NOTES PAYABLE, LONG-TERM DEBT AND OTHER OBLIGATIONS

Notes payable, long-term debt and other obligations consist of:



	June 30, 2017			December 31, 2016
Vector:
7.75% Senior Secured Notes due 2021, including premium of $13,954	$	—		$	848,954
6.125% Senior Secured Notes due 2025	850,000			—
7.5% Variable Interest Senior Convertible Notes due 2019, net of unamortized discount of $91,396 and $108,480*	138,604			121,520
5.5% Variable Interest Senior Convertible Debentures due 2020, net of unamortized discount of $62,852 and $71,247*	195,898			187,503
Liggett:
Revolving credit facility	18,810			37,163
Term loan under credit facility	2,852			2,999
Equipment loans	3,474			4,519
Other	512			591
Notes payable, long-term debt and other obligations	1,210,150			1,203,249
Less:
Debt issuance costs	(30,332		)	(30,798		)
Total notes payable, long-term debt and other obligations	1,179,818			1,172,451
Less:
Current maturities	(20,941		)	(39,508		)
Amount due after one year	$	1,158,877		$	1,132,943

______________________

* The fair value of the derivatives embedded within the 7.5% Variable Interest Senior Convertible Notes ($42,489 at June 30, 2017 and $52,899 at December 31, 2016, respectively) and the 5.5% Variable Interest Senior Convertible Debentures ($53,138 at June 30, 2017 and $59,433 at December 31, 2016, respectively), is separately classified as a derivative liability in the condensed consolidated balance sheets.

Senior Secured Notes - Vector:

7.75% Senior Secured Notes due 2021 - Vector:

In February 2013, the Company issued $450,000 of its 7.75% Senior Secured Notes due 2021. The aggregate net proceeds from the issuance of the 7.75% Senior Secured Notes were approximately $438,250 after deducting offering expenses. On April 15, 2014, the Company completed the sale of an additional $150,000 principal amount of its 7.75% Senior Secured Notes due 2021 for a price of 106.75%. The Company received net proceeds of approximately $158,670 after deducting underwriting discounts, commissions, fees and offering expenses. On May 9, 2016, the Company completed the sale of an additional $235,000 principal amount of its 7.75% Senior Secured Notes due 2021 for a price of 103.5%. The Company received net proceeds of approximately $236,900 after deducting underwriting discounts, commissions, fees and offering expenses.

The 7.75% Senior Secured Notes paid interest on a semi-annual basis at a rate of 7.75% per year and had a maturity date of February 15, 2021. The 7.75% Senior Secured Notes were guaranteed subject to certain customary automatic release provisions on a joint and several basis by all of the 100% owned domestic subsidiaries of the Company that are engaged in the conduct of the Company’s cigarette businesses. In addition, some of the guarantees were collateralized by second priority or first priority security interests in certain collateral of some of the subsidiary guarantors, including their common stock, pursuant to security and pledge agreements.

On January 27, 2017, the Company completed the sale of $850,000 of its 6.125% Senior Secured Notes due 2025 in a private offering to qualified institutional investors in accordance with Rule 144A of the Securities Act of 1933. The Company used the net cash proceeds from the 6.125% Senior Secured Notes offering, together with the proceeds of the concurrent sale of 2,000,000 of its common shares, to redeem all of the Company’s outstanding 7.75% Senior Secured Notes due 2021 and to satisfy and discharge the indenture governing the existing 7.75% Senior Secured Notes due 2021.

On February 26, 2017, the Company retired the outstanding $835,000 principal amount of its 7.75% Senior Secured Notes at a premium of 103.875%, plus accrued and unpaid interest. The Company accounted for the redemption of the 7.75% senior secured notes as an extinguishment of the debt. The Company incurred a loss on the extinguishment of debt of $34,110 for the six months ended June 30, 2017, which is comprised of $32,356 of redemption premium and tender offer costs as well as net non-cash charges of $1,754.

6.125% Senior Secured Notes due 2025 — Vector:

The aggregate net proceeds from the sale of the 6.125% Senior Secured Notes were approximately $831,100 after deducting underwriting discounts, commissions, fees and offering expenses. The 6.125% Senior Secured Notes pay interest on a semi-annual basis at a rate of 6.125% per year and mature on February 1, 2025. Prior to February 1, 2020, the Company may redeem some or all of the 6.125% Senior Secured Notes at any time at a make-whole redemption price and, thereafter, the Company may redeem some or all of the 6.125% Senior Secured Notes at a premium that will decrease over time, plus accrued and unpaid interest, if any, to the redemption date. In the event of a change of control, as defined in the indenture governing the 6.125% Senior Secured Notes, each holder of the 6.125% Senior Secured Notes may require the Company to repurchase some or all of its 6.125% Senior Secured Notes at a repurchase price equal to 101% of their aggregate principal amount plus accrued and unpaid interest, if any, to the date of purchase. If the Company sells certain assets and does not apply the proceeds as required pursuant to the indenture, it must offer to repurchase the 6.125% Senior Secured Notes at the prices listed in the indenture.

The 6.125% Senior Secured Notes are guaranteed subject to certain customary automatic release provisions on a joint and several basis by all of the wholly-owned domestic subsidiaries of the Company that are engaged in the conduct of the Company’s cigarette businesses. (See Note 12.) In addition, some of the guarantees are collateralized by first priority or second priority security interests in certain assets of some of the subsidiary guarantors, including their common stock, pursuant to security and pledge agreements.

The indenture contains covenants that restrict the payment of dividends by the Company if the Company's consolidated earnings before interest, taxes, depreciation and amortization, as defined in the indenture, for the most recently ended four full quarters is less than $75,000. The indenture also restricts the incurrence of debt if the Company's Leverage Ratio and its Secured Leverage Ratio, as defined in the indenture, exceed 3.0 and 1.5, respectively. The Company's Leverage Ratio is defined in the indenture as the ratio of the Company's and the guaranteeing subsidiaries' total debt less the fair market value of the Company's cash, investments in marketable securities and long-term investments to Consolidated EBITDA, as defined in the indenture. The Company's Secured Leverage Ratio is defined in the indenture in the same manner as the Leverage Ratio, except that secured indebtedness is substituted for indebtedness. As of June 30, 2017, the Company was in compliance with all debt covenants.

Variable Interest Senior Convertible Debt — Vector:

Share Lending Agreement:

In connection with the offering of its 2019 Convertible Notes in November 2012, the Company lent Jefferies & Company (“Jefferies”), the underwriter for the offering, shares of the Company’s common stock under the Share Lending Agreement. As of June 30, 2017, 774,479 shares were outstanding on the Share Lending Agreement. The fair value of the outstanding shares was $16,512. During the six months ended June 30, 2017, 805,400 shares were returned but no cash was exchanged. The issuance costs associated with the Share Lending Agreement were presented on the balance sheet as a direct deduction from the face amount of the related debt. The unamortized amount of these issuance costs was $1,803 and $2,140 at June 30, 2017 and December 31, 2016, respectively.

Shares of Common Stock per $1,000 Principal Amount due on Convertible Notes:

The conversion rates for all convertible debt outstanding as of June 30, 2017 and December 31, 2016, are summarized below:



	June 30, 2017			December 31, 2016
	Conversion Price		Shares per $1,000	Conversion Price		Shares per $1,000

7.5% Variable Interest Senior Convertible Notes due 2019	$	15.22	65.7030	$	15.22	65.7030
5.5% Variable Interest Senior Convertible Debentures due 2020	$	23.46	42.6185	$	23.46	42.6185

Revolving Credit Facility and Term Loan Under Credit Facility - Liggett:

As of June 30, 2017, a total of $21,662 was outstanding under the revolving and term loan portions of the credit facility. Availability, as determined under the facility, was approximately $28,700 based on eligible collateral at June 30, 2017.

Non-Cash Interest Expense and Loss on Extinguishment of Debt - Vector:



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017			2016
Amortization of debt discount, net	$	13,426	$	8,653	$	25,262		$	16,609
Amortization of debt issuance costs	2,233		1,401		4,233			2,569
Loss on extinguishment of 7.75% Senior Secured Notes	—		—		1,754		(1)	—
	$	15,659	$	10,054	$	31,249		$	19,178

______________________

⁽¹⁾The non-cash loss on extinguishment of the 7.75% Senior Secured Notes is a component of the $34,110 loss on the extinguishment of debt.

Fair Value of Notes Payable and Long-Term Debt:



	June 30, 2017					December 31, 2016
	Carrying			Fair		Carrying			Fair
	Value			Value		Value			Value
Notes payable and long-term debt	$	1,210,150	(1)	$	1,543,292	$	1,203,249	(1)	$	1,570,732

______________________

⁽¹⁾The carrying value does not include the carrying value of the embedded derivative. See Note 10.

Notes payable and long-term debt are carried on the condensed consolidated balance sheet at amortized cost. The fair value determinations disclosed above are classified as Level 2 under the fair value hierarchy disclosed in Note 10 if such liabilities were recorded on the condensed consolidated balance sheet at fair value. The estimated fair value of the Company's notes payable and long-term debt has been determined by the Company using available market information and appropriate valuation methodologies including the evaluation of the Company's credit risk as described in the Company's Form 10-K. The Company used a derived price based upon quoted market prices and trade activity as of June 30, 2017 to determine the fair value of its publicly-traded notes and debentures. The carrying value of the revolving credit facility and term loan is equal to the fair value. The fair value of the equipment loans and other obligations was determined by calculating the present value of the required future cash flows. However, considerable judgment is required to develop the estimates of fair value and, accordingly, the estimate presented herein is not necessarily indicative of the amount that could be realized in a current market exchange.