Star Scientific to Sell Cigarette Unit

CHESTER, Va. -- Star Scientific Inc., manufacturer of smokeless tobacco brand Ariva, announced plans yesterday to sell its cigarette business to privately held tobacco company North Atlantic Trading Co. Inc. for $80 million in cash, allowing the company to focus on smokeless tobacco products and tobacco leaf sales.

The cigarette business, which includes the Mainstreet, Sport, Vegas and G-Smoke brands, is operated by the company's Star Tobacco Inc. subsidiary. The deal would strengthen Star Scientific's focus on growing market share of Ariva, its compressed, powdered tobacco product designed to dissolve in the mouth and to be used during situations when smoking is prohibited or inconvenient.

"During the past two years we have shifted our focus to the development of smoke-free tobacco products like Ariva that are made with StarCured very low-TSNA tobacco," said Star Scientific's chairman and president Paul Perito. "This purchase agreement gives us the opportunity to achieve our goal to exit the smoked tobacco business, and to continue to concentrate on sublicensing agreements for the StarCured technology."

The deal was approved by both companies' boards, Star said. It calls for North Atlantic to get substantially all of the assets and some liabilities related to Star's manufacturing and marketing of its four cigarette brands. Sales of those brands have traditionally generated the majority of the company's revenues.

Star Scientific will retain its other core businesses and assets, which include its leaf sales, licensing and smokeless tobacco product businesses.

Star said it will also keep the escrow deposits it has made under the Tobacco Master Settlement Agreement and related state statutes, which total about $33.4 million, in addition to its obligation to make escrow deposits based on cigarette sales up through the date of completion of the sale.

Star Scientific said it already has the required written approval for the deal from holders of a majority of its outstanding shares. It expects the deal to close during the second quarter of 2003, subject to conditions outlined in the agreement, which include North Atlantic's ability to obtain financing.