ATTORNEYS GENERAL SETTLEMENT AGREEMENT
This SETTLEMENT AGREEMENT is
entered into this 20th day of March, 1997 by and among the States listed
in Appendix A hereto (collectively, "Plaintiffs") and Brooke Group Ltd.,
a Delaware corporation ("Brooke Group"), Liggett & Myers Inc., a Delaware
corporation ("Myers"), and Liggett Group, Inc., a Delaware corporation
(which, with Myers, is hereinafter referred to as "Liggett").
RECITALS
WHEREAS,
The Plaintiffs, by and
through their respective Attorneys General (the "Attorneys General"), have
brought [or are contemplating bringing] civil actions ("Actions") in various
jurisdictions across the nation ("Actions") against, among others, the
American Tobacco Company, Inc., BAT Industries, Plc, British American Tobacco
Company, R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco
Corporation, Philip Morris, Inc., Liggett & Myers, Inc., Lorillard
Tobacco Company, Inc., and United States Tobacco Company and their various
parent and related companies ("Defendants"), asserting claims for, among
other things, expenses allegedly arising from tobacco-related matters and
injunctive relief concerning sales of cigarettes to minors.
Because of the importance
of the agreements and undertakings by Liggett and Brooke Group herein to
the goals of the Plaintiffs and the Attorneys General, including the prosecution
of the Actions against non-settling defendants, Plaintiffs have agreed
to extend financial settlement terms to Liggett and Brooke Group which
will not be offered to any other defendants, all as set forth in this Settlement
Agreement.
On March 15, 1996, the
Commonwealth of Massachusetts, the State of Florida, the State of Louisiana,
the State of Mississippi and the State of West Virginia and Liggett and
Brooke Group entered into a settlement (the "Initial Settlement") of the
Actions brought by the foregoing States, pursuant to which Liggett agreed
to make certain payments, comply with certain proposed regulations restricting
the marketing and sale of cigarettes to minors and to offer certain cooperation
in connection with the prosecution of such Actions against the other Defendants;
all in accordance with the terms of the Initial Settlement, a copy of which
is annexed hereto as Appendix B.
The Attorneys General,
the Initial Settling States and Liggett and Brooke Group wish to expand
upon the Initial Settlement, through this Settlement Agreement to cover
all of the Actions and to provide for, among other things, significantly
greater cooperation by the Settling Defendants with the Attorneys General,
all in accordance with the terms of this Settlement Agreement.
The Attorneys General
acknowledge and agree that this Settlement Agreement, including the cooperation
provisions thereof, are important to the prosecution of their Actions against
the non-settling Defendants.
The Attorneys General
and Liggett and Brooke Group recognize and support the public interest
in preventing smoking by, or promotion of smoking to, children and adolescents.
Liggett and Brooke Group
have denied, and continue to deny any wrongdoing or any legal liability
of any kind in all of the above-mentioned actions.
The Settling States and
the Attorneys General recognize and acknowledge that the cooperation being
provided is valuable to the continued prosecution of the claims against
the tobacco industry. Further, the Settling States and the Attorneys
General acknowledge that the change in warning labels provided for in this
Settlement Agreement is a step towards properly informing consumers more
fully of the truth about cigarettes and the consequences of smoking, as
is the statement by Liggett also provided for herein.
NOW, THEREFORE, in consideration
of the foregoing and of the promises and covenants set forth in this Agreement,
the undersigned Attorneys General, on their own behalf and on behalf of
their respective States, and Liggett and Brooke Group hereby stipulate
and agree that the Attorney General Actions shall be settled as against
Liggett and Brooke Group, and that all claims asserted in the Attorney
General Actions against Liggett and Brooke Group shall be dismissed, all
on the terms contained herein, as follows:
. Definitions.
As used in and solely for the
purposes of this Agreement, in addition to terms defined elsewhere in this
Agreement, the following terms shall have the following respective meanings:
"Affiliate" means a Present
Affiliate or a Future Affiliate.
"Agreement" means this Settlement
Agreement.
"Arbitrator" means the person
or persons agreed to by the Settling States and the Settlement Class, and/or
their counsel, or appointed by the Class Action Court or the Multidistrict
Litigation Panel, as the case may be, to make decisions regarding allocations
of the Settlement Fund between the Settling States and the Settlement Class,
and to resolve disputes of the Oversight Committee. With respect
to the Settlement Fund, in the event that the Settling States and the Settlement
Class, and/or their respective counsel, cannot agree on an allocation of
the Settlement Fund between the Settling States and the Settlement Class,
the Settling States and the Settlement Class will petition the Court for
appointment of an arbitrator. In so doing, the parties do not consent,
nor should it be inferred, that the Multidistrict Litigation Panel has
jurisdiction over any of the parties.
"Attorneys General"
means those State Attorneys General or other parties who have brought Attorney
General Actions.
"Attorney General Actions" or
"Actions" means the actions listed in Appendix A hereto, including those
actions brought on behalf of the State as taxpayer actions.
"Attorney General Settlement
Fund Board" or "Attorney General Board" means, the entity established pursuant
to Section 5 of the Initial Settlement.
"Brooke Group" means Brooke
Group, Ltd. and its Present Affiliates other than Liggett.
"Cigarette" means any product
including components, accessories, or parts which is intended to be burned
under ordinary conditions of use and consists of: (1) any roll of
tobacco wrapped in paper or in any substance not containing tobacco; or
(2) any roll of tobacco wrapped in any substances containing tobacco which,
because of its appearance, the type of tobacco used in the filler, or its
packaging and labeling, is likely to be offered to, or purchased by, consumers
as described in subparagraph (1).
"Cigarette Pack" means a unit
of twenty Cigarettes or one ounce of Tobacco Snuff, or any other similar
method of delivery to consumers.
"Cost Per Cigarette Pack" means,
with respect to a Tobacco Company, the aggregate costs incurred by such
Tobacco Company under a Global Settlement during a specified year, divided
by the number of Cigarette Packs manufactured by such Tobacco Company during
such year, as determined by The Maxwell Consumer Report published by Wheat
First Butcher Singer or a similar or successor report.
"Defendants" means The American
Tobacco Company, Inc., BAT Industries, Plc, British American Tobacco Company,
R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco Corporation,
Philip Morris, Inc., Liggett & Myers, Inc., Lorillard Tobacco Company,
Inc., and United States Tobacco Company and their various parent and related
companies.
"Domestic Tobacco Operations"
means the manufacture and/or sale of cigarettes and any other tobacco products
in the United States, its territories, its possessions and the Commonwealth
of Puerto Rico.
"FDA Rule" means the regulations
promulgated by the FDA on August 28, 1996 concerning the sale and distribution
of cigarettes and other products at 60 Fed. Reg. 44396, to be codified
at 21 C.F.R. Parts 801, 803, 804, 807, 820 and 897.
"Future Affiliate" means any
one entity, other than an entity with a Market Share greater than 30% as
of the date of this Agreement, which is a Non-settling Tobacco Company
(including any successor to or assignee of its assets) if such entity or
an Affiliate of such entity with the prior written approval of Brooke Group,
subsequent to the date, and during the term, of this Agreement but prior
to the fourth anniversary of the date of execution of this Settlement Agreement:
(i) directly or indirectly acquires or is acquired by Liggett or Brooke
Group; (ii) directly or indirectly acquires all or substantially all of
the stock or assets of Liggett or Brooke Group; (iii) all or substantially
all of whose stock or assets are directly or indirectly acquired by Liggett
or Brooke Group; or (iv) directly or indirectly merges with Liggett or
Brooke Group or otherwise combines on any basis with Liggett or Brooke
Group.
"Future Affiliate Transaction"
means a transaction, or series of transactions, by which an entity becomes
a Future Affiliate.
"Global Settlement" means any
National disposition, settlement, agreement or other arrangement, such
as "Tobacco Claims Legislation", by way of legislation, executive order,
regulation, taxation, levy, fine, class action settlement, court order
or otherwise, of smoking-related litigation, in direct or indirect connection
with which one or more Tobacco Companies receives the benefit of a limitation
of, or total or partial immunity from, liability to plaintiffs for the
types of claims released under the terms of this Agreement.
"Initial Settlement" means the
settlement agreement entered into by the Initial Settling States and the
Settling Defendants on March 15, 1996.
"Initial Settling States" means
the States of Mississippi, West Virginia, Florida, and Louisiana, the Commonwealth
of Massachusetts, and the respective Attorneys General thereof.
"Liggett" means Liggett Group,
Inc. and Liggett & Myers, Inc.
"Mandatory Class Settlement
Agreement" or "Mandatory Class Agreement" means the agreement entered into
on or about March 20, 1997 between Brooke Group and Liggett and a nationwide
class.
"Mandatory Class Final Order
and Judgment" or "Mandatory Class Final Approval" means the order to be
entered by the Settlement Court with respect to Liggett and its Present
Affiliates, approving the Mandatory Settlement Agreement without material
alterations, as fair, adequate and reasonable under Rule 23 of the Federal
Rules of Civil Procedure, confirming the Mandatory Settlement Class certification
under Rule 23 thereof, and making such other findings and determinations
as the Settlement Court deems necessary and appropriate to effectuate the
terms of the Mandatory Class Agreement and to exercise its continuing and
exclusive jurisdiction over the enforcement and administration of all terms
of the Mandatory Class Agreement.
"Mandatory Settlement
Class" means the Settlement Class defined in the Mandatory Class Agreement.
"Mandatory Class Settlement
Date" means the date on which all of the following shall have occurred:
(a) the entry of the Mandatory Class Final Order and Judgment without material
modification, and (b) the achievement of finality for the Mandatory Class
Final Order and Judgment by virtue of that order having become final and
non-appealable through (i) the expiration of all appropriate appeal periods
without an appeal having been filed; (ii) final affirmance of the Mandatory
Class Final Order and Judgment on appeal or final dismissal or denial of
all such appeals, including petitions for review, rehearing or certiorari;
or (iii) final disposition of any proceedings, including any appeals, resulting
from any appeal from the entry of the Mandatory Class Final Order and Judgment.
"Market Share" means, with respect
to a Defendant and a specified year, the Domestic Tobacco Operations market
share in that year of all of such Defendant's cigarettes and other tobacco
products, as determined by The Maxwell Consumer Report published by Wheat
First Butcher Singer or a similar or successor report.
"Medicaid Population" means,
with respect to a Settling State and a specified date, the Medicaid population
of such Settling State as reported by the most recent United States Census.
"National" means actually covering
or potentially covering (whether by block grants to states, localities
or other governmental entities or otherwise) the United States or the United
States and one or more of its territories, possessions and the Commonwealth
of Puerto Rico.
"Non-settling Tobacco Companies"
means each of The American Tobacco Co., Lorillard Tobacco Co., Philip Morris
Inc., R.J. Reynolds Tobacco Co., Brown & Williamson Tobacco Corp.,
and United States Tobacco Co., unless and until it becomes a Future Affiliate,
as herein defined.
"Other Settlement" means a settlement
of an action which is not a Global Settlement.
"Oversight Committee" means
a committee, made up of no less than nine (9) individuals, to oversee the
cooperation provided by Settling Defendants under Section 4.3.1 and 4.3.2
hereof. The committee shall have not less than 75% of its composition
from representation of the Attorneys General.
"Parent", with respect
to Liggett means Brooke Group, and with respect to any other specified
corporation or entity, means another corporation, partnership or other
entity which directly or indirectly controls such specified corporation
or entity.
"Parties" means the Plaintiffs
and Brooke Group and Liggett.
"Population" means, with respect
to a geographic area, the population of that area as reported in the most
recent census conducted by the United States Bureau of the Census.
"Present Affiliate" means,
with respect to a specified corporation or entity, another corporation,
partnership or other entity which as of the date of this Agreement, directly
or indirectly, controls, is controlled by, or is under common control with,
such specified corporation or entity including any and all Parents, subsidiaries,
and/or sister corporations or entities of such specified corporation or
entity.
"Present Value" means, with
respect to a specified amount or amounts, the present value of such amount
or amounts as calculated using a discount rate equal to the yield on 10-year
Treasury Notes as reported in the Wall Street Journal at the time of such
calculation; provided that where such amount or amounts are not otherwise
determinable, the amount or amounts to be present-valued shall be deemed
to be the average for the most recent three years.
"Pretax Income", with respect
to Liggett, means for a specified year, the "Income before Income Taxes"
as determined in accordance with generally accepted accounting principles
("GAAP") of Liggett for its most recent fiscal year, as reported in filings
to the United States Securities and Exchange Commission or, if there is
no such filing, as reported by Liggett's independent outside auditors.
If GAAP changes in any material respect during the term of this Agreement
so that the benefits anticipated by the parties (in light of GAAP applicable
on the date of this Agreement), an appropriate adjustment shall be made
to the formulas and calculations hereunder to achieve the parties' expectations
as of the date hereof.
"Protective Order" or "Stipulation
Regarding Liggett Documents" means, with respect to privileged documents
produced by a Settling Defendant in an Attorney General Action, an order
in that Action: (a) protecting the confidentiality of such documents;
(b) providing that such documents may be used only in that Attorney General
Action and, to the extent permitted by law, only under seal; (c) providing
that, to the extent such documents are or may be subject to the attorney/client
privilege or the attorney work product doctrine, such production or use
of the documents does not constitute a waiver of such privilege, doctrine
or protection with respect to any party other than the Attorney General
to whom the documents are produced subject to the order. The provisions
of the order shall not apply to documents claimed to be privileged but
which are determined by the court in any Action or by the Settlement Court
not to be privileged for reasons other than waiver due to production pursuant
to this Agreement.
"Settlement Class" means the
settlement class provided for in the Mandatory Class Agreement.
"Settlement Class Counsel" means
the firms listed as Settlement Class Counsel in Section 25.8 of the Mandatory
Class Settlement Agreement.
"Settlement Fund" means the
fund established in accordance with the terms of Section 6 of this Agreement,
which shall be established in a reputable bank or other financial institution,
to provide a secure and interest-bearing fund, and which shall be jointly
controlled by the Settling States and the Mandatory Settlement Class.
"Settling Defendants" means
Brooke Group and/or Liggett.
"Settling Defendants' Counsel"
means the law firm of Kasowitz, Benson, Torres & Friedman L.L.P.
"Settling States" means the
States listed in Appendix A hereto and Subsequent Settling States, if any.
"Smokers" means all persons
who, prior to or during the term of this Agreement, have smoked Cigarettes
or have used other tobacco products and have suffered or claim to have
suffered Injury as a consequence thereof.
"Subsequent Settling States"
means States other than the States listed in Appendix A hereto which commence
an Attorney General Action and which execute this Agreement within six
months from the date of this Agreement (unless such six-month period is
extended or reopened at the option of the Settling Defendants).
"Tobacco Companies" means the
Defendants.
"Tobacco Snuff" means any cut,
ground, powdered, or leaf tobacco that is intended to be placed in the
oral cavity.
. Settlement Purposes Only.
This Agreement is for settlement
purposes only, and neither the fact of, or any provision contained in,
this Agreement nor any action taken hereunder shall constitute, be construed
as, or be admissible in evidence against the Settling Defendants as, any
admission of the validity of any claim, any argument or any fact alleged
or which could have been alleged by Plaintiffs as to their standing or
as to any jurisdictional, constitutional or any other legal or factual
issue in any Attorney General Action or alleged or which could have been
alleged in any other action or proceeding of any kind or of any wrongdoing,
fault, violation of law, or liability of any kind on the part of the Settling
Defendants or any admission by them of any claim or allegation made or
which could have been made in any Attorney General Action or in any other
action or proceeding of any kind, or as an admission by any of the Plaintiffs
of the validity of any fact or defense asserted against them in any Attorney
General Action or in any other action or proceeding of any kind.
I. . Parties.
A. . This Agreement
shall be binding, in accordance with the terms hereof, upon Brooke Group,
Liggett and the Settling States; provided that, notwithstanding anything
else contained in this Agreement, the payment obligations of this Agreement
shall be binding only upon Liggett.
B. . No Settling Defendant
shall sell, use, dispose or transfer substantially all of its cigarette
brands or businesses without first causing the acquiror, on behalf of itself
and its successors, to be bound by all of the obligations of a Settling
Defendant pursuant to Sections 4.2 and 4.4 through 4.8 hereunder as to
such transferred brands or businesses; provided that this Section 3.2 shall
not apply to the extent such sale, disposition or transfer is required
by the Federal Trade Commission, Department of Justice, State Attorney
General or court order.
. Public Statement; Cooperation;
Advertising Limitations.
Upon execution of this
Settlement Agreement, Liggett shall, by and through its Director, Bennett
S. LeBow, issue a public statement substantially in the following form
and substance:
I am, and have been for a number
of years, a Director of Liggett Group Inc., a manufacturer of cigarettes.
Cigarettes were identified as a cause of lung cancer and other diseases
as early as 1950. I, personally, am not a scientist. But, like
all of you, I am aware of the many reports concerning the ill-effects of
cigarette smoking. We at Liggett know and acknowledge that, as the
Surgeon General and respected medical researchers have found, cigarette
smoking causes health problems, including lung cancer, heart and vascular
disease and emphysema. We at Liggett also know and acknowledge that,
as the Surgeon General, the Food and Drug Administration and respected
medical researchers have found, nicotine is addictive.
Liggett will continue to engage
in the legal activity of selling cigarettes to adults, but will endeavor
to ensure that these adult smokers are aware of the health risks and addictive
nature of smoking. As part of our efforts, we will do the following:
1. In accordance with a court-approved
settlement, Liggett will set up a fund to compensate equitably those who
claim to have been injured by our products.
2. Liggett will add a prominent
warning to each of our packages of cigarettes and all of our cigarette
advertising stating that "Smoking is Addictive".
3. Liggett supports and will
not challenge Food and Drug Administration regulations concerning the sale
and distribution of nicotine-containing cigarettes and smokeless tobacco
products to children and adolescents. Accordingly, Liggett has agreed
to comply with many of these regulations even before they apply to the
tobacco industry generally.
4. Liggett has instructed its
advertising and marketing people to scrupulously avoid any and all advertising
or marketing which would appeal to children or adolescents. Liggett
acknowledges that the tobacco industry markets to "youth," which means
those under 18 years of age, and not just those 18-24 years of age.
Liggett condemns this practice and will not market to children. Liggett
agrees that if it sees industry advertisements which in its view are aimed
at children, it will bring this to the attention of the Attorneys General.
5. In accordance with our settlement
agreements, Liggett agrees to fully cooperate with the Attorneys General
and Settlement Class Counsel in their lawsuits against the other tobacco
companies. To that end, Liggett will make available to the Attorneys
General, Settlement Class Counsel and other parties with whom we have settled
all relevant documents and information, including documents subject to
Liggett's own attorney-client privileges and work product protections,
and will assist those parties in obtaining prompt court adjudication of
the rest of the industry's joint privilege claims.
. As promptly as reasonably
practicable, but no later than six months after execution of this Settlement
Agreement, Settling Defendants shall cause to be printed boldly, on all
of their Cigarette packages and in all of their Cigarette advertising,
in addition to the warnings mandated under the Federal Cigarette Labeling
and Advertising Act, as amended, 15 U.S.C. § 1331 et seq., the statement
that cigarette smoking is addictive. To the extent any Settling Defendant
manufactures and sells other tobacco products, a similar warning shall
be placed on such product.
.1. With respect to each Settling
State, upon execution of this Agreement, each Settling Defendant shall:
(1) cooperate with such
Attorney General, and the attorneys representing such Attorney General,
in that such Settling Defendant will take no steps to impede or frustrate
these counsels' civil investigations into, or civil prosecutions of, any
of the Non-settling Tobacco Companies in those actions, so as to secure
the just, speedy and inexpensive determination of all such smoking-related
claims against said non-settling persons and entities;
(2) cooperate in and facilitate
reasonable non-party discovery from Settling Defendants in connection with
such Attorney General Action;
(3) actively assist the
attorneys representing the Attorneys General in identifying and locating
any and all persons known to such Settling Defendant to have documents
or information that is discoverable in such proceedings, to actively assist
said counsel in interviewing and obtaining documents and information from
all such persons, and to encourage such person to cooperate with the Attorneys
General; and shall actively assist counsel in interpreting documents relating
to litigation against Non-settling Tobacco Companies; and
(4) insofar as such Settling
Defendant has or obtains any material information concerning any fraudulent
or illegal conduct on the part of any parties, including Non-settling Tobacco
Companies, their agents, or their co-defendants designed to frustrate or
defeat the claims of the plaintiffs against such parties, companies, agents
or co-defendants, or which have the effect of unlawfully suppressing evidence
relevant to smoking claims, disclose such information to the appropriate
judicial and regulatory agencies.
4.3.2. With respect to each
Settling State, subject to, and promptly after, the entry of a Protective
Order or a Stipulation Regarding Liggett Documents by the court in which
the respective Attorney General Action is pending or the Settlement Court,
each Settling Defendant shall:
(1) promptly provide all
documents and information that are relevant to the subject matter of the
Actions or which are likely to lead to admissible evidence in connection
with the claims asserted in any of the Actions, subject to the provisions
of Section 4.3.2(2) hereof;
(2) waive any and all
applicable attorney-client privileges and work product protections with
respect to such documents and information. Such waiver shall not
extend to (a) documents and information not relevant to the subject matter
of the Actions or not likely to lead to admissible evidence in connection
with claims asserted in any of the Actions or (b) documents subject to
a joint defense or other privilege or protection which Settling Defendants
cannot legally waive unilaterally, except that the waiver by the Settling
Defendant shall apply, to the extent permitted by law, to its own joint
defenses or other privileges. To the extent that a Settling Defendant
has a good faith belief, or one or more Non-settling Tobacco Companies
claims, that documents to be provided pursuant to Section 4.3.2(1) hereof
may be subject to a joint defense or other privilege (or a claim of such
privilege) of one or more of the Non-settling Tobacco Companies, such documents
shall be deposited under seal for in camera inspection by the Settlement
Court or a court in which a Settling State's Attorney General Action is
pending, together with a statement to such court that such Settling Defendant
has concerns as to whether some or all of such documents should be protected
from discovery, and the Parties agree to request that such court shall
retain jurisdiction to resolve that issue. Liggett will participate
in proceedings, including by way of court appearances or declarations,
concerning issues of whether such documents are discoverable;
(3) offer their employees,
and any and all other individuals over whom they have control, and help
locate former employees, to provide witness interviews of such employees
and to testify, in depositions and at trial; it being understood and agreed
that Liggett will waive and hereby does waive any and all applicable confidentiality
agreements to the extent such confidentiality agreements would restrict
testimony under this Agreement, if any, to which such witnesses may be
subject; and
(4) demand from its past or current
national legal counsel all documents and information obtained by them in
the course of representation of any Settling Defendant which in any way
relates to the cooperation required in paragraphs 4.3.1(1) - 4.3.2(3) above,
which should be provided to the Settling States as provided under this
paragraph.
4.3.3. With respect to
the cooperation set forth in subsections 4.3.1 and 4.3.2 above, the Attorneys
General and Settlement Class Counsel shall appoint, on a yearly basis,
an Oversight Committee, to oversee such cooperation so that it fairly assists
them and minimizes the burden on a Settling Defendant. All requests
for cooperation will be first made to the Oversight Committee. The
Oversight Committee shall coordinate such requests giving due regard to
the legitimate needs of the litigants requesting cooperation and the burden
on the Settling Defendant. Nothing in this Agreement shall waive
or alter the rights of the Attorneys General to obtain discovery of Liggett
as required by a court order or case management order in any Attorneys
General Action, provided that no order is sought that is inconsistent with
this Agreement.
4.3.4. In the event the
Oversight Committee cannot agree on the sharing of cooperation by litigants,
any member of the Committee may seek resolution by an Arbitrator.
In the event that the Oversight Committee cannot agree on the selection
of an Arbitrator, the Oversight Committee will petition the Multidistrict
Litigation Panel for appointment of an Arbitrator. In the event any
Settling Defendant, absent good cause, does not provide requested cooperation
as promptly as reasonably practicable, after receiving written notice from
the Committee of such request, (1) the Committee may seek relief from an
Arbitrator, and (2) the Committee, upon notice to the Settling Defendant,
may petition an Arbitrator for specific performance of such requested cooperation.
. Each Settling Defendant, promptly
after becoming bound by this Agreement, shall consent to jurisdiction by
the FDA for the sole purpose of promulgating the FDA Rule with respect
to all Tobacco Companies. Further, each Settling Defendant, promptly
after execution of this Agreement, shall endorse, support and assist in
attempts by the FDA to have the FDA Rule become enforceable. Such
efforts shall include, if and as reasonably requested by the Attorneys
General, filing appropriate amicus briefs and other court papers in litigation
relating to the FDA Rule.
. Each Settling Defendant shall
follow and abide by the provisions of the FDA Rule, insofar as they pertain
solely to such Settling Defendant's Domestic Tobacco Operations, as set
forth in, and modified by, paragraphs 4.5.1 - 4.5.4 hereof until a final
determination is reached respecting the FDA Rule at which time the Settling
Defendants will be bound by the FDA Rule only insofar as, and to the extent
that, the FDA Rule becomes an enforceable obligation binding upon all of
the Tobacco Companies.
. FDA Rule § 897.16(b),
as proposed.
. FDA Rule § 897.16(d),
as proposed.
. FDA Rule § 897.30(a),
as proposed.
. FDA Rule § 897.30(b),
but only to the extent that such section applies to billboards within 1,000
feet of a clearly marked public or private elementary or secondary
school or a clearly marked, outdoor, municipal or other government-operated
public playground for children.
. Notwithstanding anything to
the contrary in the Proposed Rule or in this Agreement, Liggett will commence
compliance with Section 4.5 of this Agreement as soon as reasonably practicable,
according priority as to compliance to the States listed in Appendix A
hereto and then to Subsequent Settling States; provided that Liggett may
limit its compliance to the extent, if any, necessary to ensure that the
net annual out-of-pocket cost to Liggett of such compliance not exceed
$1 million; and provided further that Liggett shall not be obligated pursuant
hereto to breach pre-existing legal obligations, if any, it may have with
respect to the matters covered by Section 4.5 (and shall use its reasonable
best efforts to minimize the degree to which any such obligations would
impede its full compliance therewith). For purposes of this paragraph,
the phrase "net annual out-of-pocket costs" means the excess of (a) the
additional out-of-pocket expenditures incurred during a particular year
by Liggett in complying with the matters specified in Section 4.5, over
(b) savings, if any, in out-of-pocket expenditures realized during such
year by Liggett directly from the implementation of the matters covered
by Section 4.5.
. If, when and to the extent
that the FDA Rule, in whole or in part, becomes an enforceable legal obligation
binding upon all of the Defendants, each Settling Defendant will comply
therewith, without consideration of any limits or exceptions herein.
If the FDA Rule does not so become such a legal obligation, Liggett shall,
during the duration of this Agreement, continue to comply with Section
4.5.
A. . Each Settling Defendant
shall not use cartoon characters, such as "Joe Camel", in any of its advertising
and promotional materials and activities with respect to tobacco products.
No Settling Defendant shall enter into any new contract for advertising
and promotion with respect to tobacco products using any such cartoon characters
after the date the Settling Defendants become bound by this Agreement.
4.9. Each Settling Defendant
may, after becoming bound by this Settlement Agreement, continue in the
lawful manufacture, advertising and/or sale of tobacco products.
This Settlement Agreement does not in any way abrogate or restrict the
authority or ability of the Attorneys General to enforce future compliance
with the laws of their respective States.
. Global Settlement.
. Effective upon the execution
hereof, the Attorneys General and their respective counsel, each agree
(a) to exercise best efforts to ensure that the financial terms, financial
obligations or financial conditions of any Global Settlement are no more
onerous on, or less favorable to, Brooke Group and Liggett than the financial
terms, financial obligations or financial conditions of this Settlement
Agreement, and (b) to issue a public statement substantially in the following
form and substance:
The historic settlements entered into
by Liggett, whereby Liggett has agreed, among other things, to provide
full cooperation to twenty-two Attorneys General and to consent to FDA
regulation of tobacco marketing, are a major advance in our efforts to
prevent smoking by children and adolescents and to ensure that the tobacco
industry markets its products lawfully. Accordingly, the undersigned
Attorneys General will use their best efforts in Congress and elsewhere
to ensure that any such industry-wide resolution provide for financial
terms for Liggett that reflect appropriate recognition of Liggett's cooperative
efforts.
. In the event there is a Global
Settlement at any time which contains financial terms, financial obligations
or financial conditions as to Brooke Group and Liggett which are more onerous
on, or less favorable to, Brooke Group and Liggett than those of this Settlement
Agreement, then, in addition to and not in derogation of any other rights
or remedies Brooke Group and Liggett may have, Brooke Group and Liggett
shall have the right, at their option, to withdraw from further performance
of this Agreement.
. Settlement Fund.
. Except as may
otherwise be provided herein, all amounts due and owing by each Settling
Defendant under this Agreement shall be paid when due into the Settlement
Fund to be allocated and distributed to Settlement Class members and Settling
States in accordance with this and the Mandatory Class Settlement Agreement.
In the event that the Settling States and Settlement Class Counsel cannot
agree to an equitable allocation of the Settlement Fund between the Settling
States and the Settlement Class, the Settling States and Settlement Class
Counsel shall seek to agree on the selection of an Arbitrator to determine
such allocation. In the event that the Settling States and Settlement
Class Counsel cannot agree on the selection of an Arbitrator, the Settling
States and Settlement Class Counsel will petition the Class Action Court
to determine such allocation; it being understood that some portion of
the Settlement Fund will be allocated to counter-market advertising.
. Settling
Defendants shall have no interest in or responsibility for allocations
or distributions from the Settlement Fund and do not guarantee any earnings
or insure against any losses from any portion of the Settlement Fund assets
that may be maintained or administered as provided in Section 6.1 above.
. Subject to the terms of this
Agreement, Liggett shall make the following payments:
6.3.1. An initial payment
of $25 million due 120 days from the date of a Future Affiliate Transaction;
and
6.3.2. Subject to the
provisions of Sections 6.6 - 6.12, payments, each equivalent to 25%
of Liggett's Pretax Income, due 120 days after the end of each fiscal year
of Liggett. The first payment shall be made with respect to the first
full fiscal year commencing after the date of this Settlement Agreement.
6.4. Liggett shall pay the reasonable
and necessary expenses of the administration, allocation, and distribution
of the Settlement Fund; provided that Liggett shall not be obligated to
pay more than $1 million in any year for such expenses.
6.5. Since the Settling Defendants
are providing historic and valuable cooperation and other considerations
under this Agreement and the Mandatory Class Agreement, the amounts payable
hereunder to the Settlement Fund shall represent the maximum amounts payable
to the Settlement Fund under this Agreement and the Mandatory Class Agreement.
6.6. With respect to each
Settling State, in the event of the entry of any final non-appealable monetary
judgment in such Settling State's Attorney General Action (other than by
way of settlement) against any one or more of the Non-settling Tobacco
Companies, then the Settling Defendants shall have the right to reduce
the payments they are obligated to make pursuant to this Agreement to the
extent necessary to make (i) the then Present Value of all amounts theretofore
paid and thereafter payable to that Settling State pursuant to this Agreement
by the Settling Defendants (such amounts being calculated for purposes
of this Section 6.6 by multiplying (a) the total amount of the Settlement
Fund allocated to all of the Settling States in that year by (b) a quotient
equal to the Medicaid Population of such Settling State in that year divided
by the total Medicaid Population of all Settling States) per percentage
point of the then Market Share of such Settling Defendant no more than
seventy-five percent (75%) of (ii) the then Present Value of the dollar
amount of such judgment per percentage point of the then Market Share of
each such Non-settling Tobacco Company; provided that such Settling
Defendant give written notice of such reduction and the method of calculating
such reduction to the Settling State's Attorney General as soon as practicable
after the entry of judgment.
6.7.
In each year beginning with the second year after execution of this Agreement,
the annual payment amount due under Section 6.3.2 of this Agreement from
a Settling Defendant shall be decreased in proportion to any decrease and
(only if there shall have been a prior such decrease) increased in proportion
to any increase, in such Settling Defendant's Market Share from the prior
year; provided, however, that (a) such annual payment amount shall not
be so decreased to the extent, if any, that such annual payment amount
in such year is decreased as a result of a decrease in such Settling Defendant's
Pretax Income and (b) such annual payment amount shall never be increased
such that the aggregate amount of any such increases exceeds the aggregate
amount of any such decreases.
6.8. In the event of a Global
Settlement, the Settling Defendants shall have the right to reduce the
aggregate payments due from Liggett in each year pursuant to this Agreement
so that such aggregate payments shall be no more than the lesser of (A)
on a Cost Per Cigarette Pack basis, one-third of the lowest Cost Per Cigarette
Pack due in such year from the Non-settling Tobacco Companies under such
Global Settlement and (B) on a percentage of Pretax Income basis, one-third
of the lowest percentage of Pretax Income due in such year from the Non-settling
Tobacco Companies under such Global Settlement (such percentage to be computed
as if the payments due from such companies were included in revenues and
earnings).
6.9. Liggett shall receive as
a credit against any and all amounts due hereunder, any and all amounts
it is required to pay under a Global Settlement.
6.10. In the event that one
or more States elect to opt out of the Mandatory
Settlement Class and action(s) are
brought against any Settling Defendant on behalf of such State(s), the
annual payment amount due under Sections 6.3.2 of this Agreement from a
Settling Defendant shall be reduced by an amount equal to the product of
(i) the ratio that the Medicaid Population of the States that elect to
opt out of the Mandatory Settlement Class then bears to the total Medicaid
Population and (ii) 20% of Liggett's Pretax Income.
6.11. Insofar as the Mandatory
Class Settlement Agreement is not approved or is otherwise terminated,
the Settlement Fund shall be administered solely thereafter by the Attorney
General Board for the benefit of the Settling States, and the percentage
of Liggett's Pretax Income payable under Section 6.3.2 shall, in the event
there is no Global Settlement, be reduced to an amount equal to the product
of (i) the ratio that the Medicaid Population of the Settling States then
bears to the total Medicaid Population and (ii) 20% of Liggett's Pretax
Income.
6.12. Any allocations set forth
in this Section 6 among the Settling States and Settlement Class are solely
for the purposes of making the calculations set forth in this Section 6
and are in no way binding upon or evidence for the allocations of payments
from the Settlement Fund to any recipients thereof.
6.13. Settling Defendants agree
not to take any action the primary purpose of which is to reduce Liggett's
payment obligations under this Agreement.
. Release.
. Upon the date each
Settling State becomes bound by this Agreement, for good and sufficient
consideration as described herein, each Settling State and each Attorney
General thereof shall for the duration or term of this Agreement (whichever
is shorter) be deemed to and hereby does release, dismiss and discharge
each and every civil claim, right, and cause of action (including, without
limitation, all claims for damages, restitution, medical monitoring, or
any other legal or equitable relief), known or unknown, asserted or unasserted,
direct or indirect, which they had, now have or may hereafter have against
each Settling Defendant (including its past and present parents, subsidiaries,
present affiliates, employees, directors and shareholders, but only in
such capacities, vis-a-vis, each such Settling Defendant, and downstream
distribution entities of Settling Defendant, but only to the extent that
such downstream distribution entities would have cross-claims against Settling
Defendant), but does not in any fashion release any Non-settling Tobacco
Companies or other defendants in any Attorney General Action except as
provided for in Section 17 hereof, (i) which was asserted in that State's
Attorney General Action, and/or (ii) which was not asserted in said Action
but which is smoking-related or otherwise arises out of, or concerns, the
acts, facts, transactions, occurrences, representations, or omissions set
forth, alleged, referred to or otherwise embraced in the complaint of that
Settling State's Attorney General Action.
Upon the date each Settling
State becomes bound by this Agreement, for good and sufficient consideration
as described herein, each such Settling Defendant shall for the duration
or term of this Agreement (whichever is shorter) be deemed to and hereby
does release, dismiss and discharge each and every claim, right, and cause
of action (including, without limitation, all claims for damages, restitution,
fees, expenses, or any other legal or equitable relief), whether known
or unknown, asserted or unasserted, which they had, now have or may hereafter
have as of the effective date of this Agreement against each such Settling
State, its public officials and employees in connection with, arising out
of or related to the acts, facts, transactions, occurrences, representations,
or omissions set forth, alleged or referred to or otherwise embraced in
the complaints of the Settling States' Attorney General Actions.
Provided, however, as follows:
1) If this Agreement expires
upon completion of its full term, these releases set forth in this Section
7.1 shall continue and apply in full force and effect with respect to all
released claims which accrued or shall accrue prior to, through and including
the date of such expiration, such that such claims shall be forever released,
but only as to such claims through and including such date; if this Agreement
terminates for any reason prior to its full term, these releases shall
be of no further force and effect and Settling Defendants shall be entitled
to a credit to the extent otherwise provided in this Agreement against
all claims covered by the release for the full amount paid by such Settling
Defendants hereunder.
2) Except as specifically provided
herein, these releases set forth in this Section
7.1 do not pertain or apply to any
other existing or potential party in any present or future Attorney General
Action.
3) These releases set forth
in this Section 7.1 do not in any way release any releasee from claims
which may be asserted by a releasor involving conduct unrelated to the
manufacture and/or sale of tobacco products.
4) With respect to the claims
of any county, municipality or subdivision within a Settling State that,
as of the date of this agreement, has brought an action against Settling
Defendants separate and apart from the action brought against Settling
Defendants by the Settling State encompassing such county, municipality
or subdivision, these releases set forth in this Section 7.1 do not release
the claims of such county, municipality or subdivision except for the exclusively
State share of the Medicaid funds claimed in any such action.
5) The provisions of this Section
7.1 apply to all States except the State of Connecticut. With respect
to the State of Connecticut only, the claims described herein as having
been released shall not be released and shall remain in existence; provided,
however, that the State of Connecticut and the Attorney General of Connecticut
shall, upon entering into this agreement, covenant not to bring or prosecute
any suit or action with respect to such claims against each Settling Defendant,
and the beneficiaries of this covenant shall be the same beneficiaries
of the release provided by all other States pursuant to § 7.1.
It is expressly understood that this covenant is not intended to and does
not release or affect any claims that the State of Connecticut has or may
have against any other persons or entities, and in particular is not intended
to and does not release or affect any claims that the State of Connecticut
has asserted or may assert against any Non-settling Tobacco Companies or
any other defendants in its Attorney General Action.
. Except as specifically
provided herein, nothing in this Agreement shall prejudice or in any way
interfere with the rights of Settling States or Settling Defendants to
pursue any or all of their rights and remedies against Non-settling Tobacco
Companies or other parties not released hereunder.
7.3. With respect to the State
of Maryland, this Section 7 is deemed to include the additional statements
set forth in Sections 11.5 and 11.6.
I. . Exclusive Remedy; Dismissal of
Action;
Jurisdiction of Court.
. Except as otherwise
provided in this Agreement, this Agreement shall be the sole and exclusive
remedy for any and all claims of Settling States released hereby against
the Settling Defendants, and upon the date a Settling State becomes bound
by this Agreement, each such Settling State shall be barred from initiating,
asserting, or prosecuting any claims released hereby against each such
Settling Defendant.
. Promptly after each
Settling State becomes bound by this Agreement, each such Settling State
shall dismiss without prejudice its corresponding Attorney General Action
as against such Settling Defendant, or if defendants have not yet responded
to a complaint, the Settling State may amend the complaint to delete the
Settling Defendant from the Action.
. Promptly after the date
each Settling State becomes bound by this Agreement, each such Settling
Defendant shall withdraw without prejudice from any action brought against
any Settling State with respect to claims released hereby.
. Term.
. Unless earlier terminated
in accordance with the provisions of this Agreement, the duration of this
Agreement shall be twenty-five (25) years from the date of this Agreement;
provided that in the event of a Global Settlement, the duration of this
Agreement shall be equal to the duration of the Global Settlement.
. Each Settling Defendant shall
have the right to terminate this Agreement with respect to that Settling
Defendant and with respect to the Settling State in which there is a full
and final dismissal on the merits as to any of the Non-settling Tobacco
Companies in that Settling State's Attorney General Action; provided that
in the event of any such termination, the payments due from such Settling
Defendant pursuant to this Agreement shall be thereafter reduced by an
amount equal to the product of (a) the total amount of the Settlement Fund
allocated to all of the Settling States at the time of such dismissal and
(b) a quotient equal to the Medicaid Population of such Settling State
at the time of such dismissal divided by the total Medicaid Population
of all Settling States at the time of such dismissal); provided further
that any and all payments made pursuant to this Agreement prior to any
such termination by such Settling Defendant shall be retained by the Settlement
Fund. The Attorneys General shall provide the Settling Defendant
with the information necessary to determine the amount referred to in subpart
(a) hereof. Termination under this section does not in any fashion
reduce Settling Defendants' obligations in any other Attorney General Actions.
. Each Settling Defendant
shall have the right at any time during the term of this Agreement to terminate
this Agreement with respect to such Settling Defendant in the event that,
in its sole and exclusive discretion, it determines that too many states
have opted out of the Mandatory Settlement Class and have not resolved
such cases with respect to the Settling Defendant by becoming bound by
this Agreement in accordance with the terms hereof; provided that such
Settling Defendant give written notice of such termination to the Attorneys
General of the Settling States and provided further that any and all payments
due up to the date of such termination made pursuant to this Agreement
prior to the giving of such notice by such Settling Defendant shall be
retained by the Settlement Fund. Such termination must be exercised
no later than sixty days after the date that Settling Defendants determine
how many states have opted out of the Mandatory Settlement Class.
. In the event of a termination
of this Agreement with respect to any Settling State, such Settling Defendant
shall be entitled to offset any payments made to such Settling State prior
thereto against any judgments thereafter obtained by such Settling State
against such Settling Defendant in an Attorney General Action.
. If any Settling Defendant
subsequently withdraws from this Agreement, or this Agreement, for whatever
reason, is terminated other than by reason of expiration of its term, then
the applicable statute of limitations or any similar time requirement for
a Settling State or a terminating Settling Defendant to file a claim that
would otherwise be released hereunder against, or by any Settling Defendant
shall be tolled from the date such Settling State became bound by this
Agreement until the later of the time permitted by applicable law or for
one year from the date of such termination with the effect that the parties
shall be in the same position as they were at the time the Settling State
filed its original Attorney General Action with respect to the statute
of limitations.
. Except as may
be otherwise specifically provided in this Agreement, a termination by
a Settling Defendant hereunder shall have the effect of rendering this
Agreement as having no force or effect whatsoever, null and void ab initio,
and not admissible as evidence for any purpose in any pending or future
litigation in any jurisdiction. However, a termination shall not
affect any prior cooperation or require the return of any documents produced
to a Settling State pursuant to this Agreement.
. Continuing Enforceability
Unless earlier terminated,
as to the Settling States, this Agreement and each provision of or obligation
arising from this Agreement shall continue and remain fully executory and
enforceable if a Settling Defendant institutes or is subject to the institution
against it of any proceeding or voluntary case under title 11, United States
Code, or other proceeding seeking to adjudicate it insolvent or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief or protection of debtors or other
proceeding seeking the entry of an order for relief or the appointment
of a receiver, trustee, custodian or other similar official for it or for
any part of its property (each, a "Bankruptcy Proceeding"). The Settling
States acknowledge and agree that Brooke Group has the right but not the
obligation to cure and to perform any and all obligations of Liggett under
this Agreement notwithstanding the occurrence and continuation of any Bankruptcy
Proceeding with respect to Liggett; provided, however, that until such
time as Liggett decides whether to reject or assume this Agreement, Brooke
Group shall have the obligation to pay the annual installments as provided
in Section 6.3.2 hereof, and so long as the Brooke Group is paying all
amounts due hereunder and no such payments are voidable, then the Settling
States waive any and all rights they may have not to accept such cure or
performance in any Bankruptcy Proceeding.
. Entry of Good Faith Bar Order on
Contribution and Indemnity Claims
. It is the intent of the parties
that the payments to be made by Liggett with respect to the Attorneys General
Actions settled hereby, be limited to those payments set forth in this
Settlement Agreement, and that Settling Defendants not be responsible for
any payments relating to any contribution or indemnity claim asserted,
or to be asserted, by any non-settling defendant that may arise from any
of such Attorneys General Actions. It is further the intent of the
parties to this Agreement that in Minnesota and Wisconsin the release of
the Settling Defendants and any rights of non-settling defendants to contribution
or indemnity shall be construed as a Pierringer release, as used in Pierringer
v. Roger, 21 Wisc.2d 182, 124 N.W.2d 106 (1963); Frey v. Snelgrove, 269
N.W.2d 918 (Minn. 1978). In order to effectuate this intent of the parties,
and only in order to effectuate such intent, the parties agree as follows
in this Section 11.
. Subject to, and as promptly
as reasonably practicable, under applicable law, the Parties shall request
that the respective courts in the Attorney General Actions enter orders
barring and prohibiting the commencement and prosecution of any claim or
action by any non-settling defendant against any Settling Defendant, including
but not limited to any contribution, indemnity and/or subrogation claim
seeking reimbursement for payments made or to be made to any Settling State
for claims settled under this Agreement. Settling Defendants shall
be entitled to dismissal with prejudice of any non-settling defendants'
claims against them which violate or are inconsistent with this bar, if
granted.
. The Settling States shall
not seek to collect any amount on any judgment against a non-settling defendant
to the extent, and only to the extent, that such non-settling defendant
has a right under applicable law of contribution or indemnification against
the Settling Defendants. This section will not apply to any agreement
or understanding, known or unknown, written or otherwise, with any non-settling
defendant or any other party that entitles any non-settling defendant to
indemnity or contribution from Brooke Group or Liggett.
. Should a Settling State
receive a final monetary judgment against a non-settling defendant which
then results in the non-settling defendant being legally entitled to require
a Settling Defendant to make payment toward that judgment, the Settling
States shall seek Court approval to reduce the judgment by an amount sufficient
to result in the Settling Defendant having no obligation toward the judgment.
. The provisions of Sections
11.1 - 11.4 apply to all States except for the State of Maryland.
With respect to the State of Maryland only, the State of Maryland shall,
upon entering into this Agreement, execute a release of Settling Defendants
which shall state, among other things provided for in this Agreement:
"In the event of a verdict against non-settling defendants in this Action,
and in the event that with respect to such verdict, any Settling Defendant
is adjudicated a joint tortfeasor in any manner in this Action, there shall
be a judgment reduction from such verdict accounting for the status of
Settling Defendants as a joint tortfeasor in the amount of $[the Present
Value of Settling Defendants' total aggregate payments allocable to the
State of Maryland as calculated pursuant to provisions of the Attorneys
General Settlement Agreement]. It is the intention of the parties
that this Release provide for a pro tanto reduction of any damages recoverable
against all other tortfeasors in this action, and only if Settling Defendants,
or any of them, are adjudicated a joint tortfeasor. This Release
does not provide, and shall not be construed to provide, for a reduction,
to the extent of the pro rata share of Settling Defendants, or any of them,
of the damages recoverable in this action against all other tortfeasors.
If a judgment reduction occurs on a pro tanto basis as provided in this
Release and if a non-settling joint tortfeasor pays more than its pro rata
share of the judgment, that joint tortfeasor shall receive that portion
of any future payment made thereafter by Settling Defendants in accordance
with the Attorneys General Settlement Agreement that is (1) beyond the
amount of the pro tanto setoff provided for in this Release, and (2) attributable
to that part of claims against that joint tortfeasor for which Settling
Defendants are jointly and severally liable."
. With respect to the State
of Maryland only, the Attorney General of Maryland shall cause a competent
appraiser to make a calculation of Present Value of Settling Defendants'
total aggregate payments allocable to the State of Maryland as provided
for under this Settlement Agreement, which valuation is referenced and
bracketed in Section 11.4 hereof. Such calculation of Present Value
of payments allocable to the State of Maryland under this Agreement shall
be the amount stated in the bracketed portion of the language quoted in
Section 11.4 above.
. Tax Status of Settlement Fund.
. The Settlement Fund
created under this Agreement will be established and maintained as a Qualified
Settlement Fund ("QSF") in accordance with Section 468B of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated thereunder.
Any Settling Defendant shall be permitted, in its discretion, and at its
own cost, to seek a private letter ruling from the Internal Revenue Service
("IRS") regarding the tax status of the Settlement Fund. The parties
agree to negotiate in good faith any changes to the Agreement which may
be necessary to obtain IRS approval of the Settlement Fund as a QSF.
. Representatives of the
Settling States and the Settlement Class will be appointed to act as administrator
of the Settlement Fund. As administrator, such representatives will
undertake the following actions in accordance with the regulations under
IRC section 468B: (a) apply for the tax identification number required
for the Attorney General Settlement Fund; (b) file, or cause to be filed,
all tax returns the Settlement Fund is required to file under federal or
state laws; (c) pay from the Settlement Fund all taxes that are imposed
upon the Settlement Fund by federal or state laws; and (d) file, or cause
to be filed, tax elections available to the Settlement Fund, including
a request for a prompt assessment under IRC sec. 6501(d), if and when the
administrator deems it appropriate to do so.
. The Settling Defendants,
as transferors of the Settlement Fund, shall prepare and file the information
statements concerning their settlement payments to the Settlement Fund
as required to be provided to the IRS pursuant to the regulations under
IRC section 468B.
. Effect of Default of Settling
Defendant.
In the event a Settling Defendant
fails to make a payment due and owing under the terms of this Agreement,
or is in default of this Agreement in any other respect, Plaintiffs' Counsel
shall so notify the defaulting Settling Defendant, which shall then be
given 60 calendar days to "cure" the default. If the defaulting Settling
Defendant does not "cure" the default in the time provided in this Section
13, Plaintiffs' Counsel may apply to the Court for relief, in addition
to any other remedies it may have hereunder.
I. . Representations and Warranties.
A. . Each Settling
Defendant represents and warrants that it (i) has all requisite corporate
power and authority to execute, deliver and perform this Agreement and
to consummate the transactions contemplated hereby; (ii) the execution,
delivery and performance by such Settling Defendant of this Agreement and
the consummation by it of the actions contemplated herein have been duly
authorized by all necessary corporate action on the part of such Settling
Defendant; (iii) the Agreement has been duly and validly executed and delivered
by such Settling Defendant and constitutes its legal, valid and binding
obligation; and (iv) this Agreement does not violate the charter of bylaws
of such Settling Defendants or any Agreement to which the Settling Defendant
is a party.
. Each Settling State
represents and warrants that pursuant to its statutory and/or common law
authority (i) it has all requisite power and authority to execute, deliver
and perform this Agreement and to consummate the transactions contemplated
hereby; (ii) the execution, delivery and performance by such Settling State
of this Agreement and the consummation by it of the actions contemplated
herein have been duly authorized by all necessary action on the part of
such Settling State; and (iii) the Agreement has been duly executed and
authorized by such Settling State and constitutes its legal, valid and
binding obligation.
. Arbitration.
In the event that the Parties
are unable to agree, after good faith efforts, as to the determination
or calculation for any applicable year of Market Share or Pretax Income
hereunder, such determination or calculation shall be submitted to binding
arbitration in accordance with the rules of the American Arbitration Association.
. Most Favored Nation.
. It is the intent of
the parties hereto that the Settling Defendants enjoy a preferred position
with respect to Non-Settling Tobacco Companies, in recognition of the Settling
Defendants' willingness to enter into this Agreement. Accordingly,
it is generally contemplated that settlements which involve all Settling
States and a Non-Settling Tobacco Company (a "Group Other Settlement")
or involving one Settling State and a Non-Settling Tobacco Company (a "Single
State Other Settlement") shall meet certain minimum requirements in terms
of the initial, periodic or lump sum payments to be made by the Non-Settling
Tobacco Company (each a "Benchmark Figure"). The recital of these
Benchmark Figures herein is solely for the purposes of insuring that the
Settling Defendants enjoy a preferred position with respect to Non-Settling
Tobacco Companies and is not intended in any way to reflect the value of
the Settling States claims against Non-Settling Tobacco Companies, and
nothing in this Agreement is intended to reflect the value of those claims.
For purposes of this Section 16, a settlement involving a Non-Settling
Tobacco Company and some, but not all, Settling States shall be deemed
a Single Other Settlement, and the preferred position of the Settling Defendant
shall be governed by Subsections 16.1.3 and 16.1.4 hereof, and determined
on a state-by-state basis.
. In the case of a Group
Other Settlement which includes an initial payment such as that provided
for in Section 6.3.1 hereof, the Benchmark Figure shall be that figure
which represents three times the Present Value of the initial payment made
hereunder, adjusted for Market Share at the time of such payment.
Thus, if at the time of the initial payment hereunder, the Settling Defendant
had a market share of 2 percent, and made a payment the Present Value of
which is $15 million, and the Settling States subsequently enter into a
Group Other Settlement with a Non-Settling Tobacco Company which has a
market share of 10 percent, the Benchmark Figure for the initial payment
shall be $225 million. To the extent that the initial payment actually
provided for in such Group Other Settlement is less than the Benchmark
Figure, the Settling Defendant shall receive a credit in like amount, up
to the amount of the present value of the initial payment made hereunder,
against all future payment obligations hereunder.
. In the case of a (i)
Group Other Settlement which included only a lump sum or periodic payments,
and (ii) with respect to the periodic payments included in a Group Other
Settlement which also includes an initial payment, the Benchmark Figure
shall be that amount which constitutes three times the Present Value of
all amounts paid or payable by the Settling Defendant hereunder (excluding,
if the Group Other Settlement contains an initial payment, the initial
payment hereunder), assuming, in the case of future payments, no increase
or decrease in Market Share but assuming Inflation in revenues, all adjusted
for Market Share. Thus, if the Present Value of a Settling Defendant's
payments made or to be made hereunder is $60 million and such Settling
Defendant enjoys a Market Share of 2%, the Benchmark Figure for a non-settling
defendant which at the time of a Group Other Settlement enjoys a Market
Share of 15% would be $1,350 million. Similarly, the Benchmark Figure
for a Non-Settling Defendant which at the time of a Group Other Settlement
enjoys a Market Share of 5% would be $450 million. To the extent
that the Present Value of the lump sum or periodic payments to be made
under a Group Other Settlement is less than the Benchmark Figure, the Settling
Defendant shall receive a credit in like amount, up to the amount of any
remaining payment obligations hereunder.
. In the case of a Single State
Other Settlement which includes an initial payment such as that provided
for in Section 6.3.2 hereof, the Benchmark Figure shall be that figure
which represents three times the Present Value of the initial payment made
hereunder to such Settling State, adjusted for Market Share at the time
of such payment, computed in accordance with Section 16.1.1. To the
extent that the initial payment actually provided for in such Single State
Other Settlement is less than the Benchmark Figure, the Settling Defendant
shall receive a credit in like amount, up to the amount of the present
value of the initial payment made to the Settling State hereunder, against
all future payment obligations to the Settling State hereunder.
. In the case of a Single
Other Settlement which includes only a lump sum or periodic payments, and
with respect to the periodic payments included in a Single State Other
Settlement which also includes an initial payment, the Benchmark Figure
shall be that amount which constitutes three times the Present Value of
all amounts paid or payable by the Settling Defendant to the Settling State
hereunder (excluding, if the Single State Other Settlement contains an
initial payment, the Initial Payment hereunder), assuming, in the case
of future payments, no increase or decrease in Market Share but assuming
Inflation in revenues, all adjusted for Market Share, computed as set forth
in Section 16.1.2. To the extent that the Present Value of the lump
sum or periodic payments to be made under a Single State Other Settlement
is less than the Benchmark Figure, the Settling Defendant shall receive
a credit in like amount, up to the amount of any remaining payment obligations
to the Settling State hereunder.
. Solely for the purposes
of Sections 16.1, the payments due to each of the Settling States in a
year shall be deemed to be equivalent to the product of (a) 10% of the
Settling Defendant's Pretax Income and (b) a quotient equal to the Medicaid
Population of the Settling State divided by the total Medicaid Population
of all Settling States.
. The Benchmark Figure set forth
in Sections 16.1.1 - 16.1.4 does not reflect in any fashion the Settling
States' views as to an appropriate settlement or resolution with any Non-Settling
Tobacco Company.
. Except as provided in
Section 16.1 hereof, in the event that, subsequent to the date of this
Agreement, any settlement of any Settling State's Attorney General Action
is reached with any non-settling defendant which is not a Party hereto
and such settlement is on any terms more favorable to such non-settling
defendant than are the terms of this Agreement to a Settling Defendant,
such Settling Defendant shall each have the right to replace or modify
any or all of the terms of this Agreement with, or add to this Agreement,
any or all such more favorable terms.
A. . In the event
that, subsequent to the date of this Agreement, any of the Settling Defendants
enters into a settlement agreement with any State other than a Settling
State on terms (relating to the then Present Value of amounts payable under
such settlement agreement, compliance with the Proposed Rule or cooperation)
that are more favorable to the State than those contained herein (as adjusted
for relative Medicaid Population), the Settling States shall have the right
with respect to such Settling Defendant to replace or modify any or all
of the terms of this Agreement with, or add to this Agreement, any or all
such more favorable terms (adjusted for relative Medicaid Populations).
II. . Future Affiliate.
A. . The terms of this
Agreement shall not be binding upon or applicable to a Future Affiliate
of the Settling Defendants, except as provided for in this Section 17.
B. . (a) In the event of
a Future Affiliate Transaction, the Settling States shall not seek to enjoin
or otherwise challenge a spinoff or like disposition of the stock or assets
of any Affiliate of the Future Affiliate which is not engaged in Domestic
Tobacco Operations. The Settling States reserve the right to seek
to enjoin such a spinoff in the event that such spinoff or like disposition
is sought by someone other than Brooke Group or a Future Affiliate or an
Affiliate of a Future Affiliate.
(b) In the
event of and after a Future Affiliate Transaction: (i) the Settling
States each release (pursuant to, mutatis mutandis, Section 7.1 hereof)
and covenant not to bring suit for any claim so released against any Affiliate
of the Future Affiliate, other than the Affiliate engaged in Domestic Tobacco
Operations; and (ii) if prior to the Future Affiliate Transaction, a Settling
State shall have obtained a verdict or judgment in its Attorney General
Action, against an Affiliate (including the Parent) of the Future Affiliate,
other than against the Affiliate engaged in Domestic Tobacco Operations,
such Settling State shall not seek to enforce such verdict or judgment
against any such Affiliate other than the Affiliate engaged in Domestic
Tobacco Operations.
. In the event a Settling State
obtains a verdict or judgment against a Non-settling Tobacco Company in
an Attorney General Action, and a Settling Defendant commences a proxy
contest or similar action seeking control of such Non-settling Tobacco
Company or an Affiliate thereof, then such Non-settling Tobacco Company
or an Affiliate thereof will not be required to post a bond in order to
stay enforcement of such verdict or judgment, and such Settling State will
not seek to enforce such verdict or judgment against such Non-settling
Tobacco Company or such Affiliate, for a period of the earlier of (i) one
year from the commencement of such proxy contest or action, and (ii) completion
or resolution of the proxy or merger vote.
. In the event that subsequent
to a Future Affiliate Transaction, and in conformity with § 17.2(b)
hereof, a Settling State obtains a verdict or judgment against a Future
Affiliate in an Attorney General Action, such Future Affiliate will not
be required to post a bond in order to stay enforcement of such verdict
or judgment, and such Settling State will not seek to enforce such judgment
against such Future Affiliate or an Affiliate of such Future Affiliate
until the verdict or judgment becomes final and non-appealable.
. Prior to a Future Affiliate
Transaction, Settling Defendants shall not enter into any agreement with
any prospective Future Affiliate which diminishes or impairs the prospective
Future Affiliate's assets, other than in the established and/or ordinary
course of business of such prospective Future Affiliate and shall use best
efforts to prevent such prospective Future Affiliate from diminishing or
impairing such assets. In the event of a Future Affiliate Transaction,
Settling States reserve all of their rights to prevent the Future Affiliate
from diminishing or impairing the Future Affiliate's Tobacco assets, other
than in the established and/or ordinary course of business of such Future
Affiliate.
. With respect to subsections
17.1 - 17.5 above, nothing in these provisions, or elsewhere in this Agreement,
limits the authority of the Attorneys General to challenge any transaction
which they reasonably believe is in violation of federal or state antitrust
law.
. In the event of a Future Affiliate
Transaction after which Liggett remains as a separate entity such that
Liggett's Pretax Income is readily calculable, Section 6.3.2 hereof shall
remain in effect with respect to Pretax Income solely attributable to such
separate entity. In the event of a Future Affiliate Transaction,
Settling Defendants and the Attorneys General and their respective counsel,
each agree to exercise best efforts to negotiate in good faith a payment
schedule to replace that set forth in Section 6.3.2. Nothing in this
Section 17.7 affects in any way Liggett's payment obligations under Section
6.3.1 hereof.
. Promptly after a Future Affiliate
Transaction, a Future Affiliate shall abide by Sections 4.4 - 4.7 hereof.
. Promptly
after a Future Affiliate Transaction, Settling Defendants and the Attorneys
General and their respective counsel, each agree to exercise best efforts
to negotiate in good faith a settlement of all Attorney General Actions
against a Future Affiliate's Domestic Tobacco Operations.
17.9. As promptly as reasonably
practicable after a Future Affiliate Transaction, a Future Affiliate shall
agree to eliminate cartoon characters such as "Joe Camel," from all of
its advertising and promotional materials and activities with respect to
tobacco products.
. Miscellaneous.
. All terms of this Agreement
and/or obligations created thereby shall be deemed to include a covenant
of good faith and fair dealing on behalf of all parties.
. Brooke Group shall provide
to the Settling States at the time of execution of this Agreement, an opinion
in form satisfactory to the Settling States from legal counsel for the
Brooke Group as to the due execution of the Settlement Agreement by the
Brooke Group and Liggett and its enforceability against the Brooke Group
and Liggett and such other matters contemplated by Section 14.1 (other
than the "agreements" referenced in clause (iv)).
. In the event that a
termination occurs pursuant to any sections of this Agreement, no Settling
State shall be required to return any payment.
. Subject to the provisions
of Section 18 herein, this Agreement, including all Appendices attached
hereto, if any, shall constitute the entire Agreement among the parties
with regard to the subject of this Agreement and shall supersede any previous
agreements and understandings between the Parties with respect to the subject
matter of this Agreement. This Agreement may not be changed, modified,
or amended except in writing signed by all Parties.
. With respect to each
Settling State, this Agreement shall be construed under and governed by
the laws of such State applied without regard to its laws applicable to
choice of law.
. This Agreement may be
executed by the Parties in one or more counterparts, each of which shall
be deemed an original but all of which together shall constitute one and
the same instrument.
. Any judgment by a court
that any provision of this Agreement, as applied to any party or to any
circumstance, is invalid or unenforceable shall in no way affect any other
provision of this Agreement or the application thereof in any other circumstance,
and such provision so adjudged invalid or unenforceable shall be enforced
to the maximum extent permitted by law.
. This Agreement shall
be binding upon and inure to the benefit of the Settling States, the Settling
Defendants, and their representatives, heirs, successors, and assigns.
. Nothing in this Agreement
shall be construed to subject any Settling Defendant's parent or affiliated
company to the obligations or liabilities of that Settling Defendant.
. The headings of the
Sections of this Agreement are included for convenience only and shall
not be deemed to constitute part of this Agreement or to affect its construction.
. Any notice, request, instruction, or application for Court orders
sought in connection with this Agreement or other document to be given
by any Party to any other Party shall be in writing and delivered personally
or sent by registered or certified mail, postage prepaid, if to the Settling
Defendants to the attention of each Settling Defendant's respective representative
and to Plaintiffs' Counsel on behalf of the Settling States.
. References to or use
of a singular noun or pronoun in this Agreement shall include the plural,
unless the context implies otherwise.
IN WITNESS WHEREOF, the Parties
have executed this Agreement as of the day and date first written above.
BROOKE GROUP LTD.
STATE OF ARIZONA
By______________________
By______________________
Bennett S. LeBow
Grant Woods
Attorney General
Date:___________________
Date:____________________
LIGGETT GROUP, INC.
STATE OF CONNECTICUT
By______________________
By_______________________
Bennett S. LeBow
Richard Blumenthal
Attorney General
Date:___________________
Date:____________________
KASOWITZ, BENSON, TORRES
STATE OF HAWAII
& FRIEDMAN LLP
By______________________
By______________________
Margery Bronster
Marc E. Kasowitz
Attorney General
Attorneys for
BROOKE GROUP LTD. and
Date:____________________
LIGGETT GROUP, INC.
STATE OF ILLINOIS
By_______________________
Jim Ryan
Attorney General
Date:____________________
STATE OF INDIANA
By_______________________
Jeffrey Modisett
Attorney General
Date:____________________
STATE OF IOWA
By_______________________
Tom Miller
Attorney General
Date:____________________
STATE OF KANSAS
By_______________________
Carla Stovall
Attorney General
Date:____________________
STATE OF MARYLAND
By_______________________
Joseph Curran
Attorney General
Date:____________________
STATE OF MICHIGAN
By_______________________
Frank Kelley
Attorney General
Date:____________________
STATE OF MINNESOTA
By_______________________
Hubert H. Humphrey, III
Attorney General
Date:____________________
STATE OF NEW JERSEY
By_______________________
Peter Verniero
Attorney General
Date:____________________
STATE OF NEW YORK
By_______________________
Dennis Vacco
Attorney General
Date:____________________
STATE OF OKLAHOMA
By_______________________
Drew Edmondson
Attorney General
Date:____________________
STATE OF TEXAS
By_______________________
Dan Morales
Attorney General
Date:____________________
STATE OF UTAH
By_______________________
Jan Graham
Attorney General
Date:____________________
STATE OF WASHINGTON
By_______________________
Christine Gregoire
Attorney General
Date:____________________
STATE OF WISCONSIN
By_______________________
Jim Doyle
Attorney General
Date:____________________ |