMENT.  No agreement or contract entered
into by the Company in respect of the distribution of its American Value
Alliance products contains terms materially different from those set forth
in the form of AMERICAN VALUE ALLIANCE Distributor Agreement made available
to Buyer prior to the date of this Agreement.

          5.  COVENANTS OF SELLER.  Seller covenants and agrees as follows:


                                    26


          (a)  ACCESS.  From the date hereof to the Closing, except to the
extent that counsel to Seller, after consultation with counsel to Buyer,
reasonably concludes that granting access is inadvisable under the
antitrust laws, Seller shall, and shall cause the Company and each
Subsidiary to, give Buyer and its representatives, employees, counsel,
auditors and accountants reasonable access, during normal business hours
and upon reasonable notice, to the officers and human resources personnel
(and such other personnel to which Seller shall consent, such consent not
to be unreasonably withheld), properties, books and records of the Company
and each Subsidiary, and shall authorize access by Buyer's independent
auditors to the working papers of Seller's independent auditors to the
extent they relate to the Company or any of the Subsidiaries (and Seller
may take such steps as are reasonably appropriate in the circumstances to
protect the confidentiality of information that does not relate to the
Company or any of the Subsidiaries that is contained in books and records
that include information relating to the Company or any of the
Subsidiaries, it being understood that such steps may not include barring
access to information relating to the Company or any Subsidiary); provided,
however, that such access does not unreasonably disrupt the normal
operations of Seller, the Company or any Subsidiary or contravene any
agreement set forth in Schedule 5(a).

          (b)  ORDINARY CONDUCT.  Except as set forth in Schedule 5(b) or
otherwise expressly permitted or required by the terms of this Agreement,
from the date hereof to the Closing, Seller shall cause the business of the
Company and the Subsidiaries to be conducted in the ordinary course in
substantially the same manner as presently conducted (including with
respect to research and development efforts, advertising, promotions, legal
defense efforts and legal expenditures, maintenance and repair
expenditures, inventory and accounts receivable levels, product quality and
product specifications) and shall further cause the Company and the
Subsidiaries to use their reasonable best efforts to preserve their
relationships with employees, customers, suppliers and others with whom the
Company or any Subsidiary deals and retain the personnel listed on Schedule
5(b).  Seller shall not, and shall not permit the Company or any Subsidiary
to, take any action that would, or that could reasonably be expected to,
result in (x) any of the conditions to the purchase and sale of the Shares
set forth in Section 3(a) not being satisfied or (y) any of the
representations or warranties of Seller made in this Agreement becoming
untrue or incorrect in any material respect.  In addition, except as set
forth in Schedule 5(b) or otherwise expressly permitted by the terms of
this Agreement, Seller shall not permit the Company or any Subsidiary to do
any of the following without the prior written consent of Buyer:

          (i)  amend its Certificate of Incorporation or By-laws;

          (ii)  declare or pay any dividend or make any other distribution
     to its stockholders whether or not upon or in respect of any shares of
     its capital stock; provided, however, that (A) dividends and
     distributions may continue to be made by the Subsidiaries to the
     Company and (B) cash dividends and distributions of cash may continue
     to be made by the Company to Seller or its affiliates so long as the
     aggregate amount of dividends and distributions declared or paid on or
     after the date of this Agreement shall not exceed, as of any date of
     determination, the product of (x) $191,780.82 multiplied by (y) the
     actual number of days elapsed from and including the date of this

                                    27


     Agreement to but excluding the earlier of such date of determination
     and the Closing Date;

          (iii)  redeem or otherwise acquire any shares of its capital
     stock or issue any capital stock or any option, warrant or right
     relating thereto or any securities convertible into or exchangeable
     for any shares of capital stock;

          (iv)  adopt or amend in any material respect or terminate any
     Benefit Plan, except as required by law, or change any actuarial or
     other assumption used to calculate funding obligations with respect to
     any Company Pension Plan (except to the extent that failure to make
     such change would result in noncompliance with GAAP, ERISA or the
     Code), or change the manner in which contributions to any Company
     Pension Plan are made or the basis on which such contributions are
     determined, except as required by law;

          (v)  grant to any officer, director, employee or independent
     contractor any increase in compensation or benefits, except in the
     ordinary course of business consistent with past practice or as may be
     required under existing agreements;

          (vi)  terminate the employment of any of the personnel of the
     Company or any Subsidiary set forth in Schedule 5(b) except for cause;

          (vii)  incur or assume any liabilities, obligations or
     indebtedness for borrowed money or guarantee any such liabilities,
     obligations or indebtedness or otherwise take any action to incur or
     assume, or fail to take any action required by any obligation or duty
     that results in the incurrence of, any other material liabilities or
     obligations of any nature, other than in the ordinary course of
     business consistent with past practice; provided that in no event
     shall the Company or a Subsidiary incur, assume or guarantee any long-
     term indebtedness for borrowed money;

          (viii)  permit, allow or suffer any of its assets to be subject
     to any mortgage, lien, security interest, encumbrance, easement,
     covenant, right-of-way or other similar restriction of any nature
     whatsoever which would have been required to be set forth in
     Schedule 4(h), 4(i), 4(j) or 4(k) if existing on the date of this
     Agreement;

          (ix)  cancel any material indebtedness (individually or in the
     aggregate) or waive any claims or rights of substantial value;

          (x)  except for (A) dividends and distributions permitted under
     clause (ii) above, (B) payments made pursuant to any purchase order
     referred to in clause (iv) of Section 4(l) or clause (xxii) of this
     Section 5(b), the express provisions of any agreement, contract or
     other arrangement between the Company or any Subsidiary, on the one
     hand, and Seller or any of its affiliates (other than the Company or a
     Subsidiary), on the other hand, that is set forth on Schedule 4(k) or
     Schedule 4(l) and marked with an asterisk, as such provisions are in
     effect on the date of this Agreement, and (C) short-term extensions of
     credit (and related principal and interest payments) made after the
     date of this Agreement in the ordinary course of business consistent

                                    28


     with past practice by the Company or any Subsidiary to Seller or by
     Seller to the Company or any Subsidiary, in each case only on the
     terms set forth in Schedule 5(b) and only to the extent necessary for
     cash management purposes, pay, loan or advance any amount to, or
     borrow any amount from, or sell, transfer or lease any of its assets
     to, or enter into any agreement or arrangement with, Seller or any of
     its affiliates (other than the Company and the Subsidiaries);

          (xi)  make any change in any method of accounting or accounting
     policy other than those required by GAAP or make any material change
     in any accounting practice that would be contrary to GAAP;

          (xii)  engage in the practice commonly referred to as trade
     loading, which term shall not include (A) shipments to meet reasonable
     trade demands for merchandise in anticipation of consumer promotions,
     in response to price increases (including excise tax increases), to
     meet volume rebate requirements or to reasonably meet competitive
     programs of a significant portion of the tobacco industry generally or
     (B) American Value Alliance brand promotions in accordance with past
     practice;

          (xiii)  enter into or grant any power of attorney except in the
     ordinary course of business and then only if such power of attorney is
     terminable no later than 90 days after the Closing;

          (xiv)  acquire by merging or consolidating with, or by purchasing
     a substantial portion of the assets of, or by any other manner, any
     business or any corporation, partnership, association or other
     business organization or division thereof or, except to the extent
     consistent with the budget for capital expenditures of the Company and
     the Subsidiaries referred to in Schedule 5(b), otherwise acquire any
     material assets (other than inventory);

          (xv)  sell, pledge or otherwise dispose of any of its accounts
     receivable (whether or not in connection with any receivables-type
     financing or a factoring-type transaction or otherwise), or sell,
     lease or otherwise dispose of any of its other material assets except
     in the ordinary course of business consistent with past practice;

          (xvi)  acquire fee title to or an ownership interest in any real
     property or enter into any lease (or renewal of any lease) of real
     property or an interest in real property, except (A) any renewals of
     existing leases in the ordinary course of business consistent with
     past practice (including in respect of term), (B) any leases or
     similar agreements with a term not in excess of three years in respect
     of offices for field sales representatives employed or otherwise
     retained by the Company or one of the Subsidiaries, (C) any leases or
     similar agreements with a term not in excess of 90 days in respect of
     storage facilities for point of sale displays and other promotional
     materials of the Company or one of the Subsidiaries and (D) as
     specifically contemplated by clause (xvii) below;

          (xvii)  modify, amend, terminate or permit the lapse of any lease
     of, or other material agreement relating to, real property (except
     (A) modifications or amendments associated with renewals of existing
     leases in the ordinary course of business consistent with past

                                    29


     practice (including in respect of term), (B) terminations of existing
     leases at the expiration of their respective terms, (C) modifications
     or amendments associated with renewals of leases or similar agreements
     in respect of offices for field sales representatives employed or
     otherwise retained by the Company or one of the Subsidiaries so long
     as the term of such renewal is not in excess of three years,
     (D) modifications or amendments associated with renewals of leases or
     similar agreements in respect of storage facilities for point of sale
     displays and other promotional materials of the Company or one of the
     Subsidiaries, so long as the term of such renewal is not in excess of
     90 days, or (E) modifications or amendments specifically provided for
     in those agreements identified with three asterisks in Schedule 5(b));

          (xviii)  make any material Tax election (other than under
     Section 13261(g)(2) of the Revenue Reconciliation Act of 1993), settle
     or compromise any liability for Taxes or, other than in the ordinary
     course of business, engage in any transaction (other than the
     assignment of the rights and obligations under the European Trademark
     Agreements as contemplated by Section 5(j)) or operate the business in
     a manner that would directly or indirectly (other than solely by
     reason of Treasury Regulation Section 1.1502-6 or any comparable
     provision of state, local or foreign Tax law) result in any liability
     for Taxes of the Company or any Subsidiary;

          (xix)  enter into or amend any agreement, contract or other
     arrangement with any current or former officer, director or employee
     of the Company, any Subsidiary, Seller or any affiliate of Seller
     (including any employment agreement or employment contract) that has
     an aggregate future liability in excess of $100,000;

          (xx)  enter into or amend any collective bargaining agreement or
     other contract with any labor union, provided that the Company or
     Golden Belt Manufacturing Company may enter into a collective
     bargaining agreement covering employees of the Hanmer Division of the
     Company and a collective bargaining agreement covering employees of
     Golden Belt Manufacturing Company, in each case containing terms not
     materially different from the terms of the respective collective
     bargaining agreements in effect on the date of this Agreement except
     to the extent that the Company or Golden Belt Manufacturing Company
     determines, after consultation with Buyer, that such materially
     different terms are reasonably necessary in order to conclude the
     negotiations on such collective bargaining agreement;

          (xxi)  enter into or amend any covenant of the Company or a
     Subsidiary not to compete or, other than agreements or contracts
     permitted by clause (xxvi) below, enter into or amend any other
     covenant of the Company or a Subsidiary restricting the development,
     manufacture, marketing or distribution of the products and services of
     the Company or any Subsidiary;

          (xxii)  enter into or amend any agreement, contract or other
     arrangement with Seller or any affiliate of Seller (other than the
     Company or a Subsidiary) other than any individual purchase orders in
     the ordinary course of business consistent with past practice for
     products manufactured by such an affiliate to be acquired on arm's


                                    30


     length terms in any such case for an aggregate price not in excess of
     $100,000;

          (xxiii)  enter into or amend any lease, sublease or similar
     agreement with any person (other than the Company or a Subsidiary)
     under which the Company or a Subsidiary is a lessor or sublessor of,
     or makes available for use to any person (other than the Company or a
     Subsidiary), (A) any Company Property or (B) any portion of any
     premises otherwise occupied by the Company or a Subsidiary, in any
     such case which has an aggregate future receivable in excess of
     $250,000, unless terminable by the Company or a Subsidiary by notice
     of not more than 90 days without penalty or cost (other than de
     minimis administrative costs);

          (xxiv)  enter into or amend any lease or similar agreement with
     any person (other than the Company or a Subsidiary) under which (A)
     the Company or a Subsidiary is lessee of, or holds or uses, any
     machinery, equipment, vehicle or other tangible personal property
     owned by any person or (B) the Company or a Subsidiary is a lessor or
     sublessor of, or makes available for use by any person, any tangible
     personal property owned or leased by the Company or a Subsidiary, in
     any such case which has an aggregate future liability or receivable,
     as the case may be, in excess of $500,000, unless terminable by the
     Company or a Subsidiary by notice of not more than 90 days without
     penalty or cost (other than de minimis administrative costs);

          (xxv)  enter into or amend any (A) continuing agreement or
     contract for the future purchase of materials, supplies, equipment or
     products manufactured by parties other than the Company or any of the
     Subsidiaries (other than purchase contracts and orders for inventory
     in the ordinary course of business consistent with past practice,
     provided that any such contract or order, when taken together with all
     other purchase contracts and orders for inventory relating to the
     ordered item, would not require the Company or any Subsidiary to
     acquire a quantity of such item that could not reasonably be expected
     to be used in the ordinary course of business of the Company and the
     Subsidiaries within, in the case of any grade of tobacco leaf, two
     years and, in the case of any other item, six months after the date of
     execution or entry of such purchase contract or order for inventory)
     or (B) service, processing, consulting, management or other similar
     type of agreement or contract, in any such case which has an aggregate
     future liability in excess of $1,000,000, unless terminable by the
     Company or a Subsidiary by notice of not more than 90 days without
     penalty or cost (other than de minimis administrative costs);

          (xxvi)  enter into or amend any continuing agreement or contract
     for the distribution of any products manufactured by the Company or
     any Subsidiary, including by franchise arrangement, unless terminable
     by the Company or a Subsidiary by notice of not more than 90 days
     without penalty or cost (other than de minimis administrative costs);

          (xxvii)  enter into or amend any continuing agreement or contract
     for the manufacture of products by the Company or any of the
     Subsidiaries on behalf of parties other than the Company or any of the
     Subsidiaries, in any such case which has an aggregate future
     receivable in excess of $250,000, unless terminable by the Company or

                                    31


     a Subsidiary by notice of not more than six months without penalty or
     cost (other than de minimis administrative costs);

          (xxviii)  enter into or amend any agreement, contract or
     arrangement for the placement of advertising or other promotional
     activities, in any such case which has an aggregate future liability
     in excess of $250,000, unless terminable by the Company or a
     Subsidiary by notice of not more that 90 days without penalty or cost
     (other than de minimis administrative costs);

          (xxix)  enter into or amend any license, option or any other
     material agreement of any kind relating in whole or in part to
     Intellectual Property or any material license, option or other
     agreement in respect of any Business know-how used by the Company or
     any Subsidiary in its business;

          (xxx)  enter into or amend any agreement, contract or other
     instrument (including so-called take-or-pay or keepwell agreements)
     under which (A) any person (including the Company or a Subsidiary) has
     directly or indirectly guaranteed liabilities or obligations (other
     than guarantees covered by clause (vii) above) of the Company or a
     Subsidiary or (B) the Company or a Subsidiary has directly or
     indirectly guaranteed indebtedness, liabilities or obligations of any
     person (in each case other than endorsements for the purpose of
     collection in the ordinary course of business and other than
     guarantees covered by clause (vii) above), in any such case which,
     individually, is in excess of $100,000;

          (xxxi)  enter into or amend any agreement, contract or other
     instrument under which the Company or a Subsidiary, directly or
     indirectly, makes or may make any advance, loan, extension of credit
     (other than trade credit extended in the ordinary course of business)
     or capital contribution to, or other investment in, any person (other
     than the Company or a Subsidiary), in any such case which,
     individually, is in excess of $100,000;

          (xxxii)  enter into or amend any agreement, contract or
     instrument providing for indemnification of any person with respect to
     liabilities relating to any former business of the Company, a
     Subsidiary or any predecessor person, provided that this clause shall
     not prohibit any current or former director, officer, employee or
     agent of Seller, the Company and any Subsidiary from being afforded
     protection under the indemnification provisions in the Company's by-
     laws as in effect on the date of this Agreement;

          (xxxiii)  enter into or amend any agreement, contract or
     instrument providing for indemnification of any person with respect to
     liabilities relating to any current business of the Company or a
     Subsidiary other than (A) any agreement to indemnify purchasers of the
     products of the Company or any Subsidiary in respect of product
     liability matters entered into in the ordinary course of business
     consistent with past practices, (B) standard provisions of purchase
     orders or order acknowledgment forms and (C) provisions of any
     contract providing for indemnification in respect of breaches of such
     contract, provided that this clause shall not prohibit any current or
     former director, officer, employee or agent of Seller, the Company and

                                    32


     any Subsidiary from being afforded protection under the
     indemnification provisions in the Company's by-laws as in effect on
     the date of this Agreement, and provided further that this clause
     shall not prohibit the Company from executing and delivering to Seller
     an indemnification agreement in the form of Exhibit E;

          (xxxiv)  enter into or amend any other agreement, contract,
     lease, license, commitment or instrument to which the Company or any
     Subsidiary is a party or by or to which it or any of its assets or
     business is bound or subject (other than leases or similar agreements
     (A) with a term not in excess of three years in respect of offices for
     field sales representatives employed or otherwise retained by the
     Company or any Subsidiary and (B) with a term not in excess of 90 days
     in respect of storage facilities for point of sale displays and other
     promotional materials of the Company or one of the Subsidiaries) which
     has an aggregate future liability in excess of $1,000,000, unless
     terminable by the Company or a Subsidiary by notice of not more than
     90 days without penalty or cost (other than de minimis administrative
     costs); or

          (xxxv)  agree, whether in writing or otherwise, to do any of the
     foregoing.

          (c)  CONFIDENTIALITY.  Notwithstanding any other agreement to the
contrary, Seller shall keep confidential, and cause its affiliates and
instruct its and their officers, directors, employees and advisors who are
reasonably likely to possess the same to keep confidential, all
confidential information relating to the Company and the Subsidiaries and
their business in particular, and not to the continuing businesses of
Seller and its affiliates (other than the Company and the Subsidiaries),
except as required by law or administrative process, except for information
which is or becomes available to the public other than as a result of a
breach of this Section 5(c) and except that Seller may (i) provide
information to its insurance underwriters in connection with matters
relating to retrospective insurance premiums, claims administration and
such other insurance-related matters as are contemplated by this Agreement,
(ii) disclose the terms of this Agreement and (iii) make financial
disclosures in the ordinary course of business.  The covenant set forth in
this Section 5(c) shall terminate three years after the Closing Date,
except such covenant will not terminate with respect to Intellectual
Property or Business know-how or with respect to information subject to
this Section 5(c) and associated with or related to smoking and health or
fire-safe cigarettes.

          (d)  INSURANCE.  Except as set forth on Schedule 5(d) Seller
shall use reasonable efforts to keep, or cause to be kept, all insurance
policies set forth or identified in Schedule 4(n), or suitable replacements
therefor, in full force and effect through the close of business on the
Closing Date, provided that such policies or replacements are available at
costs generally comparable to the current costs thereof.  Except as set
forth in Schedule 5(d), Seller shall not cancel, reduce or elect not to
renew any material coverage under an insurance policy set forth or
identified in Schedule 4(n) in respect of the Company or any of the
Subsidiaries without prior consultation with Buyer.  In the event that, on
or prior to the Closing Date, any property owned or leased by the Company
or any of the Subsidiaries suffers any damage, destruction or other

                                    33


casualty loss, Seller shall surrender to the Company or such Subsidiary,
(i) all insurance proceeds received by Seller or any of its affiliates with
respect to such damage, destruction or loss and (ii) all rights of Seller
or any of its affiliates with respect to any insurance claims or causes of
action, whether or not litigation has commenced on the Closing Date, in
connection with such damage, destruction or loss.  Seller shall, and shall
cause its affiliates to, make available to the Company and to the
Subsidiaries the benefit of any casualty, workers' compensation, general
liability, product liability, automobile liability, umbrella (excess)
liability or crime insurance policy covering the Company or any of the
Subsidiaries with respect to insured events or occurrences relating to the
Company or any of the Subsidiaries prior to the Closing (whether or not
claims relating to such events or occurrences are made prior to or after
the Closing), subject to the terms and conditions of such insurance
policies and any related deductibles and self-insured retentions, for which
the Company and the Subsidiaries will continue to be responsible, and, in
connection therewith shall provide or cause to be provided such claims
administration services as are provided to the Company and the Subsidiaries
in accordance with current practice as Buyer may reasonably request.
Seller shall promptly pay to the Company or one of the Subsidiaries all
insurance proceeds received by Seller or any of its affiliates under any
insurance policy covering the Company or any of the Subsidiaries to the
extent attributable to losses incurred by the Company or any of the
Subsidiaries covered thereunder.

          (e)  RESIGNATIONS.  On the Closing Date, Seller shall cause to be
delivered to Buyer duly signed resignations (from the applicable board of
directors), effective immediately after the Closing, of all directors of
the Company and each Subsidiary and shall take such other action as is
necessary to accomplish the foregoing.

          (f)  OTHER TRANSACTIONS.  From the date of this Agreement to the
Closing, none of Seller, the Company, any Subsidiary nor any other
affiliate of Seller shall, nor shall they permit any of their respective
officers, directors or other representatives to, directly or indirectly,
encourage, solicit, initiate or participate in discussions or negotiations
with, or provide any information or assistance to, any person or group
(other than Buyer and its representatives) concerning any merger, sale of
securities, sale of substantial assets or similar transaction involving the
Company or any Subsidiary.  Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in the
preceding sentence by any officer, director or other representative of
Seller, the Company, any Subsidiary or any other affiliate of Seller,
whether or not such person is purporting to act on behalf of Seller, the
Company, any Subsidiary, any other affiliate of Seller or otherwise, shall
be deemed to be a breach of this Section 5(f) by Seller.  In the event that
Seller, the Company, any Subsidiary or any other affiliate of Seller
receives a proposal relating to any such transaction, Seller shall promptly
notify Buyer of such proposal.

          (g)  SUPPLEMENTAL DISCLOSURE.  (i)  Seller shall have the
continuing obligation until the Closing to supplement the Schedules hereto
with respect to any matter hereafter arising or discovered which, if
existing or known at the date of this Agreement, would have been required
to be set forth or described in such Schedules, any such supplement to be
delivered to Buyer reasonably promptly after such matter arises or is

                                    34


discovered; provided, however, that no supplement to such Schedules shall
have any effect for the purpose of determining the satisfaction of the
conditions set forth in Section 3(a) or for purposes of determining whether
any person is entitled to indemnification pursuant to Section 11, and no
delivery of such a supplement (or disclosure of any matter included
therein) shall be deemed to be a representation or warranty of Seller
hereunder.

          (ii)  Seller shall promptly notify Buyer of, and furnish Buyer
any information it may reasonably request with respect to, the occurrence
to Seller's knowledge of any event or condition or the existence to
Seller's knowledge of any fact that would cause any of the conditions to
Buyer's or Seller's obligation to consummate the purchase and sale of the
Shares not to be fulfilled.

          (iii)  Promptly following the date of this Agreement, Seller
shall deliver to Buyer a certificate in the form of Exhibit F.

          (h)  CERTAIN LICENSES AND PERMITS.  Seller covenants that all
transferable licenses, permits and authorizations issued or granted by
Governmental Entities which are held in the name of Seller or any of its
affiliates (other than the Company or any Subsidiary), or any of their
respective employees, officers, directors, stockholders, agents, or
otherwise, on behalf of the Company or a Subsidiary shall be duly and
validly transferred to the Company or such Subsidiary without consideration
prior to the Closing, and that the warranties, representations, covenants
and conditions contained in this Agreement shall apply to the same as if
held by the Company or such Subsidiary as of the date hereof.

          (i)  CERTAIN CONTRACTS.  Seller shall use its reasonable efforts
to obtain required waivers to nontransferable (by change in control of the
Company and the Subsidiaries or otherwise) material agreements, contracts
and other instruments to which the Company or any Subsidiary is a party.
Seller shall use its reasonable best efforts to prevent the Company or any
Subsidiary from entering into any agreement, contract or other instrument
with provisions requiring waivers or other action in order to consummate
the transactions contemplated hereby or any amendment to any agreement,
contract or other instrument to add or otherwise include any such
provision.

          (j)  EUROPEAN TRADEMARK AGREEMENTS.  Prior to the Closing, Seller
will cause the Company and the Subsidiaries to assign to American Tobacco
International Corporation (in exchange for a portion of the long-term
reorganization debt owed by the Company to Seller as of the date of this
Agreement), and in accordance with any applicable terms of the European
Trademark Agreements, all the rights and obligations of the Company or any
of the Subsidiaries under the European Trademark Agreements, and Buyer will
provide or cause to be provided such consents and take such other actions
required to be provided or taken by Buyer or any of its Subsidiaries in
connection therewith as may be reasonably requested by Seller in connection
therewith so long as no such consent or action derogates from the rights,
including indemnification rights, of Seller and its affiliates under this
Agreement.  "European Trademark Agreements" shall mean the Master Agreement
dated 30th June 1993 between the Company and Buyer, together with all
agreements, licenses, representations and undertakings made or given
between the Company and Buyer or made contemporaneously therewith in

                                    35


connection with or inducing the execution of such Master Agreement, whether
made or given by one of the Company and Buyer to the other or to any
affiliate of the other, in each case, as amended.

          (k)  TITLE INSURANCE, SURVEYS, ETC.  If requested by Buyer,
Seller shall cooperate reasonably with Buyer, and shall cause the Company
and the Subsidiaries to cooperate reasonably with Buyer, in obtaining, at
Buyer's expense, title reports, surveys and other similar information in
respect of any of the Owned Property.

          (l)  TRADEMARK REGISTRATION.  Seller shall cause the Company to
use its reasonable best efforts diligently to prosecute to registration,
prior to Closing, the trademark PRIVATE STOCK AMERICAN VALUE SELECTION.

          (m)  RESTRICTIONS ON APPOINTMENT OF DISTRIBUTORS.  Seller shall
not permit Seller's English Company to appoint or otherwise designate any
new distributors pursuant to the Distribution Agreement between the Company
and Gallaher International Limited dated September 11, 1986, unless such
appointment or designation is terminable by the Company by notice of not
more than 90 days without penalty or cost (other than de minimis
administrative costs).

          (n)  TERMINATION OF LICENSE.  Prior to the Closing Date, Seller
shall cause the Company to terminate the Agreement dated January 1, 1980,
by and between the Company and Gallaher Limited and the Sub-license
Agreement between the Company and Gallaher Limited dated January 31, 1980,
in each case without cost or expense to the Company and its Subsidiaries.

          6.  REPRESENTATIONS AND WARRANTIES OF BUYER.  Buyer hereby
represents and warrants to Seller as follows:

          (a)  AUTHORITY.  Buyer is a public limited company duly
organized, validly existing and in good standing under the laws of England.
Buyer has all requisite corporate power and authority to enter into this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby.  All corporate acts and other proceedings
required to be taken by Buyer to authorize the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly and properly taken.  This Agreement has
been duly executed and delivered by Buyer and constitutes a legal, valid
and binding obligation of Buyer, enforceable against Buyer in accordance
with its terms, subject to the qualification, however, that enforcement of
the rights and remedies created hereby is subject to bankruptcy and other
similar laws of general application relating to or affecting the rights and
remedies of creditors and that the remedy of specific enforcement or of
injunctive relief is subject to the discretion of the court before which
any proceeding therefor may be brought.

          (b)  NO CONFLICTS; CONSENTS.  The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated
hereby and compliance with the terms hereof shall not, conflict with, or
result in any violation of or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation
or acceleration of any obligation of any person or to loss of a material
right under (other than to the possible loss of a material right under a
contract or agreement that by its terms is terminable at will under any

                                    36


circumstances), or to increased, additional, accelerated or guaranteed
rights or entitlements of any person under, or result in the creation of
any lien, claim, encumbrance, security interest, option, charge or
restriction of any kind upon any of the properties or assets of Buyer or
any subsidiary of Buyer under, any provision of (i) the organizational
documents of Buyer or any subsidiary of Buyer, (ii) any material note,
bond, mortgage, indenture, deed of trust, license, lease, contract,
commitment, agreement or arrangement to which Buyer or any subsidiary of
Buyer is a party or by which any of their respective properties or assets
are bound, or (iii) any judgment, order, decree, statute, law, ordinance,
rule or regulation as of the date hereof, or any decree entered into or
otherwise consented to by Buyer after the execution of this Agreement and
on or prior to the Closing Date applicable as of the Closing Date,
applicable to Buyer or any subsidiary of Buyer or their respective
properties or assets, other than, in the case of clause (ii) above, any
such items that, individually or in the aggregate, would not have a
material adverse effect on the ability of Buyer to consummate the
transactions contemplated hereby.  Except as set forth (or as should have
been set forth) on Schedule 4(b), no consent, approval, license, permit,
order or authorization of, or registration, declaration or filing with, any
Governmental Entity is required to be obtained or made by Buyer or any of
its subsidiaries or their respective affiliates in connection with the
execution, delivery and performance of this Agreement or the consummation
of the transactions contemplated hereby, other than (A) compliance with and
filings under the HSR Act, (B) compliance with and filings and
notifications under applicable environmental laws and (C) the obtaining of
any permits from ATF required under 27 C.F.R. S 270.

          (c)  SECURITIES ACT.  The Shares purchased by Buyer pursuant to
this Agreement are being acquired for investment only and not with a view
to any public distribution thereof, and Buyer shall not offer to sell or
otherwise dispose of the Shares so acquired by it in violation of any of
the registration requirements of the Securities Act of 1933, as amended.

          7.  COVENANTS OF BUYER.  Buyer covenants and agrees as follows:

          (a)  CONFIDENTIALITY.  Buyer acknowledges that the information
being provided to it in connection with the purchase and sale of the Shares
and the consummation of the other transactions contemplated hereby is
subject to the terms of a letter agreement dated January 5, 1994, between
Buyer and Seller (the "Buyer Confidentiality Agreement"), the terms of
which are incorporated herein by reference.

          (b)  SUPPLEMENTAL DISCLOSURE.  Buyer shall promptly notify Seller
of, and furnish Seller any information it may reasonably request with
respect to, the occurrence to Buyer's knowledge of any event or condition
or the existence to Buyer's knowledge of any fact that would cause any of
the conditions to Buyer's or Seller's obligation to consummate the sale and
purchase of the Shares not to be fulfilled.

          8.  MUTUAL COVENANTS.  Each of Seller and Buyer covenants and
agrees as follows:

          (a)  COOPERATION.  Buyer and Seller shall cooperate with each
other, and shall cause their officers, employees, agents, auditors and
representatives to cooperate with each other, after the Closing to ensure

                                    37


the orderly transition of the Company and the Subsidiaries from Seller to
Buyer and to minimize any disruption to the respective businesses of
Seller, Buyer or the Company and the Subsidiaries that might result from
the transactions contemplated hereby.  After the Closing, upon reasonable
written notice, Buyer and Seller shall furnish or cause to be furnished to
each other and their employees, counsel, auditors and representatives
access, during normal business hours, to such information and assistance
relating to the Company and the Subsidiaries as is reasonably necessary for
financial reporting and accounting matters, the preparation and filing of
any Tax Returns, the determination of any Taxes, or the prosecution or
defense of any Tax claim or assessment or other legal claim and other legal
matters.  Each party shall reimburse the other for reasonable out-of-pocket
costs and expenses incurred in assisting the other pursuant to this
Section 8(a).  Neither party shall be required by this Section 8(a) to take
any action that would unreasonably interfere with the conduct of its
business or unreasonably disrupt its normal operations (or, in the case of
Buyer, the business or operations of the Company or any Subsidiary).

          (b)  PUBLICITY.  Seller and Buyer agree that, from the date
hereof through the Closing Date, the parties will use reasonable efforts to
coordinate the content and timing of any public releases or announcements
concerning the transactions contemplated hereby issued by either of the
parties, it being understood that there shall be no obligation to obtain
the approval of the text of any particular release or announcement.

          (c)  REASONABLE BEST EFFORTS.  Subject to the terms and
conditions of this Agreement, each party shall use reasonable best efforts
to cause the Closing to occur.

          (d)  ANTITRUST NOTIFICATION.  Each of Seller and Buyer shall as
promptly as practicable following the execution and delivery of this
Agreement, file with the United States Federal Trade Commission (the "FTC")
and the United States Department of Justice (the "DOJ") the notification
and report form, if any, required for the transactions contemplated hereby
and any supplemental information requested in connection therewith pursuant
to the HSR Act.  Any such notification and report form and supplemental
information shall be in substantial compliance with the requirements of the
HSR Act.  Each of Buyer and Seller shall furnish to the other such
necessary information and reasonable assistance as the other may request in
connection with its preparation of any filing or submission which is
necessary under the HSR Act.  Seller and Buyer shall keep each other
apprised of the status of any communications with, and any inquiries or
requests for additional information from, the FTC and the DOJ and shall
comply promptly with any such inquiry or request.  Each of Seller and Buyer
shall use reasonable best efforts to obtain any clearance required under
the HSR Act for, and to provide assistance to the other in any antitrust
proceedings related to, the purchase and sale of the Shares.  For purposes
of this Section 8(d) and of Section 8(c), the "reasonable best efforts" of
Buyer shall not require Buyer to agree to any prohibition, limitation or
other requirement of the type set forth in clauses (B), (C) and (D) of
Section 3(a)(v).

          (e)  SETTLEMENT OF INTERCOMPANY ACCOUNTS, ETC.  On the date of
this Agreement, (x) any short-term indebtedness (including interest accrued
thereon and unpaid at the date of this Agreement) owed by the Company or
any Subsidiary to Seller as of the date of this Agreement and (y) any

                                    38


short-term indebtedness (including interest accrued thereon and unpaid at
the date of this Agreement) owed by Seller to the Company or any Subsidiary
as of the date of this Agreement shall be cancelled and, in the case of
amounts referred to in clause (x), contributed to the capital of the
Company or such Subsidiary, as the case may be, except that, in the event
that the amount referred to in clause (y) is in excess of the amount
referred to in clause (x), such excess amount (the "Owed Amount") shall not
be so cancelled.  On the Closing Date, subject to Section 5(j), the
aggregate long-term reorganization debt owed by the Company and Golden Belt
Manufacturing Company to Seller (in the aggregate principal amount of
$361,000,000 as of the date of this Agreement), and all interest accrued
and unpaid as of the date of this Agreement and interest accrued thereafter
shall be cancelled and contributed to the capital of the Company.  At the
Closing, (i) all amounts permitted to be paid by the Company or a
Subsidiary to Seller or one of its affiliates (other than the Company and
the Subsidiaries) pursuant to the exceptions contained in Section 5(b)(x)
and not theretofore paid, and the Owed Amount and all short-term extensions
of credit by the Company or a Subsidiary to Seller pursuant to clause (C)
of such exceptions and not theretofore repaid, shall be paid (and Buyer
shall advance funds therefor to the Company and the Subsidiaries to the
extent the Company and the Subsidiaries require funds to make such payments
on a net basis) and (ii) all other amounts payable by the Company or any
Subsidiary to Seller or any of its affiliates (other than the Company and
the Subsidiaries) shall be cancelled and, accordingly, the Company and the
Subsidiaries shall have no further obligation to make any payments in
respect thereof to Seller or any of its affiliates (other than the Company
and the Subsidiaries).  At the Closing, Seller shall pay to the Company an
amount equal to the aggregate amount payable (whether as principal,
interest or otherwise) after the date of this Agreement and through the
Closing Date in respect of the indebtedness and other liabilities reflected
on the Balance Sheet under the captions "Current portion of long-term debt"
and "Long-term debt--third parties" (other than those amounts in respect of
capital leases) and Seller shall then assume and pay the remaining portion
of such indebtedness and indemnify and hold harmless Buyer and the Company
with respect thereto.

          (f)  RECORDS.  On the Closing Date or as soon as practicable
thereafter, Seller shall deliver or cause to be delivered to Buyer all
original agreements, documents, books, records and files, including records
and files stored on computer disks or tapes or any other storage medium
(collectively, "Records"), if any, in the possession of Seller relating
specifically to the business and operations of the Company and the
Subsidiaries or the Business, subject to the following exceptions:

          (i)  Buyer recognizes that certain Records may contain incidental
     information relating to the business and operations of the Company and
     the Subsidiaries and the Business or may relate primarily to Seller or
     subsidiaries or divisions of Seller other than the Company and the
     Subsidiaries, and that Seller may retain such Records and shall
     provide copies of the relevant portions thereof to Buyer, if material,
     on the Closing Date or as soon as practicable thereafter and for other
     Records, if and to the extent reasonably and specifically requested by
     Buyer;

          (ii)  Seller may retain all Records consisting of routine, non-
     substantive correspondence that would be burdensome to deliver,

                                    39


     provided that Seller shall provide copies thereof to Buyer at any time
     so reasonably and specifically requested by Buyer;

          (iii)  Seller may retain all Records prepared in connection with
     the sale of the Shares;

          (iv)  Seller may retain any consolidated, combined or unitary Tax
     Returns that include persons other than the Company and the
     Subsidiaries, but Seller shall provide Buyer with true, complete and
     correct copies of the portions of such Returns that relate to the
     Company's and the Subsidiaries' liability for Taxes;

          (v)  Seller may retain a copy of the minute books of the Company
     and the Subsidiaries;

          (vi)  Seller may retain any Records consisting of or directly
     relating to insurance policies, whether or not relating to the Company
     and the Subsidiaries, provided that Seller shall provide copies of
     Records in respect of claims history as they relate to any such
     policy, as well as any policies owned by the Company or any
     Subsidiary, to the extent reasonably and specifically requested by
     Buyer;

          (vii)  Seller may retain any Records consisting of publications
     available to the public generally that are located at the headquarters
     of Seller;

          (viii)  Seller may retain any Records relating to the tobacco
     business generally and not to the Company or any Subsidiary in
     particular that are located in the legal department of Seller.

          (g)  INSURANCE.  From time to time after the Closing, upon notice
by Seller to Buyer of any premiums due under primary worker's compensation
and general and automobile liability insurance policies maintained by
Seller that are properly allocable retrospectively (in each case as
determined based on the allocation methodology described in Schedule 8(g)
and after reasonable consultation with Buyer) to the Company or any of the
Subsidiaries for claims actually paid but only to the extent such claims
relate to or arise out of events which occurred after the date of this
Agreement and prior to the Closing, Buyer shall promptly pay, or cause the
Company or a Subsidiary to pay, the amount of such premiums due.  From time
to time after the Closing, promptly after receipt by Seller of any refunds
of premiums paid under primary worker's compensation and general and
automobile liability insurance policies maintained by Seller that are
properly allocable retrospectively (in each case as determined based on
such allocation methodology and after reasonable consultation with Buyer)
to the Company or any of the Subsidiaries for claims relating to or arising
out of events which occurred after the date of this Agreement and prior to
the Closing, Seller shall promptly pay to the Company or such Subsidiary
the amount of such refunds.

          (h)  UNSECURED LOAN STOCK.  Promptly following the date of this
Agreement, Seller shall use its reasonable best efforts to cause the
Company and the Subsidiaries to be released and discharged in all respects
on or prior to the Closing Date from any direct or indirect obligation or
liability in respect of (i) Seller's #30,000,000 12 1/2 percent Unsecured

                                    40


Loan Stock 2009 (the "Loan Stock"), (ii) the Trust Deed made the tenth day
of August 1984 (the "Trust Deed"), between American Brands, Inc., a New
Jersey corporation, and The Prudential Assurance Company Limited (the
"Trustee"), (iii) the Deed of Assumption and Guarantee dated December 31,
1985 (the "Guarantee"), between American Brands, Inc., a New Jersey
corporation, the Company, American Brands Holding Company, a Delaware
corporation, and the Trustee and (iv) in each case, any amendments thereto
and any related agreements, documents or instruments (items (i) through
(iv) collectively, the "Obligations").

          Seller will be required to bear all costs and expenses in respect
of all proposals to the holders of the Loan Stock and/or the Trustee and
their execution and implementation (including any attempted execution and
implementation), except to the extent certain specified costs agreed by
Buyer and Seller (the "Specified Costs") exceed an amount agreed by Buyer
and Seller.  If the Specified Costs are in excess of such agreed amount,
either Buyer will, at its option, agree to pay at Closing one-half of such
excess up to an agreed upon threshold amount of Specified Costs (the
"Threshold Amount"), in which case Seller shall pay the other one-half of
such excess up to the Threshold Amount, or (unless the Company and the
Subsidiaries are otherwise released and discharged in all respects from the
Obligations on or prior to the Closing Date) the following paragraph shall
become applicable.  If, but only if, Specified Costs exceed the aggregate
of such agreed amount and the Threshold Amount, Buyer or Seller may, at its
option, agree to pay at Closing such excess Specified Costs in order to
cause the Company to be released and discharged in all respects from the
Obligations.

          If the Company and the Subsidiaries are not released and
discharged in all respects from the Obligations on or prior to the Closing
Date, at the Closing Seller shall enter into an agreement (the "Seller
Indemnification Agreement") in form and substance reasonably acceptable to
Buyer to the effect that Seller shall indemnify and hold harmless the
Company and the Subsidiaries in all respects from the Obligations.  In
connection therewith Seller shall on the Closing Date either (i) pledge to
the Company, pursuant to an agreement in form and substance reasonably
satisfactory to Buyer, an amount equal to #40 million to secure Seller's
obligations under the Seller Indemnification Agreement or (ii) deliver to
Buyer an irrevocable standby letter of credit payable in British pounds
sterling and issued by a Qualifying Bank in favor of the Company with an
expiration date no earlier than 120 days after the maturity of the Loan
Stock and otherwise in form and substance reasonably acceptable to Buyer
effectively guaranteeing Seller's obligations under the Seller
Indemnification Agreement or (iii) obtain credit support from a Qualifying
Financial Institution with an expiration date no earlier than 120 days
after the maturity of the Loan Stock and otherwise in form and substance
reasonably acceptable to Buyer effectively securing or guaranteeing
Seller's obligations under the Seller Indemnification Agreement, provided
that, if at any time the financial institution in respect of such credit
support arrangement shall cease to be a Qualifying Financial Institution or
the issuing bank in respect of the letter of credit shall cease to be a
Qualifying Bank, Seller shall be required to either (A) pledge to the
Company and the Subsidiaries collateral in an amount and pursuant to an
agreement that would comply with clause (i) of this paragraph or (B)
deliver a letter of credit that would comply with clause (ii) of this


                                    41


paragraph or (C) provide credit support pursuant to an arrangement that
would comply with clause (iii) of this paragraph.

          For purposes of this Section 8(h), (i) "Qualifying Bank" means
any commercial bank organized under the laws of England which has a
combined capital and surplus and undivided profits of not less than
#200,000,000 and which has a credit rating of AA or better from Standard &
Poor's Corporation and its successors ("S&P") and Aa or better from Moody's
Investors Service, Inc. and its successors ("Moody's") and (ii) "Qualifying
Financial Institution" means a Qualifying Bank or other financial
institution acceptable to Buyer which has a credit rating of AA or better
from S&P and Aa or better from Moody's.

          If the Closing occurs, Buyer shall pay to Seller the amount of
any net Income Tax benefit actually realized by the Company or any of the
Subsidiaries for a Post-Tax Indemnification Period as a result of the
deductibility of any amounts paid pursuant to this Section 8(h).  The
amount of any such Income Tax benefit shall be calculated on a marginal
basis, with the Company and the Subsidiaries being deemed to have
recognized all other items of income, gain, loss, deduction or credit
before recognizing any deduction with respect to such amounts.  Buyer's
obligation to pay any amount to Seller shall only arise at such time or
times, and then only to the extent, the Company or any such Subsidiary has
"actually realized" (defined in a manner analogous to that set forth in
Section 11(e)) such net Income Tax benefit.  Such net Income Tax benefit
shall be determined net of any Tax cost realized by the Company or any
Subsidiary as a result (directly or indirectly) of any of the transactions
contemplated by this Section 8(h) or the receipt of any amounts with
respect thereto.  To the extent any person (other than Seller or any of its
affiliates, but including the Company and any of the Subsidiaries),
including Buyer pursuant to the third preceding paragraph of this Section
8(h), provides funds with respect to the transaction giving rise to such
deduction and is not reimbursed by Seller or such affiliate of Seller (a
"Non-Seller Contribution"), the amount payable by Buyer to Seller pursuant
to this paragraph shall be reduced by the product of (i) the amount of the
net Income Tax benefit actually realized as a result of such transaction by
the Company or the Subsidiary, as the case may be, and (ii) the lesser of
(a) a fraction, the numerator of which equals the amount of such Non-Seller
Contribution, and the denominator of which equals the amount of the
deductible expense, and (b) 1 (one).

          (i)  CO-EXISTENCE AGREEMENT.  On the Closing Date, Seller, the
Company and Buyer will enter into a Co-Existence Agreement in the form of
Exhibit G.

          (j)  INDEMNIFICATION AGREEMENT.  On the Closing Date, Seller and
the Company shall execute and deliver, and Buyer shall cause B&W to execute
and deliver, an indemnification agreement in the form of Exhibit E.

          9.  EMPLOYEE AND RELATED MATTERS.

          (a)  TRANSFER OF DEFINED BENEFIT PLAN ASSETS.  Prior to the
Closing, Seller shall cause the assets of the Defined Benefit Plans of the
Company and each Subsidiary currently being held in the master trust for
the Defined Benefit Plans to be transferred to a trust established by the
Company solely for those assets.  The assets to be transferred shall be

                                    42


selected on a pro rata basis, to the greatest extent possible, from each
investment fund of such master trust.  Seller shall direct the investment
managers of the investment funds under the master trust to select the
assets to be transferred on a pro rata basis to the greatest extent
practicable, and, to the extent assets cannot be transferred on a pro rata
basis as aforesaid, each investment manager shall act impartially as
between Buyer and Seller (and Seller shall direct each such investment
manager to act impartially) in determining the assets to be transferred.

          (b)  BUYER'S INDEMNIFICATION FOR EMPLOYEE CLAIMS.  Seller shall
have no liability for, and Buyer will indemnify and hold harmless Seller
with respect to, any claims for those benefits described in Schedule 4(o)
under the heading "Additional Payments or Benefits or Acceleration of Time
of Payment or Vesting of the Benefits as a Result of Transactions
Contemplated by this Agreement" (but not with respect to any amendment or
modification of any such benefits after the date of this Agreement) by
persons who are employees of the Company or any Subsidiary on the Closing
Date in respect of stay bonuses or termination by the Company or any
Subsidiary after the Closing.  Nothing in the preceding sentence shall be
construed as imposing a liability upon Seller for any compensation or
benefits of employees of the Company or any Subsidiary payable after the
Closing, except to the extent otherwise provided herein.  Buyer, the
Company and the Subsidiaries shall have no liability for, and Seller will
indemnify and hold each of  them harmless with respect to, any claim for
severance pay or termination benefits (other than stay bonuses) by persons
who are employees of the Company or any Subsidiary on the Closing Date to
the extent such claim does not arise out of the actual termination of such
person's employment by the Company or any Subsidiary after the Closing
Date, except that the Company shall retain and Seller shall have no
obligation with respect to the Severance Agreement dated as of February 1,
1993, between the Company and Donald S. Johnston.

          (c)  CONTINUATION OF EMPLOYEE BENEFITS.  Buyer shall maintain or
cause its affiliates (including, after the Closing, the Company and the
Subsidiaries) to maintain, for a period of one year following the Closing
Date, compensation and employee benefit plans (other than any plans based
on equity securities or any equivalent thereof) for employees of the
Company and the Subsidiaries generally that are substantially comparable in
the aggregate to those provided under the Benefit Plans in accordance with
their terms in effect on the date of this Agreement (other than any thereof
based on equity securities or any equivalent thereof).  Notwithstanding the
above, Buyer shall have the right (i) following the Closing Date, to
transfer, to one or more employee benefit plans maintained by Buyer or its
affiliates which are, in the aggregate, substantially comparable to the
plans of the Company and the Subsidiaries, the participation of any
employee of the Company or any Subsidiary who becomes an employee of Buyer
or any of its other affiliates, (ii) to make changes or cause changes to be
made in compensation, benefits and other terms of employment for individual
employees, (iii) to terminate the employment of any employee and (iv) to
amend the terms of any compensation or employee benefit plan to the extent
the consent of the affected employee (or such employee's collective
bargaining representative) has been obtained.  Buyer shall maintain or
cause its affiliates (including, after the Closing, the Company and the
Subsidiaries) to maintain for a period of two years following the Closing
the benefit programs described in items A through H in Schedule 4(o) under
the heading "Additional Payments or Benefits or Acceleration of Time of

                                    43


Payment or Vesting of any Benefits as a Result of Transactions Contemplated
by this Agreement" which have a two-year term, but without regard to any
amendment or modification of any such benefit after the date of this
Agreement.  Nothing in this Section 9(c) shall be construed as (x) granting
any rights to continued employment or (y) an amendment to the terms of any
specific benefit under a compensation or employee benefit plan in effect on
the date of this Agreement.

          (d)  INDEMNIFICATION OF DIRECTORS AND OFFICERS.  Buyer will
maintain, or cause to be maintained, for a period of not less than five
years following the Closing Date, a directors' and officers' insurance and
indemnification policy providing coverage for events occurring prior to the
Closing Date (the "D&O Insurance") for all persons who are directors and
officers of the Company on the date of this Agreement.  The D&O Insurance
shall be substantially similar in all material respects to the directors'
and officers' insurance and indemnification policy provided for directors
and officers of B&W on the date of this Agreement.  If the annual premium
in respect of the D&O Insurance shall at any time exceed 120% of the last
annual premium paid prior to the date of this Agreement (the "Maximum
Premium"), Buyer's obligation in the first two sentences of this Section
8(d) shall terminate.  If Buyer's obligation so terminates or if the
existing D&O Insurance expires, is terminated or canceled during such five-
year period, Buyer will use its reasonable best efforts to obtain, or cause
to be obtained, as much D&O Insurance as can be obtained for the remainder
of such period for an annualized premium not in excess of the Maximum
Premium.  Buyer will further maintain, or cause to  be maintained, for a
period of not less than five years following the Closing Date, the
Company's directors' and officers' indemnification policy set forth in the
Company's by-laws on the date of this Agreement, or a generally comparable
indemnification policy, for all persons who were directors and officers of
the Company on the date of this Agreement and former directors and officers
of the Company, in each case with respect to claims made or that may be
made relating to the period prior to the Closing Date.

          10.  FURTHER ASSURANCES.  From time to time, as and when
requested by either party hereto, the other party shall execute and
deliver, or cause to be executed and delivered, all such documents and
instruments and shall take, or cause to be taken, all such further or other
actions (subject to the provisions of Sections 8(c) and 8(d)), as such
other party may reasonably deem necessary or desirable to consummate the
transactions contemplated by this Agreement.

          11.  INDEMNIFICATION.  (a)  TAX INDEMNIFICATION.  Seller shall
indemnify Buyer, its affiliates (including the Company and the
Subsidiaries) and each of their respective officers, directors, employees,
stockholders, agents and representatives against and hold them harmless
from (i) all liability for Taxes of the Company and the Subsidiaries for
the Tax Indemnification Period, (ii) all liability (as a result of Treasury
Regulation Section 1.1502-6(a) or otherwise) for Taxes of Seller or any
other person (other than the Company or any of the Subsidiaries) which is
or has ever been affiliated with the Company or any of the Subsidiaries, or
with whom the Company or any of the Subsidiaries otherwise joins or has
ever joined (or is or has ever been required to join) in filing any
consolidated, combined or unitary Return, prior to the Closing, (iii) any
Taxes attributable to the breach of any representation or warranty
contained in Section 4(h) or any breach by Seller or any of its affiliates

                                    44


(other than after the Closing, the Company and the Subsidiaries) of any
covenant contained in Section 12 of this Agreement, provided, however, that
with respect to any breach of the representations and warranties contained
in Sections 4(h)(ii) and 4(h)(iii) attributable to a failure to timely file
a Return or timely pay a Tax, if the due date for filing with or payment to
the relevant Taxing Authority, as the case may be, determined with regard
to extensions, is after the date of this Agreement and on or before the
Closing Date, and without derogation of Buyer's rights under clause (i)
above or its rights under this clause (iii) with respect to the breach of
any other representations, warranties or covenants, Seller's indemnity
obligation pursuant to this clause (iii) shall be limited to any interest,
penalties, or additions to Tax resulting from such failure to timely file
or timely pay, as the case may be; (iv) all liability for Taxes of the
Company or any of the Subsidiaries attributable to (A) the acquisition of
the rights and obligations under the European Trademark Agreements, (B) the
ownership or existence thereof during the period from the date of this
Agreement through the Closing, or (C) the assignment of such rights and
obligations, except, in the case of clause (C), to the extent the Company
or any Subsidiary receives a Tax benefit by reason of a reduction in its
taxable income attributable to amortization deductions with respect to the
European Trademark Agreements available to the Company or such Subsidiary
for the period from the date of this Agreement through the date of such
assignment, (v) all liability for Taxes of the Company or any of the
Subsidiaries arising (directly or indirectly) as a result of the sale of
the Shares or the other transactions contemplated hereby (including any
Taxes arising as a result of (A) the cancellation of any indebtedness by
Seller or any affiliate of Seller (other than the Company or any of the
Subsidiaries), or the payment by Seller or any such affiliate to the
Company or any of the Subsidiaries of any amounts, as contemplated by
Section 8(e), (B) the reversal of certain reserves for marketing and legal
expenses that were shown as accrued as of December 31, 1993 and (C) the
transactions contemplated by Section 8(h) with respect to the Loan Stock,
and including any Taxes arising as a result of the recognition by Seller,
the Company, any of the Subsidiaries or any other affiliate of the Seller
of any "deferred intercompany gain" or "excess loss account" or otherwise
arising as a result of the Company or any of the Subsidiaries ceasing to be
a member of a consolidated, combined or unitary group of which the Seller
or any of its affiliates (other than the Company or the Subsidiaries) is a
member), (vi) all liability of the Company or any of the Subsidiaries for
Taxes to the extent such Taxes are attributable (directly or indirectly) to
any transaction engaged in by Seller or any of its affiliates (including,
prior to the Closing, the Company and the Subsidiaries), or the operation
of the business, other than (A) in the ordinary course of business, (B) as
contemplated by this Agreement or (C) as expressly consented to by Buyer,
and (vii) all liability for reasonable legal, accounting, appraisal or
similar fees and expenses with respect to any item described in clause (i),
(ii), (iii), (iv), (v) or (vi) above.  Notwithstanding the foregoing,
Seller shall not indemnify and hold harmless Buyer and its affiliates, or
any of their respective officers, directors, employees, stockholders,
agents or representatives, from any liability for Taxes attributable to any
action taken after the Closing by Buyer, any of its affiliates (including
the Company or any of the Subsidiaries), or any transferee of Buyer or any
of its affiliates (other than any such action expressly required or
otherwise expressly contemplated by this Agreement) (a "Buyer Tax Act").



                                    45


          If the Closing occurs, Buyer shall, or shall cause the Company
and the Subsidiaries to, indemnify Seller, its affiliates and each of their
respective officers, directors, employees, stockholders, agents and
representatives against and hold them harmless from (i) except to the
extent Seller is otherwise required to indemnify Buyer for such Tax
pursuant to this Section 11(a), all liability for Income Taxes of the
Company and the Subsidiaries for any taxable period ending after the date
of this Agreement (except to the extent such taxable period began before
the date of this Agreement, in which case Buyer's indemnity will cover only
that portion of any such Taxes that are not for the Tax Indemnification
Period), and all liability for Taxes other than Income Taxes the due date
for payment of which to the relevant Taxing Authority, determined with
regard to extensions, is after the date of this Agreement, (ii) all
liability for Taxes attributable to a Buyer Tax Act (including any
liability for Taxes attributable to an election by Buyer under Section 338
of the Code with respect to the acquisition of the Shares) and (iii) all
liability for reasonable legal, accounting, appraisal or similar fees and
expenses with respect to any item described in clause (i) or (ii) above.

          In the case of any taxable period that includes (but does not end
on) the date of this Agreement (a "Straddle Period"):

          (i)  Income Taxes of the Company and the Subsidiaries for the Tax
     Indemnification Period shall be computed as if such taxable period
     ended as of the close of business on the date of this Agreement, and,
     in the case of any Income Taxes of the Company and the Subsidiaries
     attributable to the ownership by the Company or any of the
     Subsidiaries of any equity interest in any partnership or other
     "flowthrough" entity (other than the Subsidiaries), as if a taxable
     period of such partnership or other "flowthrough" entity ended as of
     the close of business on the date of this Agreement; and

          (ii)  Income Taxes of the Company and the Subsidiaries for which
     a consolidated, combined or unitary Return is filed with Seller or any
     of its affiliates (other than the Company and the Subsidiaries) shall
     be computed as if separate returns had been filed for the Company and
     the Subsidiaries for such Straddle Period and all prior taxable
     periods.

Seller's indemnity obligation in respect of Income Taxes for a Straddle
Period shall equal the excess of (x) such Income Taxes for the Tax
Indemnification Period over (y) the amount of such Income Taxes paid by the
Company, any of the Subsidiaries, Seller or any of its other affiliates on
or prior to the date of this Agreement ("Seller Payments").   At such time
as the Income Tax return for the relevant Straddle Period is filed with the
relevant Taxing Authority, (i) if the amount of such Income Taxes for the
Tax Indemnification Period exceeds the amount of Seller Payments, Seller
shall pay the amount of such excess to the Company or relevant Subsidiary,
as the case may be, or, if appropriate, to the relevant Taxing Authority on
behalf of the Company or such relevant Subsidiary, as the case may be, or
(ii) if the amount of such Seller Payments exceeds the amount of such
Income Taxes for the Tax Indemnification Period, the Company shall pay such
excess to Seller.  The payments to be made pursuant to this paragraph by
Seller or the Company, as the case may be, with respect to a Straddle
Period shall be appropriately adjusted to reflect any final determination


                                    46


(which shall include the execution of Form 870-AD or successor form) with
respect to Straddle Period Income Taxes.

          Except as otherwise provided in the preceding paragraph with
respect to Straddle Period Income Taxes, any indemnity payment to be made
hereunder shall be paid within 10 days after the indemnified party makes
written demand upon the indemnifying party, but in no case earlier than
five business days prior to the date on which the relevant Taxes are
required to be paid to the relevant Taxing Authority (including as
estimated Tax payments).

          Notwithstanding anything to the contrary contained herein,
neither Seller nor Buyer shall have any obligation under this Section 11(a)
unless and until the Closing shall occur.

          (b)  ENVIRONMENTAL INDEMNIFICATION.  Seller shall indemnify
Buyer, its affiliates (including the Company and the Subsidiaries) and each
of their respective officers, directors, employees, stockholders, agents,
representatives, successors and assigns against and hold them harmless from
all Environmental Costs (as hereinafter defined) arising from or related in
any manner to:  (i) any breach of any representation or warranty of Seller
regarding environmental matters set forth in Section 4(q)(ii); (ii) any
environmental condition, or violation of any Environmental Law, at the
facilities of the Company or any Subsidiary that was in existence prior to
or at the time of Closing; (iii) any act of the Company or any Subsidiary
giving rise to liability under Environmental Law, including off-site
liability arising from, or in connection with, transportation, treatment,
storage or disposal of any Contaminant at any time prior to the Closing by
Seller, the Company or any Subsidiary or any of their respective agents or
contractors under CERCLA, which act occurred prior to the time of Closing;
or (iv) the Release, or threat of Release of any Contaminant or any other
environmental condition, including the presence of any Contaminant, at, on,
in or under any real property, now or previously owned, leased or operated
by the Company or any Subsidiary, which Release, threatened Release or
condition existed at or prior to the time of Closing; provided, however,
that Seller shall not have any liability in respect of any individual
breach, condition, violation, act, Release, threat of Release or presence
of Contaminants described in clauses (i) through (iv) above (or any series
of related breaches, conditions, violations, acts, Releases, threats of
Releases or presence of Contaminants) (an "Individual Claim") unless the
aggregate of all Environmental Costs relating to any Individual Claim for
which Seller would, but for this proviso, be liable exceeds $1,500,000, in
which case Seller's liability shall be for eighty percent (80%) of such
excess over $1,500,000 and Buyer's liability shall be for twenty percent
(20%) of such excess over $1,500,000; provided further, however, that, if
and when the aggregate of all Environmental Costs for which Seller would
not have any liability by reason of the immediately preceding proviso
exceeds $10,000,000, thereafter such proviso shall cease to have any effect
with respect to any additional Individual Claims, and Seller shall be
liable for eighty percent (80%) of such excess over $10,000,000 and Buyer
shall be liable for twenty percent (20%) of such excess over $10,000,000;
provided further, however, that Seller shall not have any liability for any
claim for indemnification under this Section 11(b) (A) in respect of those
matters set forth in Schedule 11(b), and no Environmental Costs in respect
of any such matters shall be included for purposes of determining whether
any threshold in the two preceding provisos has been reached or exceeded,

                                    47


or (B) if and to the extent such liability arises out of environmental
requirements imposed as a result of a change in use of any Company Property
subsequent to the Closing Date or (C) in the case of clause (iv) above, if
and to the extent such liability arises out of an addition to the list of
substances defined as "hazardous substances" under Section 101(14) of
CERCLA and the authorities cited therein (other than an addition relating
to petroleum, its by-products or fractions).

          In addition to, and not by way of limitation of, the procedures
set forth in Section 11(g) and Section 11(h) (which shall be deemed
superseded to the extent inconsistent herewith) regarding indemnification
for Third Party Claims (as hereinafter defined) and claims not constituting
Third Party Claims, Buyer shall provide Seller with reasonably prompt
notice of any condition or claim in respect of which Seller seeks, or may
seek, indemnification under this Section 11(b).  Buyer shall keep Seller
reasonably apprised of the status of, and Buyer's response to, all such
conditions or claims in all material respects.  At such time as Buyer
reasonably anticipates that any monetary threshold set forth in the first
or second proviso of the immediately preceding paragraph may be exceeded
(and in any event if and when any such threshold is exceeded) in respect of
any condition or claim, Buyer shall provide Seller with reasonably prompt
notice thereof, and Seller shall have the option to participate, at its own
expense, in the resolution of any such condition or claim (and Buyer shall
consult with Seller in respect thereof), including the assumption of
control of any negotiations with appropriate Governmental Entities (if such
Governmental Entities permit such assumption).  If Seller so assumes
control, then Seller shall not agree to any response to or resolution of
such condition or claim with any Governmental Entity without Buyer's prior
written consent, which consent shall not be unreasonably withheld.  Failure
by Buyer to give any notification required under this paragraph shall not
affect the indemnification provided under this Section 11(b) except to the
extent that the indemnifying party shall have been actually prejudiced as a
result of such failure.

          "Environmental Costs" means all liabilities, losses, costs,
damages (including consequential damages), expenses, claims and reasonable
attorneys' and experts' fees (including natural resource damages,
investigation, monitoring and remediation costs, penalties, interest, fines
and costs of litigation).

          (c)  OTHER INDEMNIFICATION BY SELLER.  Seller shall indemnify
Buyer, its affiliates (including the Company and the Subsidiaries) and each
of their respective officers, directors, employees, stockholders, agents
and representatives against and hold them harmless from any loss,
liability, claim, damage or expense (including reasonable legal fees and
expenses) suffered or incurred by any such indemnified party (other than
any relating to Taxes, for which indemnification provisions are set forth
in Section 11(a), or environmental matters, for which indemnification
provisions are set forth in Section 11(b)), arising from, relating to or
otherwise in respect of (i) any representation or warranty of Seller which
survives the Closing contained in this Agreement or in any certificate
delivered pursuant hereto, which representation and warranty is not true
and correct in all respects as of the date of this Agreement and as of the
time of the Closing as though made as of such time (except to the extent
such representation and warranty expressly relates to an earlier date, in
which case such representation and warranty shall have been true and

                                    48


correct in all respects only as of such earlier date), (ii) any breach of
any covenant of Seller contained in this Agreement, including Seller's
agreement to indemnify Buyer, the Company or any Subsidiary pursuant to
Section 9(b), (iii) the ownership or existence of the European Trademark
Agreements during the period from the date of this Agreement through the
Closing or the assignment of the rights and obligations under the European
Trademark Agreements as contemplated by Section 5(j) or, (iv) the breach or
violation by the Company or any Subsidiary prior to or by reason of the
Closing of any Contract identified with two asterisks on Schedule 4(l);
provided, however, that Seller shall not have any liability under clause
(i) above unless the aggregate of all losses, liabilities, costs and
expenses relating thereto for which Seller would, but for this proviso, be
liable exceeds on a cumulative basis an amount equal to $7,500,000, in
which case Seller's liability under clause (i) above shall be only for such
excess; provided further, however, that Seller shall not have any liability
under clause (ii) above in respect of breaches of any covenant set forth in
clauses (xxi) through (xxxiv) and (xxxv) (to the extent such clause (xxxv)
relates to clauses (xxi) through (xxxiv)) of Section 5(b) unless the
aggregate of all losses, liabilities, costs and expenses relating thereto
for which Seller would, but for this proviso, be liable exceeds on a
cumulative basis an amount equal to $250,000, in which case Seller's
liability under clause (ii) above shall be only for such excess.

          (d)  OTHER INDEMNIFICATION BY BUYER.  Buyer shall indemnify
Seller, its affiliates (other than the Company and the Subsidiaries) and
each of their respective officers, directors, employees, stockholders,
agents and representatives against and hold them harmless from any loss,
liability, claim, damage or expense (including reasonable legal fees and
expenses) suffered or incurred by any such indemnified party (other than
any relating to Taxes, for which indemnification provisions are set forth
in paragraph (a) of this Section 11) arising from, relating to or otherwise
in respect of (i) any representation or warranty of Buyer which survives
the Closing contained in this Agreement or in any certificate delivered
pursuant hereto, which representation and warranty is not true and correct
in all respects as of the date of this Agreement and as of the time of the
Closing as though made as of such time (except to the extent such
representation and warranty expressly relates to an earlier date, in which
case such representation and warranty shall have been true and correct in
all respects only as of such earlier date) and (ii) any breach of any
covenant of Buyer contained in this Agreement, including Buyer's agreement
to indemnify Seller pursuant to Section 9(b).

          (e)  LOSSES NET OF INSURANCE, ETC.  The amount of any loss,
liability, claim, damage, expense or Tax for which indemnification is
provided under this Section 11 shall be net of any amounts recovered by the
indemnified party under insurance policies with respect to such loss,
liability, claim, damage, expense or Tax (collectively, a "Loss") and shall
be (i) increased to take account of any net Tax cost incurred by the
indemnified party arising from the receipt or accrual of indemnity payments
hereunder (grossed up for such increase) and (ii) reduced to take account
of any net Tax benefit realized by the indemnified party arising from the
deductibility of any such Loss or Tax.  In computing the amount of any such
Tax cost or Tax benefit, the indemnified party shall be deemed to recognize
all other items of income, gain, loss, deduction or credit before
recognizing any item arising from the receipt or accrual of any indemnity
payment hereunder or the deductibility of any indemnified Loss.  Any

                                    49


indemnification payment hereunder shall initially be made without regard to
this paragraph and shall be increased or reduced to reflect any such net
Tax cost (including gross-up) or net Tax benefit only after the indemnified
party has actually realized such cost or benefit.  For purposes of this
Agreement, an indemnified party shall be deemed to have "actually realized"
a net Tax cost or a net Tax benefit to the extent that, and at such time
as, the amount of Taxes payable by such indemnified party is increased
above or reduced below, as the case may be, the amount of Taxes that such
indemnified party would have been required to pay but for the receipt or
accrual of the indemnity payment or the deductibility of such Loss, as the
case may be.  The amount of any increase or reduction hereunder shall be
adjusted to reflect any final determination (which shall include the
execution of Form 870-AD or successor form) with respect to the indemnified
party's liability for Taxes and, if necessary, each of Seller or Buyer, as
the case may be, shall make payments to the other to reflect such
adjustment.  Any indemnity payment under this Agreement shall be treated as
an adjustment to the Purchase Price for Tax purposes, unless a final
determination (which shall include the execution of a Form 870-AD or
successor form) with respect to the indemnified party or any of its
affiliates causes any such payment not to be treated as an adjustment to
the Purchase Price for United States Federal income Tax purposes.

          (f)  TERMINATION OF INDEMNIFICATION.  The obligations to
indemnify and hold harmless a party hereto (i) pursuant to Section 11(a),
shall terminate at the time the applicable statutes of limitations with
respect to the Tax liabilities in question expire (giving effect to any
extension thereof), (ii) pursuant to Section 11(b), shall terminate on the
twelfth anniversary of the Closing Date, (iii) pursuant to
Sections 11(c)(i) and 11(d)(i), shall terminate when the applicable
representation or warranty terminates pursuant to Section 16 and
(iv) pursuant to the other clauses of Section 11(c) or 11(d) shall not
terminate; provided, however, that as to clauses (i), (ii) and (iii) above
such obligations to indemnify and hold harmless shall not terminate with
respect to any item as to which the person to be indemnified or a related
party thereto shall have, before the expiration of the applicable period,
previously made a claim by delivering a notice of such claim (stating in
reasonable detail the basis of such claim) to the indemnifying party.

          (g)  PROCEDURES RELATING TO INDEMNIFICATION (OTHER THAN UNDER
SECTION 11(a)).  In order for a party (the "indemnified party") to be
entitled to any indemnification provided for under this Agreement (other
than under Section 11(a)) in respect of, arising out of or involving a
claim or demand made by any person against the indemnified party (a "Third
Party Claim"), such indemnified party must notify the indemnifying party of
the Third Party Claim reasonably promptly after receipt by such indemnified
party of written notice of the Third Party Claim; provided, however, that
failure to give such notification shall not affect the indemnification
provided hereunder except to the extent the indemnifying party shall have
been actually prejudiced as a result of such failure (except that the
indemnifying party shall not be liable for any expenses incurred during the
period in which the indemnified party failed to give such notice).
Thereafter, the indemnified party shall deliver to the indemnifying party,
reasonably promptly after the indemnified party's receipt thereof, copies
of all notices and documents (including court papers) received by the
indemnified party relating to the Third Party Claim other than those
notices and documents (including court papers) separately addressed to the

                                    50


indemnifying party; provided, however, that failure to deliver any such
notice or document shall not affect the indemnification provided hereunder,
except to the extent the indemnifying party shall have been actually
prejudiced as a result of such failure.

          If a Third Party Claim is made against an indemnified party, the
indemnifying party shall be entitled to participate in the defense thereof
and, if it so chooses at its sole cost and upon written notice to the
indemnified party acknowledging its obligation to indemnify the indemnified
party therefor in accordance with the terms of this Agreement (including
this Section 11), to assume the defense thereof with counsel selected by
the indemnifying party; provided that such counsel is not reasonably
objected to by the indemnified party.  Should the indemnifying party so
elect to assume the defense of a Third Party Claim, the indemnifying party
shall not be liable to the indemnified party for legal expenses
subsequently incurred by the indemnified party in connection with the
defense thereof.  If the indemnifying party assumes such defense, the
indemnified party shall have the right to participate in the defense
thereof and to employ counsel, at its own expense, separate from the
counsel employed by the indemnifying party, it being understood that the
indemnifying party shall control such defense.  The indemnifying party
shall be liable for the fees and expenses of counsel employed by the
indemnified party for any period during which the indemnifying party has
failed to assume the defense thereof (other than during any period in which
the indemnified party shall have failed to give notice of the Third Party
Claim as provided above).

          If the indemnifying party so elects to assume the defense of any
Third Party Claim, the indemnified parties shall cooperate with the
indemnifying party in the defense thereof.  Such cooperation shall include
the retention and (upon the indemnifying party's reasonable request) the
provision to the indemnifying party of records and information which are
reasonably relevant to such Third Party Claim, and making employees
available on a mutually convenient basis to provide additional information
and explanation of any material provided hereunder.  If the indemnifying
party shall have assumed the defense of a Third Party Claim, the
indemnified party shall agree to any settlement, compromise or discharge of
a Third Party Claim which the indemnifying party may recommend and which by
its terms obligates the indemnifying party to pay the full amount of the
liability in connection with such Third Party Claim, which releases the
indemnified party completely in connection with such Third Party Claim and
which would not otherwise significantly adversely affect the indemnified
party.  The indemnified party shall not admit any liability with respect
to, or settle, compromise or discharge, any Third Party Claim the defense
of which shall have been assumed by the indemnifying party in accordance
with the terms hereof.  The indemnified party shall have the right to admit
any liability with respect to, or settle, compromise or discharge, any
Third Party Claim the defense of which shall not have been assumed by the
indemnifying party.

          Notwithstanding the foregoing, the indemnifying party shall not
be entitled to assume or control (but may participate in) the defense of
any Third Party Claim (and shall be liable for the reasonable fees and
expenses of counsel incurred by the indemnified party in defending such
Third Party Claim) if the Third Party Claim, if successful, is likely to
result in an order, injunction or other equitable relief or relief for

                                    51


other than money damages against the indemnified party, provided that such
limitation on the indemnifying party shall cease to the extent the Third
Party Claim, if successful, is no longer likely to result in such an order,
injunction or other equitable relief or relief for other than money
damages; provided further that the indemnified party shall not admit any
liability with respect to, or settle, compromise or discharge, any such
Third Party Claim without the consent of the indemnifying party, such
consent not to be unreasonably withheld.  The indemnification required by
Sections 11(b), 11(c) and 11(d) shall be made by periodic payments of the
amount thereof during the course of the investigation or defense, as and
when bills are received or loss, liability, claim, damage or expense is
incurred.  All claims under Section 11(b), 11(c) or 11(d) other than Third
Party Claims shall be governed by Section 11(h).  All Tax Claims (as
defined in Section 11(i)) shall be governed by Section 11(i).

          For the avoidance of doubt, the provisions of this Section 11(g)
shall not apply in any respect to the indemnification agreement entered
into pursuant to Section 8(j).

          (h)  OTHER CLAIMS.  In the event any indemnified party should
have a claim against any indemnifying party under Section 11(b), 11(c) or
11(d) that does not involve a Third Party Claim being asserted against or
sought to be collected from such indemnified party, the indemnified party
shall deliver notice of such claim with reasonable promptness to the
indemnifying party.  The failure by any indemnified party so to notify the
indemnifying party shall not relieve the indemnifying party from any
liability which it may have to such indemnified party under Section 11(b),
11(c) or 11(d), except to the extent that the indemnifying party shall have
been actually prejudiced as a result of such failure.  If the indemnifying
party does not notify the indemnified party within 20 calendar days
following its receipt of such notice that the indemnifying party disputes
its liability to the indemnified party under Section 11(b), 11(c) or 11(d),
such claim specified by the indemnified party in such notice shall be
conclusively deemed a liability of the indemnifying party under
Section 11(b), 11(c) or 11(d) and the indemnifying party shall pay the
amount of such liability to the indemnified party on demand or, in the case
of any notice in which the amount of the claim (or any portion thereof) is
estimated, on such later date when the amount of such claim (or such
portion thereof) becomes finally determined.  If the indemnifying party has
timely disputed its liability with respect to such claim, as provided
above, the indemnifying party and the indemnified party shall proceed in
good faith to negotiate a resolution of such dispute and, if not resolved
through negotiations, such dispute shall be resolved by litigation in an
appropriate court of competent jurisdiction.

          (i)  PROCEDURES RELATING TO INDEMNIFICATION OF TAX CLAIMS.  If a
claim shall be made by any Taxing Authority, which, if successful, might
result in an indemnity payment to Buyer, any of its affiliates or any of
their respective officers, directors, employees, stockholders, agents or
representatives pursuant to Section 11(a), Buyer shall reasonably promptly
notify Seller of such claim (a "Tax Claim"); provided, however, that the
failure to give such notice shall not affect the indemnification provided
hereunder except to the extent Seller has actually been prejudiced as a
result of such failure.



                                    52


          With respect to any Tax Claim relating to Income Taxes and
relating to a taxable period ending on or prior to the date of this
Agreement or to any other taxable period in which the Company or any
Subsidiary joined in filing any Federal income tax return, combined
Connecticut corporate business tax return or Virginia consolidated
corporate income tax return with Seller or any of its affiliates (other
than the Company or any of the Subsidiaries), or any Tax Claim relating to
any Tax (other than an Income Tax) that is a Tax for the Tax
Indemnification Period and that relates to a taxable period that ends on or
before the date of this Agreement, Seller shall control all proceedings and
may make all decisions taken in connection with such Tax Claim (including
selection of counsel) and, without limiting the foregoing, may in its sole
discretion pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with any Taxing Authority with
respect thereto, and may, in its sole discretion, either pay the Tax
claimed and sue for a refund where applicable law permits such refund suits
or contest the Tax Claim in any permissible manner.  Notwithstanding the
foregoing, Seller shall not settle any Tax Claim without the prior written
consent of Buyer, which consent shall not be unreasonably withheld.
Furthermore, Buyer, and counsel of its own choosing, shall have the right
to participate fully in all aspects of the prosecution or defense of such
Tax Claim, and Seller shall inform Buyer, reasonably promptly in advance,
of the date, time and place of all administrative or judicial meetings,
conferences, hearings and other proceedings relating to such Tax Claim and
shall provide to Buyer all information document requests and responses,
proposed notices of deficiency, notices of deficiencies, revenue agents'
reports, protests, petitions and any other documents relating to such Tax
Claim promptly upon receipt from, or in advance of submission to (as the
case may be), the relevant Taxing Authority.  Buyer shall be entitled to
have its representatives attend and participate in any such administrative
or judicial meeting, conference, hearing or other proceeding.  Before
taking any action with respect to the conduct of any such Tax Claim
(including, but not limited to, the submission of any protests, petitions
or responses to information document requests), Seller shall first consult
with Buyer in good faith about such action.

          Except as otherwise provided in the preceding paragraph, Seller
and Buyer shall jointly control and participate in all proceedings taken in
connection with any Tax Claim relating to Income Taxes of the Company or
any Subsidiary for any Straddle Period and any Tax Claim relating to Taxes
(other than Income Taxes) that are Taxes for the Tax Indemnification Period
and that relate to a taxable period that begins on or before the date of
this Agreement and ends after such date.  Neither Seller nor Buyer shall
settle any such Tax Claim without the prior written consent of the other.

          Except as otherwise provided in the second preceding paragraph,
Buyer shall control all proceedings with respect to any Tax Claim relating
to Taxes for any taxable period beginning after the date of this Agreement.
Seller shall have the same right to participate in the conduct of such
proceedings as Buyer would have in the proceedings described in the second
preceding paragraph.

          Buyer, the Company, each of the Subsidiaries and each of their
respective affiliates, on the one hand, and Seller and its respective
affiliates, on the other, shall cooperate in contesting any Tax Claim,
which cooperation shall include the retention and (upon request) the

                                    53


provision to the requesting party of records and information which are
reasonably relevant to such Tax Claim, and making employees available on a
mutually convenient basis to provide additional information or explanation
of any material provided hereunder or to testify at proceedings relating to
such Tax Claim.

          12.  TAX MATTERS.  (a)  For purposes of this Section 12,
(i) "Income Tax Benefit" for a taxable period arising from a Timing
Difference or Reverse Timing Difference shall mean the excess of (A) the
hypothetical Income Tax liability of the taxpayer for the taxable period
calculated as if the Timing Difference or Reverse Timing Difference, as the
case may be, had not occurred but with all other facts unchanged, over
(B) the actual Income Tax liability of the taxpayer for the taxable period,
calculated taking into account the Timing Difference or Reverse Timing
Difference, as the case may be (treating an Income Tax refund as a negative
Income Tax liability for purposes of such calculation); (ii) "Income Tax
Detriment" for a taxable period arising from a Timing Difference or Reverse
Timing Difference shall mean the excess of (A) the actual Income Tax
liability of the taxpayer for the taxable period, calculated taking into
account the Timing Difference or Reverse Timing Difference, as the case may
be, over (B) the hypothetical Income Tax liability of the taxpayer for the
taxable period, calculated as if the Timing Difference or Reverse Timing
Difference, as the case may be, had not occurred but with all other facts
unchanged (treating an Income Tax refund as a negative Income Tax liability
for purposes of such calculation); (iii) "Reverse Timing Difference" shall
mean an increase in income, gain or recapture, or a decrease in deduction,
loss or credit, of the Company or any of the Subsidiaries for the Tax
Indemnification Period coupled with an increase in deduction, loss or
credit, or a decrease in income, gain or recapture, of the Company or any
of the Subsidiaries for any Post-Tax Indemnification Period; and
(iv) "Timing Difference" shall mean an increase in income, gain or
recapture, or a decrease in deduction, loss or credit, of the Company or
any of the Subsidiaries for any Post-Tax Indemnification Period coupled
with an increase in deduction, loss or credit, or a decrease in income,
gain or recapture, of the Company or any of the Subsidiaries for the Tax
Indemnification Period.  For purposes of the preceding definitions, (y) a
Straddle Period shall be treated as consisting of two taxable periods, one
period beginning on the first day of the Straddle Period and ending on the
date of this Agreement, and the second period beginning on the following
day and ending on the day on which the Straddle Period ends and (z) the
items of income, gain, recapture, deduction, loss and credit referred to in
the definitions of Reverse Timing Difference and Timing Difference in
clauses (iii) and (iv) above shall be as calculated for Income Tax
purposes.

          (b)  (i)  Except as otherwise provided in clauses (iii) and (iv)
below, for any taxable period of the Company or any of the Subsidiaries
that ends after the date of this Agreement, Buyer shall, or shall cause the
Company and the Subsidiaries to, timely prepare and file with the relevant
Taxing Authorities all Income Tax Returns the due date for filing of which,
determined with regard to extensions, is after the Closing Date.  Except as
otherwise provided in clauses (iii) and (iv) below, for any taxable period
of the Company or any of the Subsidiaries the due date for filing of which,
determined with regard to extensions, is on or before the Closing Date,
Seller shall, or shall cause the Company and the Subsidiaries to, timely
prepare and file with the relevant Taxing Authorities all Income Tax

                                    54


Returns.  Any Return described in the preceding sentence, and any Return
described in the second preceding sentence with respect to a Straddle
Period, shall be prepared on a basis consistent with the past practice of
the Company and the Subsidiaries and in a manner that does not distort
taxable income (e.g., by deferring income to the Post-Tax Indemnification
Period or accelerating deductions to the Tax Indemnification Period).
Buyer and Seller agree to cause the Company and the Subsidiaries to file
all Income Tax Returns for the period including the Closing Date on the
basis that the relevant taxable period ended as of the close of business on
the Closing Date, unless the relevant Taxing Authority will not accept a
Return filed on that basis.

          (ii)  Seller shall, or shall cause the Company and the
Subsidiaries to, timely prepare and file with the relevant Taxing
Authorities all Returns with respect to Taxes other than Income Taxes the
due date for filing of which, determined with regard to extensions, is on
or after the date of this Agreement (and on or before the Closing Date).

          (iii)  The Company and the Subsidiaries will be included in the
consolidated Federal Income Tax Returns of the Seller Affiliated Group for
the calendar year 1993 (the "1993 Period"), the portion of the calendar
year 1994 ending on the earlier of December 31, 1994 and the Closing Date
(the "1994 Period") and, if the Closing does not occur during calendar year
1994, the portion of the calendar year 1995 ending on the Closing Date (the
"1995 Period").  Seller shall timely prepare and file such Returns.  If the
Closing occurs, Buyer shall, or shall cause the Company to, provide
complete packages of information, and such other information as Seller may
reasonably request, to enable Seller to include the Company and the
Subsidiaries in such consolidated Federal Income Tax Returns (to the extent
such information was not previously provided to Seller).  Such information
packages shall be prepared in accordance with instructions and procedures
furnished by Seller.  In the case of the 1994 Period, such information
package shall be furnished by Seller not later than one month after the
Closing Date and the responses to such information package shall be
delivered to Seller not later than three months after receipt of such
information package.  Promptly after completion thereof, Seller shall
furnish to the Company a copy of the pro forma separate Federal income tax
returns of the Company and the Subsidiaries, or similar data, used in the
preparation and filing of the consolidated Federal Income Tax Returns of
the Seller Affiliated Group for the 1993 Period or the 1994 Period, as the
case may be.  Procedures comparable to those described in this clause (iii)
shall apply for the preparation and filing of the Federal Income Tax Return
for the 1995 Period, if appropriate.

          (iv)  The Company and The American Cigar Company also will be
included in the Connecticut corporate business tax combined returns of
Seller and certain other subsidiaries of Seller, and the Company will be
included in the Virginia consolidated corporation income tax returns of the
Company and certain other subsidiaries of Seller, for the 1993 and 1994
Periods and the 1995 Period, if appropriate.  Seller shall timely prepare
and file such returns.  If the Closing occurs, Buyer shall, or shall cause
the Company to, provide complete packages of information, and such other
information as Seller may reasonably request, to enable Seller to include
the Company and The American Cigar Company in such returns (to the extent
such information was not previously provided to Seller).  Such information
packages shall be prepared in accordance with instructions and procedures

                                    55


furnished by Seller.  In the case of the 1993 Period, such information
package has been furnished to the Company, and the responses to such
information package shall be delivered to Seller not later than August 1,
1994.  In the case of the 1994 Period, such information package shall be
furnished by Seller not later than one month after the Closing Date and the
responses to such information package shall be delivered to Seller not
later than one month after receiving Seller's approval of the information
package with respect to Federal Income Taxes described in clause (iii)
above.  Promptly after completion thereof, Seller shall furnish to the
Company a copy of the pro forma Connecticut corporate business tax separate
returns and the pro forma Virginia separate corporation income tax returns
of the Company, or similar data, used in the preparation and filing of the
Connecticut corporate business tax combined returns and the Virginia
consolidated corporation income tax returns for the 1993 Period or the 1994
Period, as the case may be.  Procedures comparable to those described in
this clause (iv) shall apply for the preparation and filing of the
Connecticut corporate business tax combined return and the Virginia
consolidated corporation income tax return for the 1995 Period, if
appropriate.

          (v)  After the date of this Agreement, Seller may be required to
make estimated Income Tax payments for the 1994 Period and the 1995 Period
with respect to consolidated Federal income tax, combined Connecticut
corporate business tax and consolidated Virginia corporation income tax.
The Company and the Subsidiaries shall promptly reimburse Seller for the
amount of such estimated Income Tax payments to the extent they relate to
the Company or any of the Subsidiaries (determined in a manner consistent
with the tax sharing arrangements between the Company and the Subsidiaries,
on the one hand, and Seller, on the other hand, as in effect on the date of
this Agreement).  Ultimate liability for such Taxes for the 1994 Period
shall be determined in the manner set forth in Section 11(a).  Except to
the extent Seller is otherwise required to indemnify Buyer pursuant to
Section 11(a), the Company and the Subsidiaries shall have ultimate
liability for such Taxes for the 1995 Period.

          (c)  Seller, the Company, each of the Subsidiaries and Buyer
shall reasonably cooperate, and shall cause their respective affiliates,
officers, employees, agents, auditors and representatives reasonably to
cooperate, in preparing and filing all Returns, resolving all disputes and
audits with respect to all taxable periods relating to Taxes, seeking any
refunds for Taxes and in any other matters relating to Taxes, including by
maintaining and making available to each other all records necessary in
connection with Taxes.

          (d)  (i)  Buyer agrees to cause the Company and each of the
Subsidiaries to elect, where permitted by law, to carry forward any net
operating loss, net capital loss, charitable contribution or other item
arising after the Closing Date that would, absent such election, be carried
back to a taxable period of the Company or such Subsidiary ending on or
prior to the Closing Date with respect to which the Company filed a
consolidated, combined or unitary Tax Return with Seller or any affiliate
of Seller (other than the Company and the Subsidiaries).

          (ii)  The amount or economic benefit of any refunds, credits or
offsets of Income Taxes of the Company or any of the Subsidiaries for any
taxable period ending on or before the date of this Agreement shall be for

                                    56


the account of Seller.  Notwithstanding the foregoing, any such refunds,
credits or offsets of Income Taxes shall be for the account of Buyer to the
extent that such refunds, credits or offsets of Income Taxes are
attributable (determined on a marginal basis) to the carryback from a
taxable period beginning after the date of this Agreement (or the portion
of a Straddle Period that begins on the day after the date of this
Agreement) of items of loss, deductions, or other tax items, of the Company
or any of the Subsidiaries (or any of their respective affiliates,
including Buyer), other than a carryback arising as a result of Buyer's
breach of its covenant contained in Section 12(d)(i).  The amount or
economic benefit of any refunds, credits or offsets of Income Taxes of the
Company or any of the Subsidiaries for any taxable period beginning after
the date of this Agreement shall be for the account of Buyer.  The amount
or economic benefit of any refunds, credits or offsets of Income Taxes of
the Company or any of the Subsidiaries for any Straddle Period shall be
equitably apportioned between Seller and Buyer.

          (iii)  Any refund, credit or offset of Taxes other than Income
Taxes shall be (a) for the account of Seller, if the due date for paying
such Taxes (determined with regard to extensions) is on or prior to the
date of this Agreement or (b) shall be for the account of Buyer, if the due
date for paying such Taxes (determined with regard to extensions) is after
the date of this Agreement.  If any such refund, credit or offset cannot be
directly attributed to a particular payment of Taxes, such refund, credit
or offset shall be equitably apportioned between Seller and Buyer in
accordance with the principles set forth in the preceding sentence.

          (iv)  Each party shall forward, and shall cause its affiliates to
forward, to the party entitled pursuant to this Section 12(d) to receive
the amount or economic benefit of a refund, credit or offset to Tax the
amount of such refund, or the economic benefit of such credit or offset to
Tax, within 10 days after such refund is received or after such credit or
offset is allowed or applied against other Tax liability, as the case may
be; provided, however, that any such amounts payable to the party entitled
to such refund, credit or offset to Tax shall be net of any Tax cost or
benefit to the other party and its affiliates attributable to the receipt
of such refund, credit or offset to Tax and/or the payment of such amounts
to the party entitled to such amounts.  Seller and Buyer shall treat any
payments to the other party pursuant to this Section 12(d) as an adjustment
to the Purchase Price, unless a final determination (which shall include
the execution of a Form 870-AD or successor form) causes any such payment
not to be treated as an adjustment to the Purchase Price for United States
Federal income Tax purposes.

          (e)  (i)  If an adjustment by a Taxing Authority or an amendment
of a Return results in a Timing Difference, and such Timing Difference
results in a decrease in an indemnity obligation Seller has or would
otherwise have under Section 11(a) and/or an increase in the amount of a
refund or credit to which Seller is entitled to under Section 12(d), then
in each Post-Tax Indemnification Period in which the Company, any of the
Subsidiaries, Buyer or any of its other affiliates realizes an Income Tax
Detriment, Seller shall pay to Buyer an amount equal to such Income Tax
Detriment; provided, however, that the aggregate payments which Seller
shall be required to make under this clause (e) (i) with respect to any
Timing Difference shall not exceed the aggregate amount of the Income Tax
Benefits realized by the Company, any of the Subsidiaries, Seller or any of

                                    57


its affiliates for all Tax Indemnification Periods as a result of such
Timing Difference.  Seller shall make all such payments promptly after the
time the relevant taxpayer realizes the relevant Income Tax Detriment.

          (ii)  If an adjustment by a Taxing Authority or an amendment of a
Return results in a Reverse Timing Difference, and such Reverse Timing
Difference results in an increase in an indemnity obligation of Seller
under Section 11(a) and/or a decrease in the amount of a refund or credit
to which Seller is or would otherwise be entitled to under Section 12(d),
then in each Post-Tax Indemnification Period in which the Company, any of
the Subsidiaries, Buyer or any of its other affiliates realizes an Income
Tax Benefit, Buyer shall pay to Seller an amount equal to such Income Tax
Benefit; provided, however, that the aggregate payments which Buyer shall
be required to make under this clause (e)(ii) with respect to any Reverse
Timing Difference shall not exceed the aggregate amount of the Income Tax
Detriments realized by the Company, any of the Subsidiaries, Seller or any
of its affiliates for all Tax Indemnification Periods as a result of such
Reverse Timing Difference.  Buyer shall make all such payments promptly
after the time the relevant taxpayer realizes the relevant Income Tax
Benefit.

          (f)  Seller shall be responsible for filing any amended Federal
Income Tax Consolidated Returns, Connecticut corporate business Tax
combined Returns or Virginia consolidated corporation income Tax Returns
and any other Returns for taxable periods for which Seller is responsible
for preparing and filing the original such Returns pursuant to
Section 12(b) which are required as a result of examination adjustments
made by the Internal Revenue Service or by the relevant Taxing Authorities;
provided, however, that no such Return shall be filed without the prior
written consent of Buyer, which consent shall not be unreasonably withheld.
All other amended Returns shall be prepared and filed by Buyer, or by the
Company and the Subsidiaries; provided, however, that in the case of
amended Income Tax Returns for any Tax Indemnification Period or Straddle
Period or any other amended Returns relating to Taxes (other than Income
Taxes) that relate, in whole or in part, to a Tax for the Tax
Indemnification Period, no such Return shall be filed without the prior
written consent of Seller, which consent shall not be unreasonably
withheld.

          (g)  All transfer, documentary, sales, use, registration and
other such Taxes (including all applicable real estate transfer or gains
Taxes and stock transfer Taxes) and related fees (including any penalties,
interest and additions to Tax) incurred in connection with the sale of the
Shares or otherwise in connection with this Agreement and the transactions
contemplated hereby shall be paid by Seller, and Seller and Buyer shall
cooperate in timely preparing and filing all Returns as may be required to
comply with the provisions of such Tax laws.

          (h)  Seller shall deliver to Buyer at the Closing a certificate
in form and substance satisfactory to Buyer, duly executed and
acknowledged, certifying any facts that would exempt the transactions
contemplated hereby from withholding pursuant to the provisions of the
Foreign Investment in Real Property Tax Act.

          (i)  Seller shall cause the provisions of any Tax sharing
agreement, arrangement or practice between Seller and any of its affiliates

                                    58


(other than the Company and the Subsidiaries), on the one hand, and the
Company or any of the Subsidiaries, on the other hand, to be terminated on
or before the date of this Agreement.  After the date of this Agreement no
party shall have any rights or obligations under any such Tax sharing
agreement, arrangement or practice.

          (j)  Seller agrees that neither it nor any of its affiliates
shall elect to reattribute pursuant to Treasury Regulation Section 1.1502-
20(g) any net operating loss carryovers or net capital loss carryovers of
the Company or any of the Subsidiaries.

          13.  ASSIGNMENT.  This Agreement and the rights and obligations
hereunder shall not be assignable or transferable by Buyer or Seller
without the prior written consent of the other party hereto; provided,
however, that Buyer may assign its right to purchase the Shares hereunder
to an affiliate of Buyer without the prior written consent of Seller;
provided further, however, that no assignment shall limit or affect the
assignor's obligations hereunder.  Any attempted assignment in violation of
this Section 13 shall be void.

          14.  NO THIRD-PARTY BENEFICIARIES.  Except as provided in
Section 11, this Agreement is for the sole benefit of the parties hereto
and their permitted assigns and nothing herein expressed or implied shall
give or be construed to give to any person, other than the parties hereto
and such assigns, any legal or equitable rights hereunder.

          15.  TERMINATION.  (a)  Anything contained herein to the contrary
notwithstanding, this Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Closing:

          (i)  by mutual written consent of Seller and Buyer;

          (ii)  by Seller if any of the conditions set forth in
     Section 3(b) shall have become incapable of fulfillment prior to the
     first anniversary of the date hereof, and shall not have been waived
     by Seller;

          (iii)  by Buyer if any of the conditions set forth in
     Section 3(a) shall have become incapable of fulfillment prior to the
     first anniversary of the date hereof, and shall not have been waived
     by Buyer; or

          (iv)  by either party hereto, if the Closing does not occur on or
     prior to the first anniversary of the date hereof;

provided, however, that the party seeking termination pursuant to
clause (ii), (iii) or (iv) is not in breach in any material respect of any
of its representations, warranties, covenants or agreements contained in
this Agreement, unless such party reasonably establishes that the basis for
such termination is not related to such breach.

          (b)  In the event of termination by Seller or Buyer pursuant to
this Section 15, written notice thereof shall forthwith be given to the
other party and the transactions contemplated by this Agreement shall be
terminated, without further action by either party.  If the transactions
contemplated by this Agreement are terminated as provided herein, all

                                    59


confidential information received by Buyer with respect to the business of
the Company and the Subsidiaries shall be treated in accordance with the
Confidentiality Agreement, which shall remain in full force and effect
notwithstanding the termination of this Agreement.

          (c)  If this Agreement is terminated and the transactions
contemplated hereby are abandoned as described in this Section 15, this
Agreement shall become void and of no further force or effect, except for
the provisions of (i) Section 7(a) relating to the obligation of Buyer to
keep confidential certain information and data obtained by it,
(ii) Section 17 relating to certain expenses, (iii) Section 23 relating to
finder's fees and broker's fees and (iv) this Section 15.  Nothing in this
Section 15 shall be deemed to release either party from any liability for
any breach by such party of the terms and provisions of this Agreement or
to impair the right of either party to compel specific performance by the
other party of its obligations under this Agreement.

          16.  SURVIVAL OF REPRESENTATIONS.  The representations and
warranties in this Agreement and in any certificate delivered pursuant
hereto shall survive the Closing solely for purposes of Sections 11(a),
(b), (c) and (d) and shall terminate at the close of business three years
following the Closing Date; provided, however, that (i) the representations
and warranties set forth in Section 4(q)(ii) shall terminate at the close
of business twelve years following the Closing Date and (ii) the
representations and warranties set forth in Sections 4(a), 4(c), 4(e) and
4(h) and (ii) any representation or warranty, in the case of fraud,
intentional misrepresentation or intentional breach, shall survive until
the expiration of the relevant statute of limitations (taking into account
any extensions thereof) or 30 days after the expiration of the relevant
statute of limitations (taking into account any extensions thereof) for
Third Party Claims made within 30 days prior to the expiration of the
relevant statute of limitations (taking into account any extensions
thereof), except that, in each case, an extension of the statute of
limitations will only be taken into account in respect of matters covered
by Section 4(h), in respect of extensions requested by a Governmental
Entity concerning matters covered by Section 4(q)(ii) or where, in the good
faith opinion of Buyer, not to request an extension could significantly
interfere with the operations or business of the Company or the affected
Subsidiary.

          17.  EXPENSES.  Whether or not the transactions contemplated
hereby are consummated, and except as otherwise specifically provided in
this Agreement, all transaction costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid
by the party incurring such costs or expenses, except that any such costs
and expenses of the Company or any of the Subsidiaries (other than any
travel, photocopying and other incidental expenses incurred by the Company
or a Subsidiary in connection with furnishing Buyer access to documents and
personnel or in connection with Buyer's due diligence review of the Company
and the Subsidiaries) shall be borne by Seller.

          18.  AMENDMENTS; WAIVERS.  No amendment, modification or waiver
in respect of this Agreement shall be effective unless it shall be in
writing and signed by both parties hereto.



                                    60


          19.  NOTICES.  All notices or other communications required or
permitted to be given hereunder shall be in writing and shall be delivered
by hand or sent by prepaid cable or telecopy or sent, postage prepaid, by
registered, certified or express mail or reputable overnight courier
service and shall be deemed given when so delivered by hand, cabled or
telecopied, or if mailed, ten days after mailing (two business days in the
case of express mail or overnight courier service), as follows:

          (i)  if to Buyer,

               B.A.T Industries P.L.C.
               Windsor House
               50 Victoria Street
               London SW1H ONL
               ENGLAND

               Attention:  Stuart P. Chalfen

     with copies to:

               Brown & Williamson Tobacco Corporation
               1500 Brown & Williamson Tower
               P.O. Box 35090
               Louisville, Kentucky 40232

               Attention:  F. Anthony Burke

     and to:

               Cravath, Swaine & Moore
               Worldwide Plaza
               825 Eighth Avenue
               New York, New York 10019

               Attention:  George T. Lowy; and

          (ii)  if to Seller,

               American Brands, Inc.
               1700 East Putnam Avenue
               Old Greenwich, Connecticut 06870-0811

               Attention:  Gilbert L. Klemann, II

     with copies to:

               American Brands, Inc.
               1700 East Putnam Avenue
               Old Greenwich, Connecticut 06870-0811

               Attention:  Arnold Henson






                                    61


     and to:

               Chadbourne & Parke
               30 Rockefeller Plaza
               New York, New York 10112

               Attention:  Edward P. Smith.


          20.  INTERPRETATION; EXHIBITS AND SCHEDULES; CERTAIN
DEFINITIONS.  (a)  The headings contained in this Agreement, in any Exhibit
or Schedule hereto and in the table of contents to this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.  All Exhibits and Schedules annexed
hereto or referred to herein are hereby incorporated in and made a part of
this Agreement as if set forth in full herein.  Matters disclosed by Seller
in any Schedule referred to in Section 4 shall be deemed to be disclosed in
all other such Schedules, other than Schedule 4(j), Schedule 4(k),
Schedule 4(l), Schedule 4(p) and Schedule 4(v).  Any capitalized terms used
in any Schedule or Exhibit but not otherwise defined therein, shall have
the meaning as defined in this Agreement.

          (b)  For all purposes hereof:

          (i)  "including" means including, without limitation;

          (ii)  "person" means any individual, firm, corporation,
     partnership, limited liability company, trust, joint venture,
     Governmental Entity or other entity;

          (iii)  "the knowledge of Seller" means that Seller represents and
     warrants as to Seller's knowledge, and further that Seller has made
     due inquiry as to the subject matter covered by such representation or
     warranty of, and has received confirmation of the accuracy of such
     representation or warranty from, the officers of the Company or any
     Subsidiary set forth in Schedule 20(b); and

          (iv)  "Business" means the tobacco business of Seller and its
     affiliates other than (A) that engaged in as of the date of this
     Agreement by Seller's English Company and its subsidiaries, (B) that
     of American Tobacco International Corporation in respect of the
     European Trademark Agreements, (C) that of Seller and its affiliates
     as contemplated under the terms of the Co-Existence Agreement entered
     into pursuant to Section 8(i) and (D) that arising from the business
     of Seller's wholly owned subsidiary, J.R.F. Realty, Inc., a Delaware
     corporation (as described in Schedule 4(f)).

          21.  COUNTERPARTS.  This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more such counterparts have been
signed by each of the parties and delivered to the other party.

          22.  ENTIRE AGREEMENT.  This Agreement, the Buyer Confidentiality
Agreement and the letter agreement dated January 5, 1994, between Buyer and
Seller (the "Seller Confidentiality Agreement") contain the entire
agreement and understanding between the parties hereto with respect to the

                                    62


subject matter hereof and supersede all prior agreements and understandings
relating to such subject matter.  Neither party shall be liable or bound to
any other party in any manner by any representations, warranties or
covenants relating to such subject matter except as specifically set forth
herein or in the Buyer Confidentiality Agreement or the Seller
Confidentiality Agreement.

          23.  FEES.  Each party hereto hereby represents and warrants that
(a) the only brokers or finders that have acted for such party in
connection with this Agreement or the transactions contemplated hereby or
that may be entitled to any brokerage fee, finder's fee or commission in
respect thereof are Morgan Stanley & Co. Incorporated with respect to
Seller and Merrill Lynch & Co., Lazard Freres & Co. and Lazard Brothers
Co., Ltd. with respect to Buyer and (b) each party shall pay all fees or
commissions which may be payable to the firm so named with respect to such
party.

          24.  SEVERABILITY.  If any provision of this Agreement (or any
portion thereof) or the application of any such provision (or any portion
thereof) to any person or circumstance shall be held invalid, illegal or
unenforceable in any respect by a court of competent jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other
provision hereof (or the remaining portion thereof) or the application of
such provision to any other persons or circumstances.

          25.  CONSENT TO JURISDICTION.  Each of Buyer and Seller
irrevocably submits to the exclusive jurisdiction of (a) the Supreme Court
of the State of New York, New York County, and (b) the United States
District Court for the Southern District of New York, for the purposes of
any suit, action or other proceeding arising out of this Agreement or any
transaction contemplated hereby.  Each of Seller and Buyer agrees to
commence any action, suit or proceeding relating hereto either in the
United States District Court for the Southern District of New York or, if
such suit, action or proceeding may not be brought in such court for
jurisdictional reasons, in the Supreme Court of the State of New York,
New York County.  Buyer further agrees that service of process, summons,
notice or document by hand delivery or U.S. registered mail in care of
Cravath, Swaine & Moore, 825 Eighth Avenue, New York, New York 10019,
Attention of Managing Clerk, shall be effective service of process for any
action, suit or proceeding brought against Buyer in any such court.  Seller
further agrees that service of process, summons, notice or document by hand
delivery or registered mail in care  of Chadbourne & Parke, 30 Rockefeller
Plaza, New York, New York 10112, Attention of Managing Clerk, shall be
effective service of process for any action, suit or proceeding brought
against Seller in any such court.  Each of Buyer and Seller irrevocably and
unconditionally waives any objection to the laying of venue of any action,
suit or proceeding arising out of this Agreement or the transactions
contemplated hereby in (i) the Supreme Court of the State of New York, New
York County, or (ii) the United States District Court for the Southern
District of New York, and hereby further irrevocably and unconditionally
waives and agrees not to plead or claim in any such court that any such
action, suit or proceeding brought in any such court has been brought in an
inconvenient forum.

          26.  COMMENCEMENT OF ACTION, SUIT OR PROCEEDING.  Prior to
commencing any action, suit or proceeding relating hereto, the party

                                    63


seeking to commence such action, suit or proceeding shall notify the other
party and attempt to resolve any differences or disputes in respect of such
potential action, suit or proceeding on an amicable basis through
negotiations, and either party may request that the Center for Public
Resources, Inc. provide mediation services in connection with such
negotiations.  In no event, however, will such party be required to delay
commencement of any such action, suit or proceeding for a period in excess
of 30 days after the giving of such notice or beyond the expiration of any
applicable statute of limitations.

          27.  GOVERNING LAW.  This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York
applicable to agreements made and to be performed entirely within such
State, without regard to the conflicts of law principles of such State.


          IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed as of the date first written above.

                              AMERICAN BRANDS, INC.



                              by       Arnold Henson
                              ---------------------------------------------
                              Name:    Arnold Henson
                              Title:   Executive Vice President and
                                         Chief Financial Officer


                              B.A.T INDUSTRIES P.L.C.



                              by       Stuart P. Chalfen
                              ---------------------------------------------
                              Name:    Stuart P. Chalfen
                              Title:   The Solicitor



















                                    64





                      List of Exhibits and Schedules
                         Omitted from Exhibit 2 to
                        Current Report on Form 8-K
                         dated January 5, 1995 of
                           American Brands, Inc.



STOCK PURCHASE AGREEMENT
- ------------------------

     Exhibit A           Form of Opinion of Counsel to Seller
     Exhibit B-1         Form of Opinion of Counsel to Buyer
     Exhibit B-2         Form of Opinion of Counsel to B&W
     Exhibit C           Form of Opinion of The Solicitor of Buyer
     Exhibit D           Form of Opinion of General Counsel to B&W
     Exhibit E           Form of Indemnification Agreement
     Exhibit F           Form of Section 5(g)(iii) Certificate
     Exhibit G           Form of Co-Existence Agreement

     Schedule 4(b)       No Conflicts; Consents
     Schedule 4(d)       Organization and Standing; Books and Records
     Schedule 4(e)       Capital Stock of the Company and the Subsidiaries
     Schedule 4(f)       Equity Interests
     Schedule 4(g)       Financial Statements; Undisclosed Liabilities
     Schedule 4(h)       Taxes
     Schedule 4(i)       Assets Other Than Real Property Interests
     Schedule 4(j)       Owned and Leased Property
     Schedule 4(k)       Intellectual Property
     Schedule 4(l)       Contracts
     Schedule 4(m)       Litigation
     Schedule 4(n)       Insurance
     Schedule 4(o)       Benefit Plans
     Schedule 4(p)       Absence of Change or Events
     Schedule 4(q)       Compliance With Applicable Law
     Schedule 4(r)       Employee and Labor Matters
     Schedule 4(s)       Customer Accounts Receivable; Inventories
     Schedule 4(t)       Licenses; Permits
     Schedule 4(u)       Powers-of-Attorney
     Schedule 4(v)       Transactions With Affiliates
     Schedule 4(w)       Certain Contracts
     Schedule 5(b)       Ordinary Conduct
     Schedule 5(d)       Insurance
     Schedule 8(g)       Insurance Allocation Methodology
     Schedule 11(b)      Costs Not Subject to Environmental Indemnification
     Schedule 20(b)      List of Officers