SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 23, 1998
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PHILIP MORRIS COMPANIES INC.
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(Exact name of registrant as specified in its charter)
Virginia 1-8940 13-3260245
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(State or other (Commission (IRS Employer
jurisdiction File Number) Identification No.)
of incorporation)
120 Park Avenue, New York, New York 10017-5592
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (917) 663-5000
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(Former name or former address, if changed since last report)
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Item 5. Other Events.
Settlement of State Health Care Cost Recovery Actions
On November 23, 1998, Philip Morris Incorporated ("PM Inc."), Brown &
Williamson Tobacco Corporation, Lorillard Tobacco Company and R.J. Reynolds
Tobacco Company (the "original participating manufacturers" and, together with
Liggett Group, Inc. and any other tobacco product manufacturer that becomes a
signatory, the "participating manufacturers") entered into a Master Settlement
Agreement (the "agreement") with 46 states, the District of Columbia, the
Commonwealth of Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa and
the Northern Marianas (collectively, the "states") to settle the asserted and
unasserted health care cost recovery and certain other claims of those states.
The original participating manufacturers had previously settled similar claims
brought by Mississippi, Florida, Texas, and Minnesota.
Although PM Inc. and its parent company, Philip Morris Companies Inc. (the
"Company"), believe they had a number of valid defenses to these claims, they
nevertheless believe the agreement is in their best interest and the best
interest of the Company's stockholders because it resolves a significant
litigation threat currently affecting the U.S. tobacco industry and, thereby,
reduces uncertainties facing the industry and can provide a more stable business
environment. The agreement provides that it is not an admission or concession or
evidence of any liability or wrongdoing on the part of any party, and was
entered into by the original participating manufacturers to avoid the further
expense, inconvenience, burden and uncertainty of litigation.
The agreement is filed as an Exhibit to this Form 8-K and the following
summary of the agreement is qualified by reference thereto.
Advertising and Marketing Restrictions
The agreement restricts tobacco product advertising and marketing within
the settling states and otherwise restricts the activities of participating
manufacturers. Among other things, it:
(i) prohibits the targeting of youth in the advertising, promotion
or marketing of tobacco products;
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(ii) bans the use of cartoon characters in all tobacco advertising
and promotion;
(iii) limits each participating manufacturer to one tobacco brand name
sponsorship during any twelve-month period (except for wind-down
of existing contracts). The single permitted sponsorship may not
include major team sports or events in which the intended
audience includes a significant percentage of youth. The
agreement limits the advertising and promotion in connection
with such permitted sponsorship, and bans agreements to name any
stadium or arena in the name of a tobacco brand name;
(iv) bans all outdoor advertising of tobacco products (including, but
not limited to, billboards and tobacco advertising in
transportation facilities, vehicles, enclosed stadia and
shopping malls), with the exception of signs 14 square feet or
less in dimension at retail establishments that sell tobacco
products (other than solely through vending machines). The
settling states may use removed billboards for anti-tobacco
advertising for the duration of the existing lease period at the
expense of the applicable participating manufacturer;
(v) bars participating manufacturers from entering into agreements
that prohibit a third party from selling, purchasing or
displaying anti-tobacco advertising;
(vi) prohibits payments for tobacco product placement in various
media;
(vii) bans participating manufacturers from offering or selling
non-tobacco apparel and other merchandise that bears a tobacco
brand name, subject to specified exceptions;
(viii) prohibits the distribution of free samples of tobacco products
except within an adult-only facility;
(ix) bans gift offers based on the purchase of tobacco products
without sufficient proof that the intended gift recipient is an
adult;
(x) prohibits each participating manufacturer from licensing or
expressly authorizing third parties to advertise such
manufacturer's tobacco brand names in any manner prohibited
under the agreement to that manufacturer itself;
(xi) prohibits participating manufacturers from using as a tobacco
product brand name any nationally recognized non-tobacco brand
or trade name or the names of sports teams, entertainment groups
or individual celebrities, subject to specified exceptions;
(xii) prohibits participating manufacturers from selling or
manufacturing packs containing fewer than twenty cigarettes
through December 31, 2001, and bars participating manufacturers
from opposing proposed legislation to prohibit the sale of packs
containing fewer than twenty cigarettes;
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(xiii) requires participating manufacturers to affirm corporate
principles to comply with the agreement and to reduce underage
usage of tobacco products;
(xiv) imposes requirements applicable to lobbying activities conducted
on behalf of participating manufacturers;
(xv) prohibits participating manufacturers from agreeing to limit or
suppress smoking and health information or research or product
development research;
(xvi) prohibits participating manufacturers from making any material
misrepresentation of fact regarding the health consequences of
using tobacco products; and
(xvii) provides for the dissolution of the Council for Tobacco Research
- U.S.A., Inc., The Tobacco Institute, Inc. and the Center for
Indoor Air Research, Inc. and establishes rules for the
regulation and oversight of any new tobacco-related trade
association.
Public Disclosure
Until June 30, 2010, the original participating manufacturers will
maintain their current Internet websites, which include documents produced in
the Minnesota health care cost recovery action and pursuant to Congressional
subpoena. They will add to the websites documents that were produced in the
actions brought by the settling states and that are not subject to specified
protection against disclosure, as well as other specified documents.
Tobacco Control and Underage Use Laws
Once the agreement is approved with finality in a settling state, the
participating manufacturers will not initiate new facial challenges to statutes,
ordinances and administrative rules relating to tobacco control that were
enacted by that state or its political subdivisions before June 1, 1998.
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Industry Payments
Initial Payments. The original participating manufacturers will pay
$2,400,000,000 two business days after court approval of the escrow agreement.
This payment will be allocated among the original participating manufacturers
based on their relative market capitalization (as stated in Exhibit K of the
agreement) and will be reduced by a percentage allocated to any states that do
not receive final judicial approval of the agreement. PM Inc.'s share of this
payment is $1,632,000,000. The original participating manufacturers will also
pay $2,472,000,000 on January 10, 2000; $2,546,160,000 on January 10, 2001;
$2,622,544,800 on January 10, 2002 and $2,701,221,144 on January 10, 2003. These
payments will be allocated among the original participating manufacturers on the
basis of relative unit volume of domestic cigarette shipments, will be reduced
by a percentage allocated to any states that do not receive final judicial
approval of the agreement, and will be subject to adjustment for changes in the
volume of domestic cigarette shipments.
Payments to Foundation. The original participating manufacturers will also
make payments to fund a national foundation to be established by the National
Association of Attorneys General to conduct educational programs to counter
underage tobacco use, to educate consumers about the cause and prevention of
diseases associated with the use of tobacco products and to engage in specified
related activities other than political or lobbying activities. On March 31,
1999 and on each March 31 for the subsequent nine years, the original
participating manufacturers will pay $25 million to fund the foundation. These
payments will be allocated among the original participating manufacturers on the
basis of their relative unit volume of domestic cigarette shipments, and will be
held in escrow until the occurrence of final judicial approval of the agreement
in at least one settling state. In addition, the original participating
manufacturers will make further payments for the benefit of a national public
education fund established by the foundation in the amounts of $250 million on
March 31, 1999, and $300 million on March 31 of 2000, 2001, 2002 and 2003. These
payments will be allocated among the original participating manufacturers on the
basis of their relative unit volume of domestic cigarette shipments, and (other
than the payment due on March 31, 1999) will be subject to adjustment for
inflation and changes in the unit volume of domestic cigarette shipments. The
$250 million payment is to be held in escrow until final judicial approval of
the agreement has occurred in at least one settling state. The $300 million
payments are to be held in escrow until final judicial approval of the agreement
has occurred in a sufficient number of settling states, as described in the
agreement.
The original participating manufacturers will also make the following
additional payments for the benefit of the national public education fund. If,
for any calendar year beginning with 2003, the participating manufacturers who
were participating manufacturers for the entire calendar year in question had an
aggregate share of all domestic cigarette shipments for such year equal to or
greater than 99.05%, the original participating manufacturers will pay $300
million for the benefit of the national public education fund on April 15 of the
subsequent year. These payments will be allocated among the original
participating manufacturers on the basis of their relative unit volume of
domestic cigarette shipments, will be reduced by a percentage allocated to any
states that do not receive final judicial approval of the agreement, and will be
subject to adjustment for inflation and changes in the unit volume of domestic
cigarette shipments.
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Payment to Enforcement Fund. On March 31, 1999, the original participating
manufacturers will pay $50 million for the benefit of a fund to be established
by the National Association of Attorneys General to provide for the enforcement
and implementation of the agreement and the investigation and litigation of
potential violations of laws with respect to tobacco products. The payment will
be allocated among the original participating manufacturers based on their
relative unit volume of domestic cigarette shipments. This payment will be held
in escrow until final judicial approval of the agreement has occurred in at
least one settling state.
Annual and Strategic Contribution Payments. On April 15, 2000 and on each
April 15 thereafter, the original participating manufacturers will pay the
following amounts (subject to adjustment as described below):
2000 $4.5 billion
2001 $5 billion
2002-2003 $6.5 billion
2004-2007 $8 billion
2008-2017 $8.139 billion
2018 and each year thereafter $9 billion
These annual payments will be allocated among the original participating
manufacturers based on their relative unit volume of domestic cigarette
shipments, will be reduced by a percentage allocated to any states that do not
receive final judicial approval of the agreement and by a percentage allocated
to those states (Mississippi, Florida, Texas and Minnesota) that have already
settled similar claims with the leading tobacco companies, and will be adjusted
for inflation and changes in the unit volume of domestic cigarette shipments.
These payments will also be subject to adjustment and offset as described below.
In addition to the foregoing payments, the original participating
manufacturers will pay $861 million on April 15, 2008 and on each April 15
thereafter through 2017. These strategic contribution payments will be allocated
among the original participating manufacturers based on their relative unit
volume of domestic cigarette shipments, will be reduced by a percentage
allocated to any states that do not receive final judicial approval of the
agreement, and will be adjusted for inflation and changes in the unit volume of
domestic cigarette shipments. These payments will also be subject to adjustment
and offset as described below.
The cumulative annual and strategic contribution payments due in a year
will also be subject to further adjustment and offset as follows:
(i) Those payments will be subject to an "NPM adjustment" in the
event that the participating manufacturers' aggregate market share of
domestic cigarette shipments in the calendar year preceding the year in
which the payment in question is due falls below their 1997 aggregate
market share less two percentage points (a "market share loss"). This
adjustment shall only apply if (A) the disadvantages experienced as a
result of the provisions of this agreement are determined to be a
significant factor contributing to the market share loss; and (B) during
the calendar year immediately
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preceding the year in which the payment in question is due the aggregate
number of cigarettes shipped domestically by specified participating
manufacturers does not exceed the aggregate number of cigarettes shipped
domestically by such participating manufacturers in 1997. If the foregoing
conditions are met, the annual and strategic contribution payments for the
year in question will be reduced by 3% for each 1% of market share loss,
up to a market share loss of 16 2/3% (and by a different specified
percentage for each additional percentage point (or portion thereof) of
market share loss). The reduction in payments pursuant to the NPM
adjustment will be allocated among all settling states that did not have a
qualifying statute in full force and effect during a specified period of
the prior calendar year, defined as a statute that neutralizes the cost
disadvantages in the state in question that is imposed on participating
manufacturers by virtue of the agreement. A state that had a qualifying
statute in full force and effect during a specified period of the prior
calendar year will not have any reduction pursuant to the NPM adjustment
allocated to it, and what would have been its allocated share of such
reduction will instead be reallocated to (and further reduce the payments
to) those settling states without qualifying statutes. If a state passes a
qualifying statute that is in the form of the model statute attached to
the agreement as Exhibit T, but such statute is invalidated, the reduction
in payments pursuant to the NPM adjustment may be allocated to that state,
but may not reduce the annual and strategic contribution payments to that
state in any year by more than 65%, and any additional reduction that
would have applied to such state will instead be reallocated to (and
further reduce the payments to) those settling states without qualifying
statutes.
A reduction in payments by the original participating manufacturers
pursuant to the NPM adjustment will be allocated among the original
participating manufacturers as follows. First, each original participating
manufacturer that lost market share during the year in question on a
disproportionate basis relative to other original participating
manufacturers shall be allocated up to $300 million of the reduction. Any
remaining reduction will be allocated among all original participating
manufacturers on the basis of relative unit volume of domestic cigarette
shipments (except that, as described in the agreement, there may be
further reallocation between PM Inc. and Lorillard Tobacco Company in a
manner potentially adverse to PM Inc.).
(ii) These payments will also be subject to a dollar-for-dollar
offset for amounts paid (by settlement, tax or otherwise) by participating
manufacturers (and made available to any settling state) pursuant to
certain federal tobacco-related legislation enacted after November 23,
1998 but on or before November 30, 2002, to the extent that the amounts
made available to the settling state in question are either (a)
unrestricted as to their use or (b) restricted to any form of health care
or to any use related to tobacco (except for amounts specifically
applicable to tobacco growers or communities dependent on the production
of tobacco or tobacco products). This offset, however, will not apply to
the extent that the federal legislation either conditions the state's
receipt of the federal money upon relinquishment of rights or benefits
under the agreement or imposes other specified conditions on the state's
receipt of the money that the state chooses not to fulfill.
(iii) These payments will also be subject to a further offset as
follows. The
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settling states (as detailed below) will release participating
manufacturers, their parents and affiliates and the other released parties
(as defined in the agreement) from all released claims (as defined in the
agreement) brought by the settling states (and any of their agencies and
similar entities), by political subdivisions (such as cities and counties)
within those states, and by any other person or entity seeking specified
types of relief. In the event that this release is deemed unenforceable as
against any of these releasing parties, the participating manufacturers
will receive a dollar-for-dollar offset for amounts paid by any released
party (whether by judgment or settlement) on any released claims brought
by any such releasing parties.
(iv) These payments will also be subject to a further
dollar-for-dollar offset for amounts paid on certain contribution (or
similar) claims by specified non-settling parties.
Escrow. All payments described above will be made into escrow. The
foundation and enforcement fund payments will be disbursed from escrow as
provided above, and will revert back to the participating manufacturers if the
conditions for their disbursement are not fulfilled by December 31, 2001. Each
settling state's share of the remaining payments will not be disbursed to that
state until after the agreement is given final judicial approval in that state.
If such approval does not occur by December 31, 2001 (or if the agreement is
terminated in that state), that state's share of the payments held in escrow
will revert back to the participating manufacturers.
Costs and Attorneys Fees. The original participating manufacturers will
reimburse the settling states and other specified governmental entities for
reasonable costs and expenses incurred in connection with the settled claims and
for time reasonably expended by their attorneys and paralegals in connection
with the settled actions, subject to an aggregate cap of $150 million. These
payments will be allocated among the original participating manufacturers on the
basis of relative unit volume of domestic cigarette shipments.
The original participating manufacturers will also pay the reasonable fees
of outside counsel representing the settling states and other specified
governmental entities. The original participating manufacturers will offer to
liquidate such fees and, to the extent such offers are accepted, will pay such
fees over five years, beginning in 1999, subject to an annual aggregate cap of
$250 million. The fees of attorneys who do not accept such offers will be set by
a panel of arbitrators and, together with the fees of attorneys representing
certain other state and class actions, will be subject to a separate and
additional nationwide annual cap of $500 million. Amounts owed in a particular
year that could not be paid because of the cap will be rolled over to the next
year. In addition, the original participating manufacturers will also pay the
reasonable costs and expenses of such outside counsel, subject to an annual cap
of $75 million. All such payments to outside counsel will be allocated among the
original participating manufacturers on the basis of relative unit volume of
domestic cigarette shipments.
Payment Responsibility. The payment obligations under the agreement are
the several and not joint obligations of each participating manufacturer and are
not the responsibility of any affiliate of a participating manufacturer.
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Payments By Other Participating Manufacturers. Tobacco companies (other
than the four original participating manufacturers) that are party to the
agreement have the following payment obligations. Such a company that becomes a
party on or prior to January 22, 1999 will have no payment obligations unless
its market share exceeds the greater of 125% of its 1997 market share or 100% of
its 1998 market share. In the year following any year in which its market share
does so exceed the greater of these base market shares, such company will pay on
each excess unit an amount equal (on a per-unit basis) to that paid during such
following year by the original participating manufacturers pursuant to the
foundation payments (except for the $250 million payment due on March 31, 1999)
and the annual and strategic contribution payments, subject to all applicable
adjustments, offsets and reductions (other than the adjustment for changes in
the unit volume of domestic cigarette shipments). Such a company that does not
become a party until after January 22, 1999 will pay on each unit sold an amount
equal (on a per-unit basis) to that paid during the year in question by the
original participating manufacturers pursuant to the foundation payments (except
for the $250 million payment due on March 31, 1999) and the annual and strategic
contribution payments, subject to all applicable adjustments, offsets and
reductions (other than the adjustment for changes in the unit volume of domestic
cigarette shipments).
Finality
The agreement is subject to final judicial approval in each of the
settling states. Pending final judicial approval of the agreement by the courts
of the settling state in question, a stay of the health care cost recovery
action of such settling state will be sought jointly by such state and the
participating manufacturers who are parties in such action. If a settling state
does not obtain final judicial approval by December 31, 2001, the agreement will
be terminated with respect to such state and its stay will be lifted; the
agreement, however, will remain in effect as to each settling state in which
final judicial approval is obtained.
Most Favored Nation Provisions
If before October 1, 2000, a participating manufacturer enters into any
settlement agreement of similar litigation with a non-federal, non-foreign
governmental plaintiff on terms more favorable than the overall terms of the
agreement, then the settling states will obtain treatment with respect to such
participating manufacturer at least as relatively favorable as such governmental
plaintiff obtained. The agreement does not require adjustment to reflect more
favorable economic terms pursuant to settlements reached after a jury is
empaneled or in other specified circumstances.
If on or after October 1, 2000, a participating manufacturer enters into
any future settlement agreement of similar litigation with a non-federal,
non-foreign governmental plaintiff on non-economic terms more favorable than the
non-economic terms of the agreement, and such future settlement agreement
contains terms related to marketing or distributing tobacco products or other
such non-economic terms not contained in the agreement, then the agreement will
be revised with respect to that participating manufacturer to include such terms
if the settling states so desire.
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In the event that any settling state resolves by settlement similar claims
against any non-participating manufacturer on overall terms more favorable to
such non-participating manufacturer than those of the agreement, including terms
related to marketing or distributing tobacco products or providing a lower
settlement cost per pack of cigarettes sold, the participating manufacturers
will obtain, with respect to such settling state, overall terms at least as
relatively favorable.
Scope of Release
Each settling state (including, but not limited to, such settling state's
agencies, subdivisions and officials), as well as other releasing parties as
specified in the agreement, will release all participating manufacturers and
their past, present and future affiliates, the respective officers, directors,
employees, retailers, and distributors of the foregoing, and other released
parties as specified in the agreement: (i) with respect to past conduct, acts or
omissions, from any and all civil claims in any way related to the use, sale,
distribution, manufacture, development, advertising, marketing or health effects
of, to the exposure to, or to research, statements or warnings regarding,
tobacco products (with the exception of certain specified tax or license-fee
related claims as specified in the agreement); and (ii) with respect to future
conduct, acts or omissions, from monetary civil claims in any way related to the
use of or exposure to tobacco products manufactured in the ordinary course of
business, including without limitation any future claims for reimbursement of
health-care costs allegedly associated with the use of or exposure to tobacco
products.
Brand Transfers
No original participating manufacturer may sell or transfer any of its
cigarette brands, businesses or product formulas (except for use exclusively
outside the United States) to an entity that is not an original participating
manufacturer unless such entity agrees to assume the obligations of an original
participating manufacturer with respect to such sold or transferred cigarette
brand, business or product formula. In the event of any such sale or transfer to
an entity that within 180 days of the sale or transfer was a non-participating
manufacturer, the participating manufacturer making the sale or transfer must
certify that the acquiror or transferee has the capability of performing the
obligations of a participating manufacturer. If a participating manufacturer
ceases selling in the United States a cigarette brand owned in the United States
prior to July 1, 1998 and an affiliate of such participating manufacturer
thereafter sells such brand in the United States, then such affiliate shall be
considered the successor of such participating manufacturer with respect to such
brand.
Domestic Application
The obligations under the agreement are not applicable to actions taken
outside of the United States.
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Effect On Other Settlements
The states that have previously entered into settlements of health care
cost recovery actions with PM Inc. (Mississippi, Florida, Texas and Minnesota)
may contend that, under the terms of the "most favored nations" clauses of their
settlement agreements, they are entitled to have non-economic terms from the
agreement added to their settlement agreements.
Financial Effects
PM Inc.'s share of the initial payment, due two business days after court
approval of the escrow agreement, is $1.632 billion and will be funded from
available cash and charged to pretax expense in the fourth quarter of 1998. The
Company will incur additional pretax charges to expense in the fourth quarter of
1998, anticipated to be approximately $335 million, to cover fixed and
determinable costs associated with the agreement, such as payments due in 1999
to the foundation's national public education fund, as well as costs to comply
with marketing and other restrictions contained in the agreement. PM Inc.'s
share of all other payments under the agreement will be charged to expense as
the related sales occur and the Company anticipates that such payments will be
funded through price increases. The Company believes the agreement will
materially adversely affect the operating income, cash flows and financial
position of PM Inc. and the Company in the fourth quarter and year 1998 and will
likely materially adversely affect the business, volume, cash flows and/or
operating income and financial position of PM Inc. and the Company in future
years. The degree of the adverse impact will depend, among other things, on the
rates of decline in United States cigarette sales in the premium and discount
segments, PM Inc.'s share of the domestic premium and discount cigarette
segments, and the effect of any resulting cost advantage of manufacturers not
subject to the agreement.
Tobacco Growers
The participating manufacturers have also, as part of the agreement,
committed to work cooperatively with the tobacco grower community to address
concerns about the potential adverse economic impact on that community and have
committed to meet with the political leadership of states with grower
communities to address those economic concerns. Such discussions may lead to
substantial additional payments by PM Inc. and other tobacco product
manufacturers to address those concerns.
Item 7. Financial Statements and Exhibits.
10. Master Settlement Agreement relating to state health care cost
recovery claims.
99. Press Release dated November 25, 1998, relating to the Company's
dividend and share repurchase programs.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PHILIP MORRIS COMPANIES INC.
BY /s/ G. PENN HOLSENBECK
Vice President, Associate General Counsel
and Secretary
DATE November 25, 1998
EXHIBIT 10
MASTER SETTLEMENT AGREEMENT
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MASTER SETTLEMENT AGREEMENT
TABLE OF CONTENTS
Page
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I. RECITALS.................................................... 1
II. DEFINITIONS................................................. 3
(a) "Account"............................................. 3
(b) "Adult"............................................... 3
(c) "Adult-Only Facility"................................. 3
(d) "Affiliate"........................................... 3
(e) "Agreement"........................................... 4
(f) "Allocable Share"..................................... 4
(g) "Allocated Payment"................................... 4
(h) "Bankruptcy".......................................... 4
(i) "Brand Name".......................................... 5
(j) "Brand Name Sponsorship".............................. 5
(k) "Business Day"........................................ 6
(l) "Cartoon"............................................. 6
(m) "Cigarette"........................................... 6
(n) "Claims".............................................. 7
(o) "Consent Decree"...................................... 7
(p) "Court"............................................... 7
(q) "Escrow".............................................. 7
(r) "Escrow Agent"........................................ 7
(s) "Escrow Agreement".................................... 8
(t) "Federal Tobacco Legislation Offset".................. 8
(u) "Final Approval"...................................... 8
(v) "Foundation".......................................... 8
(w) "Independent Auditor"................................. 8
(x) "Inflation Adjustment"................................ 8
(y) "Litigating Releasing Parties Offset"................. 8
(z) "Market Share"........................................ 9
(aa) "MSA Execution Date".................................. 9
(bb) "NAAG"................................................ 9
(cc) "Non-Participating Manufacturer"...................... 9
(dd) "Non-Settling States Reduction"....................... 9
(ee) "Notice Parties"...................................... 9
(ff) "NPM Adjustment"...................................... 10
(gg) "NPM Adjustment Percentage"........................... 10
(hh) "Original Participating Manufacturers"................ 10
(ii) "Outdoor Advertising"................................. 10
(jj) "Participating Manufacturer".......................... 11
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(kk) "Previously Settled States Reduction"................. 12
(ll) "Prime Rate".......................................... 12
(mm) "Relative Market Share"............................... 12
(nn) "Released Claims"..................................... 13
(oo) "Released Parties".................................... 14
(pp) "Releasing Parties"................................... 14
(qq) "Settling State"...................................... 15
(rr) "State"............................................... 15
(ss) "State-Specific Finality"............................. 15
(tt) "Subsequent Participating Manufacturer"............... 16
(uu) "Tobacco Product Manufacturer"........................ 16
(vv) "Tobacco Products".................................... 17
(ww) "Tobacco-Related Organizations"....................... 17
(xx) "Transit Advertisements".............................. 17
(yy) "Underage"............................................ 18
(zz) "Video Game Arcade"................................... 18
(aaa) "Volume Adjustment"................................... 18
(bbb) "Youth"............................................... 18
III. PERMANENT RELIEF............................................ 18
(a) Prohibition on Youth Targeting........................ 18
(b) Ban on Use of Cartoons................................ 19
(c) Limitation of Tobacco Brand Name Sponsorships......... 19
(d) Elimination of Outdoor Advertising and Transit
Advertisements........................................ 22
(e) Prohibition on Payments Related to Tobacco Products and
Media................................................. 24
(f) Ban on Tobacco Brand Name Merchandise................. 25
(g) Ban on Youth Access to Free Samples................... 26
(h) Ban on Gifts to Underage Persons Based on Proofs of
Purchase.............................................. 26
(i) Limitation on Third-Party Use of Brand Names.......... 27
(j) Ban on Non-Tobacco Brand Names........................ 27
(k) Minimum Pack Size of Twenty Cigarettes................ 28
(l) Corporate Culture Commitments Related to Youth Access
and Consumption....................................... 29
(m) Limitations on Lobbying............................... 29
(n) Restriction on Advocacy Concerning Settlement Proceeds 32
(o) Dissolution of The Tobacco Institute, Inc., the Council
for Tobacco Research-U.S.A., Inc. and the Center for
Indoor Air Research, Inc.............................. 32
(p) Regulation and Oversight of New Tobacco-Related Trade
Associations.......................................... 33
(q) Prohibition on Agreements to Suppress Research........ 35
(r) Prohibition on Material Misrepresentations............ 36
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IV. PUBLIC ACCESS TO DOCUMENTS ................................. 36
V. TOBACCO CONTROL AND UNDERAGE USE LAWS....................... 41
VI. ESTABLISHMENT OF A NATIONAL FOUNDATION...................... 41
(a) Foundation Purposes................................... 41
(b) Base Foundation Payments.............................. 42
(c) National Public Education Fund Payments............... 42
(d) Creation and Organization of the Foundation........... 43
(e) Foundation Affiliation................................ 44
(f) Foundation Functions.................................. 44
(g) Foundation Grant-Making............................... 46
(h) Foundation Activities................................. 47
(i) Severance of this Section............................. 47
VII. ENFORCEMENT................................................. 48
(a) Jurisdiction.......................................... 48
(b) Enforcement of Consent Decree......................... 49
(c) Enforcement of this Agreement......................... 49
(d) Right of Review....................................... 51
(e) Applicability......................................... 51
(f) Coordination of Enforcement .......................... 51
(g) Inspection and Discovery Rights....................... 52
VIII. CERTAIN ONGOING RESPONSIBILITIES OF THE SETTLING STATES..... 53
IX. PAYMENTS.................................................... 54
(a) All Payments Into Escrow.............................. 54
(b) Initial Payments...................................... 55
(c) Annual Payments and Strategic Contribution Payments... 56
(d) Non-Participating Manufacturer Adjustment............. 58
(e) Supplemental Payments................................. 76
(f) Payment Responsibility................................ 77
(g) Corporate Structures.................................. 77
(h) Accrual of Interest................................... 77
(i) Payments by Subsequent Participating Manufacturers.... 78
(j) Order of Application of Allocations, Offsets,
Reductions and Adjustments............................ 80
X. EFFECT OF FEDERAL TOBACCO-RELATED LEGISLATION............... 84
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XI. CALCULATION AND DISBURSEMENT OF PAYMENTS.................... 86
(a) Independent Auditor to Make All Calculations.......... 86
(b) Identity of Independent Auditor....................... 87
(c) Resolution of Disputes................................ 88
(d) General Provisions as to Calculation of Payments...... 88
(e) General Treatment of Payments......................... 94
(f) Disbursement and Charges Not Contingent on Final
Approval.............................................. 95
(g) Payments to be Made Only After Final Approval......... 103
(h) Applicability to Section XVII Payments................ 104
(i) Miscalculated or Disputed Payments.................... 104
(j) Payments After Applicable Condition................... 110
XII. SETTLING STATES' RELEASE, DISCHARGE AND COVENANT............ 110
(a) Release............................................... 110
(b) Released Claims Against Released Parties.............. 117
XIII. CONSENT DECREES AND DISMISSAL OF CLAIMS..................... 120
XIV. PARTICIPATING MANUFACTURERS' DISMISSAL OF RELATED
LAWSUITS.................................................... 122
XV. VOLUNTARY ACT OF THE PARTIES................................ 123
XVI. CONSTRUCTION................................................ 123
XVII. RECOVERY OF COSTS AND ATTORNEYS' FEES....................... 124
XVIII. MISCELLANEOUS............................................. 126
(a) Effect of Current or Future Law....................... 126
(b) Limited Most-Favored Nation Provision................. 127
(c) Transfer of Tobacco Brands............................ 130
(d) Payments in Settlement................................ 131
(e) No Determination or Admission......................... 131
(f) Non-Admissibility..................................... 132
(g) Representations of Parties............................ 132
(h) Obligations Several, Not Joint........................ 133
(i) Headings.............................................. 133
(j) Amendment and Waiver.................................. 133
(k) Notices............................................... 133
(l) Cooperation........................................... 134
(m) Designees to Discuss Disputes......................... 134
(n) Governing Law......................................... 135
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(o) Severability.......................................... 135
(p) Intended Beneficiaries................................ 137
(q) Counterparts.......................................... 137
(r) Applicability......................................... 137
(s) Preservation of Privilege............................. 137
(t) Non-Release........................................... 138
(u) Termination........................................... 138
(v) Freedom of Information Requests....................... 139
(w) Bankruptcy............................................ 139
(x) Notice of Material Transfers.......................... 145
(y) Entire Agreement...................................... 145
(z) Business Days......................................... 145
(aa) Subsequent Signatories................................ 146
(bb) Decimal Places........................................ 146
(cc) Regulatory Authority.................................. 146
(dd) Successors............................................ 146
(ee) Export Packaging...................................... 146
(ff) Actions Within Geographic Boundaries of Settling States 147
(gg) Notice to Affiliates.................................. 147
EXHIBIT A STATE ALLOCATION PERCENTAGES
EXHIBIT B FORM OF ESCROW AGREEMENT
EXHIBIT C FORMULA FOR CALCULATING INFLATION ADJUSTMENTS
EXHIBIT D LIST OF LAWSUITS
EXHIBIT E FORMULA FOR CALCULATING VOLUME ADJUSTMENTS
EXHIBIT F POTENTIAL LEGISLATION NOT TO BE OPPOSED
EXHIBIT G OBLIGATIONS OF THE TOBACCO INSTITUTE UNDER THE
MASTER SETTLEMENT AGREEMENT
EXHIBIT H DOCUMENT PRODUCTION
EXHIBIT I INDEX AND SEARCH FEATURES FOR DOCUMENT WEBSITE
EXHIBIT J TOBACCO ENFORCEMENT FUND PROTOCOL
EXHIBIT K MARKET CAPITALIZATION PERCENTAGES
EXHIBIT L MODEL CONSENT DECREE
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EXHIBIT M LIST OF PARTICIPATING MANUFACTURERS' LAWSUITS
AGAINST THE SETTLING STATES
EXHIBIT N LITIGATING POLITICAL SUBDIVISIONS
EXHIBIT O MODEL STATE FEE PAYMENT AGREEMENT
EXHIBIT P NOTICES
EXHIBIT Q 1996 AND 1997 DATA
EXHIBIT R EXCLUSION OF CERTAIN BRAND NAMES
EXHIBIT S DESIGNATION OF OUTSIDE COUNSEL
EXHIBIT T MODEL STATUTE
EXHIBIT U STRATEGIC CONTRIBUTION FUND PROTOCOL
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MASTER SETTLEMENT AGREEMENT
This Master Settlement Agreement is made by the undersigned Settling State
officials (on behalf of their respective Settling States) and the undersigned
Participating Manufacturers to settle and resolve with finality all Released
Claims against the Participating Manufacturers and related entities as set forth
herein. This Agreement constitutes the documentation effecting this settlement
with respect to each Settling State, and is intended to and shall be binding
upon each Settling State and each Participating Manufacturer in accordance with
the terms hereof.
I. RECITALS
WHEREAS, more than 40 States have commenced litigation asserting various
claims for monetary, equitable and injunctive relief against certain tobacco
product manufacturers and others as defendants, and the States that have not
filed suit can potentially assert similar claims;
WHEREAS, the Settling States that have commenced litigation have sought to
obtain equitable relief and damages under state laws, including consumer
protection and/or antitrust laws, in order to further the Settling States'
policies regarding public health, including policies adopted to achieve a
significant reduction in smoking by Youth;
WHEREAS, defendants have denied each and every one of the Settling States'
allegations of unlawful conduct or wrongdoing and have asserted a number of
defenses to the Settling States' claims, which defenses have been contested by
the Settling States;
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WHEREAS, the Settling States and the Participating Manufacturers are
committed to reducing underage tobacco use by discouraging such use and by
preventing Youth access to Tobacco Products;
WHEREAS, the Participating Manufacturers recognize the concern of the
tobacco grower community that it may be adversely affected by the potential
reduction in tobacco consumption resulting from this settlement, reaffirm their
commitment to work cooperatively to address concerns about the potential adverse
economic impact on such community, and will, within 30 days after the MSA
Execution Date, meet with the political leadership of States with grower
communities to address these economic concerns;
WHEREAS, the undersigned Settling State officials believe that entry into
this Agreement and uniform consent decrees with the tobacco industry is
necessary in order to further the Settling States' policies designed to reduce
Youth smoking, to promote the public health and to secure monetary payments to
the Settling States; and
WHEREAS, the Settling States and the Participating Manufacturers wish to
avoid the further expense, delay, inconvenience, burden and uncertainty of
continued litigation (including appeals from any verdicts), and, therefore, have
agreed to settle their respective lawsuits and potential claims pursuant to
terms which will achieve for the Settling States and their citizens significant
funding for the advancement of public health, the implementation of important
tobacco-related public health measures, including the enforcement of the
mandates and restrictions related to such measures, as well as funding for a
national Foundation dedicated to significantly reducing the use of Tobacco
Products by Youth;
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NOW, THEREFORE, BE IT KNOWN THAT, in consideration of the implementation
of tobacco-related health measures and the payments to be made by the
Participating Manufacturers, the release and discharge of all claims by the
Settling States, and such other consideration as described herein, the
sufficiency of which is hereby acknowledged, the Settling States and the
Participating Manufacturers, acting by and through their authorized agents,
memorialize and agree as follows:
II. DEFINITIONS
(a) "Account" has the meaning given in the Escrow Agreement.
(b) "Adult" means any person or persons who are not Underage.
(c) "Adult-Only Facility" means a facility or restricted area (whether
open-air or enclosed) where the operator ensures or has a reasonable basis to
believe (such as by checking identification as required under state law, or by
checking the identification of any person appearing to be under the age of 27)
that no Underage person is present. A facility or restricted area need not be
permanently restricted to Adults in order to constitute an Adult-Only Facility,
provided that the operator ensures or has a reasonable basis to believe that no
Underage person is present during the event or time period in question.
(d) "Affiliate" means a person who directly or indirectly owns or
controls, is owned or controlled by, or is under common ownership or control
with, another person. Solely for purposes of this definition, the terms "owns,"
"is owned" and "ownership" mean ownership of an equity interest, or the
equivalent thereof, of 10 percent or more, and the term "person" means an
individual, partnership, committee, association, corporation or any other
organization or group of persons.
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(e) "Agreement" means this Master Settlement Agreement, together with the
exhibits hereto, as it may be amended pursuant to subsection XVIII(j).
(f) "Allocable Share" means the percentage set forth for the State in
question as listed in Exhibit A hereto, without regard to any subsequent
alteration or modification of such State's percentage share agreed to by or
among any States; or, solely for the purpose of calculating payments under
subsection IX(c)(2) (and corresponding payments under subsection IX(i)), the
percentage disclosed for the State in question pursuant to subsection
IX(c)(2)(A) prior to June 30, 1999, without regard to any subsequent alteration
or modification of such State's percentage share agreed to by or among any
States.
(g) "Allocated Payment" means a particular Settling State's Allocable
Share of the sum of all of the payments to be made by the Original Participating
Manufacturers in the year in question pursuant to subsections IX(c)(1) and
IX(c)(2), as such payments have been adjusted, reduced and allocated pursuant to
clause "First" through the first sentence of clause "Fifth" of subsection IX(j),
but before application of the other offsets and adjustments described in clauses
"Sixth" through "Thirteenth" of subsection IX(j).
(h) "Bankruptcy" means, with respect to any entity, the commencement of a
case or other proceeding (whether voluntary or involuntary) seeking any of (1)
liquidation, reorganization, rehabilitation, receivership, conservatorship, or
other relief with respect to such entity or its debts under any bankruptcy,
insolvency or similar law now or hereafter in effect; (2) the appointment of a
trustee, receiver, liquidator, custodian or similar official of such entity or
any substantial part of its business or property; (3) the consent of such entity
to any of the relief described in (1) above or to the appointment of any
official described in (2) above in any such case or other proceeding
involuntarily commenced
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against such entity; or (4) the entry of an order for relief as to such entity
under the federal bankruptcy laws as now or hereafter in effect. Provided,
however, that an involuntary case or proceeding otherwise within the foregoing
definition shall not be a "Bankruptcy" if it is or was dismissed within 60 days
of its commencement.
(i) "Brand Name" means a brand name (alone or in conjunction with any
other word), trademark, logo, symbol, motto, selling message, recognizable
pattern of colors, or any other indicia of product identification identical or
similar to, or identifiable with, those used for any domestic brand of Tobacco
Products. Provided, however, that the term "Brand Name" shall not include the
corporate name of any Tobacco Product Manufacturer that does not after the MSA
Execution Date sell a brand of Tobacco Products in the States that includes such
corporate name.
(j) "Brand Name Sponsorship" means an athletic, musical, artistic, or
other social or cultural event as to which payment is made (or other
consideration is provided) in exchange for use of a Brand Name or Names (1) as
part of the name of the event or (2) to identify, advertise, or promote such
event or an entrant, participant or team in such event in any other way.
Sponsorship of a single national or multi-state series or tour (for example,
NASCAR (including any number of NASCAR races)), or of one or more events within
a single national or multi-state series or tour, or of an entrant, participant,
or team taking part in events sanctioned by a single approving organization
(e.g., NASCAR or CART), constitutes one Brand Name Sponsorship. Sponsorship of
an entrant, participant, or team by a Participating Manufacturer using a Brand
Name or Names in an event that is part of a series or tour that is sponsored by
such Participating Manufacturer or that is part of a series or tour in which any
one or more events are sponsored by such Participating
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Manufacturer does not constitute a separate Brand Name Sponsorship. Sponsorship
of an entrant, participant, or team by a Participating Manufacturer using a
Brand Name or Names in any event (or series of events) not sponsored by such
Participating Manufacturer constitutes a Brand Name Sponsorship. The term "Brand
Name Sponsorship" shall not include an event in an Adult-Only Facility.
(k) "Business Day" means a day which is not a Saturday or Sunday or legal
holiday on which banks are authorized or required to close in New York, New
York.
(l) "Cartoon" means any drawing or other depiction of an object, person,
animal, creature or any similar caricature that satisfies any of the following
criteria:
(1) the use of comically exaggerated features;
(2) the attribution of human characteristics to animals, plants or
other objects, or the similar use of anthropomorphic technique; or
(3) the attribution of unnatural or extrahuman abilities, such as
imperviousness to pain or injury, X-ray vision, tunneling at very high
speeds or transformation.
The term "Cartoon" includes "Joe Camel," but does not include any drawing or
other depiction that on July 1, 1998, was in use in any State in any
Participating Manufacturer's corporate logo or in any Participating
Manufacturer's Tobacco Product packaging.
(m) "Cigarette" means any product that contains nicotine, is intended to
be burned or heated under ordinary conditions of use, and consists of or
contains (1) any roll of tobacco wrapped in paper or in any substance not
containing tobacco; or (2) tobacco, in any form, that is functional in the
product, 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
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purchased by, consumers as a cigarette; or (3) any roll of tobacco wrapped in
any substance 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 a cigarette described in clause (1) of
this definition. The term "Cigarette" includes "roll-your-own" (i.e., any
tobacco which, because of its appearance, type, packaging, or labeling is
suitable for use and likely to be offered to, or purchased by, consumers as
tobacco for making cigarettes). Except as provided in subsections II(z) and
II(mm), 0.0325 ounces of "roll-your-own" tobacco shall constitute one individual
"Cigarette."
(n) "Claims" means any and all manner of civil (i.e., non-criminal):
claims, demands, actions, suits, causes of action, damages (whenever incurred),
liabilities of any nature including civil penalties and punitive damages, as
well as costs, expenses and attorneys' fees (except as to the Original
Participating Manufacturers' obligations under section XVII), known or unknown,
suspected or unsuspected, accrued or unaccrued, whether legal, equitable, or
statutory.
(o) "Consent Decree" means a state-specific consent decree as described in
subsection XIII(b)(1)(B) of this Agreement.
(p) "Court" means the respective court in each Settling State to which
this Agreement and the Consent Decree are presented for approval and/or entry as
to that Settling State.
(q) "Escrow" has the meaning given in the Escrow Agreement.
(r) "Escrow Agent" means the escrow agent under the Escrow Agreement.
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(s) "Escrow Agreement" means an escrow agreement substantially in the form
of Exhibit B.
(t) "Federal Tobacco Legislation Offset" means the offset described in
section X.
(u) "Final Approval" means the earlier of:
(1) the date by which State-Specific Finality in a sufficient number
of Settling States has occurred; or
(2) June 30, 2000.
For the purposes of this subsection (u), "State-Specific Finality in a
sufficient number of Settling States" means that State-Specific Finality has
occurred in both:
(A) a number of Settling States equal to at least 80% of the
total number of Settling States; and
(B) Settling States having aggregate Allocable Shares equal to
at least 80% of the total aggregate Allocable Shares assigned to all
Settling States.
Notwithstanding the foregoing, the Original Participating Manufacturers may, by
unanimous written agreement, waive any requirement for Final Approval set forth
in subsections (A) or (B) hereof.
(v) "Foundation" means the foundation described in section VI.
(w) "Independent Auditor" means the firm described in subsection XI(b).
(x) "Inflation Adjustment" means an adjustment in accordance with the
formulas for inflation adjustments set forth in Exhibit C.
(y) "Litigating Releasing Parties Offset" means the offset described in
subsection XII(b).
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(z) "Market Share" means a Tobacco Product Manufacturer's respective share
(expressed as a percentage) of the total number of individual Cigarettes sold in
the fifty United States, the District of Columbia and Puerto Rico during the
applicable calendar year, as measured by excise taxes collected by the federal
government and, in the case of sales in Puerto Rico, arbitrios de cigarillos
collected by the Puerto Rico taxing authority. For purposes of the definition
and determination of "Market Share" with respect to calculations under
subsection IX(i), 0.09 ounces of "roll your own" tobacco shall constitute one
individual Cigarette; for purposes of the definition and determination of
"Market Share" with respect to all other calculations, 0.0325 ounces of "roll
your own" tobacco shall constitute one individual Cigarette.
(aa) "MSA Execution Date" means November 23, 1998.
(bb) "NAAG" means the National Association of Attorneys General, or its
successor organization that is directed by the Attorneys General to perform
certain functions under this Agreement.
(cc) "Non-Participating Manufacturer" means any Tobacco Product
Manufacturer that is not a Participating Manufacturer.
(dd) "Non-Settling States Reduction" means a reduction determined by
multiplying the amount to which such reduction applies by the aggregate
Allocable Shares of those States that are not Settling States on the date 15
days before such payment is due.
(ee) "Notice Parties" means each Participating Manufacturer, each Settling
State, the Escrow Agent, the Independent Auditor and NAAG.
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(ff) "NPM Adjustment" means the adjustment specified in subsection IX(d).
(gg) "NPM Adjustment Percentage" means the percentage determined pursuant
to subsection IX(d).
(hh) "Original Participating Manufacturers" means the following: Brown &
Williamson Tobacco Corporation, Lorillard Tobacco Company, Philip Morris
Incorporated and R.J. Reynolds Tobacco Company, and the respective successors of
each of the foregoing. Except as expressly provided in this Agreement, once an
entity becomes an Original Participating Manufacturer, such entity shall
permanently retain the status of Original Participating Manufacturer.
(ii) "Outdoor Advertising" means (1) billboards, (2) signs and placards in
arenas, stadiums, shopping malls and Video Game Arcades (whether any of the
foregoing are open air or enclosed) (but not including any such sign or placard
located in an Adult-Only Facility), and (3) any other advertisements placed (A)
outdoors, or (B) on the inside surface of a window facing outward. Provided,
however, that the term "Outdoor Advertising" does not mean (1) an advertisement
on the outside of a Tobacco Product manufacturing facility; (2) an individual
advertisement that does not occupy an area larger than 14 square feet (and that
neither is placed in such proximity to any other such advertisement so as to
create a single "mosaic"-type advertisement larger than 14 square feet, nor
functions solely as a segment of a larger advertising unit or series), and that
is placed (A) on the outside of any retail establishment that sells Tobacco
Products (other than solely through a vending machine), (B) outside (but on the
property of) any such establishment, or (C) on the inside surface of a window
facing outward in any such establishment; (3) an advertisement inside a retail
establishment that sells Tobacco
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Products (other than solely through a vending machine) that is not placed on the
inside surface of a window facing outward; or (4) an outdoor advertisement at
the site of an event to be held at an Adult-Only Facility that is placed at such
site during the period the facility or enclosed area constitutes an Adult-Only
Facility, but in no event more than 14 days before the event, and that does not
advertise any Tobacco Product (other than by using a Brand Name to identify the
event).
(jj) "Participating Manufacturer" means a Tobacco Product Manufacturer
that is or becomes a signatory to this Agreement, provided that (1) in the case
of a Tobacco Product Manufacturer that is not an Original Participating
Manufacturer, such Tobacco Product Manufacturer is bound by this Agreement and
the Consent Decree (or, in any Settling State that does not permit amendment of
the Consent Decree, a consent decree containing terms identical to those set
forth in the Consent Decree) in all Settling States in which this Agreement and
the Consent Decree binds Original Participating Manufacturers (provided,
however, that such Tobacco Product Manufacturer need only become bound by the
Consent Decree in those Settling States in which the Settling State has filed a
Released Claim against it), and (2) in the case of a Tobacco Product
Manufacturer that signs this Agreement after the MSA Execution Date, such
Tobacco Product Manufacturer, within a reasonable period of time after signing
this Agreement, makes any payments (including interest thereon at the Prime
Rate) that it would have been obligated to make in the intervening period had it
been a signatory as of the MSA Execution Date. "Participating Manufacturer"
shall also include the successor of a Participating Manufacturer. Except as
expressly provided in this Agreement, once an entity becomes a Participating
Manufacturer such entity shall permanently retain the
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status of Participating Manufacturer. Each Participating Manufacturer shall
regularly report its shipments of Cigarettes in or to the fifty United States,
the District of Columbia and Puerto Rico to Management Science Associates, Inc.
(or a successor entity as set forth in subsection (mm)). Solely for purposes of
calculations pursuant to subsection IX(d), a Tobacco Product Manufacturer that
is not a signatory to this Agreement shall be deemed to be a "Participating
Manufacturer" if the Original Participating Manufacturers unanimously consent in
writing.
(kk) "Previously Settled States Reduction" means a reduction determined by
multiplying the amount to which such reduction applies by 12.4500000%, in the
case of payments due in or prior to 2007; 12.2373756%, in the case of payments
due after 2007 but before 2018; and 11.0666667%, in the case of payments due in
or after 2018.
(ll) "Prime Rate" shall mean the prime rate as published from time to time
by the Wall Street Journal or, in the event the Wall Street Journal is no longer
published or no longer publishes such rate, an equivalent successor reference
rate determined by the Independent Auditor.
(mm) "Relative Market Share" means an Original Participating
Manufacturer's respective share (expressed as a percentage) of the total number
of individual Cigarettes shipped in or to the fifty United States, the District
of Columbia and Puerto Rico by all the Original Participating Manufacturers
during the calendar year immediately preceding the year in which the payment at
issue is due (regardless of when such payment is made), as measured by the
Original Participating Manufacturers' reports of shipments of Cigarettes to
Management Science Associates, Inc. (or a successor entity acceptable to both
the Original Participating Manufacturers and a majority of those Attorneys
General
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who are both the Attorney General of a Settling State and a member of the NAAG
executive committee at the time in question). A Cigarette shipped by more than
one Participating Manufacturer shall be deemed to have been shipped solely by
the first Participating Manufacturer to do so. For purposes of the definition
and determination of "Relative Market Share," 0.09 ounces of "roll your own"
tobacco shall constitute one individual Cigarette.
(nn) "Released Claims" means:
(1) for past conduct, acts or omissions (including any damages
incurred in the future arising from such past conduct, acts or omissions),
those Claims directly or indirectly based on, arising out of or in any way
related, in whole or in part, to (A) the use, sale, distribution,
manufacture, development, advertising, marketing or health effects of, (B)
the exposure to, or (C) research, statements, or warnings regarding,
Tobacco Products (including, but not limited to, the Claims asserted in
the actions identified in Exhibit D, or any comparable Claims that were,
could be or could have been asserted now or in the future in those actions
or in any comparable action in federal, state or local court brought by a
Settling State or a Releasing Party (whether or not such Settling State or
Releasing Party has brought such action)), except for claims not asserted
in the actions identified in Exhibit D for outstanding liability under
existing licensing (or similar) fee laws or existing tax laws (but not
excepting claims for any tax liability of the Tobacco-Related
Organizations or of any Released Party with respect to such
Tobacco-Related Organizations, which claims are covered by the release and
covenants set forth in this Agreement);
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(2) for future conduct, acts or omissions, only those monetary
Claims directly or indirectly based on, arising out of or in any way
related to, in whole or in part, the use of or exposure to Tobacco
Products manufactured in the ordinary course of business, including
without limitation any future Claims for reimbursement of health care
costs allegedly associated with the use of or exposure to Tobacco
Products.
(oo) "Released Parties" means all Participating Manufacturers, their past,
present and future Affiliates, and the respective divisions, officers,
directors, employees, representatives, insurers, lenders, underwriters,
Tobacco-Related Organizations, trade associations, suppliers, agents, auditors,
advertising agencies, public relations entities, attorneys, retailers and
distributors of any Participating Manufacturer or of any such Affiliate (and the
predecessors, heirs, executors, administrators, successors and assigns of each
of the foregoing). Provided, however, that "Released Parties" does not include
any person or entity (including, but not limited to, an Affiliate) that is
itself a Non-Participating Manufacturer at any time after the MSA Execution
Date, unless such person or entity becomes a Participating Manufacturer.
(pp) "Releasing Parties" means each Settling State and any of its past,
present and future agents, officials acting in their official capacities, legal
representatives, agencies, departments, commissions and divisions; and also
means, to the full extent of the power of the signatories hereto to release
past, present and future claims, the following: (1) any Settling State's
subdivisions (political or otherwise, including, but not limited to,
municipalities, counties, parishes, villages, unincorporated districts and
hospital districts), public entities, public instrumentalities and public
educational
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institutions; and (2) persons or entities acting in a parens patriae, sovereign,
quasi-sovereign, private attorney general, qui tam, taxpayer, or any other
capacity, whether or not any of them participate in this settlement, (A) to the
extent that any such person or entity is seeking relief on behalf of or
generally applicable to the general public in such Settling State or the people
of the State, as opposed solely to private or individual relief for separate and
distinct injuries, or (B) to the extent that any such entity (as opposed to an
individual) is seeking recovery of health-care expenses (other than premium or
capitation payments for the benefit of present or retired state employees) paid
or reimbursed, directly or indirectly, by a Settling State.
(qq) "Settling State" means any State that signs this Agreement on or
before the MSA Execution Date. Provided, however, that the term "Settling State"
shall not include (1) the States of Mississippi, Florida, Texas and Minnesota;
and (2) any State as to which this Agreement has been terminated.
(rr) "State" means any state of the United States, the District of
Columbia, the Commonwealth of Puerto Rico, Guam, the Virgin Islands, American
Samoa, and the Northern Marianas.
(ss) "State-Specific Finality" means, with respect to the Settling State
in question:
(1) this Agreement and the Consent Decree have been approved and
entered by the Court as to all Original Participating Manufacturers, or,
in the event of an appeal from or review of a decision of the Court to
withhold its approval and entry of this Agreement and the Consent Decree,
by the court hearing such appeal or conducting such review;
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(2) entry by the Court has been made of an order dismissing with
prejudice all claims against Released Parties in the action as provided
herein; and
(3) the time for appeal or to seek review of or permission to appeal
("Appeal") from the approval and entry as described in subsection (1)
hereof and entry of such order described in subsection (2) hereof has
expired; or, in the event of an Appeal from such approval and entry, the
Appeal has been dismissed, or the approval and entry described in (1)
hereof and the order described in subsection (2) hereof have been affirmed
in all material respects by the court of last resort to which such Appeal
has been taken and such dismissal or affirmance has become no longer
subject to further Appeal (including, without limitation, review by the
United States Supreme Court).
(tt) "Subsequent Participating Manufacturer" means a Tobacco Product
Manufacturer (other than an Original Participating Manufacturer) that: (1) is a
Participating Manufacturer, and (2) is a signatory to this Agreement, regardless
of when such Tobacco Product Manufacturer became a signatory to this Agreement.
"Subsequent Participating Manufacturer" shall also include the successors of a
Subsequent Participating Manufacturer. Except as expressly provided in this
Agreement, once an entity becomes a Subsequent Participating Manufacturer such
entity shall permanently retain the status of Subsequent Participating
Manufacturer, unless it agrees to assume the obligations of an Original
Participating Manufacturer as provided in subsection XVIII(c).
(uu) "Tobacco Product Manufacturer" means an entity that after the MSA
Execution Date directly (and not exclusively through any Affiliate):
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(1) manufactures Cigarettes anywhere that such manufacturer intends
to be sold in the States, including Cigarettes intended to be sold in the
States through an importer (except where such importer is an Original
Participating Manufacturer that will be responsible for the payments under
this Agreement with respect to such Cigarettes as a result of the
provisions of subsections II(mm) and that pays the taxes specified in
subsection II(z) on such Cigarettes, and provided that the manufacturer of
such Cigarettes does not market or advertise such Cigarettes in the
States);
(2) is the first purchaser anywhere for resale in the States of
Cigarettes manufactured anywhere that the manufacturer does not intend to
be sold in the States; or
(3) becomes a successor of an entity described in subsection (1) or
(2) above.
The term "Tobacco Product Manufacturer" shall not include an Affiliate of a
Tobacco Product Manufacturer unless such Affiliate itself falls within any of
subsections (1) - (3) above.
(vv) "Tobacco Products" means Cigarettes and smokeless tobacco products.
(ww) "Tobacco-Related Organizations" means the Council for Tobacco
Research-U.S.A., Inc., The Tobacco Institute, Inc. ("TI"), and the Center for
Indoor Air Research, Inc. ("CIAR") and the successors, if any, of TI or CIAR.
(xx) "Transit Advertisements" means advertising on or within private or
public vehicles and all advertisements placed at, on or within any bus stop,
taxi stand, transportation waiting area, train station, airport or any similar
location. Notwithstanding
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the foregoing, the term "Transit Advertisements" does not include (1) any
advertisement placed in, on or outside the premises of any retail establishment
that sells Tobacco Products (other than solely through a vending machine)
(except if such individual advertisement (A) occupies an area larger than 14
square feet; (B) is placed in such proximity to any other such advertisement so
as to create a single "mosaic"-type advertisement larger than 14 square feet; or
(C) functions solely as a segment of a larger advertising unit or series); or
(2) advertising at the site of an event to be held at an Adult-Only Facility
that is placed at such site during the period the facility or enclosed area
constitutes an Adult-Only Facility, but in no event more than 14 days before the
event, and that does not advertise any Tobacco Product (other than by using a
Brand Name to identify the event).
(yy) "Underage" means younger than the minimum age at which it is legal to
purchase or possess (whichever minimum age is older) Cigarettes in the
applicable Settling State.
(zz) "Video Game Arcade" means an entertainment establishment primarily
consisting of video games (other than video games intended primarily for use by
persons 18 years of age or older) and/or pinball machines.
(aaa) "Volume Adjustment" means an upward or downward adjustment in
accordance with the formula for volume adjustments set forth in Exhibit E.
(bbb) "Youth" means any person or persons under 18 years of age.
III. PERMANENT RELIEF
(a) Prohibition on Youth Targeting. No Participating Manufacturer may take
any action, directly or indirectly, to target Youth within any Settling State in
the advertising,
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promotion or marketing of Tobacco Products, or take any action the primary
purpose of which is to initiate, maintain or increase the incidence of Youth
smoking within any Settling State.
(b) Ban on Use of Cartoons. Beginning 180 days after the MSA Execution
Date, no Participating Manufacturer may use or cause to be used any Cartoon in
the advertising, promoting, packaging or labeling of Tobacco Products.
(c) Limitation of Tobacco Brand Name Sponsorships.
(1) Prohibited Sponsorships. After the MSA Execution Date, no
Participating Manufacturer may engage in any Brand Name Sponsorship in any
State consisting of:
(A) concerts; or
(B) events in which the intended audience is comprised of a
significant percentage of Youth; or
(C) events in which any paid participants or contestants are
Youth; or
(D) any athletic event between opposing teams in any football,
basketball, baseball, soccer or hockey league.
(2) Limited Sponsorships.
(A) No Participating Manufacturer may engage in more than one
Brand Name Sponsorship in the States in any twelve-month period
(such period measured from the date of the initial sponsored event).
(B) Provided, however, that
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(i) nothing contained in subsection (2)(A) above shall
require a Participating Manufacturer to breach or terminate
any sponsorship contract in existence as of August 1, 1998
(until the earlier of (x) the current term of any existing
contract, without regard to any renewal or option that may be
exercised by such Participating Manufacturer or (y) three
years after the MSA Execution Date); and
(ii) notwithstanding subsection (1)(A) above, Brown &
Williamson Tobacco Corporation may sponsor either the GPC
country music festival or the Kool jazz festival as its one
annual Brand Name Sponsorship permitted pursuant to subsection
(2)(A) as well as one Brand Name Sponsorship permitted
pursuant to subsection (2)(B)(i).
(3) Related Sponsorship Restrictions. With respect to any Brand Name
Sponsorship permitted under this subsection (c):
(A) advertising of the Brand Name Sponsorship event shall not
advertise any Tobacco Product (other than by using the Brand Name to
identify such Brand Name Sponsorship event);
(B) no Participating Manufacturer may refer to a Brand Name
Sponsorship event or to a celebrity or other person in such an event
in its advertising of a Tobacco Product;
(C) nothing contained in the provisions of subsection III(e)
of this Agreement shall apply to actions taken by any Participating
Manufacturer
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in connection with a Brand Name Sponsorship permitted pursuant to
the provisions of subsections (2)(A) and (2)(B)(i); the Brand Name
Sponsorship permitted by subsection (2)(B)(ii) shall be subject to
the restrictions of subsection III(e) except that such restrictions
shall not prohibit use of the Brand Name to identify the Brand Name
Sponsorship;
(D) nothing contained in the provisions of subsections III(f)
and III(i) shall apply to apparel or other merchandise: (i)
marketed, distributed, offered, sold, or licensed at the site of a
Brand Name Sponsorship permitted pursuant to subsections (2)(A) or
(2)(B)(i) by the person to which the relevant Participating
Manufacturer has provided payment in exchange for the use of the
relevant Brand Name in the Brand Name Sponsorship or a third-party
that does not receive payment from the relevant Participating
Manufacturer (or any Affiliate of such Participating Manufacturer)
in connection with the marketing, distribution, offer, sale or
license of such apparel or other merchandise; or (ii) used at the
site of a Brand Name Sponsorship permitted pursuant to subsection
(2)(A) or (2)(B)(i) (during such event) that are not distributed (by
sale or otherwise) to any member of the general public; and
(E) nothing contained in the provisions of subsection III(d)
shall: (i) apply to the use of a Brand Name on a vehicle used in a
Brand Name Sponsorship; or (ii) apply to Outdoor Advertising
advertising the Brand Name Sponsorship, to the extent that such
Outdoor Advertising is placed at the site of a Brand Name
Sponsorship no more than 90 days before the
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start of the initial sponsored event, is removed within 10 days
after the end of the last sponsored event, and is not prohibited by
subsection (3)(A) above.
(4) Corporate Name Sponsorships. Nothing in this subsection (c)
shall prevent a Participating Manufacturer from sponsoring or causing to
be sponsored any athletic, musical, artistic, or other social or cultural
event, or any entrant, participant or team in such event (or series of
events) in the name of the corporation which manufactures Tobacco
Products, provided that the corporate name does not include any Brand Name
of domestic Tobacco Products.
(5) Naming Rights Prohibition. No Participating Manufacturer may
enter into any agreement for the naming rights of any stadium or arena
located within a Settling State using a Brand Name, and shall not
otherwise cause a stadium or arena located within a Settling State to be
named with a Brand Name.
(6) Prohibition on Sponsoring Teams and Leagues. No Participating
Manufacturer may enter into any agreement pursuant to which payment is
made (or other consideration is provided) by such Participating
Manufacturer to any football, basketball, baseball, soccer or hockey
league (or any team involved in any such league) in exchange for use of a
Brand Name.
(d) Elimination of Outdoor Advertising and Transit Advertisements. Each
Participating Manufacturer shall discontinue Outdoor Advertising and Transit
Advertisements advertising Tobacco Products within the Settling States as set
forth herein.
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(1) Removal. Except as otherwise provided in this section, each
Participating Manufacturer shall remove from within the Settling States
within 150 days after the MSA Execution Date all of its (A) billboards (to
the extent that such billboards constitute Outdoor Advertising)
advertising Tobacco Products; (B) signs and placards (to the extent that
such signs and placards constitute Outdoor Advertising) advertising
Tobacco Products in arenas, stadiums, shopping malls and Video Game
Arcades; and (C) Transit Advertisements advertising Tobacco Products.
(2) Prohibition on New Outdoor Advertising and Transit
Advertisements. No Participating Manufacturer may, after the MSA Execution
Date, place or cause to be placed any new Outdoor Advertising advertising
Tobacco Products or new Transit Advertisements advertising Tobacco
Products within any Settling State.
(3) Alternative Advertising. With respect to those billboards
required to be removed under subsection (1) that are leased (as opposed to
owned) by any Participating Manufacturer, the Participating Manufacturer
will allow the Attorney General of the Settling State within which such
billboards are located to substitute, at the Settling State's option,
alternative advertising intended to discourage the use of Tobacco Products
by Youth and their exposure to second-hand smoke for the remaining term of
the applicable contract (without regard to any renewal or option term that
may be exercised by such Participating Manufacturer). The Participating
Manufacturer will bear the cost of the lease through the end of such
remaining term. Any other costs associated with such alternative
advertising will be borne by the Settling State.
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(4) Ban on Agreements Inhibiting Anti-Tobacco Advertising. Each
Participating Manufacturer agrees that it will not enter into any
agreement that prohibits a third party from selling, purchasing or
displaying advertising discouraging the use of Tobacco Products or
exposure to second-hand smoke. In the event and to the extent that any
Participating Manufacturer has entered into an agreement containing any
such prohibition, such Participating Manufacturer agrees to waive such
prohibition in such agreement.
(5) Designation of Contact Person. Each Participating Manufacturer
that has Outdoor Advertising or Transit Advertisements advertising Tobacco
Products within a Settling State shall, within 10 days after the MSA
Execution Date, provide the Attorney General of such Settling State with
the name of a contact person to whom the Settling State may direct
inquiries during the time such Outdoor Advertising and Transit
Advertisements are being eliminated, and from whom the Settling State may
obtain periodic reports as to the progress of their elimination.
(6) Adult-Only Facilities. To the extent that any advertisement
advertising Tobacco Products located within an Adult-Only Facility
constitutes Outdoor Advertising or a Transit Advertisement, this
subsection (d) shall not apply to such advertisement, provided such
advertisement is not visible to persons outside such Adult-Only Facility.
(e) Prohibition on Payments Related to Tobacco Products and Media. No
Participating Manufacturer may, beginning 30 days after the MSA Execution Date,
make, or cause to be made, any payment or other consideration to any other
person or entity to
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use, display, make reference to or use as a prop any Tobacco Product, Tobacco
Product package, advertisement for a Tobacco Product, or any other item bearing
a Brand Name in any motion picture, television show, theatrical production or
other live performance, live or recorded performance of music, commercial film
or video, or video game ("Media"); provided, however, that the foregoing
prohibition shall not apply to (1) Media where the audience or viewers are
within an Adult-Only Facility (provided such Media are not visible to persons
outside such Adult-Only Facility); (2) Media not intended for distribution or
display to the public; or (3) instructional Media concerning non-conventional
cigarettes viewed only by or provided only to smokers who are Adults.
(f) Ban on Tobacco Brand Name Merchandise. Beginning July 1, 1999, no
Participating Manufacturer may, within any Settling State, market, distribute,
offer, sell, license or cause to be marketed, distributed, offered, sold or
licensed (including, without limitation, by catalogue or direct mail), any
apparel or other merchandise (other than Tobacco Products, items the sole
function of which is to advertise Tobacco Products, or written or electronic
publications) which bears a Brand Name. Provided, however, that nothing in this
subsection shall (1) require any Participating Manufacturer to breach or
terminate any licensing agreement or other contract in existence as of June 20,
1997 (this exception shall not apply beyond the current term of any existing
contract, without regard to any renewal or option term that may be exercised by
such Participating Manufacturer); (2) prohibit the distribution to any
Participating Manufacturer's employee who is not Underage of any item described
above that is intended for the personal use of such an employee; (3) require any
Participating Manufacturer to retrieve, collect or otherwise recover any item
that prior to the MSA Execution Date was marketed, distributed,
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offered, sold, licensed, or caused to be marketed, distributed, offered, sold or
licensed by such Participating Manufacturer; (4) apply to coupons or other items
used by Adults solely in connection with the purchase of Tobacco Products; or
(5) apply to apparel or other merchandise used within an Adult-Only Facility
that is not distributed (by sale or otherwise) to any member of the general
public.
(g) Ban on Youth Access to Free Samples. After the MSA Execution Date, no
Participating Manufacturer may, within any Settling State, distribute or cause
to be distributed any free samples of Tobacco Products except in an Adult-Only
Facility. For purposes of this Agreement, a "free sample" does not include a
Tobacco Product that is provided to an Adult in connection with (1) the
purchase, exchange or redemption for proof of purchase of any Tobacco Products
(including, but not limited to, a free offer in connection with the purchase of
Tobacco Products, such as a "two-for-one" offer), or (2) the conducting of
consumer testing or evaluation of Tobacco Products with persons who certify that
they are Adults.
(h) Ban on Gifts to Underage Persons Based on Proofs of Purchase.
Beginning one year after the MSA Execution Date, no Participating Manufacturer
may provide or cause to be provided to any person without sufficient proof that
such person is an Adult any item in exchange for the purchase of Tobacco
Products, or the furnishing of credits, proofs-of-purchase, or coupons with
respect to such a purchase. For purposes of the preceding sentence only, (1) a
driver's license or other government-issued identification (or legible photocopy
thereof), the validity of which is certified by the person to whom the item is
provided, shall by itself be deemed to be a sufficient form of proof of age; and
(2) in the case of items provided (or to be redeemed) at retail establishments,
a
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Participating Manufacturer shall be entitled to rely on verification of proof of
age by the retailer, where such retailer is required to obtain verification
under applicable federal, state or local law.
(i) Limitation on Third-Party Use of Brand Names. After the MSA Execution
Date, no Participating Manufacturer may license or otherwise expressly authorize
any third party to use or advertise within any Settling State any Brand Name in
a manner prohibited by this Agreement if done by such Participating Manufacturer
itself. Each Participating Manufacturer shall, within 10 days after the MSA
Execution Date, designate a person (and provide written notice to NAAG of such
designation) to whom the Attorney General of any Settling State may provide
written notice of any such third-party activity that would be prohibited by this
Agreement if done by such Participating Manufacturer itself. Following such
written notice, the Participating Manufacturer will promptly take commercially
reasonable steps against any such non-de minimis third-party activity. Provided,
however, that nothing in this subsection shall require any Participating
Manufacturer to (1) breach or terminate any licensing agreement or other
contract in existence as of July 1, 1998 (this exception shall not apply beyond
the current term of any existing contract, without regard to any renewal or
option term that may be exercised by such Participating Manufacturer); or (2)
retrieve, collect or otherwise recover any item that prior to the MSA Execution
Date was marketed, distributed, offered, sold, licensed or caused to be
marketed, distributed, offered, sold or licensed by such Participating
Manufacturer.
(j) Ban on Non-Tobacco Brand Names. No Participating Manufacturer may,
pursuant to any agreement requiring the payment of money or other valuable
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consideration, use or cause to be used as a brand name of any Tobacco Product
any nationally recognized or nationally established brand name or trade name of
any non-tobacco item or service or any nationally recognized or nationally
established sports team, entertainment group or individual celebrity. Provided,
however, that the preceding sentence shall not apply to any Tobacco Product
brand name in existence as of July 1, 1998. For the purposes of this subsection,
the term "other valuable consideration" shall not include an agreement between
two entities who enter into such agreement for the sole purpose of avoiding
infringement claims.
(k) Minimum Pack Size of Twenty Cigarettes. No Participating Manufacturer
may, beginning 60 days after the MSA Execution Date and through and including
December 31, 2001, manufacture or cause to be manufactured for sale in any
Settling State any pack or other container of Cigarettes containing fewer than
20 Cigarettes (or, in the case of roll-your-own tobacco, any package of
roll-your-own tobacco containing less than 0.60 ounces of tobacco). No
Participating Manufacturer may, beginning 150 days after the MSA Execution Date
and through and including December 31, 2001, sell or distribute in any Settling
State any pack or other container of Cigarettes containing fewer than 20
Cigarettes (or, in the case of roll-your-own tobacco, any package of
roll-your-own tobacco containing less than 0.60 ounces of tobacco). Each
Participating Manufacturer further agrees that following the MSA Execution Date
it shall not oppose, or cause to be opposed (including through any third party
or Affiliate), the passage by any Settling State of any legislative proposal or
administrative rule applicable to all Tobacco Product Manufacturers and all
retailers of Tobacco Products prohibiting the manufacture and sale of any pack
or other container of Cigarettes containing fewer than 20 Cigarettes
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(or, in the case of roll-your-own tobacco, any package of roll-your-own tobacco
containing less than 0.60 ounces of tobacco).
(l) Corporate Culture Commitments Related to Youth Access and Consumption.
Beginning 180 days after the MSA Execution Date each Participating Manufacturer
shall:
(1) promulgate or reaffirm corporate principles that express and
explain its commitment to comply with the provisions of this Agreement and
the reduction of use of Tobacco Products by Youth, and clearly and
regularly communicate to its employees and customers its commitment to
assist in the reduction of Youth use of Tobacco Products;
(2) designate an executive level manager (and provide written notice
to NAAG of such designation) to identify methods to reduce Youth access
to, and the incidence of Youth consumption of, Tobacco Products; and
(3) encourage its employees to identify additional methods to reduce
Youth access to, and the incidence of Youth consumption of, Tobacco
Products.
(m) Limitations on Lobbying. Following State-Specific Finality in a
Settling State:
(1) No Participating Manufacturer may oppose, or cause to be opposed
(including through any third party or Affiliate), the passage by such
Settling State (or any political subdivision thereof) of those state or
local legislative proposals or administrative rules described in Exhibit F
hereto intended by their terms to reduce Youth access to, and the
incidence of Youth consumption of, Tobacco Products. Provided, however,
that the foregoing does not prohibit any Participating Manufacturer from
(A) challenging enforcement of, or suing for
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declaratory or injunctive relief with respect to, any such legislation or
rule on any grounds; (B) continuing, after State-Specific Finality in such
Settling State, to oppose or cause to be opposed, the passage during the
legislative session in which State-Specific Finality in such Settling
State occurs of any specific state or local legislative proposals or
administrative rules introduced prior to the time of State-Specific
Finality in such Settling State; (C) opposing, or causing to be opposed,
any excise tax or income tax provision or user fee or other payments
relating to Tobacco Products or Tobacco Product Manufacturers; or (D)
opposing, or causing to be opposed, any state or local legislative
proposal or administrative rule that also includes measures other than
those described in Exhibit F.
(2) Each Participating Manufacturer shall require all of its
officers and employees engaged in lobbying activities in such Settling
State after State-Specific Finality, contract lobbyists engaged in
lobbying activities in such Settling State after State-Specific Finality,
and any other third parties who engage in lobbying activities in such
Settling State after State-Specific Finality on behalf of such
Participating Manufacturer ("lobbyist" and "lobbying activities" having
the meaning such terms have under the law of the Settling State in
question) to certify in writing to the Participating Manufacturer that
they:
(A) will not support or oppose any state, local or federal
legislation, or seek or oppose any governmental action, on behalf of
the Participating Manufacturer without the Participating
Manufacturer's express authorization (except where such advance
express authorization is not reasonably practicable);
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(B) are aware of and will fully comply with this Agreement and
all laws and regulations applicable to their lobbying activities,
including, without limitation, those related to disclosure of
financial contributions. Provided, however, that if the Settling
State in question has in existence no laws or regulations relating
to disclosure of financial contributions regarding lobbying
activities, then each Participating Manufacturer shall, upon request
of the Attorney General of such Settling State, disclose to such
Attorney General any payment to a lobbyist that the Participating
Manufacturer knows or has reason to know will be used to influence
legislative or administrative actions of the state or local
government relating to Tobacco Products or their use. Disclosures
made pursuant to the preceding sentence shall be filed in writing
with the Office of the Attorney General on the first day of February
and the first day of August of each year for any and all payments
made during the six month period ending on the last day of the
preceding December and June, respectively, with the following
information: (1) the name, address, telephone number and e-mail
address (if any) of the recipient; (2) the amount of each payment;
and (3) the aggregate amount of all payments described in this
subsection (2)(B) to the recipient in the calendar year; and
(C) have reviewed and will fully abide by the Participating
Manufacturer's corporate principles promulgated pursuant to this
Agreement when acting on behalf of the Participating Manufacturer.
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(3) No Participating Manufacturer may support or cause to be
supported (including through any third party or Affiliate) in Congress or
any other forum legislation or rules that would preempt, override,
abrogate or diminish such Settling State's rights or recoveries under this
Agreement. Except as specifically provided in this Agreement, nothing
herein shall be deemed to restrain any Settling State or Participating
Manufacturer from advocating terms of any national settlement or taking
any other positions on issues relating to tobacco.
(n) Restriction on Advocacy Concerning Settlement Proceeds. After the MSA
Execution Date, no Participating Manufacturer may support or cause to be
supported (including through any third party or Affiliate) the diversion of any
proceeds of this settlement to any program or use that is neither
tobacco-related nor health-related in connection with the approval of this
Agreement or in any subsequent legislative appropriation of settlement proceeds.
(o) Dissolution of The Tobacco Institute, Inc., the Council for Tobacco
Research-U.S.A., Inc. and the Center for Indoor Air Research, Inc.
(1) The Council for Tobacco Research-U.S.A., Inc. ("CTR") (a
not-for-profit corporation formed under the laws of the State of New York)
shall, pursuant to the plan of dissolution previously negotiated and
agreed to between the Attorney General of the State of New York and CTR,
cease all operations and be dissolved in accordance with the laws of the
State of New York (and with the preservation of all applicable privileges
held by any member company of CTR).
(2) The Tobacco Institute, Inc. ("TI") (a not-for-profit corporation
formed under the laws of the State of New York) shall, pursuant to a plan
of dissolution to
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be negotiated by the Attorney General of the State of New York and the
Original Participating Manufacturers in accordance with Exhibit G hereto,
cease all operations and be dissolved in accordance with the laws of the
State of New York and under the authority of the Attorney General of the
State of New York (and with the preservation of all applicable privileges
held by any member company of TI).
(3) Within 45 days after Final Approval, the Center for Indoor Air
Research, Inc. ("CIAR") shall cease all operations and be dissolved in a
manner consistent with applicable law and with the preservation of all
applicable privileges (including, without limitation, privileges held by
any member company of CIAR).
(4) The Participating Manufacturers shall direct the Tobacco-Related
Organizations to preserve all records that relate in any way to issues
raised in smoking-related health litigation.
(5) The Participating Manufacturers may not reconstitute CTR or its
function in any form.
(6) The Participating Manufacturers represent that they have the
authority to and will effectuate subsections (1) through (5) hereof.
(p) Regulation and Oversight of New Tobacco-Related Trade Associations.
(1) A Participating Manufacturer may form or participate in new
tobacco-related trade associations (subject to all applicable laws),
provided such associations agree in writing not to act in any manner
contrary to any provision of this Agreement. Each Participating
Manufacturer agrees that if any new tobacco-
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related trade association fails to so agree, such Participating
Manufacturer will not participate in or support such association.
(2) Any tobacco-related trade association that is formed or
controlled by one or more of the Participating Manufacturers after the MSA
Execution Date shall adopt by-laws governing the association's procedures
and the activities of its members, board, employees, agents and other
representatives with respect to the tobacco-related trade association.
Such by-laws shall include, among other things, provisions that:
(A) each officer of the association shall be appointed by the
board of the association, shall be an employee of such association,
and during such officer's term shall not be a director of or
employed by any member of the association or by an Affiliate of any
member of the association;
(B) legal counsel for the association shall be independent,
and neither counsel nor any member or employee of counsel's law firm
shall serve as legal counsel to any member of the association or to
a manufacturer of Tobacco Products that is an Affiliate of any
member of the association during the time that it is serving as
legal counsel to the association; and
(C) minutes describing the substance of the meetings of the
board of directors of the association shall be prepared and shall be
maintained by the association for a period of at least five years
following their preparation.
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(3) Without limitation on whatever other rights to access they may
be permitted by law, for a period of seven years from the date any new
tobacco-related trade association is formed by any of the Participating
Manufacturers after the MSA Execution Date the antitrust authorities of
any Settling State may, for the purpose of enforcing this Agreement, upon
reasonable cause to believe that a violation of this Agreement has
occurred, and upon reasonable prior written notice (but in no event less
than 10 Business Days):
(A) have access during regular office hours to inspect and
copy all relevant non-privileged, non-work-product books, records,
meeting agenda and minutes, and other documents (whether in hard
copy form or stored electronically) of such association insofar as
they pertain to such believed violation; and
(B) interview the association's directors, officers and
employees (who shall be entitled to have counsel present) with
respect to relevant, non-privileged, non-work-product matters
pertaining to such believed violation.
Documents and information provided to Settling State antitrust authorities shall
be kept confidential by and among such authorities, and shall be utilized only
by the Settling States and only for the purpose of enforcing this Agreement or
the criminal law. The inspection and discovery rights provided to the Settling
States pursuant to this subsection shall be coordinated so as to avoid
repetitive and excessive inspection and discovery.
(q) Prohibition on Agreements to Suppress Research. No Participating
Manufacturer may enter into any contract, combination or conspiracy with any
other
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Tobacco Product Manufacturer that has the purpose or effect of: (1) limiting
competition in the production or distribution of information about health
hazards or other consequences of the use of their products; (2) limiting or
suppressing research into smoking and health; or (3) limiting or suppressing
research into the marketing or development of new products. Provided, however,
that nothing in this subsection shall be deemed to (1) require any Participating
Manufacturer to produce, distribute or otherwise disclose any information that
is subject to any privilege or protection; (2) preclude any Participating
Manufacturer from entering into any joint defense or joint legal interest
agreement or arrangement (whether or not in writing), or from asserting any
privilege pursuant thereto; or (3) impose any affirmative obligation on any
Participating Manufacturer to conduct any research.
(r) Prohibition on Material Misrepresentations. No Participating
Manufacturer may make any material misrepresentation of fact regarding the
health consequences of using any Tobacco Product, including any tobacco
additives, filters, paper or other ingredients. Nothing in this subsection shall
limit the exercise of any First Amendment right or the assertion of any defense
or position in any judicial, legislative or regulatory forum.
IV. PUBLIC ACCESS TO DOCUMENTS
(a) After the MSA Execution Date, the Original Participating Manufacturers
and the Tobacco-Related Organizations will support an application for the
dissolution of any protective orders entered in each Settling State's lawsuit
identified in Exhibit D with respect only to those documents, indices and
privilege logs that have been produced as of the MSA Execution Date to such
Settling State and (1) as to which defendants have made
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no claim, or have withdrawn any claim, of attorney-client privilege, attorney
work-product protection, common interest/joint defense privilege (collectively,
"privilege"), trade-secret protection, or confidential or proprietary business
information; and (2) that are not inappropriate for public disclosure because of
personal privacy interests or contractual rights of third parties that may not
be abrogated by the Original Participating Manufacturers or the Tobacco-Related
Organizations.
(b) Notwithstanding State-Specific Finality, if any order, ruling or
recommendation was issued prior to September 17, 1998 rejecting a claim of
privilege or trade-secret protection with respect to any document or documents
in a lawsuit identified in Exhibit D, the Settling State in which such order,
ruling or recommendation was made may, no later than 45 days after the
occurrence of State-Specific Finality in such Settling State, seek public
disclosure of such document or documents by application to the court that issued
such order, ruling or recommendation and the court shall retain jurisdiction for
such purposes. The Original Participating Manufacturers and Tobacco-Related
Organizations do not consent to, and may object to, appeal from or otherwise
oppose any such application for disclosure. The Original Participating
Manufacturers and Tobacco-Related Organizations will not assert that the
settlement of such lawsuit has divested the court of jurisdiction or that such
Settling State lacks standing to seek public disclosure on any applicable
ground.
(c) The Original Participating Manufacturers will maintain at their
expense their Internet document websites accessible through
"TobaccoResolution.com" or a similar website until June 30, 2010. The Original
Participating Manufacturers will maintain the
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documents that currently appear on their respective websites and will add
additional documents to their websites as provided in this section IV.
(d) Within 180 days after the MSA Execution Date, each Original
Participating Manufacturer and Tobacco-Related Organization will place on its
website copies of the following documents, except as provided in subsections
IV(e) and IV(f) below:
(1) all documents produced by such Original Participating
Manufacturer or Tobacco-Related Organization as of the MSA Execution Date
in any action identified in Exhibit D or any action identified in section
2 of Exhibit H that was filed by an Attorney General. Among these
documents, each Original Participating Manufacturer and Tobacco-Related
Organization will give the highest priority to (A) the documents that were
listed by the State of Washington as trial exhibits in the State of
Washington v. American Tobacco Co., et al., No. 96-2-15056-8 SEA (Wash.
Super. Ct., County of King); and (B) the documents as to which such
Original Participating Manufacturer or Tobacco-Related Organization
withdrew any claim of privilege as a result of the re-examination of
privilege claims pursuant to court order in State of Oklahoma v. R.J.
Reynolds Tobacco Company, et al., CJ-96-2499-L (Dist. Ct., Cleveland
County);
(2) all documents that can be identified as having been produced by,
and copies of transcripts of depositions given by, such Original
Participating Manufacturer or Tobacco-Related Organization as of the MSA
Execution Date in the litigation matters specified in section 1 of Exhibit
H; and
(3) all documents produced by such Original Participating
Manufacturer or Tobacco-Related Organization as of the MSA Execution Date
and listed by the
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plaintiffs as trial exhibits in the litigation matters specified in
section 2 of Exhibit H.
(e) Unless copies of such documents are already on its website, each
Original Participating Manufacturer and Tobacco-Related Organization will place
on its website copies of documents produced in any production of documents that
takes place on or after the date 30 days before the MSA Execution Date in any
federal or state court civil action concerning smoking and health. Copies of any
documents required to be placed on a website pursuant to this subsection will be
placed on such website within the later of 45 days after the MSA Execution Date
or within 45 days after the production of such documents in any federal or state
court action concerning smoking and health. This obligation will continue until
June 30, 2010. In placing such newly produced documents on its website, each
Original Participating Manufacturer or Tobacco-Related Organization will
identify, as part of its index to be created pursuant to subsection IV(h), the
action in which it produced such documents and the date on which such documents
were added to its website.
(f) Nothing in this section IV shall require any Original Participating
Manufacturer or Tobacco-Related Organization to place on its website or
otherwise disclose documents that: (1) it continues to claim to be privileged, a
trade secret, confidential or proprietary business information, or that contain
other information not appropriate for public disclosure because of personal
privacy interests or contractual rights of third parties; or (2) continue to be
subject to any protective order, sealing order or other order or ruling that
prevents or limits a litigant from disclosing such documents.
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(g) Oversized or multimedia records will not be required to be placed on
the Website, but each Original Participating Manufacturers and Tobacco-Related
Organizations will make any such records available to the public by placing
copies of them in the document depository established in The State of Minnesota,
et al. v. Philip Morris Incorporated, et al., C1-94-8565 (County of Ramsey,
District Court, 2d Judicial Cir.).
(h) Each Original Participating Manufacturer will establish an index and
other features to improve searchable access to the document images on its
website, as set forth in Exhibit I.
(i) Within 90 days after the MSA Execution Date, the Original
Participating Manufacturers will furnish NAAG with a project plan for completing
the Original Participating Manufacturers' obligations under subsection IV(h)
with respect to documents currently on their websites and documents being placed
on their websites pursuant to subsection IV(d). NAAG may engage a computer
consultant at the Original Participating Manufacturers' expense for a period not
to exceed two years and at a cost not to exceed $100,000. NAAG's computer
consultant may review such plan and make recommendations consistent with this
Agreement. In addition, within 120 days after the completion of the Original
Participating Manufacturers' obligations under subsection IV(d), NAAG's computer
consultant may make final recommendations with respect to the websites
consistent with this Agreement. In preparing these recommendations, NAAG's
computer consultant may seek input from Settling State officials, public health
organizations and other users of the websites.
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(j) The expenses incurred pursuant to subsection IV(i), and the expenses
related to documents of the Tobacco-Related Organizations, will be severally
shared among the Original Participating Manufacturers (allocated among them
according to their Relative Market Shares). All other expenses incurred under
this section will be borne by the Original Participating Manufacturer that
incurs such expense.
V. TOBACCO CONTROL AND UNDERAGE USE LAWS
Each Participating Manufacturer agrees that following State-Specific
Finality in a Settling State it will not initiate, or cause to be initiated, a
facial challenge against the enforceability or constitutionality of such
Settling State's (or such Settling State's political subdivisions') statutes,
ordinances and administrative rules relating to tobacco control enacted prior to
June 1, 1998 (other than a statute, ordinance or rule challenged in any lawsuit
listed in Exhibit M).
VI. ESTABLISHMENT OF A NATIONAL FOUNDATION
(a) Foundation Purposes. The Settling States believe that a comprehensive,
coordinated program of public education and study is important to further the
remedial goals of this Agreement. Accordingly, as part of the settlement of
claims described herein, the payments specified in subsections VI(b), VI(c), and
IX(e) shall be made to a charitable foundation, trust or similar organization
(the "Foundation") and/or to a program to be operated within the Foundation (the
"National Public Education Fund"). The purposes of the Foundation will be to
support (1) the study of and programs to reduce Youth Tobacco Product usage and
Youth substance abuse in the States, and (2) the study of and educational
programs to prevent diseases associated with the use of Tobacco Products in the
States.
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(b) Base Foundation Payments. On March 31, 1999, and on March 31 of each
subsequent year for a period of nine years thereafter, each Original
Participating Manufacturer shall severally pay its Relative Market Share of
$25,000,000 to fund the Foundation. The payments to be made by each of the
Original Participating Manufacturers pursuant to this subsection (b) shall be
subject to no adjustments, reductions, or offsets, and shall be paid to the
Escrow Agent (to be credited to the Subsection VI(b) Account), who shall
disburse such payments to the Foundation only upon the occurrence of
State-Specific Finality in at least one Settling State.
(c) National Public Education Fund Payments.
(1) Each Original Participating Manufacturer shall severally pay its
Relative Market Share of the following base amounts on the following dates
to the Escrow Agent for the benefit of the Foundation's National Public
Education Fund to be used for the purposes and as described in subsections
VI(f)(1), VI(g) and VI(h) below: $250,000,000 on March 31, 1999;
$300,000,000 on March 31, 2000; $300,000,000 on March 31, 2001;
$300,000,000 on March 31, 2002; and $300,000,000 on March 31, 2003, as
such amounts are modified in accordance with this subsection (c). The
payment due on March 31, 1999 pursuant to this subsection (c)(1) is to be
credited to the Subsection VI(c) Account (First). The payments due on or
after March 31, 2000 pursuant to this subsection VI(c)(1) are to be
credited to the Subsection VI(c) Account (Subsequent).
(2) The payments to be made by the Original Participating
Manufacturers pursuant to this subsection (c), other than the payment due
on March 31, 1999, shall
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be subject to the Inflation Adjustment, the Volume Adjustment and the
offset for miscalculated or disputed payments described in subsection
XI(i).
(3) The payment made pursuant to this subsection (c) on March 31,
1999 shall be disbursed by the Escrow Agent to the Foundation only upon
the occurrence of State-Specific Finality in at least one Settling State.
Each remaining payment pursuant to this subsection (c) shall be disbursed
by the Escrow Agent to the Foundation only when State-Specific Finality
has occurred in Settling States having aggregate Allocable Shares equal to
at least 80% of the total aggregate Allocable Shares assigned to all
States that were Settling States as of the MSA Execution Date.
(4) In addition to the payments made pursuant to this subsection
(c), the National Public Education Fund will be funded (A) in accordance
with subsection IX(e), and (B) through monies contributed by other
entities directly to the Foundation and designated for the National Public
Education Fund ("National Public Education Fund Contributions").
(5) The payments made by the Original Participating Manufacturers
pursuant to this subsection (c) and/or subsection IX(e) and monies
received from all National Public Education Fund Contributions will be
deposited and invested in accordance with the laws of the state of
incorporation of the Foundation.
(d) Creation and Organization of the Foundation. NAAG, through its
executive committee, will provide for the creation of the Foundation. The
Foundation shall be organized exclusively for charitable, scientific, and
educational purposes within the meaning of Internal Revenue Code section
501(c)(3). The organizational documents of
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the Foundation shall specifically incorporate the provisions of this Agreement
relating to the Foundation, and will provide for payment of the Foundation's
administrative expenses from the funds paid pursuant to subsection VI(b) or
VI(c). The Foundation shall be governed by a board of directors. The board of
directors shall be comprised of eleven directors. NAAG, the National Governors'
Association ("NGA"), and the National Conference of State Legislatures ("NCSL")
shall each select from its membership two directors. These six directors shall
select the five additional directors. One of these five additional directors
shall have expertise in public health issues. Four of these five additional
directors shall have expertise in medical, child psychology, or public health
disciplines. The board of directors shall be nationally geographically diverse.
(e) Foundation Affiliation. The Foundation shall be formally affiliated
with an educational or medical institution selected by the board of directors.
(f) Foundation Functions. The functions of the Foundation shall be:
(1) carrying out a nationwide sustained advertising and education
program to (A) counter the use by Youth of Tobacco Products, and (B)
educate consumers about the cause and prevention of diseases associated
with the use of Tobacco Products;
(2) developing and disseminating model advertising and education
programs to counter the use by Youth of substances that are unlawful for
use or purchase by Youth, with an emphasis on reducing Youth smoking;
monitoring and testing the effectiveness of such model programs; and,
based on the information received from such monitoring and testing,
continuing to develop and disseminate revised versions of such model
programs, as appropriate;
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(3) developing and disseminating model classroom education programs
and curriculum ideas about smoking and substance abuse in the K-12 school
system, including specific target programs for special at-risk
populations; monitoring and testing the effectiveness of such model
programs and ideas; and, based on the information received from such
monitoring and testing, continuing to develop and disseminate revised
versions of such model programs or ideas, as appropriate;
(4) developing and disseminating criteria for effective cessation
programs; monitoring and testing the effectiveness of such criteria; and
continuing to develop and disseminate revised versions of such criteria,
as appropriate;
(5) commissioning studies, funding research, and publishing reports
on factors that influence Youth smoking and substance abuse and developing
strategies to address the conclusions of such studies and research;
(6) developing other innovative Youth smoking and substance abuse
prevention programs;
(7) providing targeted training and information for parents;
(8) maintaining a library open to the public of Foundation-funded
studies, reports and other publications related to the cause and
prevention of Youth smoking and substance abuse;
(9) tracking and monitoring Youth smoking and substance abuse, with
a focus on the reasons for any increases or failures to decrease Youth
smoking and
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substance abuse and what actions can be taken to reduce Youth smoking and
substance abuse;
(10) receiving, controlling, and managing contributions from other
entities to further the purposes described in this Agreement; and
(11) receiving, controlling, and managing such funds paid by the
Participating Manufacturers pursuant to subsections VI(b) and VI(c) above.
(g) Foundation Grant-Making. The Foundation is authorized to make grants
from the National Public Education Fund to Settling States and their political
subdivisions to carry out sustained advertising and education programs to (1)
counter the use by Youth of Tobacco Products, and (2) educate consumers about
the cause and prevention of diseases associated with the use of Tobacco
Products. In making such grants, the Foundation shall consider whether the
Settling State or political subdivision applying for such grant:
(1) demonstrates the extent of the problem regarding Youth smoking
in such Settling State or political subdivision;
(2) either seeks the grant to implement a model program developed by
the Foundation or provides the Foundation with a specific plan for such
applicant's intended use of the grant monies, including demonstrating such
applicant's ability to develop an effective advertising/education campaign
and to assess the effectiveness of such advertising/education campaign;
(3) has other funds readily available to carry out a sustained
advertising and education program to (A) counter the use by Youth of
Tobacco Products, and (B) educate consumers about the cause and prevention
of diseases associated with the use of Tobacco Products; and
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(4) is a Settling State that has not severed this section VI from
its settlement with the Participating Manufacturers pursuant to subsection
VI(i) below, or is a political subdivision in such a Settling State.
(h) Foundation Activities. The Foundation shall not engage in, nor shall
any of the Foundation's money be used to engage in, any political activities or
lobbying, including, but not limited to, support of or opposition to candidates,
ballot initiatives, referenda or other similar activities. The National Public
Education Fund shall be used only for public education and advertising regarding
the addictiveness, health effects, and social costs related to the use of
tobacco products and shall not be used for any personal attack on, or
vilification of, any person (whether by name or business affiliation), company,
or governmental agency, whether individually or collectively. The Foundation
shall work to ensure that its activities are carried out in a culturally and
linguistically appropriate manner. The Foundation's activities (including the
National Public Education Fund) shall be carried out solely within the States.
The payments described in subsections VI(b) and VI(c) above are made at the
direction and on behalf of Settling States. By making such payments in such
manner, the Participating Manufacturers do not undertake and expressly disclaim
any responsibility with respect to the creation, operation, liabilities, or tax
status of the Foundation or the National Public Education Fund.
(i) Severance of this Section. If the Attorney General of a Settling State
determines that such Settling State may not lawfully enter into this section VI
as a matter of applicable state law, such Attorney General may sever this
section VI from its settlement with the Participating Manufacturers by giving
written notice of such
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severance to each Participating Manufacturer and NAAG pursuant to subsection
XVIII(k) hereof. If any Settling State exercises its right to sever this section
VI, this section VI shall not be considered a part of the specific settlement
between such Settling State and the Participating Manufacturers, and this
section VI shall not be enforceable by or in such Settling State. The payment
obligation of subsections VI(b) and VI(c) hereof shall apply regardless of a
determination by one or more Settling States to sever section VI hereof;
provided, however, that if all Settling States sever section VI hereof, the
payment obligations of subsections (b) and (c) hereof shall be null and void. If
the Attorney General of a Settling State that severed this section VI
subsequently determines that such Settling State may lawfully enter into this
section VI as a matter of applicable state law, such Attorney General may
rescind such Settling State's previous severance of this section VI by giving
written notice of such rescission to each Participating Manufacturer and NAAG
pursuant to subsection XVIII(k). If any Settling State rescinds such severance,
this section VI shall be considered a part of the specific settlement between
such Settling State and the Participating Manufacturers (including for purposes
of subsection (g)(4)), and this section VI shall be enforceable by and in such
Settling State.
VII. ENFORCEMENT
(a) Jurisdiction. Each Participating Manufacturer and each Settling State
acknowledge that the Court: (1) has jurisdiction over the subject matter of the
action identified in Exhibit D in such Settling State and over each
Participating Manufacturer; (2) shall retain exclusive jurisdiction for the
purposes of implementing and enforcing this Agreement and the Consent Decree as
to such Settling State; and (3) except as provided in subsections IX(d), XI(c)
and XVII(d) and Exhibit O, shall be the only court to which
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disputes under this Agreement or the Consent Decree are presented as to such
Settling State. Provided, however, that notwithstanding the foregoing, the
Escrow Court (as defined in the Escrow Agreement) shall have exclusive
jurisdiction, as provided in section 15 of the Escrow Agreement, over any suit,
action or proceeding seeking to interpret or enforce any provision of, or based
on any right arising out of, the Escrow Agreement.
(b) Enforcement of Consent Decree. Except as expressly provided in the
Consent Decree, any Settling State or Released Party may apply to the Court to
enforce the terms of the Consent Decree (or for a declaration construing any
such term) with respect to alleged violations within such Settling State. A
Settling State may not seek to enforce the Consent Decree of another Settling
State; provided, however, that nothing contained herein shall affect the ability
of any Settling State to (1) coordinate state enforcement actions or
proceedings, or (2) file or join any amicus brief. In the event that the Court
determines that any Participating Manufacturer or Settling State has violated
the Consent Decree within such Settling State, the party that initiated the
proceedings may request any and all relief available within such Settling State
pursuant to the Consent Decree.
(c) Enforcement of this Agreement.
(1) Except as provided in subsections IX(d), XI(c), XVII(d) and
Exhibit O, any Settling State or Participating Manufacturer may bring an
action in the Court to enforce the terms of this Agreement (or for a
declaration construing any such term ("Declaratory Order")) with respect
to disputes, alleged violations or alleged breaches within such Settling
State.
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(2) Before initiating such proceedings, a party shall provide 30
days' written notice to the Attorney General of each Settling State, to
NAAG, and to each Participating Manufacturer of its intent to initiate
proceedings pursuant to this subsection. The 30-day notice period may be
shortened in the event that the relevant Attorney General reasonably
determines that a compelling time-sensitive public health and safety
concern requires more immediate action.
(3) In the event that the Court determines that any Participating
Manufacturer or Settling State has violated or breached this Agreement,
the party that initiated the proceedings may request an order restraining
such violation or breach, and/or ordering compliance within such Settling
State (an "Enforcement Order").
(4) If an issue arises as to whether a Participating Manufacturer
has failed to comply with an Enforcement Order, the Attorney General for
the Settling State in question may seek an order for interpretation or for
monetary, civil contempt or criminal sanctions to enforce compliance with
such Enforcement Order.
(5) If the Court finds that a good-faith dispute exists as to the
meaning of the terms of this Agreement or a Declaratory Order, the Court
may in its discretion determine to enter a Declaratory Order rather than
an Enforcement Order.
(6) Whenever possible, the parties shall seek to resolve an alleged
violation of this Agreement by discussion pursuant to subsection XVIII(m)
of this Agreement. In addition, in determining whether to seek an
Enforcement Order, or in determining whether to seek an order for
monetary, civil contempt or criminal
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sanctions for any claimed violation of an Enforcement Order, the Attorney
General shall give good-faith consideration to whether the Participating
Manufacturer that is claimed to have violated this Agreement has taken
appropriate and reasonable steps to cause the claimed violation to be
cured, unless such party has been guilty of a pattern of violations of
like nature.
(d) Right of Review. All orders and other judicial determinations made by
any court in connection with this Agreement or any Consent Decree shall be
subject to all available appellate review, and nothing in this Agreement or any
Consent Decree shall be deemed to constitute a waiver of any right to any such
review.
(e) Applicability. This Agreement and the Consent Decree apply only to the
Participating Manufacturers in their corporate capacity acting through their
respective successors and assigns, directors, officers, employees, agents,
subsidiaries, divisions, or other internal organizational units of any kind or
any other entities acting in concert or participation with them. The remedies,
penalties and sanctions that may be imposed or assessed in connection with a
breach or violation of this Agreement or the Consent Decree (or any Declaratory
Order or Enforcement Order issued in connection with this Agreement or the
Consent Decree ) shall only apply to the Participating Manufacturers, and shall
not be imposed or assessed against any employee, officer or director of any
Participating Manufacturer, or against any other person or entity as a
consequence of such breach or violation, and the Court shall have no
jurisdiction to do so.
(f) Coordination of Enforcement. The Attorneys General of the Settling
States (through NAAG) shall monitor potential conflicting interpretations by
courts of different States of this Agreement and the Consent Decrees. The
Settling States shall use their best
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efforts, in cooperation with the Participating Manufacturers, to coordinate and
resolve the effects of such conflicting interpretations as to matters that are
not exclusively local in nature.
(g) Inspection and Discovery Rights. Without limitation on whatever other
rights to access they may be permitted by law, following State-Specific Finality
in a Settling State and for seven years thereafter, representatives of the
Attorney General of such Settling State may, for the purpose of enforcing this
Agreement and the Consent Decree, upon reasonable cause to believe that a
violation of this Agreement or the Consent Decree has occurred, and upon
reasonable prior written notice (but in no event less than 10 Business Days):
(1) have access during regular office hours to inspect and copy all relevant
non-privileged, non-work-product books, records, meeting agenda and minutes, and
other documents (whether in hard copy form or stored electronically) of each
Participating Manufacturer insofar as they pertain to such believed violation;
and (2) interview each Participating Manufacturer's directors, officers and
employees (who shall be entitled to have counsel present) with respect to
relevant, non-privileged, non-work-product matters pertaining to such believed
violation. Documents and information provided to representatives of the Attorney
General of such Settling State pursuant to this section VII shall be kept
confidential by the Settling States, and shall be utilized only by the Settling
States and only for purposes of enforcing this Agreement, the Consent Decree and
the criminal law. The inspection and discovery rights provided to such Settling
State pursuant to this subsection shall be coordinated through NAAG so as to
avoid repetitive and excessive inspection and discovery.
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VIII. CERTAIN ONGOING RESPONSIBILITIES OF THE SETTLING STATES
(a) Upon approval of the NAAG executive committee, NAAG will provide
coordination and facilitation for the implementation and enforcement of this
Agreement on behalf of the Attorneys General of the Settling States, including
the following:
(1) NAAG will assist in coordinating the inspection and discovery
activities referred to in subsections III(p)(3) and VII(g) regarding
compliance with this Agreement by the Participating Manufacturers and any
new tobacco-related trade associations.
(2) NAAG will convene at least two meetings per year and one major
national conference every three years for the Attorneys General of the
Settling States, the directors of the Foundation and three persons
designated by each Participating Manufacturer. The purpose of the meetings
and conference is to evaluate the success of this Agreement and coordinate
efforts by the Attorneys General and the Participating Manufacturers to
continue to reduce Youth smoking.
(3) NAAG will periodically inform NGA, NCSL, the National
Association of Counties and the National League of Cities of the results
of the meetings and conferences referred to in subsection (a)(2) above.
(4) NAAG will support and coordinate the efforts of the Attorneys
General of the Settling States in carrying out their responsibilities
under this Agreement.
(5) NAAG will perform the other functions specified for it in this
Agreement, including the functions specified in section IV.
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(b) Upon approval by the NAAG executive committee to assume the
responsibilities outlined in subsection VIII(a) hereof, each Original
Participating Manufacturer shall cause to be paid, beginning on December 31,
1998, and on December 31 of each year thereafter through and including December
31, 2007, its Relative Market Share of $150,000 per year to the Escrow Agent (to
be credited to the Subsection VIII(b) Account), who shall disburse such monies
to NAAG within 10 Business Days, to fund the activities described in subsection
VIII(a).
(c) The Attorneys General of the Settling States, acting through NAAG,
shall establish a fund ("The States' Antitrust/Consumer Protection Tobacco
Enforcement Fund") in the form attached as Exhibit J, which will be maintained
by such Attorneys General to supplement the Settling States' (1) enforcement and
implementation of the terms of this Agreement and the Consent Decrees, and (2)
investigation and litigation of potential violations of laws with respect to
Tobacco Products, as set forth in Exhibit J. Each Original Participating
Manufacturer shall on March 31, 1999, severally pay its Relative Market Share of
$50,000,000 to the Escrow Agent (to be credited to the Subsection VIII(c)
Account), who shall disburse such monies to NAAG upon the occurrence of
State-Specific Finality in at least one Settling State. Such funds will be used
in accordance with the provisions of Exhibit J.
IX. PAYMENTS
(a) All Payments Into Escrow. All payments made pursuant to this Agreement
(except those payments made pursuant to section XVII) shall be made into escrow
pursuant to the Escrow Agreement, and shall be credited to the appropriate
Account established pursuant to the Escrow Agreement. Such payments shall be
disbursed to the
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beneficiaries or returned to the Participating Manufacturers only as provided in
section XI and the Escrow Agreement. No payment obligation under this Agreement
shall arise (1) unless and until the Escrow Court has approved and retained
jurisdiction over the Escrow Agreement or (2) if such approval is reversed
(unless and until such reversal is itself reversed). The parties agree to
proceed as expeditiously as possible to resolve any issues that prevent approval
of the Escrow Agreement. If any payment (other than the first initial payment
under subsection IX(b)) is delayed because the Escrow Agreement has not been
approved, such payment shall be due and payable (together with interest at the
Prime Rate) within 10 Business Days after approval of the Escrow Agreement by
the Escrow Court.
(b) Initial Payments. On the second Business Day after the Escrow Court
approves and retains jurisdiction over the Escrow Agreement, each Original
Participating Manufacturer shall severally pay to the Escrow Agent (to be
credited to the Subsection IX(b) Account (First)) its Market Capitalization
Percentage (as set forth in Exhibit K) of the base amount of $2,400,000,000. On
January 10, 2000, each Original Participating Manufacturer shall severally pay
to the Escrow Agent its Relative Market Share of the base amount of
$2,472,000,000. On January 10, 2001, each Original Participating Manufacturer
shall severally pay to the Escrow Agent its Relative Market Share of the base
amount of $2,546,160,000. On January 10, 2002, each Original Participating
Manufacturer shall severally pay to the Escrow Agent its Relative Market Share
of the base amount of $2,622,544,800. On January 10, 2003, each Original
Participating Manufacturer shall severally pay to the Escrow Agent its Relative
Market Share of the base amount of $2,701,221,144. The payments pursuant to this
subsection (b) due on or
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after January 10, 2000 shall be credited to the Subsection IX(b) Account
(Subsequent). The foregoing payments shall be modified in accordance with this
subsection (b). The payments made by the Original Participating Manufacturers
pursuant to this subsection (b) (other than the first such payment) shall be
subject to the Volume Adjustment, the Non-Settling States Reduction and the
offset for miscalculated or disputed payments described in subsection XI(i). The
first payment due under this subsection (b) shall be subject to the Non-Settling
States Reduction, but such reduction shall be determined as of the date one day
before such payment is due (rather than the date 15 days before).
(c) Annual Payments and Strategic Contribution Payments.
(1) On April 15, 2000 and on April 15 of each year thereafter in
perpetuity, each Original Participating Manufacturer shall severally pay
to the Escrow Agent (to be credited to the Subsection IX(c)(1) Account)
its Relative Market Share of the base amounts specified below, as such
payments are modified in accordance with this subsection (c)(1):
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Year Base Amount
2000 $4,500,000,000
2001 $5,000,000,000
2002 $6,500,000,000
2003 $6,500,000,000
2004 $8,000,000,000
2005 $8,000,000,000
2006 $8,000,000,000
2007 $8,000,000,000
2008 $8,139,000,000
2009 $8,139,000,000
2010 $8,139,000,000
2011 $8,139,000,000
2012 $8,139,000,000
2013 $8,139,000,000
2014 $8,139,000,000
2015 $8,139,000,000
2016 $8,139,000,000
2017 $8,139,000,000
2018 and each year thereafter $9,000,000,000
The payments made by the Original Participating Manufacturers pursuant to
this subsection (c)(1) shall be subject to the Inflation Adjustment, the
Volume Adjustment, the Previously Settled States Reduction, the
Non-Settling States Reduction, the NPM Adjustment, the offset for
miscalculated or disputed payments described in subsection XI(i), the
Federal Tobacco Legislation Offset, the Litigating Releasing Parties
Offset, and the offsets for claims over described in subsections
XII(a)(4)(B) and XII(a)(8).
(2) On April 15, 2008 and on April 15 of each year thereafter
through 2017, each Original Participating Manufacturer shall severally pay
to the Escrow Agent (to be credited to the Subsection IX(c)(2) Account)
its Relative Market Share of the base amount of $861,000,000, as such
payments are modified in accordance with this subsection (c)(2). The
payments made by the Original
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Participating Manufacturers pursuant to this subsection (c)(2) shall be
subject to the Inflation Adjustment, the Volume Adjustment, the NPM
Adjustment, the offset for miscalculated or disputed payments described in
subsection XI(i), the Federal Tobacco Legislation Offset, the Litigating
Releasing Parties Offset, and the offsets for claims over described in
subsections XII(a)(4)(B) and XII(a)(8). Such payments shall also be
subject to the Non-Settling States Reduction; provided, however, that for
purposes of payments due pursuant to this subsection (c)(2) (and
corresponding payments by Subsequent Participating Manufacturers under
subsection IX(i)), the Non-Settling States Reduction shall be derived as
follows: (A) the payments made by the Original Participating Manufacturers
pursuant to this subsection (c)(2) shall be allocated among the Settling
States on a percentage basis to be determined by the Settling States
pursuant to the procedures set forth in Exhibit U, and the resulting
allocation percentages disclosed to the Escrow Agent, the Independent
Auditor and the Original Participating Manufacturers not later than June
30, 1999; and (B) the Non-Settling States Reduction shall be based on the
sum of the Allocable Shares so established pursuant to subsection
(c)(2)(A) for those States that were Settling States as of the MSA
Execution Date and as to which this Agreement has terminated as of the
date 15 days before the payment in question is due.
(d) Non-Participating Manufacturer Adjustment.
(1) Calculation of NPM Adjustment for Original Participating
Manufacturers. To protect the public health gains achieved by this
Agreement, certain payments made pursuant to this Agreement shall be
subject to an NPM
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Adjustment. Payments by the Original Participating Manufacturers to which
the NPM Adjustment applies shall be adjusted as provided below:
(A) Subject to the provisions of subsections (d)(1)(C),
(d)(1)(D) and (d)(2) below, each Allocated Payment shall be adjusted
by subtracting from such Allocated Payment the product of such
Allocated Payment amount multiplied by the NPM Adjustment
Percentage. The "NPM Adjustment Percentage" shall be calculated as
follows:
(i) If the Market Share Loss for the year immediately
preceding the year in which the payment in question is due is
less than or equal to 0 (zero), then the NPM Adjustment
Percentage shall equal zero.
(ii) If the Market Share Loss for the year immediately
preceding the year in which the payment in question is due is
greater than 0 (zero) and less than or equal to 16 2/3
percentage points, then the NPM Adjustment Percentage shall be
equal to the product of (x) such Market Share Loss and (y) 3
(three).
(iii) If the Market Share Loss for the year immediately
preceding the year in which the payment in question is due is
greater than 16 2/3 percentage points, then the NPM Adjustment
Percentage shall be equal to the sum of (x) 50 percentage
points and (y) the product of (1) the Variable Multiplier and
(2) the result of such Market Share Loss minus 16 2/3
percentage points.
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(B) Definitions:
(i) "Base Aggregate Participating Manufacturer Market
Share" means the result of (x) the sum of the applicable
Market Shares (the applicable Market Share to be that for
1997) of all present and former Tobacco Product Manufacturers
that were Participating Manufacturers during the entire
calendar year immediately preceding the year in which the
payment in question is due minus (y) 2 (two) percentage
points.
(ii) "Actual Aggregate Participating Manufacturer Market
Share" means the sum of the applicable Market Shares of all
present and former Tobacco Product Manufacturers that were
Participating Manufacturers during the entire calendar year
immediately preceding the year in which the payment in
question is due (the applicable Market Share to be that for
the calendar year immediately preceding the year in which the
payment in question is due).
(iii) "Market Share Loss" means the result of (x) the
Base Aggregate Participating Manufacturer Market Share minus
(y) the Actual Aggregate Participating Manufacturer Market
Share.
(iv) "Variable Multiplier" equals 50 percentage points
divided by the result of (x) the Base Aggregate Participating
Manufacturer Market Share minus (y) 16 2/3 percentage points.
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(C) On or before February 2 of each year following a year in
which there was a Market Share Loss greater than zero, a nationally
recognized firm of economic consultants (the "Firm") shall determine
whether the disadvantages experienced as a result of the provisions
of this Agreement were a significant factor contributing to the
Market Share Loss for the year in question. If the Firm determines
that the disadvantages experienced as a result of the provisions of
this Agreement were a significant factor contributing to the Market
Share Loss for the year in question, the NPM Adjustment described in
subsection IX(d)(1) shall apply. If the Firm determines that the
disadvantages experienced as a result of the provisions of this
Agreement were not a significant factor contributing to the Market
Share Loss for the year in question, the NPM Adjustment described in
subsection IX(d)(1) shall not apply. The Original Participating
Manufacturers, the Settling States, and the Attorneys General for
the Settling States shall cooperate to ensure that the determination
described in this subsection (1)(C) is timely made. The Firm shall
be acceptable to (and the principals responsible for this assignment
shall be acceptable to) both the Original Participating
Manufacturers and a majority of those Attorneys General who are both
the Attorney General of a Settling State and a member of the NAAG
executive committee at the time in question (or in the event no such
firm or no such principals shall be acceptable to such parties,
National Economic Research Associates, Inc., or its successors by
merger, acquisition or otherwise ("NERA"), acting
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through a principal or principals acceptable to such parties, if
such a person can be identified and, if not, acting through a
principal or principals identified by NERA, or a successor firm
selected by the CPR Institute for Dispute Resolution). As soon as
practicable after the MSA Execution Date, the Firm shall be jointly
retained by the Settling States and the Original Participating
Manufacturers for the purpose of making the foregoing determination,
and the Firm shall provide written notice to each Settling State, to
NAAG, to the Independent Auditor and to each Participating
Manufacturer of such determination. The determination of the Firm
with respect to this issue shall be conclusive and binding upon all
parties, and shall be final and non-appealable. The reasonable fees
and expenses of the Firm shall be paid by the Original Participating
Manufacturers according to their Relative Market Shares. Only the
Participating Manufacturers and the Settling States, and their
respective counsel, shall be entitled to communicate with the Firm
with respect to the Firm's activities pursuant to this subsection
(1)(C).
(D) No NPM Adjustment shall be made with respect to a payment
if the aggregate number of Cigarettes shipped in or to the fifty
United States, the District of Columbia and Puerto Rico in the year
immediately preceding the year in which the payment in question is
due by those Participating Manufacturers that had become
Participating Manufacturers prior to 14 days after the MSA Execution
Date is greater than the aggregate number of Cigarettes shipped in
or to the fifty United States, the
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District of Columbia, and Puerto Rico in 1997 by such Participating
Manufacturers (and any of their Affiliates that made such shipments
in 1997, as demonstrated by certified audited statements of such
Affiliates' shipments, and that do not continue to make such
shipments after the MSA Execution Date because the responsibility
for such shipments has been transferred to one of such Participating
Manufacturers). Measurements of shipments for purposes of this
subsection (D) shall be made in the manner prescribed in subsection
II(mm); in the event that such shipment data is unavailable for any
Participating Manufacturer for 1997, such Participating
Manufacturer's shipment volume for such year shall be measured in
the manner prescribed in subsection II(z).
(2) Allocation among Settling States of NPM Adjustment for Original
Participating Manufacturers.
(A) The NPM Adjustment set forth in subsection (d)(1) shall
apply to the Allocated Payments of all Settling States, except as
set forth below.
(B) A Settling State's Allocated Payment shall not be subject
to an NPM Adjustment: (i) if such Settling State continuously had a
Qualifying Statute (as defined in subsection (2)(E) below) in full
force and effect during the entire calendar year immediately
preceding the year in which the payment in question is due, and
diligently enforced the provisions of such statute during such
entire calendar year; or (ii) if such Settling State enacted the
Model Statute (as defined in subsection (2)(E) below) for the first
time during the calendar year immediately preceding the year in
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which the payment in question is due, continuously had the Model
Statute in full force and effect during the last six months of such
calendar year, and diligently enforced the provisions of such
statute during the period in which it was in full force and effect.
(C) The aggregate amount of the NPM Adjustments that would
have applied to the Allocated Payments of those Settling States that
are not subject to an NPM Adjustment pursuant to subsection (2)(B)
shall be reallocated among all other Settling States pro rata in
proportion to their respective Allocable Shares (the applicable
Allocable Shares being those listed in Exhibit A), and such other
Settling States' Allocated Payments shall be further reduced
accordingly.
(D) This subsection (2)(D) shall apply if the amount of the
NPM Adjustment applied pursuant to subsection (2)(A) to any Settling
State plus the amount of the NPM Adjustments reallocated to such
Settling State pursuant to subsection (2)(C) in any individual year
would either (i) exceed such Settling State's Allocated Payment in
that year, or (ii) if subsection (2)(F) applies to the Settling
State in question, exceed 65% of such Settling State's Allocated
Payment in that year. For each Settling State that has an excess as
described in the preceding sentence, the excess amount of NPM
Adjustment shall be further reallocated among all other Settling
States whose Allocated Payments are subject to an NPM Adjustment and
that do not have such an excess, pro rata in proportion to their
respective Allocable Shares, and such other Settling States'
Allocated
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Payments shall be further reduced accordingly. The provisions of
this subsection (2)(D) shall be repeatedly applied in any individual
year until either (i) the aggregate amount of NPM Adjustments has
been fully reallocated or (ii) the full amount of the NPM
Adjustments subject to reallocation under subsection (2)(C) or
(2)(D) cannot be fully reallocated in any individual year as
described in those subsections because (x) the Allocated Payment in
that year of each Settling State that is subject to an NPM
Adjustment and to which subsection (2)(F) does not apply has been
reduced to zero, and (y) the Allocated Payment in that year of each
Settling State to which subsection (2)(F) applies has been reduced
to 35% of such Allocated Payment.
(E) A "Qualifying Statute" means a Settling State's statute,
regulation, law and/or rule (applicable everywhere the Settling
State has authority to legislate) that effectively and fully
neutralizes the cost disadvantages that the Participating
Manufacturers experience vis-a-vis Non-Participating Manufacturers
within such Settling State as a result of the provisions of this
Agreement. Each Participating Manufacturer and each Settling State
agree that the model statute in the form set forth in Exhibit T (the
"Model Statute"), if enacted without modification or addition
(except for particularized state procedural or technical
requirements) and not in conjunction with any other legislative or
regulatory proposal, shall constitute a Qualifying Statute. Each
Participating Manufacturer agrees to support the enactment of such
Model
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Statute if such Model Statute is introduced or proposed (i) without
modification or addition (except for particularized procedural or
technical requirements), and (ii) not in conjunction with any other
legislative proposal.
(F) If a Settling State (i) enacts the Model Statute without
any modification or addition (except for particularized state
procedural or technical requirements) and not in conjunction with
any other legislative or regulatory proposal, (ii) uses its best
efforts to keep the Model Statute in full force and effect by, among
other things, defending the Model Statute fully in any litigation
brought in state or federal court within such Settling State
(including litigating all available appeals that may affect the
effectiveness of the Model Statute), and (iii) otherwise complies
with subsection (2)(B), but a court of competent jurisdiction
nevertheless invalidates or renders unenforceable the Model Statute
with respect to such Settling State, and but for such ruling the
Settling State would have been exempt from an NPM Adjustment under
subsection (2)(B), then the NPM Adjustment (including reallocations
pursuant to subsections (2)(C) and (2)(D)) shall still apply to such
Settling State's Allocated Payments but in any individual year shall
not exceed 65% of the amount of such Allocated Payments.
(G) In the event a Settling State proposes and/or enacts a
statute, regulation, law and/or rule (applicable everywhere the
Settling State has authority to legislate) that is not the Model
Statute and asserts that such
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statute, regulation, law and/or rule is a Qualifying Statute, the
Firm shall be jointly retained by the Settling States and the
Original Participating Manufacturers for the purpose of determining
whether or not such statute, regulation, law and/or rule constitutes
a Qualifying Statute. The Firm shall make the foregoing
determination within 90 days of a written request to it from the
relevant Settling State (copies of which request the Settling State
shall also provide to all Participating Manufacturers and the
Independent Auditor), and the Firm shall promptly thereafter provide
written notice of such determination to the relevant Settling State,
NAAG, all Participating Manufacturers and the Independent Auditor.
The determination of the Firm with respect to this issue shall be
conclusive and binding upon all parties, and shall be final and
non-appealable; provided, however, (i) that such determination shall
be of no force and effect with respect to a proposed statute,
regulation, law and/or rule that is thereafter enacted with any
modification or addition; and (ii) that the Settling State in which
the Qualifying Statute was enacted and any Participating
Manufacturer may at any time request that the Firm reconsider its
determination as to this issue in light of subsequent events
(including, without limitation, subsequent judicial review,
interpretation, modification and/or disapproval of a Settling
State's Qualifying Statute, and the manner and/or the effect of
enforcement of such Qualifying Statute). The Original Participating
Manufacturers shall severally pay their Relative Market Shares of
the reasonable fees and expenses of the Firm. Only the
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Participating Manufacturers and Settling States, and their
respective counsel, shall be entitled to communicate with the Firm
with respect to the Firm's activities pursuant to this subsection
(2)(G).
(H) Except as provided in subsection (2)(F), in the event a
Qualifying Statute is enacted within a Settling State and is
thereafter invalidated or declared unenforceable by a court of
competent jurisdiction, otherwise rendered not in full force and
effect, or, upon reconsideration by the Firm pursuant to subsection
(2)(G) determined not to constitute a Qualifying Statute, then such
Settling State's Allocated Payments shall be fully subject to an NPM
Adjustment unless and until the requirements of subsection (2)(B)
have been once again satisfied.
(3) Allocation of NPM Adjustment among Original Participating
Manufacturers. The portion of the total amount of the NPM Adjustment to
which the Original Participating Manufacturers are entitled in any year
that can be applied in such year consistent with subsection IX(d)(2) (the
"Available NPM Adjustment") shall be allocated among them as provided in
this subsection IX(d)(3).
(A) The "Base NPM Adjustment" shall be determined for each
Original Participating Manufacturer in such year as follows:
(i) For those Original Participating Manufacturers whose
Relative Market Shares in the year immediately preceding the
year in which the NPM Adjustment in question is applied exceed
or are
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equal to their respective 1997 Relative Market Shares, the
Base NPM Adjustment shall equal 0 (zero).
(ii) For those Original Participating Manufacturers
whose Relative Market Shares in the year immediately preceding
the year in which the NPM Adjustment in question is applied
are less than their respective 1997 Relative Market Shares,
the Base NPM Adjustment shall equal the result of (x) the
difference between such Original Participating Manufacturer's
Relative Market Share in such preceding year and its 1997
Relative Market Share multiplied by both (y) the number of
individual Cigarettes (expressed in thousands of units)
shipped in or to the United States, the District of Columbia
and Puerto Rico by all the Original Participating
Manufacturers in such preceding year (determined in accordance
with subsection II(mm)) and (z) $20 per each thousand units of
Cigarettes (as this number is adjusted pursuant to subsection
IX(d)(3)(C) below).
(iii) For those Original Participating Manufacturers
whose Base NPM Adjustment, if calculated pursuant to
subsection (ii) above, would exceed $300 million (as this
number is adjusted pursuant to subsection IX(d)(3)(C) below),
the Base NPM Adjustment shall equal $300 million (or such
adjusted number, as provided in subsection IX(d)(3)(C) below).
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(B) The share of the Available NPM Adjustment each Original
Participating Manufacturer is entitled to shall be calculated as
follows:
(i) If the Available NPM Adjustment the Original
Participating Manufacturers are entitled to in any year is
less than or equal to the sum of the Base NPM Adjustments of
all Original Participating Manufacturers in such year, then
such Available NPM Adjustment shall be allocated among those
Original Participating Manufacturers whose Base NPM Adjustment
is not equal to 0 (zero) pro rata in proportion to their
respective Base NPM Adjustments.
(ii) If the Available NPM Adjustment the Original
Participating Manufacturers are entitled to in any year
exceeds the sum of the Base NPM Adjustments of all Original
Participating Manufacturers in such year, then (x) the
difference between such Available NPM Adjustment and such sum
of the Base NPM Adjustments shall be allocated among the
Original Participating Manufacturers pro rata in proportion to
their Relative Market Shares (the applicable Relative Market
Shares to be those in the year immediately preceding such
year), and (y) each Original Participating Manufacturer's
share of such Available NPM Adjustment shall equal the sum of
(1) its Base NPM Adjustment for such year, and (2) the amount
allocated to such Original Participating Manufacturer pursuant
to clause (x).
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(iii) If an Original Participating Manufacturer's share
of the Available NPM Adjustment calculated pursuant to
subsection IX(d)(3)(B)(i) or IX(d)(3)(B)(ii) exceeds such
Original Participating Manufacturer's payment amount to which
such NPM Adjustment applies (as such payment amount has been
determined pursuant to step B of clause "Seventh" of
subsection IX(j)), then (1) such Original Participating
Manufacturer's share of the Available NPM Adjustment shall
equal such payment amount, and (2) such excess shall be
reallocated among the other Original Participating
Manufacturers pro rata in proportion to their Relative Market
Shares.
(C) Adjustments:
(i) For calculations made pursuant to this subsection
IX(d)(3) (if any) with respect to payments due in the year
2000, the number used in subsection IX(d)(3)(A)(ii)(z) shall
be $20 and the number used in subsection IX(d)(3)(A)(iii)
shall be $300 million. Each year thereafter, both these
numbers shall be adjusted upward or downward by multiplying
each of them by the quotient produced by dividing (x) the
average revenue per Cigarette of all the Original
Participating Manufacturers in the year immediately preceding
such year, by (y) the average revenue per Cigarette of all the
Original Participating Manufacturers in the year immediately
preceding such immediately preceding year.
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(ii) For purposes of this subsection, the average
revenue per Cigarette of all the Original Participating
Manufacturers in any year shall equal (x) the aggregate
revenues of all the Original Participating Manufacturers from
sales of Cigarettes in the fifty United States, the District
of Columbia and Puerto Rico after Federal excise taxes and
after payments pursuant to this Agreement and the tobacco
litigation Settlement Agreements with the States of Florida,
Mississippi, Minnesota and Texas (as such revenues are
reported to the United States Securities and Exchange
Commission ("SEC") for such year (either independently by the
Original Participating Manufacturer or as part of consolidated
financial statements reported to the SEC by an Affiliate of
the Original Participating Manufacturers) or, in the case of
an Original Participating Manufacturer that does not report
income to the SEC, as reported in financial statements
prepared in accordance with United States generally accepted
accounting principles and audited by a nationally recognized
accounting firm), divided by (y) the aggregate number of the
individual Cigarettes shipped in or to the United States, the
District of Columbia and Puerto Rico by all the Original
Participating Manufacturers in such year (determined in
accordance with subsection II(mm)).
(D) In the event that in the year immediately preceding the
year in which the NPM Adjustment in question is applied both (x) the
Relative
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Market Share of Lorillard Tobacco Company (or of its successor)
("Lorillard") was less than or equal to 20.0000000%, and (y) the
number of individual Cigarettes shipped in or to the United States,
the District of Columbia and Puerto Rico by Lorillard (determined in
accordance with subsection II(mm)) (for purposes of this subsection
(D), "Volume") was less than or equal to 70 billion, Lorillard's and
Philip Morris Incorporated's (or its successor's) ("Philip Morris")
shares of the Available NPM Adjustment calculated pursuant to
subsections (3)(A)-(C) above shall be further reallocated between
Lorillard and Philip Morris as follows (this subsection (3)(D) shall
not apply in the year in which either of the two conditions
specified in this sentence is not satisfied):
(i) Notwithstanding subsections (A)-(C) of this
subsection (d)(3), but subject to further adjustment pursuant
to subsections (D)(ii) and (D)(iii) below, Lorillard's share
of the Available NPM Adjustment shall equal its Relative
Market Share of such Available NPM Adjustment (the applicable
Relative Market Share to be that in the year immediately
preceding the year in which such NPM Adjustment is applied).
The dollar amount of the difference between the share of the
Available NPM Adjustment Lorillard is entitled to pursuant to
the preceding sentence and the share of the Available NPM
Adjustment it would be entitled to in the same year pursuant
to subsections (d)(3)(A)-(C) shall be reallocated to Philip
Morris and used to decrease or increase, as the case may be,
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Philip Morris's share of the Available NPM Adjustment in such
year calculated pursuant to subsections (d)(3)(A)-(C).
(ii) In the event that in the year immediately preceding
the year in which the NPM Adjustment in question is applied
either (x) Lorillard's Relative Market Share was greater than
15.0000000% (but did not exceed 20.0000000%), or (y)
Lorillard's Volume was greater than 50 billion (but did not
exceed 70 billion), or both, Lorillard's share of the
Available NPM Adjustment calculated pursuant to subsection
(d)(3)(D)(i) shall be reduced by a percentage equal to the
greater of (1) 10.0000000% for each percentage point (or
fraction thereof) of excess of such Relative Market Share over
15.0000000% (if any), or (2) 2.5000000% for each billion (or
fraction thereof) of excess of such Volume over 50 billion (if
any). The dollar amount by which Lorillard's share of the
Available NPM Adjustment is reduced in any year pursuant to
this subsection (D)(ii) shall be reallocated to Philip Morris
and used to increase Philip Morris's share of the Available
NPM Adjustment in such year.
(iii) In the event that in any year a reallocation of
the shares of the Available NPM Adjustment between Lorillard
and Philip Morris pursuant to this subsection (d)(3)(D)
results in Philip Morris's share of the Available NPM
Adjustment in such year exceeding the greater of (x) Philip
Morris's Relative Market Share
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of such Available NPM Adjustment (the applicable Relative
Market Share to be that in the year immediately preceding such
year), or (y) Philip Morris's share of the Available NPM
Adjustment in such year calculated pursuant to subsections
(d)(3)(A)-(C), Philip Morris's share of the Available NPM
Adjustment in such year shall be reduced to equal the greater
of (x) or (y) above. In such instance, the dollar amount by
which Philip Morris's share of the Available NPM Adjustment is
reduced pursuant to the preceding sentence shall be
reallocated to Lorillard and used to increase Lorillard's
share of the Available NPM Adjustment in such year.
(iv) In the event that either Philip Morris or Lorillard
is treated as a Non-Participating Manufacturer for purposes of
this subsection IX(d)(3) pursuant to subsection
XVIII(w)(2)(A), this subsection (3)(D) shall not be applied,
and the Original Participating Manufacturers' shares of the
Available NPM Adjustment shall be determined solely as
described in subsections (3)(A)-(C).
(4) NPM Adjustment for Subsequent Participating Manufacturers.
Subject to the provisions of subsection IX(i)(3), a Subsequent
Participating Manufacturer shall be entitled to an NPM Adjustment with
respect to payments due from such Subsequent Participating Manufacturer in
any year during which an NPM Adjustment is applicable under subsection
(d)(1) above to payments due
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from the Original Participating Manufacturers. The amount of such NPM
Adjustment shall equal the product of (A) the NPM Adjustment Percentage
for such year multiplied by (B) the sum of the payments due in the year in
question from such Subsequent Participating Manufacturer that correspond
to payments due from Original Participating Manufacturers pursuant to
subsection IX(c) (as such payment amounts due from such Subsequent
Participating Manufacturer have been adjusted and allocated pursuant to
clauses "First" through "Fifth" of subsection IX(j)). The NPM Adjustment
to payments by each Subsequent Participating Manufacturer shall be
allocated and reallocated among the Settling States in a manner consistent
with subsection (d)(2) above.
(e) Supplemental Payments. Beginning on April 15, 2004, and on April 15 of
each year thereafter in perpetuity, in the event that the sum of the Market
Shares of the Participating Manufacturers that were Participating Manufacturers
during the entire calendar year immediately preceding the year in which the
payment in question would be due (the applicable Market Share to be that for the
calendar year immediately preceding the year in which the payment in question
would be due) equals or exceeds 99.0500000%, each Original Participating
Manufacturer shall severally pay to the Escrow Agent (to be credited to the
Subsection IX(e) Account) for the benefit of the Foundation its Relative Market
Share of the base amount of $300,000,000, as such payments are modified in
accordance with this subsection (e). Such payments shall be utilized by the
Foundation to fund the national public education functions of the Foundation
described in subsection VI(f)(1), in the manner described in and subject to the
provisions of subsections VI(g) and VI(h). The payments made by the Original
Participating
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Manufacturers pursuant to this subsection shall be subject to the Inflation
Adjustment, the Volume Adjustment, the Non-Settling States Reduction, and the
offset for miscalculated or disputed payments described in subsection XI(i).
(f) Payment Responsibility. The payment obligations of each Participating
Manufacturer pursuant to this Agreement shall be the several responsibility only
of that Participating Manufacturer. The payment obligations of a Participating
Manufacturer shall not be the obligation or responsibility of any Affiliate of
such Participating Manufacturer. The payment obligations of a Participating
Manufacturer shall not be the obligation or responsibility of any other
Participating Manufacturer. Provided, however, that no provision of this
Agreement shall waive or excuse liability under any state or federal fraudulent
conveyance or fraudulent transfer law. Any Participating Manufacturer whose
Market Share (or Relative Market Share) in any given year equals zero shall have
no payment obligations under this Agreement in the succeeding year.
(g) Corporate Structures. Due to the particular corporate structures of
R.J. Reynolds Tobacco Company ("Reynolds") and Brown & Williamson Tobacco
Corporation ("B&W") with respect to their non-domestic tobacco operations,
Reynolds and B&W shall be severally liable for their respective shares of each
payment due pursuant to this Agreement up to (and their liability hereunder
shall not exceed) the full extent of their assets used in and earnings derived
from, the manufacture and/or sale in the States of Tobacco Products intended for
domestic consumption, and no recourse shall be had against any of their other
assets or earnings to satisfy such obligations.
(h) Accrual of Interest. Except as expressly provided otherwise in this
Agreement, any payment due hereunder and not paid when due (or payments
requiring
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the accrual of interest under subsection XI(d)) shall accrue interest from and
including the date such payment is due until (but not including) the date paid
at the Prime Rate plus three percentage points.
(i) Payments by Subsequent Participating Manufacturers.
(1) A Subsequent Participating Manufacturer shall have payment
obligations under this Agreement only in the event that its Market Share
in any calendar year exceeds the greater of (1) its 1998 Market Share or
(2) 125 percent of its 1997 Market Share (subject to the provisions of
subsection (i)(4)). In the year following any such calendar year, such
Subsequent Participating Manufacturer shall make payments corresponding to
those due in that same following year from the Original Participating
Manufacturers pursuant to subsections VI(c) (except for the payment due on
March 31, 1999), IX(c)(1), IX(c)(2) and IX(e). The amounts of such
corresponding payments by a Subsequent Participating Manufacturer are in
addition to the corresponding payments that are due from the Original
Participating Manufacturers and shall be determined as described in
subsections (2) and (3) below. Such payments by a Subsequent Participating
Manufacturer shall (A) be due on the same dates as the corresponding
payments are due from Original Participating Manufacturers; (B) be for the
same purpose as such corresponding payments; and (C) be paid, allocated
and distributed in the same manner as such corresponding payments.
(2) The base amount due from a Subsequent Participating Manufacturer
on any given date shall be determined by multiplying (A) the corresponding
base amount due on the same date from all of the Original Participating
Manufacturers
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(as such base amount is specified in the corresponding subsection of this
Agreement and is adjusted by the Volume Adjustment (except for the
provisions of subsection (B)(ii) of Exhibit E), but before such base
amount is modified by any other adjustments, reductions or offsets) by (B)
the quotient produced by dividing (i) the result of (x) such Subsequent
Participating Manufacturer's applicable Market Share (the applicable
Market Share being that for the calendar year immediately preceding the
year in which the payment in question is due) minus (y) the greater of (1)
its 1998 Market Share or (2) 125 percent of its 1997 Market Share, by (ii)
the aggregate Market Shares of the Original Participating Manufacturers
(the applicable Market Shares being those for the calendar year
immediately preceding the year in which the payment in question is due).
(3) Any payment due from a Subsequent Participating Manufacturer
under subsections (1) and (2) above shall be subject (up to the full
amount of such payment) to the Inflation Adjustment, the Non-Settling
States Reduction, the NPM Adjustment, the offset for miscalculated or
disputed payments described in subsection XI(i), the Federal Tobacco
Legislation Offset, the Litigating Releasing Parties Offset and the
offsets for claims over described in subsections XII(a)(4)(B) and
XII(a)(8), to the extent that such adjustments, reductions or offsets
would apply to the corresponding payment due from the Original
Participating Manufacturers. Provided, however, that all adjustments and
offsets to which a Subsequent Participating Manufacturer is entitled may
only be applied against payments by such Subsequent Participating
Manufacturer, if any, that are due within 12 months after the date on
which the Subsequent Participating
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Manufacturer becomes entitled to such adjustment or makes the payment that
entitles it to such offset, and shall not be carried forward beyond that
time even if not fully used.
(4) For purposes of this subsection (i), the 1997 (or 1998, as
applicable) Market Share (and 125 percent thereof) of those Subsequent
Participating Manufacturers that either (A) became a signatory to this
Agreement more than 60 days after the MSA Execution Date or (B) had no
Market Share in 1997 (or 1998, as applicable), shall equal zero.
(j) Order of Application of Allocations, Offsets, Reductions and
Adjustments. The payments due under this Agreement shall be calculated as set
forth below. The "base amount" referred to in clause "First" below shall mean
(1) in the case of payments due from Original Participating Manufacturers, the
base amount referred to in the subsection establishing the payment obligation in
question; and (2) in the case of payments due from a Subsequent Participating
Manufacturer, the base amount referred to in subsection (i)(2) for such
Subsequent Participating Manufacturer. In the event that a particular
adjustment, reduction or offset referred to in a clause below does not apply to
the payment being calculated, the result of the clause in question shall be
deemed to be equal to the result of the immediately preceding clause. (If clause
"First" is inapplicable, the result of clause "First" will be the base amount of
the payment in question prior to any offsets, reductions or adjustments.)
First: the Inflation Adjustment shall be applied to the base amount of the
payment being calculated;
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Second: the Volume Adjustment (other than the provisions of subsection
(B)(iii) of Exhibit E) shall be applied to the result of clause "First";
Third: the result of clause "Second" shall be reduced by the Previously
Settled States Reduction;
Fourth: the result of clause "Third" shall be reduced by the Non-Settling
States Reduction;
Fifth: in the case of payments due under subsections IX(c)(1) and
IX(c)(2), the results of clause "Fourth" for each such payment due in the
calendar year in question shall be apportioned among the Settling States pro
rata in proportion to their respective Allocable Shares, and the resulting
amounts for each particular Settling State shall then be added together to form
such Settling State's Allocated Payment. In the case of payments due under
subsection IX(i) that correspond to payments due under subsections IX(c)(1) or
IX(c)(2), the results of clause "Fourth" for all such payments due from a
particular Subsequent Participating Manufacturer in the calendar year in
question shall be apportioned among the Settling States pro rata in proportion
to their respective Allocable Shares, and the resulting amounts for each
particular Settling State shall then be added together. (In the case of all
other payments made pursuant to this Agreement, this clause "Fifth" is
inapplicable.);
Sixth: the NPM Adjustment shall be applied to the results of clause
"Fifth" pursuant to subsections IX(d)(1) and (d)(2) (or, in the case of payments
due from the Subsequent Participating Manufacturers, pursuant to subsection
IX(d)(4));
Seventh: in the case of payments due from the Original Participating
Manufacturers to which clause "Fifth" (and therefore clause "Sixth") does not
apply, the
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result of clause "Fourth" shall be allocated among the Original Participating
Manufacturers according to their Relative Market Shares. In the case of payments
due from the Original Participating Manufacturers to which clause "Fifth"
applies: (A) the Allocated Payments of all Settling States determined pursuant
to clause "Fifth" (prior to reduction pursuant to clause "Sixth") shall be added
together; (B) the resulting sum shall be allocated among the Original
Participating Manufacturers according to their Relative Market Shares and
subsection (B)(iii) of Exhibit E hereto (if such subsection is applicable); (C)
the Available NPM Adjustment (as determined pursuant to clause "Sixth") shall be
allocated among the Original Participating Manufacturers pursuant to subsection
IX(d)(3); (D) the respective result of step (C) above for each Original
Participating Manufacturer shall be subtracted from the respective result of
step (B) above for such Original Participating Manufacturer; and (E) the
resulting payment amount due from each Original Participating Manufacturer shall
then be allocated among the Settling States in proportion to the respective
results of clause "Sixth" for each Settling State. The offsets described in
clauses "Eighth" through "Twelfth" shall then be applied separately against each
Original Participating Manufacturer's resulting payment shares (on a Settling
State by Settling State basis) according to each Original Participating
Manufacturer's separate entitlement to such offsets, if any, in the calendar
year in question. (In the case of payments due from Subsequent Participating
Manufacturers, this clause "Seventh" is inapplicable.)
Eighth: the offset for miscalculated or disputed payments described in
subsection XI(i) (and any carry-forwards arising from such offset) shall be
applied to the results of clause "Seventh" (in the case of payments due from the
Original Participating
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Manufacturers) or to the results of clause "Sixth" (in the case of payments due
from Subsequent Participating Manufacturers);
Ninth: the Federal Tobacco Legislation Offset (including any
carry-forwards arising from such offset) shall be applied to the results of
clause "Eighth";
Tenth: the Litigating Releasing Parties Offset (including any
carry-forwards arising from such offset) shall be applied to the results of
clause "Ninth";
Eleventh: the offset for claims over pursuant to subsection XII(a)(4)(B)
(including any carry-forwards arising from such offset) shall be applied to the
results of clause "Tenth";
Twelfth: the offset for claims over pursuant to subsection XII(a)(8)
(including any carry-forwards arising from such offset) shall be applied to the
results of clause "Eleventh"; and
Thirteenth: in the case of payments to which clause "Fifth" applies, the
Settling States' allocated shares of the payments due from each Participating
Manufacturer (as such shares have been determined in step (E) of clause
"Seventh" in the case of payments from the Original Participating Manufacturers
or in clause "Sixth" in the case of payments from the Subsequent Participating
Manufacturers, and have been reduced by clauses "Eighth" through "Twelfth")
shall be added together to state the aggregate payment obligation of each
Participating Manufacturer with respect to the payments in question. (In the
case of a payment to which clause "Fifth" does not apply, the aggregate payment
obligation of each Participating Manufacturer with respect to the payment in
question shall be stated by the results of clause "Eighth.")
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X. EFFECT OF FEDERAL TOBACCO-RELATED LEGISLATION
(a) If federal tobacco-related legislation is enacted after the MSA
Execution Date and on or before November 30, 2002, and if such legislation
provides for payment(s) by any Original Participating Manufacturer (whether by
settlement payment, tax or any other means), all or part of which are actually
made available to a Settling State ("Federal Funds"), each Original
Participating Manufacturer shall receive a continuing dollar-for-dollar offset
for any and all amounts that are paid by such Original Participating
Manufacturer pursuant to such legislation and actually made available to such
Settling State (except as described in subsections (b) and (c) below). Such
offset shall be applied against the applicable Original Participating
Manufacturer's share (determined as described in step E of clause "Seventh" of
subsection IX(j)) of such Settling State's Allocated Payment, up to the full
amount of such Original Participating Manufacturer's share of such Allocated
Payment (as such share had been reduced by adjustment, if any, pursuant to the
NPM Adjustment and has been reduced by offset, if any, pursuant to the offset
for miscalculated or disputed payments). Such offset shall be made against such
Original Participating Manufacturer's share of the first Allocated Payment due
after such Federal Funds are first available for receipt by such Settling State.
In the event that such offset would in any given year exceed such Original
Participating Manufacturer's share of such Allocated Payment: (1) the offset to
which such Original Participating Manufacturer is entitled under this section in
such year shall be the full amount of such Original Participating Manufacturer's
share of such Allocated Payment, and (2) all amounts not offset by reason of
subsection (1) shall carry forward and be offset in the following year(s) until
all such amounts have been offset.
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(b) The offset described in subsection (a) shall apply only to that
portion of Federal Funds, if any, that are either unrestricted as to their use,
or restricted to any form of health care or to any use related to tobacco
(including, but not limited to, tobacco education, cessation, control or
enforcement) (other than that portion of Federal Funds, if any, that is
specifically applicable to tobacco growers or communities dependent on the
production of tobacco or Tobacco Products). Provided, however, that the offset
described in subsection (a) shall not apply to that portion of Federal Funds, if
any, whose receipt by such Settling State is conditioned upon or appropriately
allocable to:
(1) the relinquishment of rights or benefits under this Agreement
(including the Consent Decree); or
(2) actions or expenditures by such Settling State, unless:
(A) such Settling State chooses to undertake such action or
expenditure;
(B) such actions or expenditures do not impose significant
constraints on public policy choices; or
(C) such actions or expenditures are both: (i) related to
health care or tobacco (including, but not limited to, tobacco
education, cessation, control or enforcement) and (ii) do not
require such Settling State to expend state matching funds in an
amount that is significant in relation to the amount of the Federal
Funds made available to such Settling State.
(c) Subject to the provisions of subsection IX(i)(3), Subsequent
Participating Manufacturers shall be entitled to the offset described in this
section X to the extent that
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they are required to pay Federal Funds that would give rise to an offset under
subsections (a) and (b) if paid by an Original Participating Manufacturer.
(d) Nothing in this section X shall (1) reduce the payments to be made to
the Settling States under this Agreement other than those described in
subsection IX(c) (or corresponding payments under subsection IX(i)) of this
Agreement; or (2) alter the Allocable Share used to determine each Settling
State's share of the payments described in subsection IX(c) (or corresponding
payments under subsection IX(i)) of this Agreement. Nothing in this section X is
intended to or shall reduce the total amounts payable by the Participating
Manufacturers to the Settling States under this Agreement by an amount greater
than the amount of Federal Funds that the Settling States could elect to
receive.
XI. CALCULATION AND DISBURSEMENT OF PAYMENTS
(a) Independent Auditor to Make All Calculations.
(1) Beginning with payments due in the year 2000, an Independent
Auditor shall calculate and determine the amount of all payments owed
pursuant to this Agreement, the adjustments, reductions and offsets
thereto (and all resulting carry-forwards, if any), the allocation of such
payments, adjustments, reductions, offsets and carry-forwards among the
Participating Manufacturers and among the Settling States, and shall
perform all other calculations in connection with the foregoing
(including, but not limited to, determining Market Share, Relative Market
Share, Base Aggregate Participating Manufacturer Market Share and Actual
Aggregate Participating Manufacturer Market Share). The Independent
Auditor shall promptly collect all information necessary to make
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such calculations and determinations. Each Participating Manufacturer and
each Settling State shall provide the Independent Auditor, as promptly as
practicable, with information in its possession or readily available to it
necessary for the Independent Auditor to perform such calculations. The
Independent Auditor shall agree to maintain the confidentiality of all
such information, except that the Independent Auditor may provide such
information to Participating Manufacturers and the Settling States as set
forth in this Agreement. The Participating Manufacturers and the Settling
States agree to maintain the confidentiality of such information.
(2) Payments due from the Original Participating Manufacturers prior
to January 1, 2000 (other than the first payment due pursuant to
subsection IX(b)) shall be based on the 1998 Relative Market Shares of the
Original Participating Manufacturers or, if the Original Participating
Manufacturers are unable to agree on such Relative Market Shares, on their
1997 Relative Market Shares specified in Exhibit Q.
(b) Identity of Independent Auditor. The Independent Auditor shall be a
major, nationally recognized, certified public accounting firm jointly selected
by agreement of the Original Participating Manufacturers and those Attorneys
General of the Settling States who are members of the NAAG executive committee,
who shall jointly retain the power to replace the Independent Auditor and
appoint its successor. Fifty percent of the costs and fees of the Independent
Auditor (but in no event more than $500,000 per annum), shall be paid by the
Fund described in Exhibit J hereto, and the balance of such costs and fees shall
be paid by the Original Participating Manufacturers, allocated among
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them according to their Relative Market Shares. The agreement retaining the
Independent Auditor shall provide that the Independent Auditor shall perform the
functions specified for it in this Agreement, and that it shall do so in the
manner specified in this Agreement.
(c) Resolution of Disputes. Any dispute, controversy or claim arising out
of or relating to calculations performed by, or any determinations made by, the
Independent Auditor (including, without limitation, any dispute concerning the
operation or application of any of the adjustments, reductions, offsets,
carry-forwards and allocations described in subsection IX(j) or subsection
XI(i)) shall be submitted to binding arbitration before a panel of three neutral
arbitrators, each of whom shall be a former Article III federal judge. Each of
the two sides to the dispute shall select one arbitrator. The two arbitrators so
selected shall select the third arbitrator. The arbitration shall be governed by
the United States Federal Arbitration Act.
(d) General Provisions as to Calculation of Payments.
(1) Not less than 90 days prior to the scheduled due date of any
payment due pursuant to this Agreement ("Payment Due Date"), the
Independent Auditor shall deliver to each other Notice Party a detailed
itemization of all information required by the Independent Auditor to
complete its calculation of (A) the amount due from each Participating
Manufacturer with respect to such payment, and (B) the portion of such
amount allocable to each entity for whose benefit such payment is to be
made. To the extent practicable, the Independent Auditor shall specify in
such itemization which Notice Party is requested to produce which
information. Each Participating Manufacturer and each Settling State shall
use its
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best efforts to promptly supply all of the required information that is
within its possession or is readily available to it to the Independent
Auditor, and in any event not less than 50 days prior to such Payment Due
Date. Such best efforts obligation shall be continuing in the case of
information that comes within the possession of, or becomes readily
available to, any Settling State or Participating Manufacturer after the
date 50 days prior to such Payment Due Date.
(2) Not less than 40 days prior to the Payment Due Date, the
Independent Auditor shall deliver to each other Notice Party (A) detailed
preliminary calculations ("Preliminary Calculations") of the amount due
from each Participating Manufacturer and of the amount allocable to each
entity for whose benefit such payment is to be made, showing all
applicable offsets, adjustments, reductions and carry-forwards and setting
forth all the information on which the Independent Auditor relied in
preparing such Preliminary Calculations, and (B) a statement of any
information still required by the Independent Auditor to complete its
calculations.
(3) Not less than 30 days prior to the Payment Due Date, any
Participating Manufacturer or any Settling State that disputes any aspect
of the Preliminary Calculations (including, but not limited to, disputing
the methodology that the Independent Auditor employed, or the information
on which the Independent Auditor relied, in preparing such calculations)
shall notify each other Notice Party of such dispute, including the
reasons and basis therefor.
(4) Not less than 15 days prior to the Payment Due Date, the
Independent Auditor shall deliver to each other Notice Party a detailed
recalculation (a "Final
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Calculation") of the amount due from each Participating Manufacturer, the
amount allocable to each entity for whose benefit such payment is to be
made, and the Account to which such payment is to be credited, explaining
any changes from the Preliminary Calculation. The Final Calculation may
include estimates of amounts in the circumstances described in subsection
(d)(5).
(5) The following provisions shall govern in the event that the
information required by the Independent Auditor to complete its
calculations is not in its possession by the date as of which the
Independent Auditor is required to provide either a Preliminary
Calculation or a Final Calculation.
(A) If the information in question is not readily available to
any Settling State, any Original Participating Manufacturer or any
Subsequent Participating Manufacturer, the Independent Auditor shall
employ an assumption as to the missing information producing the
minimum amount that is likely to be due with respect to the payment
in question, and shall set forth its assumption as to the missing
information in its Preliminary Calculation or Final Calculation,
whichever is at issue. Any Original Participating Manufacturer,
Subsequent Participating Manufacturer or Settling State may dispute
any such assumption employed by the Independent Auditor in its
Preliminary Calculation in the manner prescribed in subsection
(d)(3) or any such assumption employed by the Independent Auditor in
its Final Calculation in the manner prescribed in subsection (d)(6).
If the missing information becomes available to the Independent
Auditor prior to the Payment Due Date, the Independent
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Auditor shall promptly revise its Preliminary Calculation or Final
Calculation (whichever is applicable) and shall promptly provide the
revised calculation to each Notice Party, showing the newly
available information. If the missing information does not become
available to the Independent Auditor prior to the Payment Due Date,
the minimum amount calculated by the Independent Auditor pursuant to
this subsection (A) shall be paid on the Payment Due Date, subject
to disputes pursuant to subsections (d)(6) and (d)(8) and without
prejudice to a later final determination of the correct amount. If
the missing information becomes available to the Independent Auditor
after the Payment Due Date, the Independent Auditor shall calculate
the correct amount of the payment in question and shall apply any
overpayment or underpayment as an offset or additional payment in
the manner described in subsection (i).
(B) If the information in question is readily available to a
Settling State, Original Participating Manufacturer or Subsequent
Participating Manufacturer, but such Settling State, Original
Participating Manufacturer or Subsequent Participating Manufacturer
does not supply such information to the Independent Auditor, the
Independent Auditor shall base the calculation in question on its
best estimate of such information, and shall show such estimate in
its Preliminary Calculation or Final Calculation, whichever is
applicable. Any Original Participating Manufacturer, Subsequent
Participating Manufacturer or Settling State (except the entity that
withheld the information) may dispute such estimate
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employed by the Independent Auditor in its Preliminary Calculation
in the manner prescribed in subsection (d)(3) or such estimate
employed by the Independent Auditor in its Final Calculation in the
manner prescribed in subsection (d)(6). If the withheld information
is not made available to the Independent Auditor more than 30 days
prior to the Payment Due Date, the estimate employed by the
Independent Auditor (as revised by the Independent Auditor in light
of any dispute filed pursuant to the preceding sentence) shall
govern the amounts to be paid on the Payment Due Date, subject to
disputes pursuant to subsection (d)(6) and without prejudice to a
later final determination of the correct amount. In the event that
the withheld information subsequently becomes available, the
Independent Auditor shall calculate the correct amount and shall
apply any overpayment or underpayment as an offset or additional
payment in the manner described in subsection (i).
(6) Not less than five days prior to the Payment Due Date, each
Participating Manufacturer and each Settling State shall deliver to each
Notice Party a statement indicating whether it disputes the Independent
Auditor's Final Calculation and, if so, the disputed and undisputed
amounts and the basis for the dispute. Except to the extent a
Participating Manufacturer or a Settling State delivers a statement
indicating the existence of a dispute by such date, the amounts set forth
in the Independent Auditor's Final Calculation shall be paid on the
Payment Due Date. Provided, however, that (A) in the event that the
Independent Auditor revises its Final Calculation within five days of the
Payment
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Due Date as provided in subsection (5)(A) due to receipt of previously
missing information, a Participating Manufacturer or Settling State may
dispute such revision pursuant to the procedure set forth in this
subsection (6) at any time prior to the Payment Due Date; and (B) prior to
the date four years after the Payment Due Date, neither failure to dispute
a calculation made by the Independent Auditor nor actual agreement with
any calculation or payment to the Escrow Agent or to another payee shall
waive any Participating Manufacturer's or Settling State's rights to
dispute any payment (or the Independent Auditor's calculations with
respect to any payment) after the Payment Due Date. No Participating
Manufacturer and no Settling State shall have a right to raise any dispute
with respect to any payment or calculation after the date four years after
such payment's Payment Due Date.
(7) Each Participating Manufacturer shall be obligated to pay by the
Payment Due Date the undisputed portion of the total amount calculated as
due from it by the Independent Auditor's Final Calculation. Failure to pay
such portion shall render the Participating Manufacturer liable for
interest thereon as provided in subsection IX(h) of this Agreement, in
addition to any other remedy available under this Agreement.
(8) As to any disputed portion of the total amount calculated to be
due pursuant to the Final Calculation, any Participating Manufacturer that
by the Payment Due Date pays such disputed portion into the Disputed
Payments Account (as defined in the Escrow Agreement) shall not be liable
for interest thereon even if the amount disputed was in fact properly due
and owing. Any
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Participating Manufacturer that by the Payment Due Date does not pay such
disputed portion into the Disputed Payments Account shall be liable for
interest as provided in subsection IX(h) if the amount disputed was in
fact properly due and owing.
(9) On the same date that it makes any payment pursuant to this
Agreement, each Participating Manufacturer shall deliver a notice to each
other Notice Party showing the amount of such payment and the Account to
which such payment is to be credited.
(10) On the first Business Day after the Payment Due Date, the
Escrow Agent shall deliver to each other Notice Party a statement showing
the amounts received by it from each Participating Manufacturer and the
Accounts credited with such amounts.
(e) General Treatment of Payments. The Escrow Agent may disburse amounts
from an Account only if permitted, and only at such time as permitted, by this
Agreement and the Escrow Agreement. No amounts may be disbursed to a Settling
State other than funds credited to such Settling State's State-Specific Account
(as defined in the Escrow Agreement). The Independent Auditor, in delivering
payment instructions to the Escrow Agent, shall specify: the amount to be paid;
the Account or Accounts from which such payment is to be disbursed; the payee of
such payment (which may be an Account); and the Business Day on which such
payment is to be made by the Escrow Agent. Except as expressly provided in
subsection (f) below, in no event may any amount be disbursed from any Account
prior to Final Approval.
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(f) Disbursements and Charges Not Contingent on Final Approval. Funds may
be disbursed from Accounts without regard to the occurrence of Final Approval in
the following circumstances and in the following manner:
(1) Payments of Federal and State Taxes. Federal, state, local or
other taxes imposed with respect to the amounts credited to the Accounts
shall be paid from such amounts. The Independent Auditor shall prepare and
file any tax returns required to be filed with respect to the escrow. All
taxes required to be paid shall be allocated to and charged against the
Accounts on a reasonable basis to be determined by the Independent
Auditor. Upon receipt of written instructions from the Independent
Auditor, the Escrow Agent shall pay such taxes and charge such payments
against the Account or Accounts specified in those instructions.
(2) Payments to and from Disputed Payments Account. The Independent
Auditor shall instruct the Escrow Agent to credit funds from an Account to
the Disputed Payments Account when a dispute arises as to such funds, and
shall instruct the Escrow Agent to credit funds from the Disputed Payments
Account to the appropriate payee when such dispute is resolved with
finality. The Independent Auditor shall provide the Notice Parties not
less than 10 Business Days prior notice before instructing the Escrow
Agent to disburse funds from the Disputed Payments Account.
(3) Payments to a State-Specific Account. Promptly following the
occurrence of State-Specific Finality in any Settling State, such Settling
State and the Original Participating Manufacturers shall notify the
Independent Auditor of such occurrence. The Independent Auditor shall
promptly thereafter notify each
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Notice Party of such State-Specific Finality and of the portions of the
amounts in the Subsection IX(b) Account (First), Subsection IX(b) Account
(Subsequent), Subsection IX(c)(1) Account and Subsection IX(c)(2) Account,
respectively (as such Accounts are defined in the Escrow Agreement), that
are at such time held in such Accounts for the benefit of such Settling
State, and which are to be transferred to the appropriate State-Specific
Account for such Settling State. If neither the Settling State in question
nor any Participating Manufacturer disputes such amounts or the occurrence
of such State-Specific Finality by notice delivered to each other Notice
Party not later than 10 Business Days after delivery by the Independent
Auditor of the notice described in the preceding sentence, the Independent
Auditor shall promptly instruct the Escrow Agent to make such transfer. If
the Settling State in question or any Participating Manufacturer disputes
such amounts or the occurrence of such State-Specific Finality by notice
delivered to each other Notice Party not later than 10 Business Days after
delivery by the Independent Auditor of the notice described in the second
sentence of this subsection (f)(3), the Independent Auditor shall promptly
instruct the Escrow Agent to credit the amount disputed to the Disputed
Payments Account and the undisputed portion to the appropriate
State-Specific Account. No amounts may be transferred or credited to a
State-Specific Account for the benefit of any State as to which
State-Specific Finality has not occurred or as to which this Agreement has
terminated.
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(4) Payments to Parties other than Particular Settling States.
(A) Promptly following the occurrence of State-Specific
Finality in one Settling State, such Settling State and the Original
Participating Manufacturers shall notify the Independent Auditor of
such occurrence. The Independent Auditor shall promptly thereafter
notify each Notice Party of the occurrence of State-Specific
Finality in at least one Settling State and of the amounts held in
the Subsection VI(b) Account, Subsection VI(c) Account (First), and
Subsection VIII(c) Account (as such Accounts are defined in the
Escrow Agreement), if any. If neither any of the Settling States nor
any of the Participating Manufacturers disputes such amounts or
disputes the occurrence of State-Specific Finality in one Settling
State, by notice delivered to each Notice Party not later than ten
Business Days after delivery by the Independent Auditor of the
notice described in the preceding sentence, the Independent Auditor
shall promptly instruct the Escrow Agent to disburse the funds held
in such Accounts to the Foundation or to the Fund specified in
subsection VIII(c), as appropriate. If any Settling State or
Participating Manufacturer disputes such amounts or the occurrence
of such State-Specific Finality by notice delivered to each other
Notice Party not later than 10 Business Days after delivery by the
Independent Auditor of the notice described in the second sentence
of this subsection (4)(A), the Independent Auditor shall promptly
instruct the Escrow Agent to credit the amounts disputed to the
Disputed
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Payments Account and to disburse the undisputed portion to the
Foundation or to the Fund specified in subsection VIII(c), as
appropriate.
(B) The Independent Auditor shall instruct the Escrow Agent to
disburse funds on deposit in the Subsection VIII(b) Account and
Subsection IX(e) Account (as such Accounts are defined in the Escrow
Agreement) to NAAG or to the Foundation, as appropriate, within 10
Business Days after the date on which such amounts were credited to
such Accounts.
(C) Promptly following the occurrence of State-Specific
Finality in Settling States having aggregate Allocable Shares equal
to at least 80% of the total aggregate Allocable Shares assigned to
all States that were Settling States as of the MSA Execution Date,
the Settling States and the Original Participating Manufacturers
shall notify the Independent Auditor of such occurrence. The
Independent Auditor shall promptly thereafter notify each Notice
Party of the occurrence of such State-Specific Finality and of the
amounts held in the Subsection VI(c) Account (Subsequent) (as such
Account is defined in the Escrow Agreement), if any. If neither any
of the Settling States nor any of the Participating Manufacturers
disputes such amounts or disputes the occurrence of such
State-Specific Finality, by notice delivered to each Notice Party
not later than 10 Business Days after delivery by the Independent
Auditor of the notice described in the preceding sentence, the
Independent Auditor shall promptly instruct the Escrow Agent to
disburse the funds held in such Account to the
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Foundation. If any Settling State or Participating Manufacturer
disputes such amounts or the occurrence of such State-Specific
Finality by notice delivered to each other Notice Party not later
than 10 Business Days after delivery by the Independent Auditor of
the notice described in the second sentence of this subsection
(4)(C), the Independent Auditor shall promptly instruct the Escrow
Agent to credit the amounts disputed to the Disputed Payments
Account and to disburse the undisputed portion to the Foundation.
(5) Treatment of Payments Following Termination.
(A) As to amounts held for Settling States. Promptly upon the
termination of this Agreement with respect to any Settling State
(whether or not as part of the termination of this Agreement as to
all Settling States) such State or any Participating Manufacturer
shall notify the Independent Auditor of such occurrence. The
Independent Auditor shall promptly thereafter notify each Notice
Party of such termination and of the amounts held in the Subsection
IX(b) Account (First), the Subsection IX(b) Account (Subsequent),
the Subsection IX(c)(1) Account, the Subsection IX(c)(2) Account,
and the State-Specific Account for the benefit of such Settling
State. If neither the State in question nor any Participating
Manufacturer disputes such amounts or the occurrence of such
termination by notice delivered to each other Notice Party not later
than 10 Business Days after delivery by the Independent Auditor of
the notice described in the preceding sentence, the Independent
Auditor shall promptly instruct
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the Escrow Agent to transfer such amounts to the Participating
Manufacturers (on the basis of their respective contributions of
such funds). If the State in question or any Participating
Manufacturer disputes the amounts held in the Accounts or the
occurrence of such termination by notice delivered to each other
Notice Party not later than 10 Business Days after delivery by the
Independent Auditor of the notice described in the second sentence
of this subsection (5)(A), the Independent Auditor shall promptly
instruct the Escrow Agent to transfer the amount disputed to the
Disputed Payments Account and the undisputed portion to the
Participating Manufacturers (on the basis of their respective
contributions of such funds).
(B) As to amounts held for others. If this Agreement is
terminated with respect to all of the Settling States, the Original
Participating Manufacturers shall promptly notify the Independent
Auditor of such occurrence. The Independent Auditor shall promptly
thereafter notify each Notice Party of such termination and of the
amounts held in the Subsection VI(b) Account, the Subsection VI(c)
Account (First), the Subsection VIII(b) Account, the Subsection
VIII(c) Account and the Subsection IX(e) Account. If neither any
such State nor any Participating Manufacturer disputes such amounts
or the occurrence of such termination by notice delivered to each
other Notice Party not later than 10 Business Days after delivery by
the Independent Auditor of the notice described in the preceding
sentence, the Independent Auditor shall promptly instruct
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the Escrow Agent to transfer such amounts to the Participating
Manufacturers (on the basis of their respective contributions of
such funds). If any such State or any Participating Manufacturer
disputes the amounts held in the Accounts or the occurrence of such
termination by notice delivered to each other Notice Party not later
than 10 Business Days after delivery by the Independent Auditor of
the notice described in the second sentence of this subsection
(5)(B), the Independent Auditor shall promptly instruct the Escrow
Agent to credit the amount disputed to the Disputed Payments Account
and transfer the undisputed portion to the Participating
Manufacturers (on the basis of their respective contribution of such
funds).
(C) As to amounts held in the Subsection VI(c) Account
(Subsequent). If this Agreement is terminated with respect to
Settling States having aggregate Allocable Shares equal to more than
20% of the total aggregate Allocable Shares assigned to those States
that were Settling States as of the MSA Execution Date, the Original
Participating Manufacturers shall promptly notify the Independent
Auditor of such occurrence. The Independent Auditor shall promptly
thereafter notify each Notice Party of such termination and of the
amounts held in the Subsection VI(c) Account (Subsequent) (as
defined in the Escrow Agreement). If neither any such State with
respect to which this Agreement has terminated nor any Participating
Manufacturer disputes such amounts or the occurrence of such
termination by notice delivered to
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each other Notice Party not later than 10 Business Days after
delivery by the Independent Auditor of the notice described in the
preceding sentence, the Independent Auditor shall promptly instruct
the Escrow Agent to transfer such amounts to the Participating
Manufacturers (on the basis of their respective contributions of
such funds). If any such State or any Participating Manufacturer
disputes the amounts held in the Account or the occurrence of such
termination by notice delivered to each other Notice Party not later
than 10 Business Days after delivery by the Independent Auditor of
the notice described in the second sentence of this subsection
(5)(C), the Independent Auditor shall promptly instruct the Escrow
Agent to credit the amount disputed to the Disputed Payments Account
and transfer the undisputed portion to the Participating
Manufacturers (on the basis of their respective contribution of such
funds).
(6) Determination of amounts paid or held for the benefit of each
individual Settling State. For purposes of subsections (f)(3), (f)(5)(A)
and (i)(2), the portion of a payment that is made or held for the benefit
of each individual Settling State shall be determined: (A) in the case of
a payment credited to the Subsection IX(b) Account (First) or the
Subsection IX(b) Account (Subsequent), by allocating the results of clause
"Eighth" of subsection IX(j) among those Settling States who were Settling
States at the time that the amount of such payment was calculated, pro
rata in proportion to their respective Allocable Shares; and (B) in the
case of a payment credited to the Subsection IX(c)(1) Account or the
Subsection IX(c)(2) Account, by the results of clause "Twelfth" of
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subsection IX(j) for each individual Settling State. Provided, however,
that, solely for purposes of subsection (f)(3), the Settling States may by
unanimous agreement agree on a different method of allocation of amounts
held in the Accounts identified in this subsection (f)(6).
(g) Payments to be Made Only After Final Approval. Promptly following the
occurrence of Final Approval, the Settling States and the Original Participating
Manufacturers shall notify the Independent Auditor of such occurrence. The
Independent Auditor shall promptly thereafter notify each Notice Party of the
occurrence of Final Approval and of the amounts held in the State-Specific
Accounts. If neither any of the Settling States nor any of the Participating
Manufacturers disputes such amounts, disputes the occurrence of Final Approval
or claims that this Agreement has terminated as to any Settling State for whose
benefit the funds are held in a State-Specific Account, by notice delivered to
each Notice Party not later than 10 Business Days after delivery by the
Independent Auditor of such notice of Final Approval, the Independent Auditor
shall promptly instruct the Escrow Agent to disburse the funds held in the
State-Specific Accounts to (or as directed by) the respective Settling States.
If any Notice Party disputes such amounts or the occurrence of Final Approval,
or claims that this Agreement has terminated as to any Settling State for whose
benefit the funds are held in a State-Specific Account, by notice delivered to
each other Notice Party not later than 10 Business Days after delivery by the
Independent Auditor of such notice of Final Approval, the Independent Auditor
shall promptly instruct the Escrow Agent to credit the amounts disputed to the
Disputed Payments Account and to disburse the undisputed portion to (or as
directed by) the respective Settling States.
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(h) Applicability to Section XVII Payments. This section XI shall not be
applicable to payments made pursuant to section XVII; provided, however, that
the Independent Auditor shall be responsible for calculating Relative Market
Shares in connection with such payments, and the Independent Auditor shall
promptly provide the results of such calculation to any Original Participating
Manufacturer or Settling State that requests it do so.
(i) Miscalculated or Disputed Payments.
(1) Underpayments.
(A) If information becomes available to the Independent
Auditor not later than four years after a Payment Due Date, and such
information shows that any Participating Manufacturer was instructed
to make an insufficient payment on such date ("original payment"),
the Independent Auditor shall promptly determine the additional
payment owed by such Participating Manufacturer and the allocation
of such additional payment among the applicable payees. The
Independent Auditor shall then reduce such additional payment (up to
the full amount of such additional payment) by any adjustments or
offsets that were available to the Participating Manufacturer in
question against the original payment at the time it was made (and
have not since been used) but which such Participating Manufacturer
was unable to use against such original payment because such
adjustments or offsets were in excess of such original payment
(provided that any adjustments or offsets used against such
additional payment shall reduce on a dollar-for-dollar basis any
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remaining carry-forward held by such Participating Manufacturer with
respect to such adjustment or offset). The Independent Auditor shall
then add interest at the Prime Rate (calculated from the Payment Due
Date in question) to the additional payment (as reduced pursuant to
the preceding sentence), except that where the additional payment
owed by a Participating Manufacturer is the result of an
underpayment by such Participating Manufacturer caused by such
Participating Manufacturer's withholding of information as described
in subsection (d)(5)(B), the applicable interest rate shall be that
described in subsection IX(h). The Independent Auditor shall
promptly give notice of the additional payment owed by the
Participating Manufacturer in question (as reduced and/or increased
as described above) to all Notice Parties, showing the new
information and all calculations. Upon receipt of such notice, any
Participating Manufacturer or Settling State may dispute the
Independent Auditor's calculations in the manner described in
subsection (d)(3), and the Independent Auditor shall promptly notify
each Notice Party of any subsequent revisions to its calculations.
Not more than 15 days after receipt of such notice (or, if the
Independent Auditor revises its calculations, not more than 15 days
after receipt of the revisions), any Participating Manufacturer and
any Settling State may dispute the Independent Auditor's
calculations in the manner prescribed in subsection (d)(6). Failure
to dispute the Independent Auditor's calculations in this manner
shall constitute agreement with the Independent Auditor's
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calculations, subject to the limitations set forth in subsection
(d)(6). Payment of the undisputed portion of an additional payment
shall be made to the Escrow Agent not more than 20 days after
receipt of the notice described in this subsection (A) (or, if the
Independent Auditor revises its calculations, not more than 20 days
after receipt of the revisions). Failure to pay such portion shall
render the Participating Manufacturer liable for interest thereon as
provided in subsection IX(h). Payment of the disputed portion shall
be governed by subsection (d)(8).
(B) To the extent a dispute as to a prior payment is resolved
with finality against a Participating Manufacturer: (i) in the case
where the disputed amount has been paid into the Disputed Payments
Account pursuant to subsection (d)(8), the Independent Auditor shall
instruct the Escrow Agent to transfer such amount to the applicable
payee Account(s); (ii) in the case where the disputed amount has not
been paid into the Disputed Payments Account and the dispute was
identified prior to the Payment Due Date in question by delivery of
a statement pursuant to subsection (d)(6) identifying such dispute,
the Independent Auditor shall calculate interest on the disputed
amount from the Payment Due Date in question (the applicable
interest rate to be that provided in subsection IX(h)) and the
allocation of such amount and interest among the applicable payees,
and shall provide notice of the amount owed (and the identity of the
payor and payees) to all Notice Parties; and (iii) in all other
cases, the
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procedure described in subsection (ii) shall apply, except that the
applicable interest rate shall be the Prime Rate.
(2) Overpayments.
(A) If a dispute as to a prior payment is resolved with
finality in favor of a Participating Manufacturer where the disputed
amount has been paid into the Disputed Payments Account pursuant to
subsection (d)(8), the Independent Auditor shall instruct the Escrow
Agent to transfer such amount to such Participating Manufacturer.
(B) If information becomes available to the Independent
Auditor not later than four years after a Payment Due Date showing
that a Participating Manufacturer made an overpayment on such date,
or if a dispute as to a prior payment is resolved with finality in
favor of a Participating Manufacturer where the disputed amount has
been paid but not into the Disputed Payments Account, such
Participating Manufacturer shall be entitled to a continuing
dollar-for-dollar offset as follows:
(i) offsets under this subsection (B) shall be applied
only against eligible payments to be made by such
Participating Manufacturer after the entitlement to the offset
arises. The eligible payments shall be: in the case of offsets
arising from payments under subsection IX(b) or IX(c)(1),
subsequent payments under any of such subsections; in the case
of offsets arising from payments under subsection IX(c)(2),
subsequent payments under such subsection or, if no subsequent
payments are to be made
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under such subsection, subsequent payments under subsection
IX(c)(1); in the case of offsets arising from payments under
subsection IX(e), subsequent payments under such subsection or
subsection IX(c); in the case of offsets arising from payments
under subsection VI(c), subsequent payments under such
subsection or, if no subsequent payments are to be made under
such subsection, subsequent payments under any of subsection
IX(c)(1), IX(c)(2) or IX(e); in the case of offsets arising
from payments under subsection VIII(b), subsequent payments
under such subsection or, if no subsequent payments are to be
made under such subsection, subsequent payments under either
subsection IX(c)(1) or IX(c)(2); in the case of offsets
arising from payments under subsection VIII(c), subsequent
payments under either subsection IX(c)(1) or IX(c)(2); and, in
the case of offsets arising from payments under subsection
IX(i), subsequent payments under such subsection (consistent
with the provisions of this subsection (B)(i)).
(ii) in the case of offsets to be applied against
payments under subsection IX(c), the offset to be applied
shall be apportioned among the Settling States pro rata in
proportion to their respective shares of such payments, as
such respective shares are determined pursuant to step E of
clause "Seventh" (in the case of payments due from the
Original Participating Manufacturers) or
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clause "Sixth" (in the case of payments due from the
Subsequent Participating Manufacturers) of subsection IX(j)
(except where the offset arises from an overpayment applicable
solely to a particular Settling State).
(iii) the total amount of the offset to which a
Participating Manufacturer shall be entitled shall be the full
amount of the overpayment it made, together with interest
calculated from the time of the overpayment to the Payment Due
Date of the first eligible payment against which the offset
may be applied. The applicable interest rate shall be the
Prime Rate (except that, where the overpayment is the result
of a Settling State's withholding of information as described
in subsection (d)(5)(B), the applicable interest rate shall be
that described in subsection IX(h)).
(iv) an offset under this subsection (B) shall be
applied up to the full amount of the Participating
Manufacturer's share (in the case of payments due from
Original Participating Manufacturers, determined as described
in the first sentence of clause "Seventh" of subsection IX(j)
(or, in the case of payments pursuant to subsection IX(c),
step D of such clause)) of the eligible payment in question,
as such payment has been adjusted and reduced pursuant to
clauses "First" through "Sixth" of subsection IX(j), to the
extent each such clause is applicable to the payment in
question. In the event that the offset to which a
Participating Manufacturer is entitled under
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this subsection (B) would exceed such Participating
Manufacturer's share of the eligible payment against which it
is being applied (or, in the case where such offset arises
from an overpayment applicable solely to a particular Settling
State, the portion of such payment that is made for the
benefit of such Settling State), the offset shall be the full
amount of such Participating Manufacturer's share of such
payment and all amounts not offset shall carry forward and be
offset against subsequent eligible payments until all such
amounts have been offset.
(j) Payments After Applicable Condition. To the extent that a payment is
made after the occurrence of all applicable conditions for the disbursement of
such payment to the payee(s) in question, the Independent Auditor shall instruct
the Escrow Agent to disburse such payment promptly following its deposit.
XII. SETTLING STATES' RELEASE, DISCHARGE AND COVENANT
(a) Release.
(1) Upon the occurrence of State-Specific Finality in a Settling
State, such Settling State shall absolutely and unconditionally release
and forever discharge all Released Parties from all Released Claims that
the Releasing Parties directly, indirectly, derivatively or in any other
capacity ever had, now have, or hereafter can, shall or may have.
(2) Notwithstanding the foregoing, this release and discharge shall
not apply to any defendant in a lawsuit settled pursuant to this Agreement
(other than
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a Participating Manufacturer) unless and until such defendant releases the
Releasing Parties (and delivers to the Attorney General of the applicable
Settling State a copy of such release) from any and all Claims of such
defendant relating to the prosecution of such lawsuit.
(3) Each Settling State (for itself and for the Releasing Parties)
further covenants and agrees that it (and the Releasing Parties) shall not
after the occurrence of State-Specific Finality sue or seek to establish
civil liability against any Released Party based, in whole or in part,
upon any of the Released Claims, and further agrees that such covenant and
agreement shall be a complete defense to any such civil action or
proceeding.
(4) (A) Each Settling State (for itself and for the Releasing
Parties) further agrees that, if a Released Claim by a Releasing Party
against any person or entity that is not a Released Party (a "non-Released
Party") results in or in any way gives rise to a claim-over (on any theory
whatever other than a claim based on an express written indemnity
agreement) by such non-Released Party against any Released Party (and such
Released Party gives notice to the applicable Settling State within 30
days of the service of such claim-over (or within 30 days after the MSA
Execution Date, whichever is later) and prior to entry into any settlement
of such claim-over), the Releasing Party: (i) shall reduce or credit
against any judgment or settlement such Releasing Party may obtain against
such non-Released Party the full amount of any judgment or settlement such
non-Released Party may obtain against the Released Party on such
claim-over; and (ii) shall, as part of any settlement with such
non-Released Party, obtain from
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such non-Released Party for the benefit of such Released Party a
satisfaction in full of such non-Released Party's judgment or settlement
against the Released Party.
(B) Each Settling State further agrees that in the event that the
provisions of subsection (4)(A) do not fully eliminate any and all
liability of any Original Participating Manufacturer (or of any person or
entity that is a Released Party by virtue of its relation to any Original
Participating Manufacturer) with respect to claims-over (on any theory
whatever other than a claim based on an express written indemnity
agreement) by any non-Released Party to recover in whole or in part any
liability (whether direct or indirect, or whether by way of settlement (to
the extent that such Released Party has given notice to the applicable
Settling State within 30 days of the service of such claim-over (or within
30 days after the MSA Execution Date, whichever is later) and prior to
entry into any settlement of such claim-over), judgment or otherwise) of
such non-Released Party to any Releasing Party arising out of any Released
Claim, such Original Participating Manufacturer shall receive a continuing
dollar-for-dollar offset for any amounts paid by such Original
Participating Manufacturer (or by any person or entity that is a Released
Party by virtue of its relation to such Original Participating
Manufacturer) on any such liability against such Original Participating
Manufacturer's share (determined as described in step E of clause
"Seventh" of subsection IX(j)) of the applicable Settling State's
Allocated Payment, up to the full amount of such Original Participating
Manufacturer's share of such Allocated Payment each year, until all such
amounts paid on such liability have been offset.
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In the event that the offset under this subsection (4) with respect to a
particular Settling State would in any given year exceed such Original
Participating Manufacturer's share of such Settling State's Allocated
Payment (as such share had been reduced by adjustment, if any, pursuant to
the NPM Adjustment, and has been reduced by offsets, if any, pursuant to
the offset for miscalculated or disputed payments, the Federal Tobacco
Legislation Offset and the Litigating Releasing Parties Offset): (i) the
offset to which such Original Participating Manufacturer is entitled under
this subsection in such year shall be the full amount of such Original
Participating Manufacturer's share of such Allocated Payment; and (ii) all
amounts not offset by reason of subsection (i) shall carry forward and be
offset in the following year(s) until all such amounts have been offset.
(C) Each Settling State further agrees that, subject to the
provisions of section IX(i)(3), each Subsequent Participating Manufacturer
shall be entitled to the offset described in subsection (B) above to the
extent that it (or any person or entity that is a Released Party by virtue
of its relationship with such Subsequent Participating Manufacturer) has
paid on liability that would give rise to an offset under such subsection
if paid by an Original Participating Manufacturer.
(5) This release and covenant shall not operate to interfere with a
Settling State's ability to enforce as against any Participating
Manufacturer the provisions of this Agreement, or with the Court's ability
to enter the Consent Decree or to maintain continuing jurisdiction to
enforce such Consent Decree pursuant to the terms thereof. Provided,
however, that neither subsection III(a) or III(r) of this
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Agreement nor subsection V(A) or V(I) of the Consent Decree shall create a
right to challenge the continuation, after the MSA Execution Date, of any
advertising content, claim or slogan (other than use of a Cartoon) that
was not unlawful prior to the MSA Execution Date.
(6) The Settling States do not purport to waive or release any
claims on behalf of Indian tribes.
(7) The Settling States do not waive or release any criminal
liability based on federal, state or local law.
(8) Notwithstanding the foregoing (and the definition of Released
Parties), this release and covenant shall not apply to retailers,
suppliers or distributors to the extent of any liability arising from the
sale or distribution of Tobacco Products of, or the supply of component
parts of Tobacco Products to, any non-Released Party.
(A) Each Settling State (for itself and for the Releasing
Parties) agrees that, if a claim by a Releasing Party against a
retailer, supplier or distributor that would be a Released Claim but
for the operation of the preceding sentence results in or in any way
gives rise to a claim-over (on any theory whatever) by such
retailer, supplier or distributor against any Released Party (and
such Released Party gives notice to the applicable Settling State
within 30 days of the service of such claim-over (or within 30 days
after the MSA Execution Date, whichever is later) and prior to entry
into any settlement of such claim-over), the Releasing Party: (i)
shall reduce or credit against any judgment or settlement such
Releasing
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Party may obtain against such retailer, supplier or distributor the
full amount of any judgment or settlement such retailer, supplier or
distributor may obtain against the Released Party on such
claim-over; and (ii) shall, as part of any settlement with such
retailer, supplier or distributor, obtain from such retailer,
supplier or distributor for the benefit of such Released Party a
satisfaction in full of such retailer's, supplier's or distributor's
judgment or settlement against the Released Party.
(B) Each Settling State further agrees that in the event that
the provisions of subsection (8)(A) above do not fully eliminate any
and all liability of any Original Participating Manufacturer (or any
person or entity that is a Released Party by virtue of its
relationship to an Original Participating Manufacturer) with respect
to claims-over (on any theory whatever) by any such retailer,
supplier or distributor to recover in whole or in part any liability
(whether direct or indirect, or whether by way of settlement (to the
extent that such Released Party has given notice to the applicable
Settling State within 30 days of the service of such claim-over (or
within 30 days after the MSA Execution Date, whichever is later) and
prior to entry into any settlement of such claim-over), judgment or
otherwise) of such retailer, supplier or distributor to any
Releasing Party arising out of any claim that would be a Released
Claim but for the operation of the first sentence of this subsection
(8), such Original Participating Manufacturer shall receive a
continuing dollar-for-dollar offset for any amounts paid by such
Original Participating Manufacturer
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(or by any person or entity that is a Released Party by virtue of
its relation to such Original Participating Manufacturer) on any
such liability against such Original Participating Manufacturer's
share (determined as described in step E of clause "Seventh" of
subsection IX(j)) of the applicable Settling State's Allocated
Payment, up to the full amount of such Original Participating
Manufacturer's share of such Allocated Payment each year, until all
such amounts paid on such liability have been offset. In the event
that the offset under this subsection (8) with respect to a
particular Settling State would in any given year exceed such
Original Participating Manufacturer's share of such Settling State's
Allocated Payment (as such share had been reduced by adjustment, if
any, pursuant to the NPM Adjustment, and has been reduced by
offsets, if any, pursuant to the offset for miscalculated or
disputed payments, the Federal Tobacco Legislation Offset, the
Litigating Releasing Parties Offset and the offset for claims-over
under subsection XII(a)(4)(B)): (i) the offset to which such
Original Participating Manufacturer is entitled under this
subsection in such year shall be the full amount of such Original
Participating Manufacturer's share of such Allocated Payment; and
(ii) all amounts not offset by reason of clause (i) shall carry
forward and be offset in the following year(s) until all such
amounts have been offset.
(C) Each Settling State further agrees that, subject to the
provisions of subsection IX(i)(3), each Subsequent Participating
Manufacturer shall be entitled to the offset described in subsection
(B)
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above to the extent that it (or any person or entity that is a
Released Party by virtue of its relationship with such Subsequent
Participating Manufacturer) has paid on liability that would give
rise to an offset under such subsection if paid by an Original
Participating Manufacturer.
(9) Notwithstanding any provision of law, statutory or otherwise,
which provides that a general release does not extend to claims which the
creditor does not know or suspect to exist in its favor at the time of
executing the release, which if known by it must have materially affected
its settlement with the debtor, the releases set forth in this section XII
release all Released Claims against the Released Parties, whether known or
unknown, foreseen or unforeseen, suspected or unsuspected, that the
Releasing Parties may have against the Released Parties, and the Releasing
Parties understand and acknowledge the significance and consequences of
waiver of any such provision and hereby assume full responsibility for any
injuries, damages or losses that the Releasing Parties may incur.
(b) Released Claims Against Released Parties. If a Releasing Party (or any
person or entity enumerated in subsection II(pp), without regard to the power of
the Attorney General to release claims of such person or entity) nonetheless
attempts to maintain a Released Claim against a Released Party, such Released
Party shall give written notice of such potential claim to the Attorney General
of the applicable Settling State within 30 days of receiving notice of such
potential claim (or within 30 days after the MSA Execution Date, whichever is
later) (unless such potential claim is being maintained by such Settling State).
The Released Party may offer the release and
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covenant as a complete defense. If it is determined at any point in such action
that the release of such claim is unenforceable or invalid for any reason
(including, but not limited to, lack of authority to release such claim), the
following provisions shall apply:
(1) The Released Party shall take all ordinary and reasonable
measures to defend the action fully. The Released Party may settle or
enter into a stipulated judgment with respect to the action at any time in
its sole discretion, but in such event the offset described in subsection
(b)(2) or (b)(3) below shall apply only if the Released Party obtains the
relevant Attorney General's consent to such settlement or stipulated
judgment, which consent shall not be unreasonably withheld. The Released
Party shall not be entitled to the offset described in subsection (b)(2)
or (b)(3) below if such Released Party failed to take ordinary and
reasonable measures to defend the action fully.
(2) The following provisions shall apply where the Released Party is
an Original Participating Manufacturer (or any person or entity that is a
Released Party by virtue of its relationship with an Original
Participating Manufacturer):
(A) In the event of a settlement or stipulated judgment, the
settlement or stipulated amount shall give rise to a continuing
offset as such amount is actually paid against the full amount of
such Original Participating Manufacturer's share (determined as
described in step E of clause "Seventh" of subsection IX(j)) of the
applicable Settling State's Allocated Payment until such time as the
settlement or stipulated amount is fully credited on a
dollar-for-dollar basis.
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(B) Judgments (other than a default judgment) against a
Released Party in such an action shall, upon payment of such
judgment, give rise to an immediate and continuing offset against
the full amount of such Original Participating Manufacturer's share
(determined as described in subsection (A)) of the applicable
Settling State's Allocated Payment, until such time as the judgment
is fully credited on a dollar-for-dollar basis.
(C) Each Settling State reserves the right to intervene in
such an action (unless such action was brought by the Settling
State) to the extent authorized by applicable law in order to
protect the Settling State's interest under this Agreement. Each
Participating Manufacturer agrees not to oppose any such
intervention.
(D) In the event that the offset under this subsection (b)(2)
with respect to a particular Settling State would in any given year
exceed such Original Participating Manufacturer's share of such
Settling State's Allocated Payment (as such share had been reduced
by adjustment, if any, pursuant to the NPM Adjustment, and has been
reduced by offsets, if any, pursuant to the Federal Tobacco
Legislation Offset and the offset for miscalculated or disputed
payments): (i) the offset to which such Original Participating
Manufacturer is entitled under this subsection (2) in such year
shall be the full amount of such Original Participating
Manufacturer's share of such Allocated Payment; and (ii) all amounts
not offset by reason of clause (i) shall carry forward and be offset
in the following year(s) until all such amounts have been offset.
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(3) The following provisions shall apply where the Released Party is
a Subsequent Participating Manufacturer (or any person or entity that is a
Released Party by virtue of its relationship with a Subsequent
Participating Manufacturer): Subject to the provisions of subsection
IX(i)(3), each Subsequent Participating Manufacturer shall be entitled to
the offset as described in subsections (2)(A)-(C) above against payments
it otherwise would owe under section IX(i) to the extent that it (or any
person or entity that is a Released Party by virtue of its relationship
with such Subsequent Participating Manufacturer) has paid on a settlement,
stipulated judgment or judgment that would give rise to an offset under
such subsections if paid by an Original Participating Manufacturer.
XIII. CONSENT DECREES AND DISMISSAL OF CLAIMS
(a) Within 10 days after the MSA Execution Date (or, as to any Settling
State identified in the Additional States provision of Exhibit D, concurrently
with the filing of its lawsuit), each Settling State and each Participating
Manufacturer that is a party in any of the lawsuits identified in Exhibit D
shall jointly move for a stay of all proceedings in such Settling State's
lawsuit with respect to the Participating Manufacturers and all other Released
Parties (except any proceeding seeking public disclosure of documents pursuant
to subsection IV(b)). Such stay of a Settling State's lawsuit shall be dissolved
upon the earlier of the occurrence of State-Specific Finality or termination of
this Agreement with respect to such Settling State pursuant to subsection
XVIII(u)(1).
(b) Not later than December 11, 1998 (or, as to any Settling State
identified in the Additional States provision of Exhibit D, concurrently with
the filing of its lawsuit):
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(1) each Settling State that is a party to a lawsuit identified in
Exhibit D and each Participating Manufacturer will:
(A) tender this Agreement to the Court in such Settling State
for its approval; and
(B) tender to the Court in such Settling State for entry a
consent decree conforming to the model consent decree attached
hereto as Exhibit L (revisions or changes to such model consent
decree shall be limited to the extent required by state procedural
requirements to reflect accurately the factual setting of the case
in question, but shall not include any substantive revision to the
duties or obligations of any Settling State or Participating
Manufacturer, except by agreement of all Original Participating
Manufacturers); and
(2) each Settling State shall seek entry of an order of dismissal of
claims dismissing with prejudice all claims against the Participating
Manufacturers and any other Released Party in such Settling State's action
identified in Exhibit D. Provided, however, that the Settling State is not
required to seek entry of such an order in such Settling State's action
against such a Released Party (other than a Participating Manufacturer)
unless and until such Released Party has released the Releasing Parties
(and delivered to the Attorney General of such Settling State a copy of
such release) (which release shall be effective upon the occurrence of
State-Specific Finality in such Settling State, and shall recite that in
the event this Agreement is terminated with respect to such Settling State
pursuant to subsection XVIII(u)(1) the Released Party agrees that the
order of dismissal shall be null and
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void and of no effect) from any and all Claims of such Released Party
relating to the prosecution of such action as provided in subsection
XII(a)(2).
XIV. PARTICIPATING MANUFACTURERS' DISMISSAL OF RELATED LAWSUITS
(a) Upon State-Specific Finality in a Settling State, each Participating
Manufacturer will dismiss without prejudice (and without costs and fees) the
lawsuit(s) listed in Exhibit M pending in such Settling State in which the
Participating Manufacturer is a plaintiff. Within 10 days after the MSA
Execution Date, each Participating Manufacturer and each Settling State that is
a party in any of the lawsuits listed in Exhibit M shall jointly move for a stay
of all proceedings in such lawsuit. Such stay of a lawsuit against a Settling
State shall be dissolved upon the earlier of the occurrence of State-Specific
Finality in such Settling State or termination of this Agreement with respect to
such Settling State pursuant to subsection XVIII(u)(1).
(b) Upon State-Specific Finality in a Settling State, each Participating
Manufacturer will release and discharge any and all monetary Claims against such
Settling State and any of such Settling State's officers, employees, agents,
administrators, representatives, officials acting in their official capacity,
agencies, departments, commissions, divisions and counsel relating to or in
connection with the lawsuit(s) commenced by the Attorney General of such
Settling State identified in Exhibit D.
(c) Upon State-Specific Finality in a Settling State, each Participating
Manufacturer will release and discharge any and all monetary Claims against all
subdivisions (political or otherwise, including, but not limited to,
municipalities, counties, parishes, villages, unincorporated districts and
hospital districts) of such
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Settling State, and any of their officers, employees, agents, administrators,
representatives, officials acting in their official capacity, agencies,
departments, commissions, divisions and counsel arising out of Claims that have
been waived and released with continuing full force and effect pursuant to
section XII of this Agreement.
XV. VOLUNTARY ACT OF THE PARTIES
The Settling States and the Participating Manufacturers acknowledge and
agree that this Agreement is voluntarily entered into by each Settling State and
each Participating Manufacturer as the result of arm's-length negotiations, and
each Settling State and each Participating Manufacturer was represented by
counsel in deciding to enter into this Agreement. Each Participating
Manufacturer further acknowledges that it understands that certain provisions of
this Agreement may require it to act or refrain from acting in a manner that
could otherwise give rise to state or federal constitutional challenges and
that, by voluntarily consenting to this Agreement, it (and the Tobacco-Related
Organizations (or any trade associations formed or controlled by any
Participating Manufacturer)) waives for purposes of performance of this
Agreement any and all claims that the provisions of this Agreement violate the
state or federal constitutions. Provided, however, that nothing in the foregoing
shall constitute a waiver as to the entry of any court order (or any
interpretation thereof) that would operate to limit the exercise of any
constitutional right except to the extent of the restrictions, limitations or
obligations expressly agreed to in this Agreement or the Consent Decree.
XVI. CONSTRUCTION
(a) No Settling State or Participating Manufacturer shall be considered
the drafter of this Agreement or any Consent Decree, or any provision of either,
for the purpose of
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any statute, case law or rule of interpretation or construction that would or
might cause any provision to be construed against the drafter.
(b) Nothing in this Agreement shall be construed as approval by the
Settling States of any Participating Manufacturer's business organizations,
operations, acts or practices, and no Participating Manufacturer may make any
representation to the contrary.
XVII. RECOVERY OF COSTS AND ATTORNEYS' FEES
(a) The Original Participating Manufacturers agree that, with respect to
any Settling State in which the Court has approved this Agreement and the
Consent Decree, they shall severally reimburse the following "Governmental
Entities": (1) the office of the Attorney General of such Settling State; (2)
the office of the governmental prosecuting authority for any political
subdivision of such Settling State with a lawsuit pending against any
Participating Manufacturer as of July 1, 1998 (as identified in Exhibit N) that
has released such Settling State and such Participating Manufacturer(s) from any
and all Released Claims (a "Litigating Political Subdivision"); and (3) other
appropriate agencies of such Settling State and such Litigating Political
Subdivision, for reasonable costs and expenses incurred in connection with the
litigation or resolution of claims asserted by or against the Participating
Manufacturers in the actions set forth in Exhibits D, M and N; provided that
such costs and expenses are of the same nature as costs and expenses for which
the Original Participating Manufacturers would reimburse their own counsel or
agents (but not including costs and expenses relating to lobbying activities).
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(b) The Original Participating Manufacturers further agree severally to
pay the Governmental Entities in any Settling State in which State-Specific
Finality has occurred an amount sufficient to compensate such Governmental
Entities for time reasonably expended by attorneys and paralegals employed in
such offices in connection with the litigation or resolution of claims asserted
against or by the Participating Manufacturers in the actions identified in
Exhibits D, M and N (but not including time relating to lobbying activities),
such amount to be calculated based upon hourly rates equal to the market rate in
such Settling State for private attorneys and paralegals of equivalent
experience and seniority.
(c) Such Governmental Entities seeking payment pursuant to subsection (a)
and/or (b) shall provide the Original Participating Manufacturers with an
appropriately documented statement of all costs, expenses and attorney and
paralegal time for which payment is sought, and, solely with respect to payments
sought pursuant to subsection (b), shall do so no earlier than the date on which
State-Specific Finality occurs in such Settling State. All amounts to be paid
pursuant to subsections (a) and (b) shall be subject to reasonable verification
if requested by any Original Participating Manufacturer; provided, however, that
nothing contained in this subsection (c) shall constitute, cause, or require the
performance of any act that would constitute any waiver (in whole or in part) of
any attorney-client privilege, work product protection or common interest/joint
prosecution privilege. All such amounts to be paid pursuant to subsections (a)
and (b) shall be subject to an aggregate cap of $150 million for all Settling
States, shall be paid promptly following submission of the appropriate
documentation (and the completion of any verification process), shall be paid
separately and apart from any other amounts due
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pursuant to this Agreement, and shall be paid severally by each Original
Participating Manufacturer according to its Relative Market Share. All amounts
to be paid pursuant to subsection (b) shall be paid to such Governmental
Entities in the order in which State-Specific Finality has occurred in such
Settling States (subject to the $150 million aggregate cap).
(d) The Original Participating Manufacturers agree that, upon the
occurrence of State-Specific Finality in a Settling State, they will severally
pay reasonable attorneys' fees to the private outside counsel, if any, retained
by such Settling State (and each Litigating Political Subdivision, if any,
within such Settling State) in connection with the respective actions identified
in Exhibits D, M and N and who are designated in Exhibit S for each Settling
State by the relevant Attorney General (and for each Litigating Political
Subdivision, as later certified in writing to the Original Participating
Manufacturers by the relevant governmental prosecuting authority of each
Litigating Political Subdivision) as having been retained by and having
represented such Settling State (or such Litigating Political Subdivision), in
accordance with the terms described in the Model Fee Payment Agreement attached
as Exhibit O.
XVIII. MISCELLANEOUS
(a) Effect of Current or Future Law. If any current or future law includes
obligations or prohibitions applying to Tobacco Product Manufacturers related to
any of the provisions of this Agreement, each Participating Manufacturer shall
comply with this Agreement unless compliance with this Agreement would violate
such law.
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(b) Limited Most-Favored Nation Provision.
(1) If any Participating Manufacturer enters into any future
settlement agreement of other litigation comparable to any of the actions
identified in Exhibit D brought by a non-foreign governmental plaintiff
other than the federal government ("Future Settlement Agreement"):
(A) before October 1, 2000, on overall terms more favorable to
such governmental plaintiff than the overall terms of this Agreement
(after due consideration of relevant differences in population or
other appropriate factors), then, unless a majority of the Settling
States determines that the overall terms of the Future Settlement
Agreement are not more favorable than the overall terms of this
Agreement, the overall terms of this Agreement will be revised so
that the Settling States will obtain treatment with respect to such
Participating Manufacturer at least as relatively favorable as the
overall terms provided to any such governmental plaintiff; provided,
however, that as to economic terms this Agreement shall not be
revised based on any such Future Settlement Agreement if such Future
Settlement Agreement is entered into after: (i) the impaneling of
the jury (or, in the event of a non-jury trial, the commencement of
trial) in such litigation or any severed or bifurcated portion
thereof; or (ii) any court order or judicial determination relating
to such litigation that (x) grants judgment (in whole or in part)
against such Participating Manufacturer; or (y) grants injunctive or
other relief that affects the assets or on-going business activities
of such Participating
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Manufacturer in a manner other than as expressly provided for in
this Agreement; or
(B) on or after October 1, 2000, on non-economic terms more
favorable to such governmental plaintiff than the non-economic terms
of this Agreement, and such Future Settlement Agreement includes
terms that provide for the implementation of non-economic
tobacco-related public health measures different from those
contained in this Agreement, then this Agreement shall be revised
with respect to such Participating Manufacturer to include terms
comparable to such non-economic terms, unless a majority of the
Settling States elects against such revision.
(2) If any Settling State resolves by settlement Claims against any
Non-Participating Manufacturer after the MSA Execution Date comparable to
any Released Claim, and such resolution includes overall terms that are
more favorable to such Non-Participating Manufacturer than the terms of
this Agreement (including, without limitation, any terms that relate to
the marketing or distribution of Tobacco Products and any term that
provides for a lower settlement cost on a per pack sold basis), then the
overall terms of this Agreement will be revised so that the Original
Participating Manufacturers will obtain, with respect to that Settling
State, overall terms at least as relatively favorable (taking into
account, among other things, all payments previously made by the Original
Participating Manufacturers and the timing of any payments) as those
obtained by such Non-Participating Manufacturer pursuant to such
resolution of Claims. The foregoing shall include but not be limited: (a)
to the treatment by any Settling
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State of a Future Affiliate, as that term is defined in agreements between
any of the Settling States and Brooke Group Ltd., Liggett & Myers Inc.
and/or Liggett Group, Inc. ("Liggett"), whether or not such Future
Affiliate is merged with, or its operations combined with, Liggett or any
Affiliate thereof; and (b) to any application of the terms of any such
agreement (including any terms subsequently negotiated pursuant to any
such agreement) to a brand of Cigarettes (or tobacco-related assets) as a
result of the purchase by or sale to Liggett of such brand or assets or as
a result of any combination of ownership among Liggett and any entity that
manufactures Tobacco Products. Provided, however, that revision of this
Agreement pursuant to this subsection (2) shall not be required by virtue
of the subsequent entry into this Agreement by a Tobacco Product
Manufacturer that has not become a Participating Manufacturer as of the
MSA Execution Date. Notwithstanding the provisions of subsection XVIII(j),
the provisions of this subsection XVIII(b)(2) may be waived by (and only
by) unanimous agreement of the Original Participating Manufacturers.
(3) The parties agree that if any term of this Agreement is revised
pursuant to subsection (b)(l) or (b)(2) above and the substance of such
term before it was revised was also a term of the Consent Decree, each
affected Settling State and each affected Participating Manufacturer shall
jointly move the Court to amend the Consent Decree to conform the terms of
the Consent Decree to the revised terms of the Agreement.
(4) If at any time any Settling State agrees to relieve, in any
respect, any Participating Manufacturer's obligation to make the payments
as provided in this
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Agreement, then, with respect to that Settling State, the terms of this
Agreement shall be revised so that the other Participating Manufacturers
receive terms as relatively favorable.
(c) Transfer of Tobacco Brands. No Original Participating Manufacturer may
sell or otherwise transfer or permit the sale or transfer of any of its
Cigarette brands, Brand Names, Cigarette product formulas or Cigarette
businesses (other than a sale or transfer of Cigarette brands or Brand Names to
be sold, product formulas to be used, or Cigarette businesses to be conducted,
by the acquiror or transferee exclusively outside of the States) to any person
or entity unless such person or entity is an Original Participating Manufacturer
or prior to the sale or acquisition agrees to assume the obligations of an
Original Participating Manufacturer with respect to such Cigarette brands, Brand
Names, Cigarette product formulas or businesses. No Participating Manufacturer
may sell or otherwise transfer any of its Cigarette brands, Brand Names,
Cigarette product formulas or Cigarette businesses (other than a sale or
transfer of Cigarette brands or Brand Names to be sold, Cigarette product
formulas to be used, or businesses to be conducted, by the acquiror or
transferee exclusively outside of the States) to any person or entity unless
such person or entity is or becomes prior to the sale or acquisition a
Participating Manufacturer. In the event of any such sale or transfer of a
Cigarette brand, Brand Name, Cigarette product formula or Cigarette business by
a Participating Manufacturer to a person or entity that within 180 days prior to
such sale or transfer was a Non-Participating Manufacturer, the Participating
Manufacturer shall certify to the Settling States that it has determined that
such person or entity has the capability to perform the obligations under this
Agreement. Such certification shall not survive beyond one year
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following the date of any such transfer. Each Original Participating
Manufacturer certifies and represents that, except as provided in Exhibit R, it
(or a wholly owned Affiliate) exclusively owns and controls in the States the
Brand Names of those Cigarettes that it currently manufactures for sale (or
sells) in the States and that it has the capacity to enter into an effective
agreement concerning the sale or transfer of such Brand Names pursuant to this
subsection XVIII(c). Nothing in this Agreement is intended to create any right
for a State to obtain any Cigarette product formula that it would not otherwise
have under applicable law.
(d) Payments in Settlement. All payments to be made by the Participating
Manufacturers pursuant to this Agreement are in settlement of all of the
Settling States' antitrust, consumer protection, common law negligence,
statutory, common law and equitable claims for monetary, restitutionary,
equitable and injunctive relief alleged by the Settling States with respect to
the year of payment or earlier years, except that no part of any payment under
this Agreement is made in settlement of an actual or potential liability for a
fine, penalty (civil or criminal) or enhanced damages or is the cost of a
tangible or intangible asset or other future benefit.
(e) No Determination or Admission. This Agreement is not intended to be
and shall not in any event be construed or deemed to be, or represented or
caused to be represented as, an admission or concession or evidence of (1) any
liability or any wrongdoing whatsoever on the part of any Released Party or that
any Released Party has engaged in any of the activities barred by this
Agreement; or (2) personal jurisdiction over any person or entity other than the
Participating Manufacturers. Each Participating Manufacturer specifically
disclaims and denies any liability or wrongdoing whatsoever
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with respect to the claims and allegations asserted against it by the Attorneys
General of the Settling States and the Litigating Political Subdivisions. Each
Participating Manufacturer has entered into this Agreement solely to avoid the
further expense, inconvenience, burden and risk of litigation.
(f) Non-Admissibility. The settlement negotiations resulting in this
Agreement have been undertaken by the Settling States and the Participating
Manufacturers in good faith and for settlement purposes only, and no evidence of
negotiations or discussions underlying this Agreement shall be offered or
received in evidence in any action or proceeding for any purpose. Neither this
Agreement nor any public discussions, public statements or public comments with
respect to this Agreement by any Settling State or Participating Manufacturer or
its agents shall be offered or received in evidence in any action or proceeding
for any purpose other than in an action or proceeding arising under or relating
to this Agreement.
(g) Representations of Parties. Each Settling State and each Participating
Manufacturer hereby represents that this Agreement has been duly authorized and,
upon execution, will constitute a valid and binding contractual obligation,
enforceable in accordance with its terms, of each of them. The signatories
hereto on behalf of their respective Settling States expressly represent and
warrant that they have the authority to settle and release all Released Claims
of their respective Settling States and any of their respective Settling States'
past, present and future agents, officials acting in their official capacities,
legal representatives, agencies, departments, commissions and divisions, and
that such signatories are aware of no authority to the contrary. It is
recognized that the Original Participating Manufacturers are relying on the
foregoing representation and
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warranty in making the payments required by and in otherwise performing under
this Agreement. The Original Participating Manufacturers shall have the right to
terminate this Agreement pursuant to subsection XVIII(u) as to any Settling
State as to which the foregoing representation and warranty is breached or not
effectively given.
(h) Obligations Several, Not Joint. All obligations of the Participating
Manufacturers pursuant to this Agreement (including, but not limited to, all
payment obligations) are intended to be, and shall remain, several and not
joint.
(i) Headings. The headings of the sections and subsections of this
Agreement are not binding and are for reference only and do not limit, expand or
otherwise affect the contents or meaning of this Agreement.
(j) Amendment and Waiver. This Agreement may be amended by a written
instrument executed by all Participating Manufacturers affected by the amendment
and by all Settling States affected by the amendment. The terms of any such
amendment shall not be enforceable in any Settling State that is not a signatory
to such amendment. The waiver of any rights conferred hereunder shall be
effective only if made by written instrument executed by the waiving party or
parties. The waiver by any party of any breach of this Agreement shall not be
deemed to be or construed as a waiver of any other breach, whether prior,
subsequent or contemporaneous, nor shall such waiver be deemed to be or
construed as a waiver by any other party.
(k) Notices. All notices or other communications to any party to this
Agreement shall be in writing (including, but not limited to, facsimile, telex,
telecopy or similar writing) and shall be given at the addresses specified in
Exhibit P (as it may be amended to reflect any additional Participating
Manufacturer that becomes a party to this
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Agreement after the MSA Execution Date). Any Settling State or Participating
Manufacturer may change or add the name and address of the persons designated to
receive notice on its behalf by notice given (effective upon the giving of such
notice) as provided in this subsection.
(l) Cooperation. Each Settling State and each Participating Manufacturer
agrees to use its best efforts and to cooperate with each other to cause this
Agreement and the Consent Decrees to become effective, to obtain all necessary
approvals, consents and authorizations, if any, and to execute all documents and
to take such other action as may be appropriate in connection herewith.
Consistent with the foregoing, each Settling State and each Participating
Manufacturer agrees that it will not directly or indirectly assist or encourage
any challenge to this Agreement or any Consent Decree by any other person, and
will support the integrity and enforcement of the terms of this Agreement and
the Consent Decrees. Each Settling State shall use its best efforts to cause
State-Specific Finality to occur as to such Settling State.
(m) Designees to Discuss Disputes. Within 14 days after the MSA Execution
Date, each Settling State's Attorney General and each Participating Manufacturer
shall provide written notice of its designation of a senior representative to
discuss with the other signatories to this Agreement any disputes and/or other
issues that may arise with respect to this Agreement. Each Settling State's
Attorney General shall provide such notice of the name, address and telephone
number of the person it has so designated to each Participating Manufacturer and
to NAAG. Each Participating Manufacturer shall provide such notice of the name,
address and telephone number of the person it has so
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designated to each Settling State's Attorney General, to NAAG and to each other
Participating Manufacturer.
(n) Governing Law. This Agreement (other than the Escrow Agreement) shall
be governed by the laws of the relevant Settling State, without regard to the
conflict of law rules of such Settling State. The Escrow Agreement shall be
governed by the laws of the State in which the Escrow Court is located, without
regard to the conflict of law rules of such State.
(o) Severability.
(1) Sections VI, VII, IX, X, XI, XII, XIII, XIV, XVI, XVIII(b), (c),
(d), (e), (f), (g), (h), (o), (p), (r), (s), (u), (w), (z), (bb), (dd),
and Exhibits A, B, and E hereof ("Nonseverable Provisions") are not
severable, except to the extent that severance of section VI is permitted
by Settling States pursuant to subsection VI(i) hereof. The remaining
terms of this Agreement are severable, as set forth herein.
(2) If a court materially modifies, renders unenforceable, or finds
to be unlawful any of the Nonseverable Provisions, the NAAG executive
committee shall select a team of Attorneys General (the "Negotiating
Team") to attempt to negotiate an equivalent or comparable substitute term
or other appropriate credit or adjustment (a "Substitute Term") with the
Original Participating Manufacturers. In the event that the court referred
to in the preceding sentence is located in a Settling State, the
Negotiating Team shall include the Attorney General of such Settling
State. The Original Participating Manufacturers shall have no obligation
to agree to any Substitute Term. If any Original Participating
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Manufacturer does not agree to a Substitute Term, this Agreement shall be
terminated in all Settling States affected by the court's ruling. The
Negotiating Team shall submit any proposed Substitute Term negotiated by
the Negotiating Team and agreed to by all of the Original Participating
Manufacturers to the Attorneys General of all of the affected Settling
States for their approval. If any affected Settling State does not approve
the proposed Substitute Term, this Agreement in such Settling State shall
be terminated.
(3) If a court materially modifies, renders unenforceable, or finds
to be unlawful any term of this Agreement other than a Nonseverable
Provision:
(A) The remaining terms of this Agreement shall remain in full
force and effect.
(B) Each Settling State whose rights or obligations under this
Agreement are affected by the court's decision in question (the
"Affected Settling State") and the Participating Manufacturers agree
to negotiate in good faith a Substitute Term. Any agreement on a
Substitute Term reached between the Participating Manufacturers and
the Affected Settling State shall not modify or amend the terms of
this Agreement with regard to any other Settling State.
(C) If the Affected Settling State and the Participating
Manufacturers are unable to agree on a Substitute Term, then they
will submit the issue to non-binding mediation. If mediation fails
to produce agreement to a Substitute Term, then that term shall be
severed and the remainder of this Agreement shall remain in full
force and effect.
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(4) If a court materially modifies, renders unenforceable, or finds
to be unlawful any portion of any provision of this Agreement, the
remaining portions of such provision shall be unenforceable with respect
to the affected Settling State unless a Substitute Term is arrived at
pursuant to subsection (o)(2) or (o)(3) hereof, whichever is applicable.
(p) Intended Beneficiaries. No portion of this Agreement shall provide any
rights to, or be enforceable by, any person or entity that is not a Settling
State or a Released Party. No Settling State may assign or otherwise convey any
right to enforce any provision of this Agreement.
(q) Counterparts. This Agreement may be executed in counterparts.
Facsimile or photocopied signatures shall be considered as valid signatures as
of the date affixed, although the original signature pages shall thereafter be
appended.
(r) Applicability. The obligations and duties of each Participating
Manufacturer set forth herein are applicable only to actions taken (or omitted
to be taken) within the States. This subsection (r) shall not be construed as
extending the territorial scope of any obligation or duty set forth herein whose
scope is otherwise limited by the terms hereof.
(s) Preservation of Privilege. Nothing contained in this Agreement or any
Consent Decree, and no act required to be performed pursuant to this Agreement
or any Consent Decree, is intended to constitute, cause or effect any waiver (in
whole or in part) of any attorney-client privilege, work product protection or
common interest/joint defense privilege, and each Settling State and each
Participating Manufacturer agrees that it shall not make or cause to be made in
any forum any assertion to the contrary.
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(t) Non-Release. Except as otherwise specifically provided in this
Agreement, nothing in this Agreement shall limit, prejudice or otherwise
interfere with the rights of any Settling State or any Participating
Manufacturer to pursue any and all rights and remedies it may have against any
Non-Participating Manufacturer or other non-Released Party.
(u) Termination.
(1) Unless otherwise agreed to by each of the Original Participating
Manufacturers and the Settling State in question, in the event that (A)
State-Specific Finality in a Settling State does not occur in such
Settling State on or before December 31, 2001; or (B) this Agreement or
the Consent Decree has been disapproved by the Court (or, in the event of
an appeal from or review of a decision of the Court to approve this
Agreement and the Consent Decree, by the court hearing such appeal or
conducting such review), and the time to Appeal from such disapproval has
expired, or, in the event of an Appeal from such disapproval, the Appeal
has been dismissed or the disapproval has been affirmed by the court of
last resort to which such Appeal has been taken and such dismissal or
disapproval has become no longer subject to further Appeal (including,
without limitation, review by the United States Supreme Court); or (C)
this Agreement is terminated in a Settling State for whatever reason
(including, but not limited to, pursuant to subsection XVIII(o) of this
Agreement), then this Agreement and all of its terms (except for the
non-admissibility provisions hereof, which shall continue in full force
and effect) shall be canceled and terminated with respect to
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<PAGE>
such Settling State, and it and all orders issued by the courts in such
Settling State pursuant hereto shall become null and void and of no
effect.
(2) If this Agreement is terminated with respect to a Settling State
for whatever reason, then (A) the applicable statute of limitation or any
similar time requirement shall be tolled from the date such Settling State
signed 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 with respect to the statute
of limitation as they were at the time such Settling State filed its
action, and (B) the parties shall jointly move the Court for an order
reinstating the actions and claims dismissed pursuant to sections XIII and
XIV hereof, with the effect that the parties shall be in the same position
with respect to those actions and claims as they were at the time the
action or claim was stayed or dismissed.
(v) Freedom of Information Requests. Upon the occurrence of State-Specific
Finality in a Settling State, each Participating Manufacturer will withdraw in
writing any and all requests for information, administrative applications, and
proceedings brought or caused to be brought by such Participating Manufacturer
pursuant to such Settling State's freedom of information law relating to the
subject matter of the lawsuits identified in Exhibit D.
(w) Bankruptcy. The following provisions shall apply if a Participating
Manufacturer both enters Bankruptcy and at any time thereafter is not timely
performing its financial obligations as required under this Agreement:
-139-
<PAGE>
(1) In the event that both a number of Settling States equal to at
least 75% of the total number of Settling States and Settling States
having aggregate Allocable Shares equal to at least 75% of the total
aggregate Allocable Shares assigned to all Settling States deem (by
written notice to the Participating Manufacturers other than the bankrupt
Participating Manufacturer) that the financial obligations of this
Agreement have been terminated and rendered null and void as to such
bankrupt Participating Manufacturer (except as provided in subsection (A)
below) due to a material breach by such Participating Manufacturer,
whereupon, with respect to all Settling States:
(A) all agreements, all concessions, all reductions of
Releasing Parties' Claims, and all releases and covenants not to
sue, contained in this Agreement shall be null and void as to such
Participating Manufacturer. Provided, however, that (i) all
reductions of Releasing Parties' Claims, and all releases and
covenants not to sue, contained in this Agreement shall remain in
full force and effect as to all persons or entities (other than the
bankrupt Participating Manufacturer itself or any person or entity
that, as a result of the Bankruptcy, obtains domestic tobacco assets
of such Participating Manufacturer (unless such person or entity is
itself a Participating Manufacturer)) who (but for the first
sentence of this subsection (A)) would otherwise be Released Parties
by virtue of their relationship with the bankrupt Participating
Manufacturer; and (ii) in the event a Settling State asserts any
Released Claim against a bankrupt Participating Manufacturer after
the termination of this Agreement with
-140-
<PAGE>
respect to such Participating Manufacturer as described in this
subsection (1) and receives a judgment, settlement or distribution
arising from such Released Claim, then the amount of any payments
such Settling State has previously received from such Participating
Manufacturer under this Agreement shall be applied against the
amount of any such judgment, settlement or distribution (provided
that in no event shall such Settling State be required to refund any
payments previously received from such Participating Manufacturer
pursuant to this Agreement);
(B) the Settling States shall have the right to assert any and
all claims against such Participating Manufacturer in the Bankruptcy
or otherwise without regard to any limits otherwise provided in this
Agreement (subject to any and all defenses against such claims);
(C) the Settling States may exercise all rights provided under
the federal Bankruptcy Code (or other applicable bankruptcy law)
with respect to their Claims against such Participating
Manufacturer, including the right to initiate and complete police
and regulatory actions against such Participating Manufacturer
pursuant to the exceptions to the automatic stay set forth in
section 362(b) of the Bankruptcy Code (provided, however, that such
Participating Manufacturer may contest whether the Settling State's
action constitutes a police and regulatory action); and
(D) to the extent that any Settling State is pursuing a police
and regulatory action against such Participating Manufacturer as
described in subsection (1)(C), such Participating Manufacturer
shall not request or
-141-
<PAGE>
support a request that the Bankruptcy court utilize the authority
provided under section 105 of the Bankruptcy Code to impose a
discretionary stay on the Settling State's action. The Participating
Manufacturers further agree that they will not request, seek or
support relief from the terms of this Agreement in any proceeding
before any court of law (including the federal bankruptcy courts) or
an administrative agency or through legislative action, including
(without limitation) by way of joinder in or consent to or
acquiescence in any such pleading or instrument filed by another.
(2) Whether or not the Settling States exercise the option set forth
in subsection (1) (and whether or not such option, if exercised, is valid
and enforceable):
(A) In the event that the bankrupt Participating Manufacturer
is an Original Participating Manufacturer, such Participating
Manufacturer shall continue to be treated as an Original
Participating Manufacturer for all purposes under this Agreement
except (i) such Participating Manufacturer shall be treated as a
Non-Participating Manufacturer (and not as an Original Participating
Manufacturer or Participating Manufacturer) for all purposes with
respect to subsections IX(d)(1), IX(d)(2) and IX(d)(3) (including,
but not limited to, that the Market Share of such Participating
Manufacturer shall not be included in Base Aggregate Participating
Manufacturer Market Share or Actual Aggregate Participating
Manufacturer Market Share, and that such Participating
Manufacturer's
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<PAGE>
volume shall not be included for any purpose under subsection
IX(d)(1)(D)); (ii) such Participating Manufacturer's Market Share
shall not be included as that of a Participating Manufacturer for
the purpose of determining whether the trigger percentage specified
in subsection IX(e) has been achieved (provided that such
Participating Manufacturer shall be treated as an Original
Participating Manufacturer for all other purposes with respect to
such subsection); (iii) for purposes of subsection (B)(iii) of
Exhibit E, such Participating Manufacturer shall continue to be
treated as an Original Participating Manufacturer, but its operating
income shall be recalculated by the Independent Auditor to reflect
what such income would have been had such Participating Manufacturer
made the payments that would have been due under this Agreement but
for the Bankruptcy; (iv) for purposes of subsection XVIII(c), such
Participating Manufacturer shall not be treated as an Original
Participating Manufacturer or as a Participating Manufacturer to the
extent that after entry into Bankruptcy it becomes the acquiror or
transferee of Cigarette brands, Brand Names, Cigarette product
formulas or Cigarette businesses of any Participating Manufacturer
(provided that such Participating Manufacturer shall continue to be
treated as an Original Participating Manufacturer and Participating
Manufacturer for all other purposes under such subsection); and (v)
as to any action that by the express terms of this Agreement
requires the unanimous agreement of all Original Participating
Manufacturers.
-143-
<PAGE>
(B) In the event that the bankrupt Participating Manufacturer
is a Subsequent Participating Manufacturer, such Participating
Manufacturer shall continue to be treated as a Subsequent
Participating Manufacturer for all purposes under this Agreement
except (i) such Participating Manufacturer shall be treated as a
Non-Participating Manufacturer (and not as a Subsequent
Participating Manufacturer or Participating Manufacturer) for all
purposes with respect to subsections IX(d)(1), (d)(2) and (d)(4)
(including, but not limited to, that the Market Share of such
Participating Manufacturer shall not be included in Base Aggregate
Participating Manufacturer Market Share or Actual Aggregate
Participating Manufacturer Market Share, and that such Participating
Manufacturer's volume shall not be included for any purpose under
subsection IX(d)(1)(D)); (ii) such Participating Manufacturer's
Market Share shall not be included as that of a Participating
Manufacturer for the purpose of determining whether the trigger
percentage specified in subsection IX(e) has been achieved (provided
that such Participating Manufacturer shall be treated as a
Subsequent Participating Manufacturer for all other purposes with
respect to such subsection); and (iii) for purposes of subsection
XVIII(c), such Participating Manufacturer shall not be treated as a
Subsequent Participating Manufacturer or as a Participating
Manufacturer to the extent that after entry into Bankruptcy it
becomes the acquiror or transferee of Cigarette brands, Brand Names,
Cigarette product formulas or Cigarette businesses of any
Participating Manufacturer
-144-
<PAGE>
(provided that such Participating Manufacturer shall continue to be
treated as a Subsequent Participating Manufacturer and Participating
Manufacturer for all other purposes under such subsection).
(C) Revision of this Agreement pursuant to subsection
XVIII(b)(2) shall not be required by virtue of any resolution on an
involuntary basis in the Bankruptcy of Claims against the bankrupt
Participating Manufacturer.
(x) Notice of Material Transfers. Each Participating Manufacturer shall
provide notice to each Settling State at least 20 days before consummating a
sale, transfer of title or other disposition, in one transaction or series of
related transactions, of assets having a fair market value equal to five percent
or more (determined in accordance with United States generally accepted
accounting principles) of the consolidated assets of such Participating
Manufacturer.
(y) Entire Agreement. This Agreement (together with any agreements
expressly contemplated hereby and any other contemporaneous written agreements)
embodies the entire agreement and understanding between and among the Settling
States and the Participating Manufacturers relating to the subject matter hereof
and supersedes (l) all prior agreements and understandings relating to such
subject matter, whether written or oral, and (2) all purportedly contemporaneous
oral agreements and understandings relating to such subject matter.
(z) Business Days. Any obligation hereunder that, under the terms of this
Agreement, is to be performed on a day that is not a Business Day shall be
performed on the first Business Day thereafter.
-145-
<PAGE>
(aa) Subsequent Signatories. With respect to a Tobacco Product
Manufacturer that signs this Agreement after the MSA Execution Date, the timing
of obligations under this Agreement (other than payment obligations, which shall
be governed by subsection II(jj)) shall be negotiated to provide for the
institution of such obligations on a schedule not more favorable to such
subsequent signatory than that applicable to the Original Participating
Manufacturers.
(bb) Decimal Places. Any figure or percentage referred to in this
Agreement shall be carried to seven decimal places.
(cc) Regulatory Authority. Nothing in section III of this Agreement is
intended to affect the legislative or regulatory authority of any local or State
government.
(dd) Successors. In the event that a Participating Manufacturer ceases
selling a brand of Tobacco Products in the States that such Participating
Manufacturer owned in the States prior to July 1, 1998, and an Affiliate of such
Participating Manufacturer thereafter and after the MSA Execution Date
intentionally sells such brand in the States, such Affiliate shall be considered
to be the successor of such Participating Manufacturer with respect to such
brand. Performance by any such successor of the obligations under this Agreement
with respect to the sales of such brand shall be subject to court-ordered
specific performance.
(ee) Export Packaging. Each Participating Manufacturer shall place a
visible indication on each pack of Cigarettes it manufactures for sale outside
of the fifty United States and the District of Columbia that distinguishes such
pack from packs of Cigarettes it manufactures for sale in the fifty United
States and the District of Columbia.
-146-
<PAGE>
(ff) Actions Within Geographic Boundaries of Settling States. To the
extent that any provision of this Agreement expressly prohibits, restricts, or
requires any action to be taken "within" any Settling State or the Settling
States, the relevant prohibition, restriction, or requirement applies within the
geographic boundaries of the applicable Settling State or Settling States,
including, but not limited to, Indian country or Indian trust land within such
geographic boundaries.
(gg) Notice to Affiliates. Each Participating Manufacturer shall give
notice of this Agreement to each of its Affiliates.
IN WITNESS WHEREOF, each Settling State and each Participating
Manufacturer, through their fully authorized representatives, have agreed to
this Agreement.
-147-
<PAGE>
STATE OF ALABAMA
By: /s/ Bill Pryor
----------------------------------------
Bill Pryor
Attorney General
Date: 11/23/98
--------------------------------------
STATE OF ALASKA
By: /s/ Bruce M. Botelho
----------------------------------------
Bruce M. Botelho
Attorney General
Date: 11/20/98
--------------------------------------
AMERICAN SAMOA
By: /s/ Tauese P. Sunia
----------------------------------------
Tauese P. Sunia
Governor
Date: 11/20/98
--------------------------------------
By: /s/ Toetagata Albert Mailo
----------------------------------------
Toetagata Albert Mailo
Attorney General
Date: 11/20/98
--------------------------------------
STATE OF ARIZONA
By: /s/ Grant Woods
----------------------------------------
Grant Woods
Attorney General
Date: 11/23/98
--------------------------------------
By: /s/ John H. Kelley
----------------------------------------
John H. Kelley
Director
Arizona Health Care Cost
Containment System
Date: 11/23/98
--------------------------------------
STATE OF ARKANSAS
By: /s/ Winston Bryant
----------------------------------------
Winston Bryant
Attorney General
Date: 11/23/98
--------------------------------------
<PAGE>
STATE OF CALIFORNIA
By: /s/ Daniel E. Lungren
----------------------------------------
Daniel E. Lungren
Attorney General
Date: 11/17/98
--------------------------------------
By: /s/ Kimberly Belshe
----------------------------------------
Kimberly Belshe
Director
California Department of Health Services
Date: 11/20/98
--------------------------------------
STATE OF COLORADO
By: /s/ Gale A. Norton
----------------------------------------
Gale A. Norton
Attorney General
Date: 11/23/98
--------------------------------------
STATE OF CONNECTICUT
By: /s/ Richard Blumenthal
----------------------------------------
Richard Blumenthal
Attorney General
Date: 11/23/98
--------------------------------------
STATE OF DELAWARE
By: /s/ M. Jane Brady
----------------------------------------
M. Jane Brady
Attorney General
Date: 11/23/98
--------------------------------------
DISTRICT OF COLUMBIA
By: /s/ John M. Ferren
----------------------------------------
John M. Ferren
Corporation Counsel
Date: 11/19/98
--------------------------------------
By: /s/ Marion Barry, Jr.
----------------------------------------
Marion Barry, Jr.
Mayor
Date: 11/19/98
--------------------------------------
<PAGE>
STATE OF GEORGIA
By: /s/ Zell Miller
----------------------------------------
Zell Miller
Governor
Date: 11/23/98
--------------------------------------
By: /s/ Thurbert E. Baker
----------------------------------------
Thurbert E. Baker
Attorney General
Date: 11/23/98
--------------------------------------
GUAM
By: /s/ Carl T.C. Gutierrez
----------------------------------------
Carl T.C. Gutierrez
Governor
Date: 11/20/98
--------------------------------------
By: /s/ Robert H. Kono
----------------------------------------
Robert H. Kono
Acting Attorney General
Date: 11/20/98
--------------------------------------
STATE OF HAWAII
By: /s/ Margery S. Bronster
----------------------------------------
Margery S. Bronster
Attorney General
Date: 11/20/98
--------------------------------------
STATE OF IDAHO
By: /s/ Alan G. Lance
----------------------------------------
Alan G. Lance
Attorney General
Date: 11/23/98
--------------------------------------
STATE OF ILLINOIS
By: /s/ Jim Ryan
----------------------------------------
Jim Ryan
Attorney General
Date: 11/23/98
--------------------------------------
<PAGE>
STATE OF INDIANA
By: /s/ Frank L. O'Bannon
----------------------------------------
Frank L. O'Bannon
Governor
Date: 11/20/98
--------------------------------------
By: /s/ Jeffrey A. Modisett
----------------------------------------
Jeffrey A. Modisett
Attorney General
Date: 11/20/98
--------------------------------------
STATE OF IOWA
By: /s/ Tom Miller
----------------------------------------
Tom Miller
Attorney General
Date: 11/20/98
--------------------------------------
STATE OF KANSAS
By: /s/ Carla J. Stovall
----------------------------------------
Carla J. Stovall
Attorney General
Date: 11/23/98
--------------------------------------
COMMONWEALTH OF KENTUCKY
By: /s/ Albert Benjamin "Ben" Chandler III
----------------------------------------
Albert Benjamin "Ben" Chandler III
Attorney General
Date: 11/23/98
--------------------------------------
STATE OF LOUISIANA
By: /s/ Richard P. Ieyoub
----------------------------------------
Richard P. Ieyoub
Attorney General
Date: 11/23/98
--------------------------------------
STATE OF MAINE
By: /s/ Andrew Ketterer
----------------------------------------
Andrew Ketterer
Attorney General
Date: 11/23/98
--------------------------------------
<PAGE>
STATE OF MARYLAND
By: /s/ J. Joseph Curran, Jr.
----------------------------------------
J. Joseph Curran, Jr.
Attorney General
Date: 11/23/98
--------------------------------------
COMMONWEALTH OF MASSACHUSETTS
By: /s/ Scott Harshbarger
----------------------------------------
Scott Harshbarger
Attorney General
Date: 11/23/98
--------------------------------------
STATE OF MICHIGAN
By: /s/ Frank J. Kelley
----------------------------------------
Frank J. Kelley
Attorney General
Date: 11/23/98
--------------------------------------
STATE OF MISSOURI
By: /s/ Jeremiah W. (Jay) Nixon
----------------------------------------
Jeremiah W. (Jay) Nixon
Attorney General
Date: 11/23/98
--------------------------------------
STATE OF MONTANA
By: /s/ Joseph P. Mazurek
----------------------------------------
Joseph P. Mazurek
Attorney General
Date: 11/23/98
--------------------------------------
STATE OF NEBRASKA
By: /s/ Don Stenberg
----------------------------------------
Don Stenberg
Attorney General
Date: 11/23/98
--------------------------------------
STATE OF NEVADA
By: /s/ Frankie Sue Del Papa
----------------------------------------
Frankie Sue Del Papa
Attorney General
Date: 11/23/98
--------------------------------------
<PAGE>
STATE OF NEW HAMPSHIRE
By: /s/ Philip T. McLaughlin
----------------------------------------
Philip T. McLaughlin
Attorney General
Date: 11/20/98
--------------------------------------
STATE OF NEW JERSEY
By: /s/ Peter Verniero
----------------------------------------
Peter Verniero
Attorney General
Date: 11/23/98
--------------------------------------
STATE OF NEW MEXICO
By: /s/ Tom Udall
----------------------------------------
Tom Udall
Attorney General
Date: 11/23/98
--------------------------------------
STATE OF NEW YORK
By: /s/ Dennis C. Vacco
----------------------------------------
Dennis C. Vacco
Attorney General
Date: 11/23/98
--------------------------------------
STATE OF NORTH CAROLINA
By: /s/ Michael F. Easley
----------------------------------------
Michael F. Easley
Attorney General
Date: 11/16/98
--------------------------------------
STATE OF NORTH DAKOTA
By: /s/ Heidi Heitkamp
----------------------------------------
Heidi Heitkamp
Attorney General
Date: 11/23/98
--------------------------------------
NORTHERN MARIANA ISLANDS
By: /s/ Maya B. Kara
----------------------------------------
Maya B. Kara
(Acting) Attorney General
Date: 11/20/98
--------------------------------------
<PAGE>
STATE OF OHIO
By: /s/ Betty D. Montgomery
----------------------------------------
Betty D. Montgomery
Attorney General
Date: 11/23/98
--------------------------------------
STATE OF OKLAHOMA
By: /s/ W.A. Drew Edmondson
----------------------------------------
W.A. Drew Edmondson
Attorney General
Date: 11/23/98
----------------------------------------
STATE OF OREGON
By: /s/ Hardy Myers
----------------------------------------
Hardy Myers
Attorney General
Date: 11/23/98
--------------------------------------
COMMONWEALTH OF PENNSYLVANIA
By: /s/ Mike Fisher
----------------------------------------
Mike Fisher
Attorney General
Date: 11/23/98
--------------------------------------
COMMONWEALTH OF PUERTO RICO
By: /s/ Jose A. Fuentes-Agostini
----------------------------------------
Jose A. Fuentes-Agostini
Attorney General
Date: 11/20/98
--------------------------------------
STATE OF RHODE ISLAND
By: /s/ Jeffrey B. Pine
----------------------------------------
Jeffrey B. Pine
Attorney General
Date:
--------------------------------------
STATE OF SOUTH CAROLINA
By: /s/ Charlie Condon
----------------------------------------
Charlie Condon
Attorney General
Date: 11/23/98
--------------------------------------
<PAGE>
STATE OF SOUTH DAKOTA
By: /s/ William J. Janklow
----------------------------------------
William J. Janklow
Governor
Date: 11/23/98
--------------------------------------
By: /s/ Mark Barnett
----------------------------------------
Mark Barnett
Attorney General
Date: 11/23/98
--------------------------------------
STATE OF TENNESSEE
By: /s/ John Knox Walkup
----------------------------------------
John Knox Walkup
Attorney General
Date: 11/23/98
--------------------------------------
STATE OF UTAH
By: /s/ Jan Graham
----------------------------------------
Jan Graham
Attorney General
Date: 11/23/98
--------------------------------------
STATE OF VERMONT
By: /s/ William H. Sorrell
----------------------------------------
William H. Sorrell
Attorney General
Date: 11/23/98
--------------------------------------
COMMONWEALTH OF VIRGINIA
By: /s/ Mark L. Earley
----------------------------------------
Mark L. Earley
Attorney General
Date: 11/20/98
--------------------------------------
THE VIRGIN ISLANDS OF THE UNITED STATES
By: /s/ Julio A. Brady
----------------------------------------
Julio A. Brady
Attorney General
Date: 11/23/98
--------------------------------------
<PAGE>
STATE OF WASHINGTON
By: /s/ Christine O. Gregoire
----------------------------------------
Christine O. Gregoire
Attorney General
Date: 11/23/98
--------------------------------------
STATE OF WEST VIRGINIA
By: /s/ Darrell V. McGraw Jr.
----------------------------------------
Darrell V. McGraw Jr.
Attorney General
Date: 11/23/98
--------------------------------------
STATE OF WISCONSIN
By: /s/ Tommy G. Thompson
----------------------------------------
Tommy G. Thompson
Governor
Date: 11/23/98
--------------------------------------
By: /s/ James E. Doyle
----------------------------------------
James E. Doyle
Attorney General
Date: 11/23/98
--------------------------------------
STATE OF WYOMING
By: /s/ Jim Geringer
----------------------------------------
Jim Geringer
Governor
Date: 11/23/98
--------------------------------------
By: /s/ Gay Woodhouse
----------------------------------------
Gay Woodhouse
(Acting) Attorney General
Date: 11/23/98
--------------------------------------
<PAGE>
PHILIP MORRIS INCORPORATED
By: /s/ Martin J. Barrington
----------------------------------------
Martin J. Barrington
General Counsel
Date: 11/23/98
--------------------------------------
By: /s/ Meyer G. Koplow
----------------------------------------
Meyer G. Koplow
Counsel
Date: 11/23/98
--------------------------------------
R.J. REYNOLDS TOBACCO COMPANY
By: /s/ Charles A. Blixt
----------------------------------------
Charles A. Blixt
Executive Vice President and
General Counsel
Date: 11/23/98
--------------------------------------
By: /s/ Arthur F. Golden
----------------------------------------
Arthur F. Golden
Counsel
Date: 11/23/98
--------------------------------------
BROWN & WILLIAMSON TOBACCO
CORPORATION
By: /s/ F. Anthony Burke
----------------------------------------
F. Anthony Burke
Vice President and General Counsel
Date: 11/23/98
--------------------------------------
By: /s/ Stephen R. Patton
----------------------------------------
Stephen R. Patton
Counsel
Date: 11/23/98
--------------------------------------
<PAGE>
LORILLARD TOBACCO COMPANY
By: /s/ Ronald S. Milstein
----------------------------------------
Ronald S. Milstein
General Counsel
Date: 11/23/98
--------------------------------------
By: /s/ Herbert M. Wachtell
----------------------------------------
Herbert M. Wachtell
Counsel
Date: 11/23/98
--------------------------------------
LIGGETT GROUP INC.
By: /s/ Bennett S. LeBow
----------------------------------------
Bennett S. LeBow
Director
Date: 11/23/98
--------------------------------------
By: /s/ Marc E. Kasowitz
----------------------------------------
Marc E. Kasowitz
Counsel
Date: 11/23/98
--------------------------------------
COMMONWEALTH BRANDS, INC.
By: /s/ Brad Kelley
----------------------------------------
Brad Kelley
Chairman of the Board
Date: 11/23/98
--------------------------------------
By: /s/ William Jay Hunter, Jr.
----------------------------------------
William Jay Hunter, Jr.
Counsel
Date: 11/23/98
--------------------------------------
<PAGE>
EXHIBIT A
STATE ALLOCATION PERCENTAGES
-----------------------------------------
State Percentage
-----------------------------------------
Alabama 1.6161308%
-----------------------------------------
Alaska 0.3414187%
-----------------------------------------
Arizona 1.4738845%
-----------------------------------------
Arkansas 0.8280661%
-----------------------------------------
California 12.7639554%
-----------------------------------------
Colorado 1.3708614%
-----------------------------------------
Connecticut 1.8565373%
-----------------------------------------
Delaware 0.3954695%
-----------------------------------------
D.C. 0.6071183%
-----------------------------------------
Florida 0.0000000%
-----------------------------------------
Georgia 2.4544575%
-----------------------------------------
Hawaii 0.6018650%
-----------------------------------------
Idaho 0.3632632%
-----------------------------------------
Illinois 4.6542472%
-----------------------------------------
Indiana 2.0398033%
-----------------------------------------
Iowa 0.8696670%
-----------------------------------------
Kansas 0.8336712%
-----------------------------------------
Kentucky 1.7611586%
-----------------------------------------
Louisiana 2.2553531%
-----------------------------------------
Maine 0.7693505%
-----------------------------------------
Maryland 2.2604570%
-----------------------------------------
Massachusetts 4.0389790%
-----------------------------------------
Michigan 4.3519476%
-----------------------------------------
Minnesota 0.0000000%
-----------------------------------------
Mississippi 0.0000000%
-----------------------------------------
Missouri 2.2746011%
-----------------------------------------
Montana 0.4247591%
-----------------------------------------
Nebraska 0.5949833%
-----------------------------------------
Nevada 0.6099351%
-----------------------------------------
New Hampshire 0.6659340%
-----------------------------------------
New Jersey 3.8669963%
-----------------------------------------
New Mexico 0.5963897%
-----------------------------------------
New York 12.7620310%
-----------------------------------------
North Carolina 2.3322850%
-----------------------------------------
North Dakota 0.3660138%
-----------------------------------------
Ohio 5.0375098%
-----------------------------------------
Oklahoma 1.0361370%
-----------------------------------------
Oregon 1.1476582%
-----------------------------------------
Pennsylvania 5.7468588%
-----------------------------------------
Rhode Island 0.7189054%
-----------------------------------------
South Carolina 1.1763519%
-----------------------------------------
South Dakota 0.3489458%
-----------------------------------------
Tennessee 2.4408945%
-----------------------------------------
Texas 0.0000000%
-----------------------------------------
Utah 0.4448869%
-----------------------------------------
Vermont 0.4111851%
-----------------------------------------
Virginia 2.0447451%
-----------------------------------------
Washington 2.0532582%
-----------------------------------------
West Virginia 0.8864604%
-----------------------------------------
Wisconsin 2.0720390%
-----------------------------------------
Wyoming 0.2483449%
-----------------------------------------
-----------------------------------------
American Samoa 0.0152170%
-----------------------------------------
N. Mariana Isld. 0.0084376%
-----------------------------------------
Guam 0.0219371%
-----------------------------------------
U.S. Virgin Isld. 0.0173593%
-----------------------------------------
Puerto Rico 1.1212774%
-----------------------------------------
-----------------------------------------
Total 100.0000000%
-----------------------------------------
A-1
<PAGE>
EXHIBIT B
FORM OF ESCROW AGREEMENT
This Escrow Agreement is entered into as of _______________, 1998 by the
undersigned State officials (on behalf of their respective Settling States), the
undersigned Participating Manufacturers and ____________________ as escrow agent
(the "Escrow Agent").
WITNESSETH:
WHEREAS, the Settling States and the Participating Manufacturers have
entered into a settlement agreement entitled the "Master Settlement Agreement"
(the "Agreement"); and
WHEREAS, the Agreement requires the Settling States and the Participating
Manufacturers to enter into this Escrow Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Appointment of Escrow Agent.
The Settling States and the Participating Manufacturers hereby appoint
______________________ to serve as Escrow Agent under this Agreement on the
terms and conditions set forth herein, and the Escrow Agent, by its execution
hereof, hereby accepts such appointment and agrees to perform the duties and
obligations of the Escrow Agent set forth herein. The Settling States and the
Participating Manufacturers agree that the Escrow Agent appointed under the
terms of this Escrow Agreement shall be the Escrow Agent as defined in, and for
all purposes of, the Agreement.
SECTION 2. Definitions.
(a) Capitalized terms used in this Escrow Agreement and not
otherwise defined herein shall have the meaning given to such terms in the
Agreement.
(b) "Escrow Court" means the court of the State of New York to which
the Agreement is presented for approval, or such other court as agreed to by the
Original Participating Manufacturers and a majority of those Attorneys General
who are both the Attorney General of a Settling State and a member of the NAAG
executive committee at the time in question.
SECTION 3. Escrow and Accounts.
(a) All funds received by the Escrow Agent pursuant to the terms of
the Agreement shall be held and disbursed in accordance with the terms of this
Escrow Agreement. Such funds and any earnings thereon shall constitute the
"Escrow" and shall
B-1
<PAGE>
be held by the Escrow Agent separate and apart from all other funds and accounts
of the Escrow Agent, the Settling States and the Participating Manufacturers.
(b) The Escrow Agent shall allocate the Escrow among the following
separate accounts (each an "Account" and collectively the "Accounts"):
Subsection VI(b) Account
Subsection VI(c) Account (First)
Subsection VI(c) Account (Subsequent)
Subsection VIII(b) Account
Subsection VIII(c) Account
Subsection IX(b) Account (First)
Subsection IX(b) Account (Subsequent)
Subsection IX(c)(1) Account
Subsection IX(c)(2) Account
Subsection IX(e) Account
Disputed Payments Account
State-Specific Accounts with respect to each Settling State
in which State-Specific Finality occurs.
(c) All amounts credited to an Account shall be retained in such
Account until disbursed therefrom in accordance with the provisions of this
Escrow Agreement pursuant to (i) written instructions from the Independent
Auditor; or (ii) written instructions from all of the following: all of the
Original Participating Manufacturers; all of the Subsequent Participating
Manufacturers that contributed to such amounts in such Account; and all of the
Settling States (collectively, the "Escrow Parties"). In the event of a
conflict, instructions pursuant to clause (ii) shall govern over instructions
pursuant to clause (i).
(d) On the first Business Day after the date any payment is due
under the Agreement, the Escrow Agent shall deliver to each other Notice Party a
written statement showing the amount of such payment (or indicating that no
payment was made, if such is the case), the source of such payment, the Account
or Accounts to which such payment has been credited, and the payment
instructions received by the Escrow Agent from the Independent Auditor with
respect to such payment.
(e) The Escrow Agent shall comply with all payment instructions
received from the Independent Auditor unless before 11:00 a.m. (New York City
time) on the scheduled date of payment it receives written instructions to the
contrary from all of the Escrow Parties, in which event it shall comply with
such instructions.
(f) On the first Business Day after disbursing any funds from an
Account, the Escrow Agent shall deliver to each other Notice Party a written
statement showing the amount disbursed, the date of such disbursement and the
payee of the disbursed funds.
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SECTION 4. Failure of Escrow Agent to Receive Instructions.
In the event that the Escrow Agent fails to receive any written
instructions contemplated by this Escrow Agreement, the Escrow Agent shall be
fully protected in refraining from taking any action required under any section
of this Escrow Agreement other than Section 5 until such written instructions
are received by the Escrow Agent.
SECTION 5. Investment of Funds by Escrow Agent.
The Escrow Agent shall invest and reinvest all amounts from time to time
credited to the Accounts in either (i) direct obligations of, or obligations the
principal and interest on which are unconditionally guaranteed by, the United
States of America; (ii) repurchase agreements fully collateralized by securities
described in clause (i) above; (iii) money market accounts maturing within 30
days of the acquisition thereof and issued by a bank or trust company organized
under the laws of the United States of America or of any of the 50 States
thereof (a "United States Bank") and having combined capital, surplus and
undistributed profits in excess of $500,000,000; or (iv) demand deposits with
any United States Bank having combined capital, surplus and undistributed
profits in excess of $500,000,000. To the extent practicable, monies credited to
any Account shall be invested in such a manner so as to be available for use at
the times when monies are expected to be disbursed by the Escrow Agent and
charged to such Account. Obligations purchased as an investment of monies
credited to any Account shall be deemed at all times to be a part of such
Account and the income or interest earned, profits realized or losses suffered
with respect to such investments (including, without limitation, any penalty for
any liquidation of an investment required to fund a disbursement to be charged
to such Account), shall be credited or charged, as the case may be, to, such
Account and shall be for the benefit of, or be borne by, the person or entity
entitled to payment from such Account. In choosing among the investment options
described in clauses (i) through (iv) above, the Escrow Agent shall comply with
any instructions received from time to time from all of the Escrow Parties. In
the absence of such instructions, the Escrow Agent shall invest such sums in
accordance with clause (i) above. With respect to any amounts credited to a
State-Specific Account, the Escrow Agent shall invest and reinvest all amounts
credited to such Account in accordance with the law of the applicable Settling
State to the extent such law is inconsistent with this Section 5.
SECTION 6. Substitute Form W-9; Qualified Settlement Fund.
Each signatory to this Escrow Agreement shall provide the Escrow Agent
with a correct taxpayer identification number on a substitute Form W-9 or if it
does not have such a number, a statement evidencing its status as an entity
exempt from back-up withholding, within 30 days of the date hereof (and, if it
supplies a Form W-9, indicate thereon that it is not subject to backup
withholding). The escrow established pursuant to this Escrow Agreement is
intended to be treated as a Qualified Settlement Fund for federal tax purposes
pursuant to Treas. Reg. ss. 1.468B-l. The Escrow Agent shall comply
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with all applicable tax filing, payment and reporting requirements, including,
without limitation, those imposed under Treas. Reg. ss. 1.468B, and if requested
to do so shall join in the making of the relation-back election under such
regulation.
SECTION 7. Duties and Liabilities of Escrow Agent.
The Escrow Agent shall have no duty or obligation hereunder other than to
take such specific actions as are required of it from time to time under the
provisions of this Escrow Agreement, and it shall incur no liability hereunder
or in connection herewith for anything whatsoever other than any liability
resulting from its own gross negligence or willful misconduct. The Escrow Agent
shall not be bound in any way by any agreement or contract between the
Participating Manufacturers and the Settling States (whether or not the Escrow
Agent has knowledge thereof) other than this Escrow Agreement, and the only
duties and responsibilities of the Escrow Agent shall be the duties and
obligations specifically set forth in this Escrow Agreement.
SECTION 8. Indemnification of Escrow Agent.
The Participating Manufacturers shall indemnify, hold harmless and
defend the Escrow Agent from and against any and all losses, claims, liabilities
and reasonable expenses, including the reasonable fees of its counsel, which it
may suffer or incur in connection with the performance of its duties and
obligations under this Escrow Agreement, except for those losses, claims,
liabilities and expenses resulting solely and directly from its own gross
negligence or willful misconduct.
SECTION 9. Resignation of Escrow Agent.
The Escrow Agent may resign at any time by giving written notice thereof
to the other parties hereto, but such resignation shall not become effective
until a successor Escrow Agent, selected by the Original Participating
Manufacturers and the Settling States, shall have been appointed and shall have
accepted such appointment in writing. If an instrument of acceptance by a
successor Escrow Agent shall not have been delivered to the resigning Escrow
Agent within 90 days after the giving of such notice of resignation, the
resigning Escrow Agent may, at the expense of the Participating Manufacturers
(to be shared according to their pro rata Market Shares), petition the Escrow
Court for the appointment of a successor Escrow Agent.
SECTION 10. Escrow Agent Fees and Expenses.
The Participating Manufacturers shall pay to the Escrow Agent its fees as
set forth in Appendix A hereto as amended from time to time by agreement of the
Original Participating Manufacturers and the Escrow Agent. The Participating
Manufacturers shall pay to the Escrow Agent its reasonable fees and expenses,
including all reasonable expenses, charges, counsel fees, and other
disbursements incurred by it or by its attorneys, agents and employees in the
performance of its duties and obligations under
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this Escrow Agreement. Such fees and expenses shall be shared by the
Participating Manufacturers according to their pro rata Market Shares.
SECTION 11. Notices.
All notices, written instructions or other communications to any party or
other person hereunder shall be given in the same manner as, shall be given to
the same person as, and shall be effective at the same time as provided in
subsection XVIII(k) of the Agreement.
SECTION 12. Setoff; Reimbursement.
The Escrow Agent acknowledges that it shall not be entitled to set off
against any funds in, or payable from, any Account to satisfy any liability of
any Participating Manufacturer. Each Participating Manufacturer that pays more
than its pro rata Market Share of any payment that is made by the Participating
Manufacturers to the Escrow Agent pursuant to Section 8, 9 or 10 hereof shall be
entitled to reimbursement of such excess from the other Participating
Manufacturers according to their pro rata Market Shares of such excess.
SECTION 13. Intended Beneficiaries; Successors.
No persons or entities other than the Settling States, the Participating
Manufacturers and the Escrow Agent are intended beneficiaries of this Escrow
Agreement, and only the Settling States, the Participating Manufacturers and the
Escrow Agent shall be entitled to enforce the terms of this Escrow Agreement.
Pursuant to the Agreement, the Settling States have designated NAAG and the
Foundation as recipients of certain payments; for all purposes of this Escrow
Agreement, the Settling States shall be the beneficiaries of such payments
entitled to enforce payment thereof. The provisions of this Escrow Agreement
shall be binding upon and inure to the benefit of the parties hereto and, in the
case of the Escrow Agent and Participating Manufacturers, their respective
successors. Each reference herein to the Escrow Agent or to a Participating
Manufacturer shall be construed as a reference to its successor, where
applicable.
SECTION 14. Governing Law.
This Escrow Agreement shall be construed in accordance with and governed
by the laws of the State in which the Escrow Court is located, without regard to
the conflicts of law rules of such state.
SECTION 15. Jurisdiction and Venue.
The parties hereto irrevocably and unconditionally submit to the
continuing exclusive jurisdiction of the Escrow Court for purposes of any suit,
action or proceeding seeking to interpret or enforce any provision of, or based
on any right arising out of, this Escrow Agreement, and the parties hereto agree
not to commence any such suit, action or
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proceeding except in the Escrow Court. The parties hereto hereby irrevocably and
unconditionally waive any objection to the laying of venue of any such suit,
action or proceeding in the Escrow Court and hereby further irrevocably waive
and agree not to plead or claim in the Escrow Court that any such suit, action
or proceeding has been brought in an inconvenient forum.
SECTION 16. Amendments.
This Escrow Agreement may be amended only by written instrument executed
by all of the parties hereto that would be affected by the amendment. The waiver
of any rights conferred hereunder shall be effective only if made in a written
instrument executed by the waiving party. The waiver by any party of any breach
of this Agreement shall not be deemed to be or construed as a waiver of any
other breach, whether prior, subsequent or contemporaneous, of this Escrow
Agreement, nor shall such waiver be deemed to be or construed as a waiver by any
other party.
SECTION 17. Counterparts.
This Agreement may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument. Delivery by facsimile of a signed
counterpart shall be deemed delivery for purposes of acknowledging acceptance
hereof; however, an original executed Escrow Agreement must promptly thereafter
be delivered to each party.
SECTION 18. Captions.
The captions herein are included for convenience of reference only and
shall be ignored in the construction and interpretation hereof.
SECTION 19. Conditions to Effectiveness.
This Escrow Agreement shall become effective when each party hereto shall
have signed a counterpart hereof. The parties hereto agree to use their best
efforts to seek an order of the Escrow Court approving, and retaining continuing
jurisdiction over, the Escrow Agreement as soon as possible, and agree that such
order shall relate back to, and be deemed effective as of, the date this Escrow
Agreement became effective.
SECTION 20. Address for Payments.
Whenever funds are under the terms of this Escrow Agreement required to be
disbursed to a Settling State, a Participating Manufacturer, NAAG or the
Foundation, the Escrow Agent shall disburse such funds by wire transfer to the
account specified by such payee by written notice delivered to all Notice
Parties in accordance with Section 11 hereof at least five Business Days prior
to the date of payment. Whenever funds are under the terms of this Escrow
Agreement required to be disbursed to any other person or entity, the Escrow
Agent shall disburse such funds to such account as shall have been
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specified in writing by the Independent Auditor for such payment at least five
Business Days prior to the date of payment.
SECTION 21. Reporting.
The Escrow Agent shall provide such information and reporting with respect
to the escrow as the Independent Auditor may from time to time request.
IN WITNESS WHEREOF, the parties have executed this Escrow Agreement as of
the day and year first hereinabove written.
[signature blocks]
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APPENDIX A
Schedule Of Fees And Expenses
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EXHIBIT C
FORMULA FOR CALCULATING
INFLATION ADJUSTMENTS
(1) Any amount that, in any given year, is to be adjusted for inflation
pursuant to this Exhibit (the "Base Amount") shall be adjusted upward by adding
to such Base Amount the Inflation Adjustment.
(2) The Inflation Adjustment shall be calculated by multiplying the Base
Amount by the Inflation Adjustment Percentage applicable in that year.
(3) The Inflation Adjustment Percentage applicable to payments due in the
year 2000 shall be equal to the greater of 3% or the CPI%. For example, if the
Consumer Price Index for December 1999 (as released in January 2000) is 2%
higher than the Consumer Price Index for December 1998 (as released in January
1999), then the CPI% with respect to a payment due in 2000 would be 2%. The
Inflation Adjustment Percentage applicable in the year 2000 would thus be 3%.
(4) The Inflation Adjustment Percentage applicable to payments due in any
year after 2000 shall be calculated by applying each year the greater of 3% or
the CPI% on the Inflation Adjustment Percentage applicable to payments due in
the prior year. Continuing the example in subsection (3) above, if the CPI% with
respect to a payment due in 2001 is 6%, then the Inflation Adjustment Percentage
applicable in 2001 would be 9.1800000% (an additional 6% applied on the 3%
Inflation Adjustment Percentage applicable in 2000), and if the CPI% with
respect to a payment due in 2002 is 4%, then the Inflation Adjustment Percentage
applicable in 2002 would be 13.5472000% (an additional 4% applied on the
9.1800000% Inflation Adjustment Percentage applicable in 2001).
(5) "Consumer Price Index" means the Consumer Price Index for All Urban
Consumers as published by the Bureau of Labor Statistics of the U.S. Department
of Labor (or other similar measures agreed to by the Settling States and the
Participating Manufacturers).
(6) The "CPI%" means the actual total percent change in the Consumer Price
Index during the calendar year immediately preceding the year in which the
payment in question is due.
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(7) Additional Examples.
(A) Calculating the Inflation Adjustment Percentages:
Percentage to be
applied on the Inflation
Adjustment Percentage
for the prior year (i.e., Inflation
Payment Hypothetical the greater of 3% or the Adjustment
Year CPI% CPI%) Percentage
- --------------------------------------------------------------------------------
2000 2.4% 3.0% 3.0000000%
2001 2.1% 3.0% 6.0900000%
2002 3.5% 3.5% 9.8031500%
2003 3.5% 3.5% 13.6462603%
2004 4.0% 4.0% 18.1921107%
2005 2.2% 3.0% 21.7378740%
2006 1.6% 3.0% 25.3900102%
(B) Applying the Inflation Adjustment:
Using the hypothetical Inflation Adjustment Percentages set
forth in section (7)(A):
-- the subsection IX(c)(1) base payment amount for 2002 of
$6,500,000,000 as adjusted for inflation would equal
$7,137,204,750;
-- the subsection IX(c)(1) base payment amount for 2004 of
$8,000,000,000 as adjusted for inflation would equal
$9,455,368,856;
-- the subsection IX(c)(1) base payment amount for 2006 of
$8,000,000,000 as adjusted for inflation would equal
$10,031,200,816.
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EXHIBIT D
LIST OF LAWSUITS
1. Alabama
Blaylock et al. v. American Tobacco Co. et al., Circuit Court, Montgomery
County, No. CV-96-1508-PR
2. Alaska
State of Alaska v. Philip Morris, Inc., et al., Superior Court, First
Judicial District of Juneau, No. IJU-97915 CI (Alaska)
3. Arizona
State of Arizona v. American Tobacco Co., Inc., et al., Superior Court,
Maricopa County, No. CV-96-14769 (Ariz.)
4. Arkansas
State of Arkansas v. The American Tobacco Co., Inc., et al., Chancery
Court, 6th Division, Pulaski County, No. IJ 97-2982 (Ark.)
5. California
People of the State of California et al. v. Philip Morris, Inc., et al.,
Superior Court, Sacramento County, No. 97-AS-30301
6. Colorado
State of Colorado et al., v. R.J. Reynolds Tobacco Co., et al., District
Court, City and County of Denver, No. 97CV3432 (Colo.)
7. Connecticut
State of Connecticut v. Philip Morris, et al., Superior Court, Judicial
District of Waterbury No. X02 CV96-0148414S (Conn.)
8. Georgia
State of Georgia et al. v. Philip Morris, Inc., et al., Superior Court,
Fulton County, No. CA E-61692 (Ga.)
9. Hawaii
State of Hawaii v. Brown & Williamson Tobacco Corp., et al., Circuit
Court, First Circuit, No. 97-0441-01 (Haw.)
10. Idaho
State of Idaho v. Philip Morris, Inc., et al., Fourth Judicial District,
Ada County, No. CVOC 9703239D (Idaho)
11. Illinois
People of the State of Illinois v. Philip Morris et al., Circuit Court of
Cook County, No. 96-L13146 (Ill.)
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<PAGE>
12. Indiana
State of Indiana v. Philip Morris, Inc., et al., Marion County Superior
Court, No. 49D 07-9702-CT-000236 (Ind.)
13. Iowa
State of Iowa v. R.J. Reynolds Tobacco Company et al., Iowa District
Court, Fifth Judicial District, Polk County, No. CL71048 (Iowa)
14. Kansas
State of Kansas v. R.J. Reynolds Tobacco Company, et al., District Court
of Shawnee County, Division 2, No. 96-CV-919 (Kan.)
15. Louisiana
Ieyoub v. The American Tobacco Company, et al., 14th Judicial District
Court, Calcasieu Parish, No. 96-1209 (La.)
16. Maine
State of Maine v. Philip Morris, Inc., et al., Superior Court, Kennebec
County, No. CV 97-134 (Me.)
17. Maryland
Maryland v. Philip Morris Incorporated, et al., Baltimore City Circuit
Court, No. 96-122017-CL211487 (Md.)
18. Massachusetts
Commonwealth of Massachusetts v. Philip Morris Inc., et al., Middlesex
Superior Court, No. 95-7378 (Mass.)
19. Michigan
Kelley v. Philip Morris Incorporated, et al., Ingham County Circuit Court,
30th Judicial Circuit, No. 96-84281-CZ (Mich.)
20. Missouri
State of Missouri v. American Tobacco Co., Inc. et al., Circuit Court,
City of St. Louis, No. 972-1465 (Mo.)
21. Montana
State of Montana v. Philip Morris, Inc., et al., First Judicial Court,
Lewis and Clark County, No. CDV 9700306-14 (Mont.)
22. Nebraska
State of Nebraska v. R.J. Reynolds Tobacco Co., et al., District Court,
Lancaster County, No. 573277 (Neb.)
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23. Nevada
Nevada v. Philip Morris, Incorporated, et al., Second Judicial Court,
Washoe County, No. CV97-03279 (Nev.)
24. New Hampshire
New Hampshire v. R.J. Reynolds, Tobacco Co., et al., New Hampshire
Superior Court, Merrimack County, No. 97-E-165 (N.H.)
25. New Jersey
State of New Jersey v. R.J. Reynolds Tobacco Company, et al., Superior
Court, Chancery Division, Middlesex County, No. C-254-96 (N.J.)
26. New Mexico
State of New Mexico, v. The American Tobacco Co., et al., First Judicial
District Court, County of Santa Fe, No. SF-1235 c (N.M.)
27. New York State
State of New York et al. v. Philip Morris, Inc., et al., Supreme Court of
the State of New York, County of New York, No. 400361/97 (N.Y.)
28. Ohio
State of Ohio v. Philip Morris, Inc., et al., Court of Common Pleas,
Franklin County, No. 97CVH055114 (Ohio)
29. Oklahoma
State of Oklahoma, et al. v. R.J. Reynolds Tobacco Company, et al.,
District Court, Cleveland County, No. CJ-96-1499-L (Okla.)
30. Oregon
State of Oregon v. The American Tobacco Co., et al., Circuit Court,
Multnomah County, No. 9706-04457 (Or.)
31. Pennsylvania
Commonwealth of Pennsylvania v. Philip Morris, Inc., et al., Court of
Common Pleas, Philadelphia County, April Term 1997, No. 2443
32. Puerto Rico
Rossello, et al. v. Brown & Williamson Tobacco Corporation, et al., U.S.
District Court, Puerto Rico, No. 97-1910JAF
33. Rhode Island
State of Rhode Island v. American Tobacco Co., et al., Rhode Island
Superior Court, Providence, No. 97-3058 (R.I.)
34. South Carolina
State of South Carolina v. Brown & Williamson Tobacco Corporation, et al.,
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Court of Common Pleas, Fifth Judicial Circuit, Richland County, No.
97-CP-40-1686 (S.C.)
35. South Dakota
State of South Dakota, et al. v. Philip Morris, Inc., et al., Circuit
Court, Hughes County, Sixth Judicial Circuit, No. 98-65 (S.D.)
36. Utah
State of Utah v. R.J. Reynolds Tobacco Company, et al., U.S. District
Court, Central Division, No. 96 CV 0829W (Utah)
37. Vermont
State of Vermont v. Philip Morris, Inc., et al., Chittenden Superior
Court, Chittenden County, No. 744-97 (Vt.) and 5816-98 (Vt.)
38. Washington
State of Washington v. American Tobacco Co. Inc., et al., Superior Court
of Washington, King County, No. 96-2-1505608SEA (Wash.)
39. West Virginia
McGraw, et al. v. The American Tobacco Company, et al., Kanawha County
Circuit Court, No. 94-1707 (W. Va.)
40. Wisconsin
State of Wisconsin v. Philip Morris Inc., et al., Circuit Court, Branch
11, Dane County, No. 97-CV-328 (Wis.)
Additional States
For each Settling State not listed above, the lawsuit or other legal
action filed by the Attorney General or Governor of such Settling State
against Participating Manufacturers in the Court in such Settling State
prior to 30 days after the MSA Execution Date asserting Released Claims.
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EXHIBIT E
FORMULA FOR CALCULATING
VOLUME ADJUSTMENTS
Any amount that by the terms of the Master Settlement Agreement is to be
adjusted pursuant to this Exhibit E (the "Applicable Base Payment") shall be
adjusted in the following manner:
(A) In the event the aggregate number of Cigarettes shipped in or to the fifty
United States, the District of Columbia, and Puerto Rico by the Original
Participating Manufacturers in the Applicable Year (as defined
hereinbelow) (the "Actual Volume") is greater than 475,656,000,000
Cigarettes (the "Base Volume"), the Applicable Base Payment shall be
multiplied by the ratio of the Actual Volume to the Base Volume.
(B) In the event the Actual Volume is less than the Base Volume,
i. The Applicable Base Payment shall be reduced by subtracting
from it the amount equal to such Applicable Base Payment
multiplied both by 0.98 and by the result of (i) 1(one) minus
(ii) the ratio of the Actual Volume to the Base Volume.
ii. Solely for purposes of calculating volume adjustments to the
payments required under subsection IX(c)(1), if a reduction of
the Base Payment due under such subsection results from the
application of subparagraph (B)(i) of this Exhibit E, but the
Original Participating Manufacturers' aggregate operating
income from sales of Cigarettes for the Applicable Year in the
fifty United States, the District of Columbia, and Puerto Rico
(the "Actual Operating Income") is greater than $7,195,340,000
(the "Base Operating Income") (such Base Operating Income
being adjusted upward in accordance with the formula for
inflation adjustments set forth in Exhibit C hereto beginning
December 31, 1996 to be applied for each year after 1996) then
the amount by which such Base Payment is reduced by the
application of subsection (B)(i) shall be reduced (but not
below zero) by the amount calculated by multiplying (i) a
percentage equal to the aggregate Allocable Shares of the
Settling States in which State-Specific Finality has occurred
by (ii) 25% of such increase in such operating income. For
purposes of this Exhibit E, "operating income from sales of
Cigarettes" shall mean operating income from sales of
Cigarettes in the fifty United States, the District of
Columbia, and Puerto
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Rico: (a) before goodwill amortization, trademark
amortization, restructuring charges and restructuring related
charges, minority interest, net interest expense,
non-operating income and expense, general corporate expenses
and income taxes; and (b) excluding extraordinary items,
cumulative effect of changes in method of accounting and
discontinued operations -- all as such income is reported to
the United States Securities and Exchange Commission ("SEC")
for the Applicable Year (either independently by the
Participating Manufacturer or as part of consolidated
financial statements reported to the SEC by an Affiliate of
such Participating Manufacturer) or, in the case of an
Original Participating Manufacturer that does not report
income to the SEC, as reported in financial statements
prepared in accordance with U.S. generally accepted accounting
principles and audited by a nationally recognized accounting
firm. For years subsequent to 1998, the determination of the
Original Participating Manufacturers' aggregate operating
income from sales of Cigarettes shall not exclude any charges
or expenses incurred or accrued in connection with this
Agreement or any prior settlement of a tobacco and health case
and shall otherwise be derived using the same principles as
were employed in deriving such Original Participating
Manufacturers' aggregate operating income from sales of
Cigarettes in 1996.
iii. Any increase in a Base Payment pursuant to subsection (B)(ii)
above shall be allocated among the Original Participating
Manufacturers in the following manner:
(1) only to those Original Participating Manufacturers
whose operating income from sales of Cigarettes in the fifty
United States, the District of Columbia and Puerto Rico for
the year for which the Base Payment is being adjusted is
greater than their respective operating income from such sales
of Cigarettes (including operating income from such sales of
any of their Affiliates that do not continue to have such
sales after the MSA Execution Date) in 1996 (as increased for
inflation as provided in Exhibit C hereto beginning December
31, 1996 to be applied for each year after 1996); and
(2) among the Original Participating Manufacturers
described in paragraph (1) above in proportion to the ratio of
(x) the increase in the operating income from sales of
Cigarettes (as described in paragraph (1)) of the Original
Participating Manufacturer in question, to (y) the aggregate
increase in the operating income from sales of Cigarettes (as
described in
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paragraph (1)) of those Original Participating Manufacturers
described in paragraph (1) above.
(C) "Applicable Year" means the calendar year immediately preceding the year
in which the payment at issue is due, regardless of when such payment is
made.
(D) For purposes of this Exhibit, shipments shall be measured as provided in
subsection II(mm).
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EXHIBIT F
POTENTIAL LEGISLATION NOT TO BE OPPOSED
1. Limitations on Youth access to vending machines.
2. Inclusion of cigars within the definition of tobacco products.
3. Enhancement of enforcement efforts to identify and prosecute violations of
laws prohibiting retail sales to Youth.
4. Encouraging or supporting use of technology to increase effectiveness of
age-of-purchase laws, such as, without limitation, the use of programmable
scanners, scanners to read drivers' licenses, or use of other age/ID data
banks.
5. Limitations on promotional programs for non-tobacco goods using tobacco
products as prizes or give-aways.
6. Enforcement of access restrictions through penalties on Youth for
possession or use.
7. Limitations on tobacco product advertising in or on school facilities, or
wearing of tobacco logo merchandise in or on school property.
8. Limitations on non-tobacco products which are designed to look like
tobacco products, such as bubble gum cigars, candy cigarettes, etc.
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EXHIBIT G
OBLIGATIONS OF THE TOBACCO INSTITUTE
UNDER THE MASTER SETTLEMENT AGREEMENT
(a) Upon court approval of a plan of dissolution The Tobacco Institute
("TI") will:
(1) Employees. Promptly notify and arrange for the termination of
the employment of all employees; provided, however, that TI may continue
to engage any employee who is (A) essential to the wind-down function as
set forth in section (g) herein; (B) reasonably needed for the sole
purpose of directing and supporting TI's defense of ongoing litigation; or
(C) reasonably needed for the sole purpose of performing the Tobacco
Institute Testing Laboratory's (the "TITL") industry-wide cigarette
testing pursuant to the Federal Trade Commission (the "FTC") method or any
other testing prescribed by state or federal law as set forth in section
(h) herein.
(2) Employee Benefits. Fund all employee benefit and pension
programs; provided, however, that unless ERISA or other federal or state
law prohibits it, such funding will be accomplished through periodic
contributions by the Original Participating Manufacturers, according to
their Relative Market Shares, into a trust or a like mechanism, which
trust or like mechanism will be established within 90 days of court
approval of the plan of dissolution. An opinion letter will be appended to
the dissolution plan to certify that the trust plan is not inconsistent
with ERISA or employee benefit pension contracts.
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(3) Leases. Terminate all leaseholds at the earliest possible date
pursuant to the leases; provided, however, that TI may retain or lease
anew such space (or lease other space) as needed for its wind-down
activities, for TITL testing as described herein, and for subsequent
litigation defense activities. Immediately upon execution of this
Agreement, TI will provide notice to each of its landlords of its desire
to terminate its lease with such landlord, and will request that the
landlord take all steps to re-lease the premises at the earliest possible
date consistent with TI's performance of its obligations hereunder. TI
will vacate such leasehold premises as soon as they are re-leased or on
the last day of wind-down, whichever occurs first.
(b) Assets/Debts. Within 60 days after court approval of a plan of
dissolution, TI will provide to the Attorney General of New York and append to
the dissolution plan a description of all of its assets, its debts, tax claims
against it, claims of state and federal governments against it, creditor claims
against it, pending litigation in which it is a party and notices of claims
against it.
(c) Documents. Subject to the privacy protections provided by New York
Public Officers Law ss. 91-99, TI will provide a copy of or otherwise make
available to the State of New York all documents in its possession, excluding
those that TI continues to claim to be subject to any attorney-client privilege,
attorney work product protection, common interest/joint defense privilege or any
other applicable privilege (collectively, "privilege") after the re-examination
of privilege claims pursuant to court order in State of Oklahoma v. R.J.
Reynolds Tobacco Company, et al., CJ-96-2499-L (Dist. Ct., Cleveland County)
(the "Oklahoma action"):
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(1) TI will deliver to the Attorney General of the State of New York
a copy of the privilege log served by it in the Oklahoma action. Upon a
written request by the Attorney General, TI will deliver an updated
version of its privilege log, if any such updated version exists.
(2) The disclosure of any document or documents claimed to be
privileged will be governed by section IV of this Agreement.
(3) At the conclusion of the document production and privilege
logging process, TI will provide a sworn affidavit that all documents in
its possession have been made available to the Attorney General of New
York except for documents claimed to be privileged, and that any privilege
logs that already exist have been made available to the Attorney General.
(d) Remaining Assets. On mutual agreement between TI and the Attorney
General of New York, a not-for-profit health or child welfare organization will
be named as the beneficiary of any TI assets that remain after lawful transfers
of assets and satisfaction of TI's employee benefit obligations and any other
debts, liabilities or claims.
(e) Defense of Litigation. Pursuant to Section 1006 of the New York
Not-for-Profit Corporations Law, TI will have the right to continue to defend
its litigation interests with respect to any claims against it that are pending
or threatened now or that are brought or threatened in the future. TI will
retain sole discretion over all litigation decisions, including, without
limitation, decisions with respect to asserting any privileges or defenses,
having privileged communications and creating privileged documents, filing
pleadings, responding to discovery requests, making motions, filing affidavits
and briefs, conducting party and non-party discovery, retaining expert witnesses
and consultants,
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preparing for and defending itself at trial, settling any claims asserted
against it, intervening or otherwise participating in litigation to protect
interests that it deems significant to its defense, and otherwise directing or
conducting its defense. Pursuant to existing joint defense agreements, TI may
continue to assist its current or former members in defense of any litigation
brought or threatened against them. TI also may enter into any new joint defense
agreement or agreements that it deems significant to its defense of pending or
threatened claims. TI may continue to engage such employees as reasonably needed
for the sole purpose of directing and supporting its defense of ongoing
litigation. As soon as TI has no litigation pending against it, it will dissolve
completely and will cease all functions consistent with the requirements of law.
(f) No public statement. Except as necessary in the course of litigation
defense as set forth in section (e) above, upon court approval of a plan of
dissolution, neither TI nor any of its employees or agents acting in their
official capacity on behalf of TI will issue any statements, press releases, or
other public statement concerning tobacco.
(g) Wind-down. After court approval of a plan of dissolution, TI will
effectuate wind-down of all activities (other than its defense of litigation as
described in section (e) above) expeditiously, and in no event later than 180
days after the date of court approval of the plan of dissolution. TI will
provide monthly status reports to the Attorney General of New York regarding the
progress of wind-down efforts and work remaining to be done with respect to such
efforts.
(h) TITL. Notwithstanding any other provision of this Exhibit G or the
dissolution plan, TI may perform TITL industry-wide cigarette testing pursuant
to the FTC method or any other testing prescribed by state or federal law until
such function is
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transferred to another entity, which transfer will be accomplished as soon as
practicable but in no event more than 180 days after court approval of the
dissolution plan.
(i) Jurisdiction. After the filing of a Certificate of Dissolution,
pursuant to Section 1004 of the New York Not-for-Profit Corporation Law, the
Supreme Court for the State of New York will have continuing jurisdiction over
the dissolution of TI and the winding-down of TI's activities, including any
litigation-related activities described in subsection (e) herein.
(j) No Determination or Admission. The dissolution of TI and any
proceedings taken hereunder are not intended to be and shall not in any event be
construed as, deemed to be, or represented or caused to be represented by any
Settling State as, an admission or concession or evidence of any liability or
any wrongdoing whatsoever on the part of TI, any of its current or former
members or anyone acting on their behalf. TI specifically disclaims and denies
any liability or wrongdoing whatsoever with respect to the claims and
allegations asserted against it by the Attorneys General of the Settling States.
(k) Court Approval. The Attorney General of the State of New York and the
Original Participating Manufacturers will prepare a joint plan of dissolution
for submission to the Supreme Court of the State of New York, all of the terms
of which will be agreed on and consented to by the Attorney General and the
Original Participating Manufacturers consistent with this schedule. The Original
Participating Manufacturers and their employees, as officers and directors of
TI, will take whatever steps are necessary to execute all documents needed to
develop such a plan of dissolution and to submit it to the court for approval.
If any court makes any material change to any term or
G-5
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provision of the plan of dissolution agreed upon and consented to by the
Attorney General and the Original Participating Manufacturers, then:
(1) the Original Participating Manufacturers may, at their election,
nevertheless proceed with the dissolution plan as modified by the court;
or
(2) if the Original Participating Manufacturers elect not to proceed
with the court-modified dissolution plan, the Original Participating
Manufacturers will be released from any obligations or undertakings under
this Agreement or this schedule with respect to TI; provided, however,
that the Original Participating Manufacturers will engage in good faith
negotiations with the New York Attorney General to agree upon the term or
terms of the dissolution plan that the court may have modified in an
effort to agree upon a dissolution plan that may be resubmitted for the
court's consideration.
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EXHIBIT H
DOCUMENT PRODUCTION
Section 1.
(a) Philip Morris Companies, Inc., et al., v. American Broadcasting
Companies, Inc., et al., At Law No. 760CL94X00816-00 (Cir. Ct., City
of Richmond)
(b) Harley-Davidson v. Lorillard Tobacco Co., No. 93-947 (S.D.N.Y.)
(c) Lorillard Tobacco Co. v. Harley-Davidson, No. 93-6098 (E.D. Wis.)
(d) Brown & Williamson v. Jacobson and CBS, Inc., No. 82-648 (N.D. Ill.)
(e) The FTC investigations of tobacco industry advertising and
1promotion as embodied in the following cites:
1. 46 FTC 706
2. 48 FTC 82
3. 46 FTC 735
4. 47 FTC 1393
5. 108 F. Supp. 573
6. 55 FTC 354
7. 56 FTC 96
8. 79 FTC 255
9. 80 FTC 455
10. Investigation #8023069
11. Investigation #8323222
Each Original Participating Manufacturer and Tobacco-Related Organization
will conduct its own reasonable inquiry to determine what documents or
deposition testimony, if any, it produced or provided in the above-listed
matters.
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Section 2.
(a) State of Washington v. American Tobacco Co., et al., No.
96-2-15056-8 SEA (Wash. Super. Ct., County of King)
(b) In re Mike Moore, Attorney General, ex rel, State of Mississippi
Tobacco Litigation, No. 94-1429 (Chancery Ct., Jackson, Miss.)
(c) State of Florida v. American Tobacco Co., et al., No. CL 95-1466 AH
(Fla. Cir. Ct., 15th Judicial Cir., Palm Beach Co.)
(d) State of Texas v. American Tobacco Co., et al., No. 5-96CV-91 (E.D.
Tex.)
(e) Minnesota v. Philip Morris et al., No. C-94-8565 (Minn. Dist. Ct.,
County of Ramsey)
(f) Broin v. R.J. Reynolds, No. 91-49738 CA (22) (11th Judicial Ct.,
Dade County, Florida)
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EXHIBIT I
INDEX AND SEARCH FEATURES FOR DOCUMENT WEBSITE
(a) Each Original Participating Manufacturer and Tobacco-Related
Organization will create and maintain on its website, at its expense, an
enhanced, searchable index, as described below, using Alta-Vista or functionally
comparable software, for all of the documents currently on its website and all
documents being placed on its website pursuant to section IV of this Agreement.
(b) The searchable indices of documents on these websites will include:
(1) all of the information contained in the 4(b) indices produced to
the State Attorneys General (excluding fields specific only to the
Minnesota action other than "request number");
(2) the following additional fields of information (or their
substantial equivalent) to the extent such information already exists in
an electronic format that can be incorporated into such an index:
Document ID Master ID
Other Number Document Date
Primary Type Other Type
Person Attending Person Noted
Person Author Person Recipient
Person Copied Person Mentioned
Organization Author Organization Recipient
Organization Copied Organization Mentioned
Organization Attending Organization Noted
Physical Attachment 1 Physical Attachment 2
Characteristics File Name
Site Area
Verbatim Title Old Brand
Primary Brand Mentioned Brand
Page Count
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(c) Each Original Participating Manufacturer and Tobacco-Related
Organization will add, if not already available, a user-friendly document
retrieval feature on the Website consisting of a "view all pages" function with
enhanced image viewer capability that will enable users to choose to view and/or
print either "all pages" for a specific document or "page-by-page".
(d) Each Original Participating Manufacturer and Tobacco-Related
Organizations will provide at its own expense to NAAG a copy set in electronic
form of its website document images and its accompanying subsection IV(h) index
in ASCII-delimited form for all of the documents currently on its website and
all of the documents described in subsection IV(d) of this Agreement. The
Original Participating Manufacturers and Tobacco-Related Organizations will not
object to any subsequent distribution and/or reproduction of these copy sets.
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EXHIBIT J
TOBACCO ENFORCEMENT FUND PROTOCOL
The States' Antitrust/Consumer Protection Tobacco Enforcement Fund
("Fund") is established by the Attorneys General of the Settling States, acting
through NAAG, pursuant to section VIII(c) of the Agreement. The following shall
be the primary and mandatory protocol for the administration of the Fund.
Section A
Fund Purpose
Section 1
The monies to be paid pursuant to section VIII(c) of the Agreement shall
be placed by NAAG in a new and separate interest bearing account, denominated
the States' Antitrust/ Consumer Protection Tobacco Enforcement Fund, which shall
not then or thereafter be commingled with any other funds or accounts. However,
nothing herein shall prevent deposits into the account so long as monies so
deposited are then lawfully committed for the purpose of the Fund as set forth
herein.
Section 2
A committee of three Attorneys General ("Special Committee") shall be
established to determine disbursements from the account, using the process
described herein. The three shall be the Attorney General of the State of
Washington, the Chair of NAAG's antitrust committee, and the Chair of NAAG's
consumer protection committee. In the event that an Attorney General shall hold
either two or three of the above stated positions, that Attorney General may
serve only in a single capacity, and shall be replaced in the remaining
positions by first, the President of NAAG, next by the President-Elect of NAAG
and if necessary the Vice-President of NAAG.
Section 3
The purpose of the Fund is: (1) to enforce and implement the terms of the
Agreement, in particular, by partial payment of the monetary costs of the
Independent Auditor as contemplated by the Agreement; and (2) to provide
monetary assistance to the various states' attorneys general: (A) to investigate
and/or litigate suspected violations of the Agreement and/or Consent Decree; (B)
to investigate and/or litigate suspected violations of state and/or federal
antitrust or consumer protection laws with respect to the manufacture, use,
marketing and sales of tobacco products; and (C) to enforce the Qualifying
Statute ("Qualifying Actions"). The Special Committee shall entertain requests
only from Settling States for disbursement from the fund associated with a
Qualifying Action ("Grant Application").
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Section B
Administration Standards Relative to Grant Applications
Section 1
The Special Committee shall not entertain any Grant Application to pay
salaries or ordinary expenses of regular employees of any Attorney General's
office.
Section 2
The affirmative vote of two or more of the members of the Special
Committee shall be required to approve any Grant Application.
Section 3
The decision of the Special Committee shall be final and non-appealable.
Section 4
The Attorney General of the State of Washington shall be chair of the
Special Committee and shall annually report to the Attorneys General on the
requests for funds from the Fund and the actions of the Special Committee upon
the requests.
Section 5
When a Grant Application to the Fund is made by an Attorney General who is
then a member of the Special Committee, such member will be temporarily replaced
on the Committee, but only for the determination of such Grant Application. The
remaining members of the Special Committee shall designate an Attorney General
to replace the Attorney General so disqualified, in order to consider the
application.
Section 6
The Fund shall be maintained in a federally insured depository institution
located in Washington, D.C. Funds may be invested in federal government-backed
vehicles. The Fund shall be regularly reported on NAAG financial statements and
subject to annual audit.
Section 7
Withdrawals from and checks drawn on the Fund will require at least two of
three authorized signatures. The three persons so authorized shall be the
executive director, the deputy director, and controller of NAAG.
Section 8
The Special Committee shall meet in person or telephonically as necessary
to determine whether a grant is sought for assistance with a Qualifying Action
and whether and to what extent
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the Grant Application is accepted. The chair of the Special Committee shall
designate the times for such meetings, so that a response is made to the Grant
Application as expeditiously as practicable.
Section 9
The Special Committee may issue a grant from the Fund only when an
Attorney General certifies that the monies will be used in connection with a
Qualifying Action, to wit: (A) to investigate and/or litigate suspected
violations of the Agreement and/or Consent Decree; (B) to investigate and/or
litigate suspected violations of state and/or federal antitrust or consumer
protection laws with respect to the manufacture, use, marketing and sales of
tobacco products; and (C) to enforce the Qualifying Statute. The Attorney
General submitting such application shall further certify that the entire grant
of monies from the Fund will be used to pay for such investigation and/or
litigation. The Grant Application shall describe the nature and scope of the
intended action and use of the funds which may be granted.
Section 10
To the extent permitted by law, each Attorney General whose Grant
Application is favorably acted upon shall promise to pay back to the Fund all of
the amounts received from the Fund in the event the state is successful in
litigation or settlement of a Qualifying Action. In the event that the monetary
recovery, if any, obtained is not sufficient to pay back the entire amount of
the grant, the Attorney General shall pay back as much as is permitted by the
recovery. In all instances where monies are granted, the Attorney General(s)
receiving monies shall provide an accounting to NAAG of all disbursements
received from the Fund no later than the 30th of June next following such
disbursement.
Section 11
In addition to the repayments to the Fund contemplated in the preceding
section, the Special Committee may deposit in the Fund any other monies lawfully
committed for the precise purpose of the Fund as set forth in section A(3)
above. For example, the Special Committee may at its discretion accept for
deposit in the Fund a foundation grant or court-ordered award for state
antitrust and/or consumer protection enforcement as long as the monies so
deposited become part of and subject to the same rules, purposes and limitations
of the Fund.
Section 12
The Special Committee shall be the sole and final arbiter of all Grant
Applications and of the amount awarded for each such application, if any.
Section 13
The Special Committee shall endeavor to maintain the Fund for as long a
term as is consistent with the purpose of the Fund. The Special Committee will
limit the total amount of grants made to a single state to no more than
$500,000.00. The Special Committee will not
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award a single grant in excess of $200,000.00, unless the grant involves more
than one state, in which case, a single grant so made may not total more than
$300,000.00. The Special Committee may, in its discretion and by unanimous vote,
decide to waive these limitations if it determines that special circumstances
exist. Such decision, however, shall not be effective unless ratified by a
two-thirds majority vote of the NAAG executive committee.
Section C
Grant Application Procedures
Section 1
This Protocol shall be transmitted to the Attorneys General within 90 days
after the MSA Execution Date. It may not be amended unless by recommendation of
the NAAG executive committee and majority vote of the Settling States. NAAG will
notify the Settling States of any amendments promptly and will transmit yearly
to the attorneys general a statement of the Fund balance and a summary of
deposits to and withdrawals from the Fund in the previous calendar or fiscal
year.
Section 2
Grant Applications must be in writing and must be signed by the Attorney
General submitting the application.
Section 3
Grant Applications must include the following:
(A) A description of the contemplated/pending action, including the scope of
the alleged violation and the area (state/regional/multi-state) likely to
be affected by the suspected offending conduct.
(B) A statement whether the action is actively and currently pursued by any
other Attorney General or other prosecuting authority.
(C) A description of the purposes for which the monies sought will be used.
(D) The amount requested.
(E) A directive as to how disbursements from the Fund should be made, e.g.,
either directly to a supplier of services (consultants, experts,
witnesses, and the like), to the Attorney General's office directly, or in
the case of multi-state action, to one or more Attorneys General's offices
designated as a recipient of the monies.
(F) A statement that the applicant Attorney(s) General will, to the extent
permitted by law, pay back to the Fund all, or as much as is possible, of
the monies received, upon receipt of any monetary recovery obtained in the
contemplated/pending litigation or settlement of the action.
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(G) A certification that no part of the grant monies will be used to pay the
salaries or ordinary expenses of any regular employee of the office of the
applicant(s) and that the grant will be used solely to pay for the stated
purpose.
(H) A certification that an accounting will be provided to NAAG of all monies
received by the applicant(s) by no later than the 30th of June next
following any receipt of such monies.
Section 4
All Grant Applications shall be submitted to the NAAG office at the
following address: National Association of Attorneys General, 750 1st Street,
NE, Suite 1100, Washington D.C. 20002.
Section 5
The Special Committee will endeavor to act upon all complete and properly
submitted Grant Applications within 30 days of receipt of said applications.
Section D
Other Disbursements from the Fund
Section 1
To enforce and implement the terms of the Agreement, the Special Committee
shall direct disbursements from the Fund to comply with the partial payment
obligations set forth in section XI of the Agreement relative to costs of the
Independent Auditor. A report of such disbursements shall be included in the
accounting given pursuant to section C(1) above.
Section E
Administrative Costs
Section 1
NAAG shall receive from the Fund on July 1, 1999 and on July 1 of each
year thereafter an administrative fee of $100,000 for its administrative costs
in performing its duties under the Protocol and this Agreement. The NAAG
executive committee may adjust the amount of the administrative fee in
extraordinary circumstances.
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EXHIBIT K
MARKET CAPITALIZATION PERCENTAGES
Philip Morris Incorporated 68.0000000%
Brown & Williamson Tobacco Corporation 17.9000000%
Lorillard Tobacco Company 7.3000000%
R.J. Reynolds Tobacco Company 6.8000000%
-----------
Total 100.0000000%
===========
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EXHIBIT L
MODEL CONSENT DECREE
IN THE [XXXXXX] COURT OF THE STATE OF [XXXXXX]
IN AND FOR THE COUNTY OF [XXXXX]
- - - - - - - - - - - - - - - - - - - - - - x CAUSE NO. XXXXXX
:
STATE OF [XXXXXXXXXXX], :
:
Plaintiff, : CONSENT DECREE AND FINAL JUDGMENT
v. :
:
[XXXXXX XXXXX XXXX], et al., :
:
Defendants. :
:
- - - - - - - - - - - - - - - - - - - - - - x
WHEREAS, Plaintiff, the State of [name of Settling State], commenced this
action on [date], [by and through its Attorney General [name]], pursuant to
[her/his/its] common law powers and the provisions of [state and/or federal
law];
WHEREAS, the State of [name of Settling State] asserted various claims for
monetary, equitable and injunctive relief on behalf of the State of [name of
Settling State] against certain tobacco product manufacturers and other
defendants;
WHEREAS, Defendants have contested the claims in the State's complaint
[and amended complaints, if any] and denied the State's allegations [and
asserted affirmative defenses];
WHEREAS, the parties desire to resolve this action in a manner which
appropriately addresses the State's public health concerns, while conserving the
parties' resources, as well as those of the Court, which would otherwise be
expended in litigating a matter of this magnitude; and
WHEREAS, the Court has made no determination of any violation of law, this
Consent Decree and Final Judgment being entered prior to the taking of any
testimony and without trial or final adjudication of any issue of fact or law;
NOW, THEREFORE, IT IS HEREBY ORDERED, ADJUDGED AND DECREED, AS FOLLOWS:
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I. JURISDICTION AND VENUE
This Court has jurisdiction over the subject matter of this action and
over each of the Participating Manufacturers. Venue is proper in this
[county/district].
II. DEFINITIONS
The definitions set forth in the Agreement (a copy of which is attached
hereto) are incorporated herein by reference.
III. APPLICABILITY
A. This Consent Decree and Final Judgment applies only to the
Participating Manufacturers in their corporate capacity acting through their
respective successors and assigns, directors, officers, employees, agents,
subsidiaries, divisions, or other internal organizational units of any kind or
any other entities acting in concert or participation with them. The remedies,
penalties and sanctions that may be imposed or assessed in connection with a
violation of this Consent Decree and Final Judgment (or any order issued in
connection herewith) shall only apply to the Participating Manufacturers, and
shall not be imposed or assessed against any employee, officer or director of
any Participating Manufacturer, or against any other person or entity as a
consequence of such violation, and there shall be no jurisdiction under this
Consent Decree and Final Judgment to do so.
B. This Consent Decree and Final Judgment is not intended to and does not
vest standing in any third party with respect to the terms hereof. No portion of
this Consent Decree and Final Judgment shall provide any rights to, or be
enforceable by, any person or entity other than the State of [name of Settling
State] or a Released Party. The State of [name of Settling State] may not assign
or otherwise convey any right to enforce any provision of this Consent Decree
and Final Judgment.
IV. VOLUNTARY ACT OF THE PARTIES
The parties hereto expressly acknowledge and agree that this Consent
Decree and Final Judgment is voluntarily entered into as the result of
arm's-length negotiation, and all parties hereto were represented by counsel in
deciding to enter into this Consent Decree and Final Judgment.
V. INJUNCTIVE AND OTHER EQUITABLE RELIEF
Each Participating Manufacturer is permanently enjoined from:
A. Taking any action, directly or indirectly, to target Youth within the
State of [name of Settling State] in the advertising, promotion or marketing of
Tobacco Products, or taking any action the primary purpose of which is to
initiate, maintain or increase the incidence of Youth smoking within the State
of [name of Settling State].
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B. After 180 days after the MSA Execution Date, using or causing to be
used within the State of [name of Settling State] any Cartoon in the
advertising, promoting, packaging or labeling of Tobacco Products.
C. After 30 days after the MSA Execution Date, making or causing to be
made any payment or other consideration to any other person or entity to use,
display, make reference to or use as a prop within the State of [name of
Settling State] any Tobacco Product, Tobacco Product package, advertisement for
a Tobacco Product, or any other item bearing a Brand Name in any Media;
provided, however, that the foregoing prohibition shall not apply to (1) Media
where the audience or viewers are within an Adult-Only Facility (provided such
Media are not visible to persons outside such Adult-Only Facility); (2) Media
not intended for distribution or display to the public; (3) instructional Media
concerning non-conventional cigarettes viewed only by or provided only to
smokers who are Adults; and (4) actions taken by any Participating Manufacturer
in connection with a Brand Name Sponsorship permitted pursuant to subsections
III(c)(2)(A) and III(c)(2)(B)(i) of the Agreement, and use of a Brand Name to
identify a Brand Name Sponsorship permitted by subsection III(c)(2)(B)(ii).
D. Beginning July 1, 1999, marketing, distributing, offering, selling,
licensing or causing to be marketed, distributed, offered, sold, or licensed
(including, without limitation, by catalogue or direct mail), within the State
of [name of Settling State], any apparel or other merchandise (other than
Tobacco Products, items the sole function of which is to advertise Tobacco
Products, or written or electronic publications) which bears a Brand Name.
Provided, however, that nothing in this section shall (1) require any
Participating Manufacturer to breach or terminate any licensing agreement or
other contract in existence as of June 20, 1997 (this exception shall not apply
beyond the current term of any existing contract, without regard to any renewal
or option term that may be exercised by such Participating Manufacturer); (2)
prohibit the distribution to any Participating Manufacturer's employee who is
not Underage of any item described above that is intended for the personal use
of such an employee; (3) require any Participating Manufacturer to retrieve,
collect or otherwise recover any item that prior to the MSA Execution Date was
marketed, distributed, offered, sold, licensed or caused to be marketed,
distributed, offered, sold or licensed by such Participating Manufacturer; (4)
apply to coupons or other items used by Adults solely in connection with the
purchase of Tobacco Products; (5) apply to apparel or other merchandise used
within an Adult-Only Facility that is not distributed (by sale or otherwise) to
any member of the general public; or (6) apply to apparel or other merchandise
(a) marketed, distributed, offered, sold, or licensed at the site of a Brand
Name Sponsorship permitted pursuant to subsection III(c)(2)(A) or
III(c)(2)(B)(i) of the Agreement by the person to which the relevant
Participating Manufacturer has provided payment in exchange for the use of the
relevant Brand Name in the Brand Name Sponsorship or a third-party that does not
receive payment from the relevant Participating Manufacturer (or any Affiliate
of such Participating Manufacturer) in connection with the marketing,
distribution, offer, sale or license of such apparel or other merchandise, or
(b) used at the site of a Brand Name Sponsorship permitted pursuant to
subsections III(c)(2)(A) or III(c)(2)(B)(i) of the Agreement (during such event)
that are not distributed (by sale or otherwise) to any member of the general
public.
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E. After the MSA Execution Date, distributing or causing to be distributed
within the State of [name of Settling State] any free samples of Tobacco
Products except in an Adult-Only Facility. For purposes of this Consent Decree
and Final Judgment, a "free sample" does not include a Tobacco Product that is
provided to an Adult in connection with (1) the purchase, exchange or redemption
for proof of purchase of any Tobacco Products (including, but not limited to, a
free offer in connection with the purchase of Tobacco Products, such as a
"two-for-one" offer), or (2) the conducting of consumer testing or evaluation of
Tobacco Products with persons who certify that they are Adults.
F. Using or causing to be used as a brand name of any Tobacco Product
pursuant to any agreement requiring the payment of money or other valuable
consideration, any nationally recognized or nationally established brand name or
trade name of any non-tobacco item or service or any nationally recognized or
nationally established sports team, entertainment group or individual celebrity.
Provided, however, that the preceding sentence shall not apply to any Tobacco
Product brand name in existence as of July 1, 1998. For the purposes of this
provision, the term "other valuable consideration" shall not include an
agreement between two entities who enter into such agreement for the sole
purpose of avoiding infringement claims.
G. After 60 days after the MSA Execution Date and through and including
December 31, 2001, manufacturing or causing to be manufactured for sale within
the State of [name of Settling State] any pack or other container of Cigarettes
containing fewer than 20 Cigarettes (or, in the case of roll-your-own tobacco,
any package of roll-your-own tobacco containing less than 0.60 ounces of
tobacco); and, after 150 days after the MSA Execution Date and through and
including December 31, 2001, selling or distributing within the State of [name
of Settling State] any pack or other container of Cigarettes containing fewer
than 20 Cigarettes (or, in the case of roll-your-own tobacco, any package of
roll-your-own tobacco containing less than 0.60 ounces of tobacco).
H. Entering into any contract, combination or conspiracy with any other
Tobacco Product Manufacturer that has the purpose or effect of: (1) limiting
competition in the production or distribution of information about health
hazards or other consequences of the use of their products; (2) limiting or
suppressing research into smoking and health; or (3) limiting or suppressing
research into the marketing or development of new products. Provided, however,
that nothing in the preceding sentence shall be deemed to (1) require any
Participating Manufacturer to produce, distribute or otherwise disclose any
information that is subject to any privilege or protection; (2) preclude any
Participating Manufacturer from entering into any joint defense or joint legal
interest agreement or arrangement (whether or not in writing), or from asserting
any privilege pursuant thereto; or (3) impose any affirmative obligation on any
Participating Manufacturer to conduct any research.
I. Making any material misrepresentation of fact regarding the health
consequences of using any Tobacco Product, including any tobacco additives,
filters, paper or other ingredients. Provided, however, that nothing in the
preceding sentence shall limit the exercise of any First Amendment right or the
assertion of any defense or position in any judicial, legislative or regulatory
forum.
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VI. MISCELLANEOUS PROVISIONS
A. Jurisdiction of this case is retained by the Court for the purposes of
implementing and enforcing the Agreement and this Consent Decree and Final
Judgment and enabling the continuing proceedings contemplated herein. Whenever
possible, the State of [name of Settling State] and the Participating
Manufacturers shall seek to resolve any issue that may exist as to compliance
with this Consent Decree and Final Judgment by discussion among the appropriate
designees named pursuant to subsection XVIII(m) of the Agreement. The State of
[name of Settling State] and/or any Participating Manufacturer may apply to the
Court at any time for further orders and directions as may be necessary or
appropriate for the implementation and enforcement of this Consent Decree and
Final Judgment. Provided, however, that with regard to subsections V(A) and V(I)
of this Consent Decree and Final Judgment, the Attorney General shall issue a
cease and desist demand to the Participating Manufacturer that the Attorney
General believes is in violation of either of such sections at least ten
Business Days before the Attorney General applies to the Court for an order to
enforce such subsections, unless the Attorney General reasonably determines that
either a compelling time-sensitive public health and safety concern requires
more immediate action or the Court has previously issued an Enforcement Order to
the Participating Manufacturer in question for the same or a substantially
similar action or activity. For any claimed violation of this Consent Decree and
Final Judgment, in determining whether to seek an order for monetary, civil
contempt or criminal sanctions for any claimed violation, the Attorney General
shall give good-faith consideration to whether: (1) the Participating
Manufacturer that is claimed to have committed the violation has taken
appropriate and reasonable steps to cause the claimed violation to be cured,
unless that party has been guilty of a pattern of violations of like nature; and
(2) a legitimate, good-faith dispute exists as to the meaning of the terms in
question of this Consent Decree and Final Judgment. The Court in any case in its
discretion may determine not to enter an order for monetary, civil contempt or
criminal sanctions.
B. This Consent Decree and Final Judgment is not intended to be, and shall
not in any event be construed as, or deemed to be, an admission or concession or
evidence of (1) any liability or any wrongdoing whatsoever on the part of any
Released Party or that any Released Party has engaged in any of the activities
barred by this Consent Decree and Final Judgment; or (2) personal jurisdiction
over any person or entity other than the Participating Manufacturers. Each
Participating Manufacturer specifically disclaims and denies any liability or
wrongdoing whatsoever with respect to the claims and allegations asserted
against it in this action, and has stipulated to the entry of this Consent
Decree and Final Judgment solely to avoid the further expense, inconvenience,
burden and risk of litigation.
C. Except as expressly provided otherwise in the Agreement, this Consent
Decree and Final Judgment shall not be modified (by this Court, by any other
court or by any other means) unless the party seeking modification demonstrates,
by clear and convincing evidence, that it will suffer irreparable harm from new
and unforeseen conditions. Provided, however, that the provisions of sections
III, V, VI and VII of this Consent Decree and Final Judgment shall in no event
be subject to modification without the consent of the State of [name of Settling
State] and all affected Participating Manufacturers. In the event that any of
the sections of this Consent
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Decree and Final Judgment enumerated in the preceding sentence are modified by
this Court, by any other court or by any other means without the consent of the
State of [name of Settling State] and all affected Participating Manufacturers,
then this Consent Decree and Final Judgment shall be void and of no further
effect. Changes in the economic conditions of the parties shall not be grounds
for modification. It is intended that the Participating Manufacturers will
comply with this Consent Decree and Final Judgment as originally entered, even
if the Participating Manufacturers' obligations hereunder are greater than those
imposed under current or future law (unless compliance with this Consent Decree
and Final Judgment would violate such law). A change in law that results,
directly or indirectly, in more favorable or beneficial treatment of any one or
more of the Participating Manufacturers shall not support modification of this
Consent Decree and Final Judgment.
D. In any proceeding which results in a finding that a Participating
Manufacturer violated this Consent Decree and Final Judgment, the Participating
Manufacturer or Participating Manufacturers found to be in violation shall pay
the State's costs and attorneys' fees incurred by the State of [name of Settling
State] in such proceeding.
E. The remedies in this Consent Decree and Final Judgment are cumulative
and in addition to any other remedies the State of [name of Settling State] may
have at law or equity, including but not limited to its rights under the
Agreement. Nothing herein shall be construed to prevent the State from bringing
an action with respect to conduct not released pursuant to the Agreement, even
though that conduct may also violate this Consent Decree and Final Judgment.
Nothing in this Consent Decree and Final Judgment is intended to create any
right for [name of Settling State] to obtain any Cigarette product formula that
it would not otherwise have under applicable law.
F. No party shall be considered the drafter of this Consent Decree and
Final Judgment for the purpose of any statute, case law or rule of
interpretation or construction that would or might cause any provision to be
construed against the drafter. Nothing in this Consent Decree and Final Judgment
shall be construed as approval by the State of [name of Settling State] of the
Participating Manufacturers' business organizations, operations, acts or
practices, and the Participating Manufacturers shall make no representation to
the contrary.
G. The settlement negotiations resulting in this Consent Decree and Final
Judgment have been undertaken in good faith and for settlement purposes only,
and no evidence of negotiations or discussions underlying this Consent Decree
and Final Judgment shall be offered or received in evidence in any action or
proceeding for any purpose. Neither this Consent Decree and Final Judgment nor
any public discussions, public statements or public comments with respect to
this Consent Decree and Final Judgment by the State of [name of Settling State]
or any Participating Manufacturer or its agents shall be offered or received in
evidence in any action or proceeding for any purpose other than in an action or
proceeding arising under or relating to this Consent Decree and Final Judgment.
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H. All obligations of the Participating Manufacturers pursuant to this
Consent Decree and Final Judgment (including, but not limited to, all payment
obligations) are, and shall remain, several and not joint.
I. The provisions of this Consent Decree and Final Judgment are applicable
only to actions taken (or omitted to be taken) within the States. Provided,
however, that the preceding sentence shall not be construed as extending the
territorial scope of any provision of this Consent Decree and Final Judgment
whose scope is otherwise limited by the terms thereof.
J. Nothing in subsection V(A) or V(I) of this Consent Decree shall create
a right to challenge the continuation, after the MSA Execution Date, of any
advertising content, claim or slogan (other than use of a Cartoon) that was not
unlawful prior to the MSA Execution Date.
K. If the Agreement terminates in this State for any reason, then this
Consent Decree and Final Judgment shall be void and of no further effect.
VII. FINAL DISPOSITION
A. The Agreement, the settlement set forth therein, and the establishment
of the escrow provided for therein are hereby approved in all respects, and all
claims are hereby dismissed with prejudice as provided therein.
B. The Court finds that the person[s] signing the Agreement have full and
complete authority to enter into the binding and fully effective settlement of
this action as set forth in the Agreement. The Court further finds that entering
into this settlement is in the best interests of the State of [name of Settling
State].
LET JUDGMENT BE ENTERED ACCORDINGLY
DATED this _____ day of ______________, 1998.
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EXHIBIT M
LIST OF PARTICIPATING MANUFACTURERS' LAWSUITS
AGAINST THE SETTLING STATES
1. Philip Morris, Inc., et al. v. Margery Bronster, Attorney General of the
State of Hawaii, In Her Official Capacity, Civ. No. 96-00722HG, United
States District Court for the District of Hawaii
2. Philip Morris, Inc., et al. v. Bruce Botelho, Attorney General of the
State of Alaska, In His Official Capacity, Civ. No. A97-0003CV, United
States District Court for the District of Alaska
3. Philip Morris, Inc., et al. v. Scott Harshbarger, Attorney General of the
Commonwealth of Massachusetts, In His Official Capacity, Civ. No.
95-12574-GAO, United States District Court for the District of
Massachusetts
4. Philip Morris, Inc., et al. v. Richard Blumenthal, Attorney General of the
State of Connecticut, In His Official Capacity, Civ. No. 396CV01221 (PCD),
United States District Court for the District of Connecticut
5. Philip Morris, et al. v. William H. Sorrell, et al., No. 1:98-ev-132,
United States District Court for the District of Vermont
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EXHIBIT N
LITIGATING POLITICAL SUBDIVISIONS
1. City of New York, et al. v. The Tobacco Institute, Inc. et al., Supreme
Court of the State of New York, County of New York, Index No. 406225/96
2. County of Erie v. The Tobacco Institute, Inc. et al., Supreme Court of the
State of New York, County of Erie, Index No. I 1997/359
3. County of Los Angeles v. R.J. Reynolds Tobacco Co. et al., San Diego
Superior Court, No. 707651
4. The People v. Philip Morris, Inc. et al., San Francisco Superior Court,
No. 980864
5. County of Cook v. Philip Morris, Inc. et al., Circuit Court of Cook
County, Ill., No. 97-L-4550
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EXHIBIT O
MODEL STATE FEE PAYMENT AGREEMENT
This STATE Fee Payment Agreement (the "STATE Fee Payment Agreement") is
entered into as of _________, _____ between and among the Original Participating
Manufacturers and STATE Outside Counsel (as defined herein), to provide for
payment of attorneys' fees pursuant to Section XVII of the Master Settlement
Agreement (the "Agreement").
WITNESSETH:
WHEREAS, the State of STATE and the Original Participating Manufacturers
have entered into the Agreement to settle and resolve with finality all Released
Claims against the Released Parties, including the Original Participating
Manufacturers, as set forth in the Agreement; and
WHEREAS, Section XVII of the Agreement provides that the Original
Participating Manufacturers shall pay reasonable attorneys' fees to those
private outside counsel identified in Exhibit S to the Agreement, pursuant to
the terms hereof;
NOW, THEREFORE, BE IT KNOWN THAT, in consideration of the mutual agreement
of the State of STATE and the Original Participating Manufacturers to the terms
of the Agreement and of the mutual agreement of STATE Outside Counsel and the
Original Participating Manufacturers to the terms of this STATE Fee Payment
Agreement, and such other consideration described herein, the Original
Participating Manufacturers and STATE Outside Counsel agree as follows:
SECTION 1. Definitions.
All definitions contained in the Agreement are incorporated by reference
herein, except as to terms specifically defined herein.
(a) "Action" means the lawsuit identified in Exhibit D, M or N to the
Agreement that has been brought by or against the State of STATE [or Litigating
Political Subdivision].
(b) "Allocated Amount" means the amount of any Applicable Quarterly
Payment allocated to any Private Counsel (including STATE Outside Counsel)
pursuant to section 17 hereof.
(c) "Allocable Liquidated Share" means, in the event that the sum of all
Payable Liquidated Fees of Private Counsel as of any date specified in section 8
hereof exceeds the Applicable Liquidation Amount for any payment described
therein, a percentage share of the Applicable Liquidation Amount equal to the
proportion of (i) the amount of
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the Payable Liquidated Fee of STATE Outside Counsel to (ii) the sum of Payable
Liquidated Fees of all Private Counsel.
(d) "Applicable Liquidation Amount" means, for purposes of the payments
described in section 8 hereof --
(i) for the payment described in subsection (a) thereof, $125
million;
(ii) for the payment described in subsection (b) thereof, the
difference between (A) $250 million and (B) the sum of all amounts paid in
satisfaction of all Payable Liquidated Fees of Outside Counsel pursuant to
subsection (a) thereof;
(iii) for the payment described in subsection (c) thereof, the
difference between (A) $250 million and (B) the sum of all amounts paid in
satisfaction of all Payable Liquidated Fees of Outside Counsel pursuant to
subsections (a) and (b) thereof;
(iv) for the payment described in subsection (d) thereof, the
difference between (A) $250 million and (B) the sum of all amounts paid in
satisfaction of all Payable Liquidated Fees of Outside Counsel pursuant to
subsections (a), (b) and (c) thereof;
(v) for the payment described in subsection (e) thereof, the
difference between (A) $250 million and (B) the sum of all amounts paid in
satisfaction of all Payable Liquidated Fees of Outside Counsel pursuant to
subsections (a), (b), (c) and (d) thereof;
(vi) for each of the first, second and third quarterly payments for
any calendar year described in subsection (f) thereof, $62.5 million; and
(vii) for each of the fourth calendar quarterly payments for any
calendar year described in subsection (f) thereof, the difference between
(A) $250 million and (B) the sum of all amounts paid in satisfaction of
all Payable Liquidated Fees of Outside Counsel with respect to the
preceding calendar quarters of the calendar year.
(e) "Application" means a written application for a Fee Award submitted to
the Panel, as well as all supporting materials (which may include video
recordings of interviews).
(f) "Approved Cost Statement" means both (i) a Cost Statement that has
been accepted by the Original Participating Manufacturers; and (ii) in the event
that a Cost Statement submitted by STATE Outside Counsel is disputed, the
determination by arbitration pursuant to subsection (b) of section 19 hereof as
to the amount of the reasonable costs and expenses of STATE Outside Counsel.
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(g) "Cost Statement" means a signed and attested statement of reasonable
costs and expenses of Outside Counsel for any action identified on Exhibit D, M
or N to the Agreement that has been brought by or against a Settling State or
Litigating Political Subdivision.
(h) "Designated Representative" means the person designated in writing, by
each person or entity identified in Exhibit S to the Agreement [by the Attorney
General of the State of STATE or as later certified in writing by the
governmental prosecuting authority of the Litigating Political Subdivision], to
act as their agent in receiving payments from the Original Participating
Manufacturers for the benefit of STATE Outside Counsel pursuant to sections 8,
16 and 19 hereof, as applicable.
(i) "Director" means the Director of the Private Adjudication Center of
the Duke University School of Law or such other person or entity as may be
chosen by agreement of the Original Participating Manufacturers and the
Committee described in the second sentence of paragraph (b)(ii) of section 11
hereof.
(j) "Eligible Counsel" means Private Counsel eligible to be allocated a
part of a Quarterly Fee Amount pursuant to section 17 hereof.
(k) "Federal Legislation" means federal legislation that imposes an
enforceable obligation on Participating Defendants to pay attorneys' fees with
respect to Private Counsel.
(l) "Fee Award" means any award of attorneys' fees by the Panel in
connection with a Tobacco Case.
(m) "Liquidated Fee" means an attorneys' fee for Outside Counsel for any
action identified on Exhibit D, M or N to the Agreement that has been brought by
or against a Settling State or Litigating Political Subdivision, in an amount
agreed upon by the Original Participating Manufacturers and such Outside
Counsel.
(n) "Outside Counsel" means all those Private Counsel identified in
Exhibit S to the Agreement.
(o) "Panel" means the three-member arbitration panel described in section
11 hereof.
(p) "Party" means (i) STATE Outside Counsel and (ii) an Original
Participating Manufacturer.
(q) "Payable Cost Statement" means the unpaid amount of a Cost Statement
as to which all conditions precedent to payment have been satisfied.
(r) "Payable Liquidated Fee" means the unpaid amount of a Liquidated Fee
as to which all conditions precedent to payment have been satisfied.
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(s) "Previously Settled States" means the States of Mississippi, Florida
and Texas.
(t) "Private Counsel" means all private counsel for all plaintiffs in a
Tobacco Case (including STATE Outside Counsel).
(u) "Quarterly Fee Amount" means, for purposes of the quarterly payments
described in sections 16, 17 and 18 hereof --
(i) for each of the first, second and third calendar quarters of any
calendar year beginning with the first calendar quarter of 1999 and ending
with the third calendar quarter of 2008, $125 million;
(ii) for each fourth calendar quarter of any calendar year beginning
with the fourth calendar quarter of 1999 and ending with the fourth
calendar quarter of 2003, the sum of (A) $125 million and (B) the
difference, if any, between (1) $375 million and (2) the sum of all
amounts paid in satisfaction of all Fee Awards of Private Counsel during
such calendar year, if any;
(iii) for each fourth calendar quarter of any calendar year
beginning with the fourth calendar quarter of 2004 and ending with the
fourth calendar quarter of 2008, the sum of (A) $125 million; (B) the
difference between (1) $375 million; and (2) the sum of all amounts paid
in satisfaction of all Fee Awards of Private Counsel during such calendar
year, if any; and (C) the difference, if any, between (1) $250 million and
(2) the product of (a) .2 (two tenths) and (b) the sum of all amounts paid
in satisfaction of all Liquidated Fees of Outside Counsel pursuant to
section 8 hereof, if any;
(iv) for each of the first, second and third calendar quarters of
any calendar year beginning with the first calendar quarter of 2009, $125
million; and
(v) for each fourth calendar quarter of any calendar year beginning
with the fourth calendar quarter of 2009, the sum of (A) $125 million and
(B) the difference, if any, between (1) $375 million and (2) the sum of
all amounts paid in satisfaction of all Fee Awards of Private Counsel
during such calendar year, if any.
(v) "Related Persons" means each Original Participating Manufacturer's
past, present and future Affiliates, divisions, officers, directors, employees,
representatives, insurers, lenders, underwriters, Tobacco-Related Organizations,
trade associations, suppliers, agents, auditors, advertising agencies, public
relations entities, attorneys, retailers and distributors (and the predecessors,
heirs, executors, administrators, successors and assigns of each of the
foregoing).
(w) "State of STATE" means the [applicable Settling State or the
Litigating Political Subdivision], any of its past, present and future agents,
officials acting in their
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official capacities, legal representatives, agencies, departments, commissions
and subdivisions.
(x) "STATE Outside Counsel" means all persons or entities identified in
Exhibit S to the Agreement by the Attorney General of State of STATE [or as
later certified by the office of the governmental prosecuting authority for the
Litigating Political Subdivision] as having been retained by and having
represented the STATE in connection with the Action, acting collectively by
unanimous decision of all such persons or entities.
(y) "Tobacco Case" means any tobacco and health case (other than a
non-class action personal injury case brought directly by or on behalf of a
single natural person or the survivor of such person or for wrongful death, or
any non-class action consolidation of two or more such cases).
(z) "Unpaid Fee" means the unpaid portion of a Fee Award.
SECTION 2. Agreement to Pay Fees.
The Original Participating Manufacturers will pay reasonable attorneys'
fees to STATE Outside Counsel for their representation of the State of STATE in
connection with the Action, as provided herein and subject to the Code of
Professional Responsibility of the American Bar Association. Nothing herein
shall be construed to require the Original Participating Manufacturers to pay
any attorneys' fees other than (i) a Liquidated Fee or a Fee Award and (ii) a
Cost Statement, as provided herein, nor shall anything herein require the
Original Participating Manufacturers to pay any Liquidated Fee, Fee Award or
Cost Statement in connection with any litigation other than the Action.
SECTION 3. Exclusive Obligation of the Original Participating Manufacturers.
The provisions set forth herein constitute the entire obligation of the
Original Participating Manufacturers with respect to payment of attorneys' fees
of STATE Outside Counsel (including costs and expenses) in connection with the
Action and the exclusive means by which STATE Outside Counsel or any other
person or entity may seek payment of fees by the Original Participating
Manufacturers or Related Persons in connection with the Action. The Original
Participating Manufacturers shall have no obligation pursuant to Section XVII of
the Agreement to pay attorneys' fees in connection with the Action to any
counsel other than STATE Outside Counsel, and they shall have no other
obligation to pay attorneys' fees to or otherwise to compensate STATE Outside
Counsel, any other counsel or representative of the State of STATE or the State
of STATE itself with respect to attorneys' fees in connection with the Action.
SECTION 4. Release.
(a) Each person or entity identified in Exhibit S to the Agreement by the
Attorney General of the State of STATE [or as certified by the office of the
governmental prosecuting authority for the Litigating Political Subdivision]
hereby irrevocably releases
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the Original Participating Manufacturers and all Related Persons from any and
all claims that such person or entity ever had, now has or hereafter can, shall
or may have in any way related to the Action (including but not limited to any
negotiations related to the settlement of the Action). Such release shall not be
construed as a release of any person or entity as to any of the obligations
undertaken herein in connection with a breach thereof.
(b) In the event that STATE Outside Counsel and the Original Participating
Manufacturers agree upon a Liquidated Fee pursuant to section 7 hereof, it shall
be a precondition to any payment by the Original Participating Manufacturers to
the Designated Representative pursuant to section 8 hereof that each person or
entity identified in Exhibit S to the Agreement by the Attorney General of the
State of STATE [or as certified by the office of the governmental prosecuting
authority for the Litigating Political Subdivision] shall have irrevocably
released all entities represented by STATE Outside Counsel in the Action, as
well as all persons acting by or on behalf of such entities (including the
Attorney General [or the office of the governmental prosecuting authority] and
each other person or entity identified on Exhibit S to the Agreement by the
Attorney General [or the office of the governmental prosecuting authority]) from
any and all claims that such person or entity ever had, now has or hereafter
can, shall or may have in any way related to the Action (including but not
limited to any negotiations related to the settlement of the Action). Such
release shall not be construed as a release of any person or entity as to any of
the obligations undertaken herein in connection with a breach thereof.
SECTION 5. No Effect on STATE Outside Counsel's Fee Contract.
The rights and obligations, if any, of the respective parties to any
contract between the State of STATE and STATE Outside Counsel shall be
unaffected by this STATE Fee Payment Agreement except (a) insofar as STATE
Outside Counsel grant the release described in subsection (b) of section 4
hereof; and (b) to the extent that STATE Outside Counsel receive any payments in
satisfaction of a Fee Award pursuant to section 16 hereof, any amounts so
received shall be credited, on a dollar-for-dollar basis, against any amount
payable to STATE Outside Counsel by the State of STATE [or the Litigating
Political Subdivision] under any such contract.
SECTION 6. Liquidated Fees.
(a) In the event that the Original Participating Manufacturers and STATE
Outside Counsel agree upon the amount of a Liquidated Fee, the Original
Participating Manufacturers shall pay such Liquidated Fee, pursuant to the terms
hereof.
(b) The Original Participating Manufacturers' payment of any Liquidated
Fee pursuant to this STATE Fee Payment Agreement shall be subject to (i)
satisfaction of the conditions precedent stated in section 4 and paragraph
(c)(ii) of section 7 hereof; and (ii) the payment schedule and the annual and
quarterly aggregate national caps specified in
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sections 8 and 9 hereof, which shall apply to all payments made with respect to
Liquidated Fees of all Outside Counsel.
SECTION 7. Negotiation of Liquidated Fees.
(a) If STATE Outside Counsel seek to be paid a Liquidated Fee, the
Designated Representative shall so notify the Original Participating
Manufacturers. The Original Participating Manufacturers may at any time make an
offer of a Liquidated Fee to the Designated Representative in an amount set by
the unanimous agreement, and at the sole discretion, of the Original
Participating Manufacturers and, in any event, shall collectively make such an
offer to the Designated Representative no more than 60 Business Days after
receipt of notice by the Designated Representative that STATE Outside Counsel
seek to be paid a Liquidated Fee. The Original Participating Manufacturers shall
not be obligated to make an offer of a Liquidated Fee in any particular amount.
Within ten Business Days after receiving such an offer, STATE Outside Counsel
shall either accept the offer, reject the offer or make a counteroffer.
(b) The national aggregate of all Liquidated Fees to be agreed to by the
Original Participating Manufacturers in connection with the settlement of those
actions indicated on Exhibits D, M and N to the Agreement shall not exceed one
billion two hundred fifty million dollars ($1,250,000,000).
(c) If the Original Participating Manufacturers and STATE Outside Counsel
agree in writing upon a Liquidated Fee --
(i) STATE Outside Counsel shall not be eligible for a Fee Award;
(ii) such Liquidated Fee shall not become a Payable Liquidated Fee
until such time as (A) State-Specific Finality has occurred in the State
of STATE; (B) each person or entity identified in Exhibit S to the
Agreement by the Attorney General of the State of STATE [or as certified
by the office of the governmental prosecuting authority of the Litigating
Political Subdivision] has granted the release described in subsection (b)
of section 4 hereof; and (C) notice of the events described in
subparagraphs (A) and (B) of this paragraph has been provided to the
Original Participating Manufacturers.
(iii) payment of such Liquidated Fee pursuant to sections 8 and 9
hereof (together with payment of costs and expenses pursuant to section 19
hereof), shall be STATE Outside Counsel's total and sole compensation by
the Original Participating Manufacturers in connection with the Action.
(d) If the Original Participating Manufacturers and STATE Outside Counsel
do not agree in writing upon a Liquidated Fee, STATE Outside Counsel may submit
an Application to the Panel for a Fee Award to be paid as provided in sections
16, 17 and 18 hereof.
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SECTION 8. Payment of Liquidated Fee.
In the event that the Original Participating Manufacturers and STATE
Outside Counsel agree in writing upon a Liquidated Fee, and until such time as
the Designated Representative has received payments in full satisfaction of such
Liquidated Fee --
(a) On February 1, 1999, if the Liquidated Fee of STATE Outside Counsel
became a Payable Liquidated Fee before January 15, 1999, each Original
Participating Manufacturer shall severally pay to the Designated Representative
its Relative Market Share of the lesser of (i) the Payable Liquidated Fee of
STATE Outside Counsel, (ii) $5 million or (iii) in the event that the sum of all
Payable Liquidated Fees of all Outside Counsel as of January 15, 1999 exceeds
the Applicable Liquidation Amount, the Allocable Liquidated Share of STATE
Outside Counsel.
(b) On August 1, 1999, if the Liquidated Fee of STATE Outside Counsel
became a Payable Liquidated Fee on or after January 15, 1999 and before July 15,
1999, each Original Participating Manufacturer shall severally pay to the
Designated Representative its Relative Market Share of the lesser of (i) the
Payable Liquidated Fee of STATE Outside Counsel, (ii) $5 million or (iii) in the
event that the sum of all Payable Liquidated Fees of all Outside Counsel that
became Payable Liquidated Fees on or after January 15, 1999 and before July 15,
1999 exceeds the Applicable Liquidation Amount, the Allocable Liquidated Share
of STATE Outside Counsel.
(c) On December 15, 1999, if the Liquidated Fee of STATE Outside Counsel
became a Payable Liquidated Fee on or after July 15, 1999 and before December 1,
1999, each Original Participating Manufacturer shall severally pay to the
Designated Representative its Relative Market Share of the lesser of (i) the
Payable Liquidated Fee of STATE Outside Counsel, (ii) $5 million or (iii) in the
event that the sum of all Payable Liquidated Fees of all Outside Counsel that
became Payable Liquidated Fees on or after July 15, 1999 and before December 1,
1999 exceeds the Applicable Liquidation Amount, the Allocable Liquidated Share
of STATE Outside Counsel.
(d) On December 15, 1999, if the Liquidated Fee of STATE Outside Counsel
became a Payable Liquidated Fee before December 1, 1999, each Original
Participating Manufacturer shall severally pay to the Designated Representative
its Relative Market Share of the lesser of (i) the Payable Liquidated Fee of
STATE Outside Counsel, or (ii) $5 million or (iii) in the event that the sum of
all Payable Liquidated Fees of all Outside Counsel that become Payable
Liquidated Fees before December 1, 1999 exceeds the Applicable Liquidation
Amount, the Allocable Liquidated Share of STATE Outside Counsel.
(e) On December 15, 1999, if the Liquidated Fee of STATE Outside Counsel
became a Payable Liquidated Fee before December 1, 1999, each Original
Participating Manufacturer shall severally pay to the Designated Representative
its Relative Market Share of the lesser of (i) the Payable Liquidated Fee of
STATE Outside Counsel or (ii) in the event that the sum of all Payable
Liquidated Fees of all Outside Counsel that became
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Payable Liquidated Fees before December 1, 1999 exceeds the Applicable
Liquidation Amount, the Allocable Liquidated Share of STATE Outside Counsel.
(f) On the last day of each calendar quarter, beginning with the first
calendar quarter of 2000 and ending with the fourth calendar quarter of 2003, if
the Liquidated Fee of STATE Outside Counsel became a Payable Liquidated Fee at
least 15 Business Days prior to the last day of each such calendar quarter, each
Original Participating Manufacturer shall severally pay to the Designated
Representative its Relative Market Share of the lesser of (i) the Payable
Liquidated Fee of STATE Outside Counsel or (ii) in the event that the sum of all
Payable Liquidated Fees of all Outside Counsel as of the date 15 Business Days
prior to the date of the payment in question exceeds the Applicable Liquidation
Amount, the Allocable Liquidated Share of STATE Outside Counsel.
SECTION 9. Limitations on Payments of Liquidated Fees.
Notwithstanding any other provision hereof, all payments by the Original
Participating Manufacturers with respect to Liquidated Fees shall be subject to
the following:
(a) Under no circumstances shall the Original Participating Manufacturers
be required to make any payment that would result in aggregate national payments
of Liquidated Fees:
(i) during 1999, totaling more than $250 million;
(ii) with respect to any calendar quarter beginning with the first
calendar quarter of 2000 and ending with the fourth calendar quarter of
2003, totaling more than $62.5 million, except to the extent that a
payment with respect to any prior calendar quarter of any calendar year
did not total $62.5 million; or
(iii) with respect to any calendar quarter after the fourth calendar
quarter of 2003, totaling more than zero.
(b) The Original Participating Manufacturers' obligations with respect to
the Liquidated Fee of STATE Outside Counsel, if any, shall be exclusively as
provided in this STATE Fee Payment Agreement, and notwithstanding any other
provision of law, such Liquidated Fee shall not be entered as or reduced to a
judgment against the Original Participating Manufacturers or considered as a
basis for requiring a bond or imposing a lien or any other encumbrance.
SECTION 10. Fee Awards.
(a) In the event that the Original Participating Manufacturers and STATE
Outside Counsel do not agree in writing upon a Liquidated Fee as described in
section 7 hereof, the Original Participating Manufacturers shall pay, pursuant
to the terms hereof, the Fee Award awarded by the Panel to STATE Outside
Counsel.
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(b) The Original Participating Manufacturers' payment of any Fee Award
pursuant to this STATE Fee Payment Agreement shall be subject to the payment
schedule and the annual and quarterly aggregate national caps specified in
sections 17 and 18 hereof, which shall apply to:
(i) all payments of Fee Awards in connection with an agreement to
pay fees as part of the settlement of any Tobacco Case on terms that
provide for payment by the Original Participating Manufacturers or other
defendants acting in agreement with the Original Participating
Manufacturers (collectively, "Participating Defendants") of fees with
respect to any Private Counsel, subject to an annual cap on payment of all
such fees; and
(ii) all payments of attorneys' fees (other than fees for attorneys
of Participating Defendants) pursuant to Fee Awards for activities in
connection with any Tobacco Case resolved by operation of Federal
Legislation.
SECTION 11. Composition of the Panel.
(a) The first and the second members of the Panel shall both be permanent
members of the Panel and, as such, will participate in the determination of all
Fee Awards. The third Panel member shall not be a permanent Panel member, but
instead shall be a state-specific member selected to determine Fee Awards on
behalf of Private Counsel retained in connection with litigation within a single
state. Accordingly, the third, state-specific member of the Panel for purposes
of determining Fee Awards with respect to litigation in the State of STATE shall
not participate in any determination as to any Fee Award with respect to
litigation in any other state (unless selected to participate in such
determinations by such persons as may be authorized to make such selections
under other agreements).
(b) The members of the Panel shall be selected as follows:
(i) The first member shall be the natural person selected by
Participating Defendants.
(ii) The second member shall be the person jointly selected by the
agreement of Participating Defendants and a majority of the committee
described in the fee payment agreements entered in connection with the
settlements of the Tobacco Cases brought by the Previously Settled States.
In the event that the person so selected is unable or unwilling to
continue to serve, a replacement for such member shall be selected by
agreement of the Original Participating Manufacturers and a majority of
the members of a committee composed of the following members: Joseph F.
Rice, Richard F. Scruggs, Steven W. Berman, Walter Umphrey, one additional
representative, to be selected in the sole discretion of NAAG, and two
representatives of Private Counsel in Tobacco Cases, to be selected at the
sole discretion of the Original Participating Manufacturers.
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(iii) The third, state-specific member for purposes of determining
Fee Awards with respect to litigation in the State of STATE shall be a
natural person selected by STATE Outside Counsel, who shall notify the
Director and the Original Participating Manufacturers of the name of the
person selected.
SECTION 12. Application of STATE Outside Counsel.
(a) STATE Outside Counsel shall make a collective Application for a single
Fee Award, which shall be submitted to the Director. Within five Business Days
after receipt of the Application by STATE Outside Counsel, the Director shall
serve the Application upon the Original Participating Manufacturers and the
STATE. The Original Participating Manufacturers shall submit all materials in
response to the Application to the Director by the later of (i) 60 Business Days
after service of the Application upon the Original Participating Manufacturers
by the Director, (ii) five Business Days after the date of State-Specific
Finality in the State of STATE or (iii) five Business Days after the date on
which notice of the name of the third, state-specific panel member described in
paragraph (b)(iii) of section 11 hereof has been provided to the Director and
the Original Participating Manufacturers.
(b) The Original Participating Manufacturers may submit to the Director
any materials that they wish and, notwithstanding any restrictions or
representations made in any other agreements, the Original Participating
Manufacturers shall be in no way constrained from contesting the amount of the
Fee Award requested by STATE Outside Counsel. The Director, the Panel, the State
of STATE, the Original Participating Manufacturers and STATE Outside Counsel
shall preserve the confidentiality of any attorney work-product materials or
other similar confidential information that may be submitted.
(c) The Director shall forward the Application of STATE Outside Counsel,
as well as all written materials relating to such Application that have been
submitted by the Original Participating Manufacturers pursuant to subsection (b)
of this section, to the Panel within five Business Days after the later of (i)
the expiration of the period for the Original Participating Manufacturers to
submit such materials or (ii) the earlier of (A) the date on which the Panel
issues a Fee Award with respect to any Application of other Private Counsel
previously forwarded to the Panel by the Director or (B) 30 Business Days after
the forwarding to the Panel of the Application of other Private Counsel most
recently forwarded to the Panel by the Director. The Director shall notify the
Parties upon forwarding the Application (and all written materials relating
thereto) to the Panel.
(d) In the event that either Party seeks a hearing before the Panel, such
Party may submit a request to the Director in writing within five Business Days
after the forwarding of the Application of STATE Outside Counsel to the Panel by
the Director, and the Director shall promptly forward the request to the Panel.
If the Panel grants the request, it shall promptly set a date for hearing, such
date to fall within 30 Business Days after the date of the Panel's receipt of
the Application.
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SECTION 13. Panel Proceedings.
The proceedings of the Panel shall be conducted subject to the terms of
this Agreement and of the Protocol of Panel Procedures attached as an Appendix
hereto.
SECTION 14. Award of Fees to STATE Outside Counsel.
The members of the Panel will consider all relevant information submitted
to them in reaching a decision as to a Fee Award that fairly provides for full
reasonable compensation of STATE Outside Counsel. In considering the amount of
the Fee Award, the Panel shall not consider any Liquidated Fee agreed to by any
other Outside Counsel, any offer of or negotiations relating to any proposed
liquidated fee for STATE Outside Counsel or any Fee Award that already has been
or yet may be awarded in connection with any other Tobacco Case. The Panel shall
not be limited to an hourly-rate or lodestar analysis in determining the amount
of the Fee Award of STATE Outside Counsel, but shall take into account the
totality of the circumstances. The Panel's decisions as to the Fee Award of
STATE Outside Counsel shall be in writing and shall report the amount of the fee
awarded (with or without explanation or opinion, at the Panel's discretion). The
Panel shall determine the amount of the Fee Award to be paid to STATE Outside
Counsel within the later of 30 calendar days after receiving the Application
(and all related materials) from the Director or 15 Business Days after the last
date of any hearing held pursuant to subsection (d) of section 12 hereof. The
Panel's decision as to the Fee Award of STATE Outside Counsel shall be final,
binding and non-appealable.
SECTION 15. Costs of Arbitration.
All costs and expenses of the arbitration proceedings held by the Panel,
including costs, expenses and compensation of the Director and of the Panel
members (but not including any costs, expenses or compensation of counsel making
applications to the Panel), shall be borne by the Original Participating
Manufacturers in proportion to their Relative Market Shares.
SECTION 16. Payment of Fee Award of STATE Outside Counsel.
On or before the tenth Business Day after the last day of each calendar
quarter beginning with the first calendar quarter of 1999, each Original
Participating Manufacturer shall severally pay to the Designated Representative
its Relative Market Share of the Allocated Amount for STATE Outside Counsel for
the calendar quarter with respect to which such quarterly payment is being made
(the "Applicable Quarter").
SECTION 17. Allocated Amounts of Fee Awards.
The Allocated Amount for each Private Counsel with respect to any payment
to be made for any particular Applicable Quarter shall be determined as follows:
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(a) The Quarterly Fee Amount shall be allocated equally among each of the
three months of the Applicable Quarter. The amount for each such month shall be
allocated among those Private Counsel retained in connection with Tobacco Cases
settled before or during such month (each such Private Counsel being an
"Eligible Counsel" with respect to such monthly amount), each of which shall be
allocated a portion of each such monthly amount up to (or, in the event that the
sum of all Eligible Counsel's respective Unpaid Fees exceeds such monthly
amount, in proportion to) the amount of such Eligible Counsel's Unpaid Fees. The
monthly amount for each month of the calendar quarter shall be allocated among
those Eligible Counsel having Unpaid Fees, without regard to whether there may
be Eligible Counsel that have not yet been granted or denied a Fee Award as of
the last day of the Applicable Quarter. The allocation of subsequent Quarterly
Fee Amounts for the calendar year, if any, shall be adjusted, as necessary, to
account for any Eligible Counsel that are granted Fee Awards in a subsequent
quarter of such calendar year, as provided in paragraph (b)(ii) of this section.
(b) In the event that the amount for a given month is less than the sum of
the Unpaid Fees of all Eligible Counsel:
(i) in the case of the first quarterly allocation for any calendar
year, such monthly amount shall be allocated among all Eligible Counsel
for such month in proportion to the amounts of their respective Unpaid
Fees.
(ii) in the case of a quarterly allocation after the first quarterly
allocation, the Quarterly Fee Amount shall be allocated among only those
Private Counsel, if any, that were Eligible Counsel with respect to any
monthly amount for any prior quarter of the calendar year but were not
allocated a proportionate share of such monthly amount (either because
such Private Counsel's applications for Fee Awards were still under
consideration as of the last day of the calendar quarter containing the
month in question or for any other reason), until each such Eligible
Counsel has been allocated a proportionate share of all such prior monthly
payments for the calendar year (each such share of each such Eligible
Counsel being a "Payable Proportionate Share"). In the event that the sum
of all Payable Proportionate Shares exceeds the Quarterly Fee Amount, the
Quarterly Fee Amount shall be allocated among such Eligible Counsel on a
monthly basis in proportion to the amounts of their respective Unpaid Fees
(without regard to whether there may be other Eligible Counsel with
respect to such prior monthly amounts that have not yet been granted or
denied a Fee Award as of the last day of the Applicable Quarter). In the
event that the sum of all Payable Proportionate Shares is less than the
Quarterly Fee Amount, the amount by which the Quarterly Fee Amount exceeds
the sum of all such Payable Proportionate Shares shall be allocated among
each month of the calendar quarter, each such monthly amount to be
allocated among those Eligible Counsel having Unpaid Fees in proportion to
the amounts of their respective Unpaid Fees (without regard to whether
there may be Eligible Counsel that have not yet been granted or denied a
Fee Award as of the last day of the Applicable Quarter).
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(c) Adjustments pursuant to subsection (b)(ii) of this section 17 shall be
made separately for each calendar year. No amounts paid in any calendar year
shall be subject to refund, nor shall any payment in any given calendar year
affect the allocation of payments to be made in any subsequent calendar year.
SECTION 18. Credits to and Limitations on Payment of Fee Awards.
Notwithstanding any other provision hereof, all payments by the Original
Participating Manufacturers with respect to Fee Awards shall be subject to the
following:
(a) Under no circumstances shall the Original Participating Manufacturers
be required to make payments that would result in aggregate national payments
and credits by Participating Defendants with respect to all Fee Awards of
Private Counsel:
(i) during any year beginning with 1999, totaling more than the sum
of the Quarterly Fee Amounts for each calendar quarter of the calendar
year, excluding certain payments with respect to any Private Counsel for
1998 that are paid in 1999; and
(ii) during any calendar quarter beginning with the first calendar
quarter of 1999, totaling more than the Quarterly Fee Amount for such
quarter, excluding certain payments with respect to any Private Counsel
for 1998 that are paid in 1999.
(b) The Original Participating Manufacturers' obligations with respect to
the Fee Award of STATE Outside Counsel, if any, shall be exclusively as provided
in this STATE Fee Payment Agreement, and notwithstanding any other provision of
law, such Fee Award shall not be entered as or reduced to a judgment against the
Original Participating Manufacturers or considered as a basis for requiring a
bond or imposing a lien or any other encumbrance.
SECTION 19. Reimbursement of Outside Counsel's Costs.
(a) The Original Participating Manufacturers shall reimburse STATE Outside
Counsel for reasonable costs and expenses incurred in connection with the
Action, provided that such costs and expenses are of the same nature as costs
and expenses for which the Original Participating Manufacturers ordinarily
reimburse their own counsel or agents. Payment of any Approved Cost Statement
pursuant to this STATE Fee Payment Agreement shall be subject to (i) the
condition precedent of approval of the Agreement by the Court for the State of
STATE and (ii) the payment schedule and the aggregate national caps specified in
subsection (c) of this section, which shall apply to all payments made with
respect to Cost Statements of all Outside Counsel.
(b) In the event that STATE Outside Counsel seek to be reimbursed for
reasonable costs and expenses incurred in connection with the Action, the
Designated Representative shall submit a Cost Statement to the Original
Participating Manufacturers.
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Within 30 Business Days after receipt of any such Cost Statement, the Original
Participating Manufacturers shall either accept the Cost Statement or dispute
the Cost Statement, in which event the Cost Statement shall be subject to a full
audit by examiners to be appointed by the Original Participating Manufacturers
(in their sole discretion). Any such audit will be completed within 120 Business
Days after the date the Cost Statement is received by the Original Participating
Manufacturers. Upon completion of such audit, if the Original Participating
Manufacturers and STATE Outside Counsel cannot agree as to the appropriate
amount of STATE Outside Counsel's reasonable costs and expenses, the Cost
Statement and the examiner's audit report shall be submitted to the Director for
arbitration before the Panel or, in the event that STATE Outside Counsel and the
Original Participating Manufacturers have agreed upon a Liquidated Fee pursuant
to section 7 hereof, before a separate three-member panel of independent
arbitrators, to be selected in a manner to be agreed to by STATE Outside Counsel
and the Original Participating Manufacturers, which shall determine the amount
of STATE Outside Counsel's reasonable costs and expenses for the Action. In
determining such reasonable costs and expenses, the members of the arbitration
panel shall be governed by the Protocol of Panel Procedures attached as an
Appendix hereto. The amount of STATE Outside Counsel's reasonable costs and
expenses determined pursuant to arbitration as provided in the preceding
sentence shall be final, binding and non-appealable.
(c) Any Approved Cost Statement of STATE Outside Counsel shall not become
a Payable Cost Statement until approval of the Agreement by the Court for the
State of STATE. Within five Business Days after receipt of notification thereof
by the Designated Representative, each Original Participating Manufacturer shall
severally pay to the Designated Representative its Relative Market Share of the
Payable Cost Statement of STATE Outside Counsel, subject to the following --
(i) All Payable Cost Statements of Outside Counsel shall be paid in
the order in which such Payable Cost Statements became Payable Cost
Statements.
(ii) Under no circumstances shall the Original Participating
Manufacturers be required to make payments that would result in aggregate
national payments by Participating Defendants of all Payable Cost
Statements of Private Counsel in connection with all of the actions
identified in Exhibits D, M and N to the Agreement, totaling more than $75
million for any given year.
(iii) Any Payable Cost Statement of Outside Counsel not paid during
the year in which it became a Payable Cost Statement as a result of
paragraph (ii) of this subsection shall become payable in subsequent
years, subject to paragraphs (i) and (ii), until paid in full.
(d) The Original Participating Manufacturers' obligations with respect to
reasonable costs and expenses incurred by STATE Outside Counsel in connection
with the Action shall be exclusively as provided in this STATE Fee Payment
Agreement, and
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notwithstanding any other provision of law, any Approved Cost Statement
determined pursuant to subsection (b) of this section (including any Approved
Cost Statement determined pursuant to arbitration before the Panel or the
separate three-member panel of independent arbitrators described therein) shall
not be entered as or reduced to a judgment against the Original Participating
Manufacturers or considered as a basis for requiring a bond or imposing a lien
or any other incumbrance.
SECTION 20. Distribution of Payments among STATE Outside Counsel.
(a) All payments made to the Designated Representative pursuant to this
STATE Fee Payment Agreement shall be for the benefit of each person or entity
identified in Exhibit S to the Agreement by the Attorney General of the State of
STATE [or as certified by the governmental prosecuting authority of the
Litigating Political Subdivision], each of which shall receive from the
Designated Representative a percentage of each such payment in accordance with
the fee sharing agreement, if any, among STATE Outside Counsel (or any written
amendment thereto).
(b) The Original Participating Manufacturers shall have no obligation,
responsibility or liability with respect to the allocation among those persons
or entities identified in Exhibit S to the Agreement by the Attorney General of
the State of STATE [or as certified by the governmental prosecuting authority of
the Litigating Political Subdivision], or with respect to any claim of
misallocation, of any amounts paid to the Designated Representative pursuant to
this STATE Fee Payment Agreement.
SECTION 21. Calculations of Amounts.
All calculations that may be required hereunder shall be performed by the
Original Participating Manufacturers, with notice of the results thereof to be
given promptly to the Designated Representative. Any disputes as to the
correctness of calculations made by the Original Participating Manufacturers
shall be resolved pursuant to the procedures described in Section XI(c) of the
Agreement for resolving disputes as to calculations by the Independent Auditor.
SECTION 22. Payment Responsibility.
(a) Each Original Participating Manufacturer shall be severally liable for
its share of all payments pursuant to this STATE Fee Payment Agreement. Under no
circumstances shall any payment due hereunder or any portion thereof become the
joint obligation of the Original Participating Manufacturers or the obligation
of any person other than the Original Participating Manufacturer from which such
payment is originally due, nor shall any Original Participating Manufacturer be
required to pay a portion of any such payment greater than its Relative Market
Share.
(b) Due to the particular corporate structures of R. J. Reynolds Tobacco
Company ("Reynolds") and Brown & Williamson Tobacco Corporation ("Brown &
Williamson") with respect to their non-domestic tobacco operations, Reynolds and
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Brown & Williamson shall each be severally liable for its respective share of
each payment due pursuant to this STATE Fee Payment Agreement up to (and its
liability hereunder shall not exceed) the full extent of its assets used in, and
earnings and revenues derived from, its manufacture and sale in the United
States of Tobacco Products intended for domestic consumption, and no recourse
shall be had against any of its other assets or earnings to satisfy such
obligations.
SECTION 23. Termination.
In the event that the Agreement is terminated with respect to the State of
STATE pursuant to Section XVIII(u) of the Agreement (or for any other reason)
the Designated Representative and each person or entity identified in Exhibit S
to the Agreement by the Attorney General of the State of STATE [or as certified
by the governmental prosecuting authority of the Litigating Political
Subdivision] shall immediately refund to the Original Participating
Manufacturers all amounts received under this STATE Fee Payment Agreement.
SECTION 24. Intended Beneficiaries.
No provision hereof creates any rights on the part of, or is enforceable
by, any person or entity that is not a Party or a person covered by either of
the releases described in section 4 hereof, except that sections 5 and 20 hereof
create rights on the part of, and shall be enforceable by, the State of STATE.
Nor shall any provision hereof bind any non-signatory or determine, limit or
prejudice the rights of any such person or entity.
SECTION 25. Representations of Parties.
The Parties hereto hereby represent that this STATE Fee Payment Agreement
has been duly authorized and, upon execution, will constitute a valid and
binding contractual obligation, enforceable in accordance with its terms, of
each of the Parties hereto.
SECTION 26. No Admission.
This STATE Fee Payment Agreement is not intended to be and shall not in
any event be construed as, or deemed to be, an admission or concession or
evidence of any liability or wrongdoing whatsoever on the part of any signatory
hereto or any person covered by either of the releases provided under section 4
hereof. The Original Participating Manufacturers specifically disclaim and deny
any liability or wrongdoing whatsoever with respect to the claims released under
section 4 hereof and enter into this STATE Fee Payment Agreement for the sole
purposes of memorializing the Original Participating Manufacturers' rights and
obligations with respect to payment of attorneys' fees pursuant to the Agreement
and avoiding the further expense, inconvenience, burden and uncertainty of
potential litigation.
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SECTION 27. Non-admissibility.
This STATE Fee Payment Agreement having been undertaken by the Parties
hereto in good faith and for settlement purposes only, neither this STATE Fee
Payment Agreement nor any evidence of negotiations relating hereto shall be
offered or received in evidence in any action or proceeding other than an action
or proceeding arising under this STATE Fee Payment Agreement.
SECTION 28. Amendment and Waiver.
This STATE Fee Payment Agreement may be amended only by a written
instrument executed by the Parties. The waiver of any rights conferred hereunder
shall be effective only if made by written instrument executed by the waiving
Party. The waiver by any Party of any breach hereof shall not be deemed to be or
construed as a waiver of any other breach, whether prior, subsequent or
contemporaneous, of this STATE Fee Payment Agreement.
SECTION 29. Notices.
All notices or other communications to any party hereto shall be in
writing (including but not limited to telex, facsimile or similar writing) and
shall be given to the notice parties listed on Schedule A hereto at the
addresses therein indicated. Any Party hereto may change the name and address of
the person designated to receive notice on behalf of such Party by notice given
as provided in this section including an updated list conformed to Schedule A
hereto.
SECTION 30. Governing Law.
This STATE Fee Payment Agreement shall be governed by the laws of the
State of STATE without regard to the conflict of law rules of such State.
SECTION 31. Construction.
None of the Parties hereto shall be considered to be the drafter hereof or
of any provision hereof for the purpose of any statute, case law or rule of
interpretation or construction that would or might cause any provision to be
construed against the drafter hereof.
SECTION 32. Captions.
The captions of the sections hereof are included for convenience of
reference only and shall be ignored in the construction and interpretation
hereof.
SECTION 33. Execution of STATE Fee Payment Agreement.
This STATE Fee Payment Agreement may be executed in counterparts.
Facsimile or photocopied signatures shall be considered valid signatures as of
the date
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hereof, although the original signature pages shall thereafter be appended to
this STATE Fee Payment Agreement.
SECTION 34. Entire Agreement of Parties.
This STATE Fee Payment Agreement contains an entire, complete and
integrated statement of each and every term and provision agreed to by and among
the Parties with respect to payment of attorneys' fees by the Original
Participating Manufacturers in connection with the Action and is not subject to
any condition or covenant, express or implied, not provided for herein.
IN WITNESS WHEREOF, the Parties hereto, through their fully authorized
representatives, have agreed to this STATE Fee Payment Agreement as of this __th
day of ________, 1998.
[SIGNATURE BLOCK]
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APPENDIX
to MODEL FEE PAYMENT AGREEMENT
PROTOCOL OF PANEL PROCEEDINGS
This Protocol of procedures has been agreed to between the respective
parties to the STATE Fee Payment Agreement, and shall govern the arbitration
proceedings provided for therein.
SECTION 1. Definitions.
All definitions contained in the STATE Fee Payment Agreement are
incorporated by reference herein.
SECTION 2. Chairman.
The person selected to serve as the permanent, neutral member of the Panel
as described in paragraph (b)(ii) of section 11 of the STATE Fee Payment
Agreement shall serve as the Chairman of the Panel.
SECTION 3. Arbitration Pursuant to Agreement.
The members of the Panel shall determine those matters committed to the
decision of the Panel under the STATE Fee Payment Agreement, which shall govern
as to all matters discussed therein.
SECTION 4. ABA Code of Ethics.
Each of the members of the Panel shall be governed by the Code of Ethics
for Arbitrators in Commercial Disputes prepared by the American Arbitration
Association and the American Bar Association (the "Code of Ethics") in
conducting the arbitration proceedings pursuant to the STATE Fee Payment
Agreement, subject to the terms of the STATE Fee Payment Agreement and this
Protocol. Each of the party-appointed members of the Panel shall be governed by
Canon VII of the Code of Ethics. No person may engage in any ex parte
communications with the permanent, neutral member of the Panel selected pursuant
to paragraph (b)(ii) of section 11, in keeping with Canons I, II and III of the
Code of Ethics.
SECTION 5. Additional Rules and Procedures.
The Panel may adopt such rules and procedures as it deems necessary and
appropriate for the discharge of its duties under the STATE Fee Payment
Agreement and this Protocol, subject to the terms of the STATE Fee Payment
Agreement and this Protocol.
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SECTION 6. Majority Rule.
In the event that the members of the Panel are not unanimous in their
views as to any matter to be determined by them pursuant to the STATE Fee
Payment Agreement or this Protocol, the determination shall be decided by a vote
of a majority of the three members of the Panel.
SECTION 7. Application for Fee Award and Other Materials.
(a) The Application of STATE Outside Counsel and any materials submitted
to the Director relating thereto (collectively, "submissions") shall be
forwarded by the Director to each of the members of the Panel in the manner and
on the dates specified in the STATE Fee Payment Agreement.
(b) All materials submitted to the Director by either Party (or any other
person) shall be served upon all Parties. All submissions required to be served
on any Party shall be deemed to have been served as of the date on which such
materials have been sent by either (i) hand delivery or (ii) facsimile and
overnight courier for priority next-day delivery.
(c) To the extent that the Panel believes that information not submitted
to the Panel may be relevant for purposes of determining those matters committed
to the decision of the Panel under the terms of the STATE Fee Payment Agreement,
the Panel shall request such information from the Parties.
SECTION 8. Hearing.
Any hearing held pursuant to section 12 of the STATE Fee Payment Agreement
shall not take place other than in the presence of all three members of the
Panel upon notice and an opportunity for the respective representatives of the
Parties to attend.
SECTION 9. Miscellaneous.
(a) Each member of the Panel shall be compensated for his services by the
Original Participating Manufacturers on a basis to be agreed to between such
member and the Original Participating Manufacturers.
(b) The members of the Panel shall refer all media inquiries regarding the
arbitration proceeding to the respective Parties to the STATE Fee Payment
Agreement and shall refrain from any comment as to the arbitration proceedings
to be conducted pursuant to the STATE Fee Payment Agreement during the pendency
of such arbitration proceedings, in keeping with Canon IV(B) of the Code of
Ethics.
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EXHIBIT P
NOTICES
NAAG Executive Director PHO: (202) 326-6053
750 First Street, N.E. FAX: (202) 408-6999
Suite 1100
Washington, DC 20002
Alabama Honorable Bill Pryor PHO: (334) 242-7300
Attorney General of Alabama FAX: (334) 242-4891
Office of the Attorney General
State House
11 South Union Street
Montgomery, AL 36130
Alaska Honorable Bruce M. Botelho PHO: (907) 465-3600
Attorney General of Alaska FAX: (907) 465-2075
Office of the Attorney General
Post Office Box 110300
Diamond Courthouse
Juneau, AK 99811-0300
American Samoa Honorable Toetagata Albert Mailo PHO: (684) 633-4163
Attorney General of American Samoa FAX: (684) 633-1838
Office of the Attorney General
Post Office Box 7
Pago Pago, AS 96799
Arizona Honorable Grant Woods PHO: (602) 542-4266
Attorney General of Arizona FAX: (602) 542-4085
Office of the Attorney General
1275 West Washington Street
Phoenix, AZ 85007
Arkansas Honorable Winston Bryant PHO: (501) 682-2007
Attorney General of Arkansas FAX: (501) 682-8084
Office of the Attorney General
200 Tower Building, 323 Center Street
\Little Rock, AR 72201-2610
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California Honorable Daniel E. Lungren PHO: (916) 324-5437
Attorney General of California FAX: (916) 324-6734
Office of the Attorney General
1300 I Street, Suite 1740
Sacramento, CA 95814
Colorado Honorable Gale A. Norton PHO: (303) 866-3052
Attorney General of Colorado FAX: (303) 866-3955
Office of the Attorney General
Department of Law
1525 Sherman Street
Denver, CO 80203
Connecticut Honorable Richard Blumenthal PHO: (860) 808-5318
Attorney General of Connecticut FAX: (860) 808-5387
Office of the Attorney General
55 Elm Street
Hartford, CT 06141-0120
Delaware Honorable M. Jane Brady PHO: (302) 577-8400
Attorney General of Delaware FAX: (302) 577-2610
Office of the Attorney General
Carvel State Office Building
820 North French Street
Wilmington, DE 19801
District of Columbia Honorable John M. Ferren PHO: (202) 727-6248
District of Columbia FAX: (202) 347-9822
Corporation Counsel
Office of the Corporation Counsel
441 4th Street NW
Washington, DC 20001
Georgia Honorable Thurbert E. Baker PHO: (404) 656-4585
Attorney General of Georgia FAX: (404) 657-8733
Office of the Attorney General
40 Capitol Square, S.W.
Atlanta, GA 30334-1300
Guam Honorable Robert H. Kono PHO: (671) 475-3324
Acting Attorney General of Guam FAX: (671) 472-2493
Office of the Attorney General
Judicial Center Building
120 West O'Brien Drive
Agana, GU 96910
P-2
<PAGE>
Hawaii Honorable Margery S. Bronster PHO: (808) 586-1282
Attorney General of Hawaii FAX: (808) 586-1239
Office of the Attorney General
425 Queen Street
Honolulu, HI 96813
Idaho Honorable Alan G. Lance PHO: (208) 334-2400
Attorney General of Idaho FAX: (208) 334-2530
Office of the Attorney General
Statehouse P.O. Box 83720
Boise, ID 83720-0010
Illinois Honorable Jim Ryan PHO: (312) 814-2503
Attorney General of Illinois FAX: (217)785-2551
Office of the Attorney General
James R. Thompson Center
100 West Randolph Street
Chicago, IL 60601
Indiana Honorable Jeffrey A. Modisett PHO: (317) 233-4386
Attorney General of Indiana FAX: (317) 232-7979
Office of the Attorney General
Indiana Government Center South
Fifth Floor
402 West Washington Street
Indianapolis, IN 46204
Iowa Honorable Tom Miller PHO: (515) 281-3053
Attorney General of Iowa FAX: (515) 281-4209
Office of the Attorney General
Hoover State Office Building
Des Moines, IA 50319
Kansas Honorable Carla J. Stovall PHO: (913) 296-2215
Attorney General of Kansas FAX: (913) 296-6296
Office of the Attorney General
Judicial Building
301 West Tenth Street
Topeka, KS 66612-1597
Kentucky Honorable Albert Benjamin "Ben"
Chandler III PHO: (502) 564-7600
Attorney General of Kentucky FAX: (502) 564-8310
Office of the Attorney General
State Capitol, Room 116
Frankfort, KY 40601
P-3
<PAGE>
Louisiana Honorable Richard P. Ieyoub PHO: (504) 342-7013
Attorney General of Louisiana FAX: (504) 342-8703
Office of the Attorney General
Department of Justice
Post Office Box 94095
Baton Rouge, LA 70804-4095
Maine Honorable Andrew Ketterer PHO: (207) 626-8800
Attorney General of Maine FAX: (207) 287-3145
Office of the Attorney General
State House Station Six
Augusta, ME 04333
Maryland Honorable J. Joseph Curran Jr. PHO: (410) 576-6300
Attorney General of Maryland FAX: (410) 333-8298
Office of the Attorney General
200 Saint Paul Place
Baltimore, MD 21202-2202
Massachusetts Honorable Scott Harshbarger PHO: (617) 727-2200
Attorney General of Massachusetts FAX: (617) 727-3251
Office of the Attorney General
One Ashburton Place
Boston, MA 02108-1698
Michigan Honorable Frank J. Kelley PHO: (517) 373-1110
Attorney General of Michigan FAX: (517) 373-3042
Office of the Attorney General
Post Office Box 30212
525 West Ottawa Street
Lansing, MI 48909-0212
Missouri Honorable Jeremiah W. (Jay) Nixon PHO: (573) 751-3321
Attorney General of Missouri FAX: (573) 751-0774
Office of the Attorney General
Supreme Court Building
207 West High Street
Jefferson City, MO 65101
Montana Honorable Joseph P. Mazurek PHO: (406) 444-2026
Attorney General of Montana FAX: (406) 444-3549
Office of the Attorney General
Justice Building, 215 North Sanders
Helena, MT 59620-1401
P-4
<PAGE>
Nebraska Honorable Don Stenberg PHO: (402) 471-2682
Attorney General of Nebraska FAX: (402) 471-3820
Office of the Attorney General
State Capitol
Post Office Box 98920
Lincoln, NE 68509-8920
Nevada Honorable Frankie Sue Del Papa PHO: (702) 687-4170
Attorney General of Nevada FAX: (702) 687-5798
Office of the Attorney General
Old Supreme Court Building
100 North Carson Street
Carson City, NV 89701
New Hampshire Honorable Philip T. McLaughlin PHO: (603) 271-3658
Attorney General of New Hampshire FAX: (603) 271-2110
Office of the Attorney General
State House Annex, 25 Capitol Street
Concord, NH 03301-6397
New Jersey Honorable Peter Verniero PHO: (609) 292-4925
Attorney General of New Jersey FAX: (609) 292-3508
Office of the Attorney General
Richard J. Hughes Justice Complex
25 Market Street, CN 080
Trenton, NJ 08625
New Mexico Honorable Tom Udall PHO: (505) 827-6000
Attorney General of New Mexico FAX: (505) 827-5826
Office of the Attorney General
Post Office Drawer 1508
Santa Fe, NM 87504-1508
New York Honorable Dennis C. Vacco PHO: (518) 474-7330
Attorney General of New York FAX: (518) 473-9909
Office of the Attorney General
Department of Law - The Capitol
2nd Floor
Albany, NY 12224
P-5
<PAGE>
North Carolina Honorable Michael F. Easley PHO: (919) 716-6400
Attorney General of North Carolina FAX: (919) 716-6750
Office of the Attorney General
Department of Justice
Post Office Box 629
Raleigh, NC 27602-0629
North Dakota Honorable Heidi Heitkamp PHO: (701) 328-2210
Attorney General of North Dakota FAX: (701) 328-2226
Office of the Attorney General
State Capitol
600 East Boulevard Avenue
Bismarck, ND 58505-0040
N. Mariana Islands Honorable Maya B. Kara PHO: (670) 664-2341
(Acting) Attorney General of the FAX: (670) 664-2349
Northern Mariana Islands
Office of the Attorney General
Administration Building
Saipan, MP 96950
Ohio Honorable Betty D. Montgomery PHO: (614) 466-3376
Attorney General of Ohio FAX: (614) 466-5087
Office of the Attorney General
State Office Tower
30 East Broad Street
Columbus, OH 43266-0410
Oklahoma Honorable W.A. Drew Edmondson PHO: (405) 521-3921
Attorney General of Oklahoma FAX: (405) 521-6246
Office of the Attorney General
State Capitol, Room 112
2300 North Lincoln Boulevard
Oklahoma City, OK 73105
Oregon Honorable Hardy Myers PHO: (503) 378-6002
Attorney General of Oregon FAX: (503) 378-4017
Office of the Attorney General
Justice Building
1162 Court Street NE
Salem, OR 97310
P-6
<PAGE>
Pennsylvania Honorable Mike Fisher PHO: (717) 787-3391
Attorney General of Pennsylvania FAX: (717) 783-1107
Office of the Attorney General
Strawberry Square
Harrisburg, PA 17120
Puerto Rico Honorable Jose A. Fuentes-Agostini PHO: (787) 721-7700
Attorney General of Puerto Rico FAX: (787) 724-4770
Office of the Attorney General
Post Office Box 192
San Juan, PR 00902-0192
Rhode Island Honorable Jeffrey B. Pine PHO: (401) 274-4400
Attorney General of Rhode Island FAX: (401) 222-1302
Office of the Attorney General
150 South Main Street
Providence, RI 02903
South Carolina Honorable Charlie Condon PHO: (803) 734-3970
Attorney General of South Carolina FAX: (803) 253-6283
Office of the Attorney General
Rembert C. Dennis Office Building
Post Office Box 11549
Columbia, SC 29211-1549
South Dakota Honorable Mark Barnett PHO: (605) 773-3215
Attorney General of South Dakota FAX: (605) 773-4106
Office of the Attorney General
500 East Capitol
Pierre, SD 57501-5070
Tennessee Honorable John Knox Walkup PHO: (615) 741-6474
Attorney General of Tennessee FAX: (615) 741-2009
Office of the Attorney General
500 Charlotte Avenue
Nashville, TN 37243
Utah Honorable Jan Graham PHO: (801) 538-1326
Attorney General of Utah FAX: (801) 538-1121
Office of the Attorney General
State Capitol, Room 236
Salt Lake City, UT 84114-0810
P-7
<PAGE>
Vermont Honorable William H. Sorrell PHO: (802) 828-3171
Attorney General of Vermont FAX: (802) 828-3187
Office of the Attorney General
109 State Street
Montpelier, VT 05609-1001
Virginia Honorable Mark L. Earley PHO: (804) 786-2071
Attorney General of Virginia FAX: (804) 371-0200
Office of the Attorney General
900 East Main Street
Richmond, VA 23219
Virgin Islands Honorable Julio A. Brady PHO: (340) 774-5666
Attorney General of the FAX: (340) 774-9710
Virgin Islands
Office of the Attorney General
Department of Justice
G.E.R.S. Complex
48B-50C Kronprinsdens Gade
St. Thomas, VI 00802
Washington Honorable Christine O. Gregoire PHO: (360) 753-6200
Attorney General of Washington FAX: (360) 664-0228
Office of the Attorney General
P.O. Box 40100
1125 Washington Street, SE
Olympia, WA 98504-0100
With a copy to:
Joseph F. Rice
John J. McConnell, Jr.
Ness, Motley, Loadholt, Richardson & Poole
151 Meeting Street, Suite 200
Post Office Box 1137
Charleston, SC 29402
Phone: 843-720-9000
Fax: 843-720-9290
West Virginia Honorable Darrell V. McGraw Jr. PHO: (304) 558-2021
Attorney General of West Virginia FAX: (304) 558-0140
Office of the Attorney General
State Capitol
1900 Kanawha Boulevard East
Charleston, WV 25305
P-8
<PAGE>
Wisconsin Honorable James E. Doyle PHO: (608) 266-1221
Attorney General of Wisconsin FAX: (608) 267-2779
Office of the Attorney General
State Capitol
Post Office Box 7857
Suite 114 East
Madison, WI 53707-7857
Wyoming Honorable Gay Woodhouse PHO: (307) 777-7841
(Acting) Attorney General FAX: (307) 777-6869
of Wyoming
Office of the Attorney General
State Capitol Building
Cheyenne, WY 82002
For Philip Morris Incorporated:
Martin J. Barrington
Philip Morris Incorporated
120 Park Avenue
New York, NY 10017-5592
Phone: 917-663-5000
Fax: 917-663-5399
With a copy to:
Meyer G. Koplow
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Phone: 212-403-1000
Fax: 212-403-2000
For R.J. Reynolds Tobacco Company:
Charles A. Blixt
General Counsel
R.J. Reynolds Tobacco Company
401 North Main Street
Winston-Salem, NC 27102
Phone: 336-741-0673
Fax: 336-741-2998
P-9
<PAGE>
With a copy to:
Arthur F. Golden
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Phone: 212-450-4000
Fax: 212-450-4800
For Brown & Williamson Tobacco Corporation:
F. Anthony Burke
Brown & Williamson Tobacco Corporation
200 Brown & Williamson Tower
401 South Fourth Avenue
Louisville, KY 40202
Phone: 502-568-7787
Fax: 502-568-7297
With a copy to:
Stephen R. Patton
Kirkland & Ellis
200 East Randolph Dr.
Chicago, IL 60601
Phone: 312-861-2000
Fax: 312-861-2200
For Lorillard Tobacco Company:
Ronald Milstein
Lorillard Tobacco Company
714 Green Valley Road
Greensboro, NC 27408
Phone: 336-335-7000
Fax: 336-335-7707
For Liggett Group Inc.
Marc Bell
General Counsel
100 S.E. 2nd St.
Miami, FL 33131
Phone: 305-578-8000
Fax: 305-579-8016
P-10
<PAGE>
With a copy to:
Aaron Marks
Kasowitz, Benson, Torres & Friedman, LLP
1301 Avenue of the Americas
New York, NY 10019
Phone: 212-506-1721
Fax: 212-506-1800
For Commonwealth Brands, Inc.
John Poling
Commonwealth Brands, Inc.
P.O. Box 51587
Bowling Green, Kentucky 42102
With a copy to:
William Jay Hunter, Jr.
Middleton & Reutlinger
401 South Fourth Avenue, 25th Floor
Louisville, Kentucky 40202
P-11
<PAGE>
EXHIBIT Q
1996 AND 1997 DATA
(1) 1996 Operating Income
Original Participating Manufacturer Operating Income
- ----------------------------------- ----------------
Brown & Williamson Tobacco Corp. $801,640,000
Lorillard Tobacco Co. $719,100,000
Philip Morris Inc. $4,206,600,000
R.J. Reynolds Tobacco Co. $1,468,000,000
Total (Base Operating Income) $7,195,340,000
(2) 1997 volume (as measured by shipments of Cigarettes)
Original Participating Manufacturer Number of Cigarettes
- ----------------------------------- --------------------
Brown & Williamson Tobacco Corp.* 78,911,000,000
Lorillard Tobacco Co. 42,288,000,000
Philip Morris Inc. 236,203,000,000
R.J. Reynolds Tobacco Co. 118,254,000,000
Total (Base Volume) 475,656,000,000
(3) 1997 volume (as measured by excise taxes)
Original Participating Manufacturer Number of Cigarettes
- ----------------------------------- --------------------
Brown & Williamson Tobacco Corp.* 78,758,000,000
Lorillard Tobacco Co. 42,315,000,000
Philip Morris Inc. 236,326,000,000
R.J. Reynolds Tobacco Co. 119,099,000,000
* The volume includes 2,847,595 pounds of "roll your own" tobacco
converted into the number of Cigarettes using 0.0325 ounces per Cigarette
conversion factor.
Q-1
<PAGE>
EXHIBIT R
EXCLUSION OF CERTAIN BRAND NAMES
Brown & Williamson Tobacco Corporation
GPC
State Express 555
Riviera
Philip Morris Incorporated
Players
B&H
Belmont
Mark Ten
Viscount
Accord
L&M
Lark
Rothman's
Best Buy
Bronson
F&L
Genco
GPA
Gridlock
Money
No Frills
Generals
Premium Buy
Shenandoah
Top Choice
Lorillard Tobacco Company
None
R.J. Reynolds Tobacco Company
Best Choice
Cardinal
Director's Choice
Jacks
Rainbow
R-1
<PAGE>
Scotch Buy
Slim Price
Smoker Friendly
Valu Time
Worth
R-2
<PAGE>
EXHIBIT S
DESIGNATION OF OUTSIDE COUNSEL
Alabama State of Alabama v. Philip Morris, et al., No.
CV-98-2941-GR, pending in the Circuit Court of Montgomery
County.
Blaylock et al. v. American Tobacco Co. et al., Circuit
Court, Montgomery County, No. CV-96-1508-PR.
The State case has been consolidated with Blaylock and
both cases will be settled pursuant to the Master
Settlement Agreement.
Ronald L. Motley Phone: 843-720-9000
Joseph F. Rice Fax: 843-720-9290
Ness, Motley, Loadholt, Richardson
& Poole
151 Meeting Street
P.O. Box 1137
Charleston, SC 29402
Jack Drake Phone: 205-328-9576
Whatley, Drake Fax: 205-328-9669
505 20th Street North
1100 Financial Center
Birmingham, AL 35203
Chris Peters Phone: 334-432-3700
Cherry, Givens, Peters, Lockett Fax: 334-432-3736
& Diaz, P.C.
P.O. Drawer 1129
Mobile, AL 36633
Richard F. Scruggs Phone: 228-762-6068
Scruggs, Millette, Bozeman Fax: 228-762-1207
& Dent, P.A.
734 Delmas Avenue
Pascagoula, MS 39567
Robert D. Segall Phone: 334-834-1180
Copeland, Franco, Screws Fax: 334-834-3172
& Gill, P.A.
P.O. Box 347
Montgomery, AL 36101
S-1
<PAGE>
Alaska Ronald L. Motley Phone: 843-720-9000
Joseph F. Rice Fax: 843-720-9290
Ness, Motley, Loadholt,
Richardson & Poole
151 Meeting Street
P.O. Box 1137
Charleston, SC 29402
Steve W. Berman Phone: 206-623-7292
Hagens & Berman, P.S. Fax: 206-623-0594
1301 Fifth Avenue, Suite 2900
Seattle, WA 98101
Richard F. Scruggs Phone: 228-762-6068
Scruggs, Millette, Bozeman Fax: 228-762-1207
& Dent, P.A.
734 Delmas Avenue
Pascagoula, MS 39567
Richard D. Monkman Phone: 907-586-4000
Dillon & Findley, P.C. Fax: 907-586-3777
The Ebner Building
350 North Franklin Street
Juneau, Alaska 99801
American Samoa Norman J. Barry, Jr. Phone: 312-422-0907
Donohue, Brown, Mathewson & Smyth
140 S. Dearborn Street
Suite 700
Chicago, IL 60603
Arthur Ripley, Esq. Phone: 684-699-5408
P.O. Box 5839 Fax: 684-699-2745
Pago Pago, American Samoa 96799
Cheryl Quadlander, Esq. Phone: 213-687-3372
225 South Olive Street
Suite 1512
Los Angeles, CA 90012
S-2
<PAGE>
Arizona Don Barrett Phone: 601-834-2376
Barrett Law Offices Fax: 601-834-2628
P.O. Box 987
Lexington, MS 39095
Steve W. Berman Phone: 206-623-7292
Hagens & Berman, P.S. Fax: 206-623-0594
1301 Fifth Avenue, Suite 2900
Seattle, WA 98101
Steve Mitchell, Esq. Phone: 602-840-5900
Hagens, Berman & Mitchell Fax: 602-840-3012
2425 East Camelback Road
Suite 620
Phoenix, AZ 85016
Steve Leshner Phone: 602-252-8888
Van O'Steen and Partners Fax: 602-274-1209
3605 North Seventh Avenue
Phoenix, AZ 85013
James E. Tierney Phone: 207-353-1600
305 Main Street Fax: 207-353-1665
Lisbon Falls, ME 04252
Arkansas None
California None
Colorado None
Connecticut Berger & Montague, P.C. Phone: 215-875-3000
1622 Locust Street Fax: 215-875-5715
Philadelphia, PA 19103-6365
Silver Golub & Teitell Phone: 203-325-4491
184 Atlantic Street Fax: 203-325-3769
Stamford, CT 06901-3518
S-3
<PAGE>
Carmody & Torrance Phone: 203-777-5501
195 Church Street, 18th Floor Fax: 203-784-3199
P.O. Box 1950
New Haven, CT 06509-1950
Emmett & Glander Phone: 203-324-7744
45 Franklin Street Fax: 203-969-1319
Stamford, CT 06901-1308
Delaware None
District of Columbia Ronald L. Motley Phone: 843-720-9000
Joseph F. Rice Fax: 843-720-9290
Ness, Motley, Loadholt,
Richardson & Poole
151 Meeting Street
P.O. Box 1137
Charleston, SC 29402
Georgia None
Guam None
Hawaii Ronald L. Motley Phone: 843-720-9000
Joseph F. Rice Fax: 843-720-9290
Ness, Motley, Loadholt,
Richardson & Poole
151 Meeting Street
P.O. Box 1137
Charleston, SC 29402
Richard F. Scruggs Phone: 228-762-6068
Scruggs, Millette, Bozeman Fax: 228-762-1207
& Dent, P.A.
734 Delmas Avenue
Pascagoula, MS 39567
S-4
<PAGE>
Gary Galiher Phone: 808-597-1400
Howard G. McPherson, Esq. Fax: 808-591-2608
(Of Counsel)
Galiher, DeRobertis, Nakamura,
Takitani & Ono
610 Ward Avenue, Suite 200
Honolulu, HI 96814
Gerald Y. Sekiya Phone: 808-524-1433
Cronin, Fried, Sekiya, Kekina Fax: 808-536-2073
& Fairbanks
841 Bishop Street, #1900
Honolulu, HI 96813
Stephen E. Goldsmith Phone: 808-244-0080
P.O. Box 687 Fax: 808-244-8900
Wailuku, HI 96793
Anthony P. Takitani, Esq. Phone: 808-242-4049
24 North Church Street Fax: 808-244-4021
Suite 310
Wailuku, Maui, HI 96793
Idaho Ronald L. Motley Phone: 843-720-9000
Joseph F. Rice Fax: 843-720-9290
Ness, Motley, Loadholt, Richardson
& Poole
151 Meeting Street
P.O. Box 1137
Charleston, SC 29402
Richard F. Scruggs Phone: 228-762-6068
Scruggs, Millette, Bozeman Fax: 228-762-1207
& Dent, P.A.
734 Delmas Avenue
Pascagoula, MS 39567
Steve W. Berman Phone: 206-623-7292
Hagens & Berman, P.S. Fax: 206-623-0594
1301 Fifth Avenue, Suite 2900
Seattle, WA 98101
Robert B. Carey Phone: 719-635-7131
Norton, Frickey & Associates Fax: 719-635-2920
2301 East Pikes Peak
Colorado Springs, CO 80909
S-5
<PAGE>
Illinois David H. Kistenbroker Phone: 312-360-6000
Fred Foreman Fax: 312-360-6597
Freeborn & Peters
311 S. Wacker, Suite 3000
Chicago, IL 60606
Don W. Barrett Phone: 601-834-2376
Barrett Law Offices Fax: 601-834-2628
404 Court Square North
P.O. Box 987
Lexington, MS 39095
Steve W. Berman Phone: 206-623-7292
Hagens & Berman, P.S. Fax: 206-623-0594
1301 Fifth Avenue, Suite 2900
Seattle, WA 98101
Richard Heimann Phone: 415-956-1000
Leif, Cabraser, Heimann & Beinstein Fax: 415-956-1008
275 Battery Street
30th Floor
San Francisco, CA 94111
Steven C. Mitchell Phone: 602-840-5900
Steven C. Mitchell, P.C. Fax: 602-840-3012
3605 North Seventh Ave.
Phoenix, AZ 85013
Indiana Edward W. Harris, III Phone: 317-630-5904
Sommer & Barnard Fax: 317-236-9802
4000 Bank One Tower
111 Monument Circle
Indianapolis, IN 46244-0363
John D. Walda Phone: 219-423-9551
Barrett & McNagny Fax: 219-423-8924
215 East Berry Street
Fort Wayne, IN 46801-2263
S-6
<PAGE>
Don W. Barrett Phone: 601-834-2376
Barrett Law Offices Fax: 601-834-2628
404 Court Square North
P.O. Box 987
Lexington, MS 39095
Mark R. Waterfill Phone: 317-808-3000
Leagre, Chandler & Millard Fax: 317-808-3100
135 N. Pennsylvania St.
Suite 1400
Indianapolis, IN 46204
William W. Hurst Phone: 317-636-0808
Mitchell, Hurst, Jacobs & Dick Fax: 317-633-7680
152 E. Washington
Indianapolis, IN 46204-3680
George M. Plews Phone: 317-637-0700
Plews Shadley Racher & Braun Fax: 317-637-0710
1346 North Delaware Street
Indianapolis, IN 46202
Frederick W. Crow Phone: 317-639-5161
Young & Young Fax: 317-639-4978
128 North Delaware Street
Indianapolis, IN 46204
Steve W. Berman Phone: 206-623-7292
Steven C. Mitchell Fax: 206-623-0594
Hagens & Berman, P.S.
1301 Fifth Avenue, Suite 2900
Seattle, WA 98101
Richard Heimann Phone: 415-956-1000
Leif, Cabraser, Heimann & Beinstein Fax: 415-956-1008
275 Battery St.
30th Floor
San Francisco, CA 94111
James E. Tierney* Phone: 207-353-1600
305 Main Street Fax: 207-353-1665
Lisbon Falls, ME 04252
* Mr. Tierney represented Indiana without written
contract.
S-7
<PAGE>
Iowa Ronald L. Motley Phone: 843-720-9000
Joseph F. Rice Fax: 843-720-9290
Ness, Motley, Loadholt,
Richardson & Poole
151 Meeting Street
P.O. Box 1137
Charleston, SC 29402
Brent R. Appel Phone 515-244-2600
Dickinson, Mackaman, Tyler Fax: 515-246-4550
& Hagan, P.C.
699 Walnut, 1600 Hub Tower
Des Moines, IA 50309
Glenn Norris Phone: 515-288-6532
Hawkins & Morris Fax: 515-288-9733
2501 Grand Avenue, Suite C
Des Moines, IA 50312
Roger W. Stone Phone: 319-366-7641
Simmons, Perrine, Albright Fax: 319-366-1917
& Elwood, P.L.C.
115 3rd Street, S.E., Suite 1200
Cedar Rapids, LA 52401
E. Ralph Walker Phone: 515-281-1488
Walker Law Firm, P.C. Fax: 515-281-1489
2501 Grand Avenue, Suite E
Des Moines, IA 50312
Steven P. Wandro Phone: 515-281-1475
Wandro & Gibson, P.C. Fax: 515-281-1474
2501 Grand Avenues, Suite B
Des Moines, IA 50312
James E. Tierney Phone: 207-353-1600
305 Main Street Fax; 207-353-1665
Lisbon Falls, ME 04252
Kansas Ronald L. Motley Phone: 843-720-9000
Joseph F. Rice Fax: 843-720-9290
Ness, Motley, Loadholt,
Richardson & Poole
151 Meeting Street
P.O. Box 1137
Charleston, SC 29402
S-8
<PAGE>
Jeff Chanay Phone: 785-267-5004
Entz & Chanay Fax: 785-267-7106
3300 S.W. Van Buren St.
Topeka, KS 66611
Stewart L. Entz Phone: 785-267-5004
Entz & Chanay Fax: 785-267-7106
3300 S.W. VanBuren Street
Topeka, KS 66611
Richard F. Scruggs Phone: 228-762-6068
Scruggs, Millette, Bozeman Fax: 228-762-1207
& Dent, P.A.
734 Delmas Avenue
Pascagoula, MS 39567
Kentucky John McArthur Phone: 919-363-9913
3116 Pleasant Plains Road Fax: 919-363-9914
Apex, NC 27502
Louisiana Ronald L. Motley Phone: 843-720-9000
Joseph F. Rice Fax: 843-720-9290
Ness, Motley, Loadholt,
Richardson & Poole
151 Meeting Street
P.O. Box 1137
Charleston, SC 29402
Jonathan B. Andry Phone: 504-581-4334
Andry & Andry Fax: 504-586-0288
710 Carondelet Street
New Orleans, LA 70130
William B. Baggett Phone: 318-478-8888
Baggett, McCall & Burges Fax: 318-478-8946
3006 County Club Road
Lake Charles, LA 70605
S-9
<PAGE>
Don W. Barrett Phone: 601-834-2376
Barrett Law Offices Fax: 601-834-2628
404 Court Square North
P.O. Box 987
Lexington, MS 39095
Raul R. Bencomo Phone: 504-529-2929
Bencomo & Associates Fax: 504-529-2018
639 Loyola Avenue, Suite 2110
One Poydras Plaza
New Orleans, LA 70113
Paul Due Phone: 504-929-7481
Due, Cabalbero, Perry, Fax: 504-924-4519
Price & Guidry
8201 Jefferson Highway
Baton Rouge, LA 70809
Richard Heimann Phone: 415-956-1000
Lieff, Cabraser & Heimann Fax: 415-956-1008
275 Battery Street, 30th Floor
San Francisco, CA 94111
Russ Herman Phone: 504-581-4892
Herman, Herman, Katz & Cotlar Fax: 504-561-6024
810 O'Keefe Avenue
New Orleans, LA 70113
Donald G. Kelly Phone: 318-352-2353
Kelly, Townsend & Thomas Fax: 318-352-8918
137 St. Denis Street
Natchitoches, LA 71457
Walter J. Leger Phone: 504-588-9043
Leger & Mestayer Fax: 504-588-9980
600 Carondelet Street, 9th Floor
New Orleans, LA 70130
Drew Ranier Phone: 318-433-4608
Badon & Ranier Fax: 318-439-3444
1218 Ryan Street
Lake Charles, LA 70601
S-10
<PAGE>
Richard F. Scruggs Phone: 228-762-6068
Scruggs, Millette, Bozeman Fax: 228-762-1207
& Dent, P.A.
734 Delmas Avenue
Pascagoula, MS 39567
Michael X. St. Martin Phone: 504-876-3891
St. Martin & Lirette Fax: 504-851-2219
3373 Little Bayour Black Road
Houma, LA 70361
Bob F. Wright Phone: 318-233-3033
Domengeaux, Wright, Moroux & Roy Fax: 318-232-8213
556 Jefferson Street, Suite 500
Lafayette, LA 70501
Kenneth Carter Phone: 504-569-2005
Carter & Cates
1100 Poydras Street, Suite 1230
New Orleans, LA 70163
Jerry McKernan Phone: 504-926-1234
McKernan Law Firm
8710 Jefferson Highway
Baton Rouge, LA 70809
Eulis Simien
Delphin & Simien
8923 Bluebonnet Blvd.
Suite 200
Baton Rouge, LA 70810
Maine James T. Kilbreth Phone: 207-774-4000
Verrill & Dana Fax: 207-774-7499
P.O. Box 586
Portland, ME 04112
Peter J. Detroy, III Phone: 207-774-7000
Norman, Hanson & Detroy
P.O. Box 4600
415 Congress Street
Portland, ME 04112-4600
S-11
<PAGE>
Smith, Elliott, Smith & Garmey, P.A. Phone: 207-774-3199
100 Commercial Street, Suite 304 Fax:
Portland, ME 04101-4723
Terrance Garney Phone: 207-774-3199
Smith, Elliot, Smith & Garney Fax: 207-774-2234
100 Commercial St.
Suite 304
Portland, ME 04101-4723
Maryland Peter G. Angelos Phone: 410-659-0100
Peter G. Angelos, P.C. Fax: 410-659-1781
100 North Charles Street
Baltimore, MD 21201-3805
Massachusetts Ronald L. Motley Phone: 843-720-9000
Joseph F. Rice Fax: 843-720-9290
Ness, Motley, Loadholt,
Richardson & Poole
151 Meeting Street
P.O. Box 1137
Charleston, SC 29402
Robert V. Costello Phone: 617-227-7500
Schneider, Reilly, Zabin & Costello Fax: 617-722-0286
Three Center Plaza
Boston, MA 02108
Richard M. Heimann Phone: 415-956-1000
Lieff, Cabraser & Heimann Fax: 415-956-1008
Embarcadero Center West
275 Battery Street, 30th Floor
San Francisco, CA 94111
Thomas M. Sobol Phone: 617-330-9000
Brown, Rudnick, Freed & Gesmer Fax: 617-439-3278
One Financial Center
Boston, MA 02111
S-12
<PAGE>
Michael P. Thornton Phone: 617-720-1333
Thornton, Early & Naumes Fax: 617-720-2445
60 State Street, 6th Floor
Boston, MA 02109
Jeffrey D. Woolf Phone: 617-227-7500
Schneider, Reilly, Zabin & Costello Fax: 617-722-0286
Three Center Plaza
Boston, MA 02108
Laurence Tribe, Professor* Phone: 617-495-4621
Harvard Law School
Cambridge, MA 02138
Richard Daynard, Professor*
99 Commonwealth Ave.
Boston, MA 02116
* The following were excluded from Exhibit S
because they were appointed as Special Assistant
Attorneys General of Massachusetts "without
remuneration" by the Commonwealth in connection
with the Action as expert consultants whose
hourly bills should be submitted. Consistent
treatment, based upon the course of dealing,
would be for those counsel to bill and receive
payment, if any, as a disbursement.
Michigan Ronald L. Motley Phone: 843-720-9000
Ness, Motley, Loadholt, Fax: 843-720-9290
Richardson & Poole
151 Meeting Street
P.O. Box 1137
Charleston, SC 29402
Richard F. Scruggs Phone: 228-762-6068
Scruggs, Millette, Bozeman Fax: 228-762-1207
& Dent, P.A.
734 Delmas Avenue
Pascagoula, MS 39567
Missouri Thomas Strong Phone: 417-887-4300
The Strong Law Firm Fax: 417-887-4385
900 Battlefield Rd.
Springfield, MO 65087
S-13
<PAGE>
Robert F. Ritter Phone: 314-241-5620
Gary & Ritter Fax: 314-241-2950
701 Market St.
Suite 800
St. Louis, MO 63101
Worsham N. (Chuck) Caldwell Phone: 314-421-0077
Caldwell Hughes & Singleton, PC Fax: 314-421-5377
1601 Olive Street
First Floor
St. Louis, MO 63103
Kenneth R. McClain Phone: 816-836-5052
Humphrey, Farrington & McClain Fax: 816-836-8966
P.O. Box 900
Independence, MO 64051
James R. Bartimus Phone: 816-842-2300
P.O. Box 26650 Fax: 816-421-2111
Kansas City, MO 64196
Montana Ronald L. Motley Phone: 843-720-9000
Joseph F. Rice Fax: 843-720-9290
Ness, Motley, Loadholt,
Richardson & Poole
151 Meeting Street
P.O. Box 1137
Charleston, SC 29402
Richard F. Scruggs Phone: 228-762-6068
Scruggs, Millette, Bozeman Fax: 228-762-1207
& Dent, P.A.
734 Delmas Avenue
Pascagoula, MS 39567
Steve W. Berman Phone: 206-623-7292
Hagens & Berman, P.S. Fax: 206-623-0594
1301 Fifth Avenue, Suite 2900
Seattle, WA 98101
John Morrison Phone: 406-442-8670
Meloy & Morrison Fax: 406-442-4953
80 South Warren
Helena, MT 59601
S-14
<PAGE>
Monte D. Beck Phone: 406-586-8700
Beck & Richardson Fax: 406-586-8960
1700 W. Koch, #2
Bozeman, MT 59715
James Molloy Phone: 406-442-6611
Hunt & Molloy Fax: 406-442-9313
310 Broadway
Helena, MT 59601
David R. Paoli Phone: 406-542-3330
257 West Front Fax: 406-542-3332
P.O. Box 8131
Missoula, MT 59802
Karl J. Englund Phone: 406-721-2729
401 North Washington Fax: 406-728-8878
P.O. Box 8358
Missoula, MT 59807
Joe Bottomly Phone: 406-752-3303
1108 S. Main, #4 Fax: 406-755-6398
P.O. Box 1976
Kalispell, MT 59903
Gregory S. Munro Phone: 406-721-3912
445 Hastings Avenue Fax: 406-542-3332
Missoula, MT 59801
Tom Lewis Phone: 406-761-5595
Lewis, Huppert & Slovak Fax: 406-761-5805
725 Third Ave. North
P.O. Box 2325
Great Falls, MT 59403
Nebraska None
Nevada Steve W. Berman Phone: 206-623-7292
Hagens & Berman Fax: 206-623-0594
1301 Fifth Ave., Suite 2900
Seattle, WA 98101
S-15
<PAGE>
New Hampshire Thomas M. Sobol Phone: 617-856-8200
Brown, Rudnick, Freed & Gesmer Fax: 617-439-3278
One Financial Center, 17th Fl.
Boston, MA 02111
James T. Kilbreth Phone: 207-774-4000
Verrill & Dana Fax: 207-774-7499
One Portland Sq.
P.O. Box 586
Portland, ME 04112
Richard M. Heimann Phone: 415-956-1000
Lieff, Cabraser, Heinmann & Bernstein Fax: 415-956-1008
Embarcadero Center, West
275 Battery St.
San Francisco, CA 94111-3305
New Jersey Ronald L. Motley Phone: 843-720-9000
Joseph F. Rice Fax: 843-720-9290
Ness, Motley, Loadholt, Richardson
& Poole
151 Meeting Street
P.O. Box 1137
Charleston, SC 29402
Donald A. Caminiti Phone: 201-342-4014
Breslin & Breslin Fax: 201-342-0068
41 Main Street
Hackensack, NJ 07601
Michael A. Ferrara Phone: 609-779-9500
Ferrara Rosseti & DeVoto, PA Fax: 609-661-9782
Highway 38 & 601 Longwood Avenue
Cherry Hill, NJ 08002
Lee S. Goldsmith Phone: 201-363-1122
Goldsmith & Richman Fax: 201-363-1133
140 Sylvan Avenue
Englewood Cliffs, NJ 07632
S-16
<PAGE>
Michael Gordon Phone: 973-736-0094
Gordon & Gordon Fax: 973-736-2675
80 Main Street
West Orange, NJ 07052
Christopher Placitella Phone: 732-636-8000
Wilentz, Goldman & Spitzer Fax: 732-855-6117
90 Woodbridge Center Drive
Suite 900
Woodbridge, NJ 07095
Michael L. Testa Phone: 609-691-2300
Basile & Testa, PA Fax: 609-691-5655
424 Landis Avenue, Box 460
Vineland, NJ 08360
New Mexico Paul Bardacke Phone: 505-888-4300
Eaves, Bardacke & Baugh Fax: 505-883-4406
6400 Uptown Blvd. NE
Albuquerque, NM 87110
Turner W. Branch Phone: 505-243-3500
The Branch Law Firm Fax: 505-243-3534
2025 Rio Grande Blvd., NW
Albuquerque, NM 87104-2525
New York State Ronald L. Motley Phone: 843-720-9000
Joseph F. Rice Fax: 843-720-9290
Ness, Motley, Loadholt, Richardson
& Poole
151 Meeting Street
P.O. Box 1137
Charleston, SC 29402
Richard F. Scruggs Phone: 228-762-6068
Scruggs, Millette, Bozeman Fax: 228-762-1207
& Dent, P.A.
734 Delmas Avenue
Pascagoula, MS 39567
Steve W. Berman Phone: 206-623-7292
Hagens & Berman, P.S. Fax: 206-623-0594
1301 Fifth Avenue, Suite 2900
Seattle, WA 98101
S-17
<PAGE>
Philip Damashek Phone: 212-553-9000
Schneider, Kleinick, Weitz, Fax: 212-804-0820
Damashek & Shoot
233 Broadway
New York, NY 10279
Pamela Anagnos Liapakis Phone: 212-732-9000
Sullivan & Liapakis, P.C. Fax: 212-571-3903
120 Broadway, 18th Floor
New York, NY 10271
Dale Thuillez Phone: 518-455-9952
Thuillez, Ford, Gold & Conolly, LLP Fax: 518-462-4031
90 State Street, Suite 1500
Albany, NY 12207
North Carolina John McArthur Phone: 919-363-9913
3116 Pleasant Plains Rd. Fax: 919-363-9914
Apex, NC 27502
North Dakota None
Northern Marianas None
Ohio Ronald L. Motley, National Phone: 843-720-9000
Special Counsel Fax: 843-720-9290
Joseph F. Rice, National
Special Counsel
Ness, Motley, Loadholt, Richardson
& Poole
151 Meeting Street
P.O. Box 1137
Charleston, SC 29402
Richard F. Scruggs, National Phone: 228-762-6068
Special Counsel Fax: 228-762-1207
Scruggs, Millette, Bozeman
& Dent, P.A.
734 Delmas Avenue
Pascagoula, MS 39567
S-18
<PAGE>
Don W. Barrett, National Phone: 601-834-2376
Special Counsel Fax: 601-834-2628
Barrett Law Offices
404 Court Square North,
P.O. Box 987
Lexington, MS 39095
Steve W. Berman, Lead National Phone: 206-623-7292
Special Counsel Fax: 206-623-0594
Steven C. Mitchell, National
Special Counsel
Hagens & Berman, P.S.
1301 Fifth Avenue, Suite 2900
Seattle, WA 98101
Norman A. Murdock, Ohio Phone: 513-345-8291
Special Counsel Fax: 513-345-8294
Murdock & Beck
Suite 400
700 Walnut St.
Cincinnati, OH 45202
John C. Murdock, Ohio Phone: 513-345-8291
Special Counsel Fax: 513-345-8294
Jeffrey S. Goldenberg
Murdock & Goldenberg
Suite 400
700 Walnut St.
Cincinnati, OH 45202
Charles R. Saxbe, Lead Ohio Phone: 614-221-4000
Special Counsel Fax: 614-221-4012
Chester, Willcox & Saxbe
17 South High St.
Suite 900
Columbus, OH 43215
Oklahoma Ronald L. Motley** Phone: 843-720-9000
Joseph F. Rice** Fax: 843-720-9290
Ness, Motley, Loadholt, Richardson
& Poole
151 Meeting Street
P.O. Box 1137
Charleston, SC 29402
Richard F. Scruggs** Phone: 228-762-6068
Scruggs, Millette, Bozeman Fax: 228-762-1207
& Dent, P.A.
734 Delmas Avenue
Pascagoula, MS 39567
S-19
<PAGE>
Henry A. Meyer, III** Phone: 405-236-8911
Pray, Walker, Jackman, Williamson Fax: 405-236-0011
& Marlar
211 North Robinson, Suite 1601
Oklahoma City, OK 73113
John W. Norman** Phone: 405-272-0200
Norman , Edem, McNaughton Fax: 405-235-2949
& Wallace, P.A.
127 N.W. Tenth Street
Oklahoma City, OK 73103
David Riggs** Phone: 918-587-3161
Riggs, Abney, Neal, Turpen, Orbison Fax: 918-587-9708
& Lewis, P.A.
502 West 6th Street
Tulsa, OK 74119
Preston Trimble** Phone: 405-321-8272
231 S. Peters Fax: 405-321-9857
Norman, OK 73069
** Individual names are for contract purposes only.
Oregon Ronald L. Motley Phone: 843-720-9000
Joseph F. Rice Fax: 843-720-9290
Ness, Motley, Loadholt, Richardson
& Poole
151 Meeting Street
P.O. Box 1137
Charleston, SC 29402
Richard F. Scruggs Phone: 228-762-6068
Scruggs, Millette, Bozeman Fax: 228-762-1207
& Dent, P.A.
734 Delmas Avenue
Pascagoula, MS 39567
Thomas Balmer Phone: 503-266-1191
Ater, Wynne, Hewitt, Dodson Fax: 503-266-0079
& Skerritt, LLP
222 S.W. Columbia, Suite 1800
Portland, OR 97201
S-20
<PAGE>
Steve W. Berman Phone: 206-623-7292
Hagens & Berman, P.S. Fax: 206-623-0594
1301 Fifth Avenue, Suite 2900
Seattle, WA 98101
Robert B. Carey Phone: 719-635-7131
Norton, Frickey & Associates Fax: 719-635-2920
2301 East Pikes Peak
Colorado Springs, CO 80909
Pennsylvania Reeder R. Fox Phone: 215-979-1000
Mark Lipowicz Fax: 215-979-1020
Duane, Morris & Heckscher, LLP
One Liberty Place
Philadelphia, PA 19103-7396
Thomas L. Van Kirk Phone: 412-562-8800
Stanley Yorsz Fax: 412-562-1041
Buchanan Ingersoll, PC
One Oxford Centre
301 Grant Street
Pittsburgh, PA 15219-1410
Puerto Rico Ronald L. Motley Phone: 843-720-9000
Joseph F. Rice Fax: 843-720-9290
Ness, Motley, Loadholt, Richardson
& Poole
151 Meeting Street
P.O. Box 1137
Charleston, SC 29402
Richard F. Scruggs Phone: 228-762-6068
Scruggs, Millette, Bozeman Fax: 228-762-1207
& Dent, P.A.
734 Delmas Avenue
Pascagoula, MS 39567
Benjamin Acosta, Jr. Phone: 787-722-2363
Law Offices of Benjamin Acosta, Jr. Fax: 787-724-5970
331 Recinto Sur Street
San Juan, PR 00901
S-21
<PAGE>
Law Offices of Juan A. Ramos Phone: 787-722-9090
359 De Diego Ave. Fax: 787-724-4391
Suite 601
San Juan, PR 00909
Rhode Island Ronald L. Motley Phone: 843-720-9000
Joseph F. Rice Fax: 843-720-9290
Ness, Motley, Loadholt, Richardson
& Poole
151 Meeting Street
P.O. Box 1137
Charleston, SC 29402
Richard F. Scruggs Phone: 228-762-6068
Scruggs, Millette, Bozeman Fax: 228-762-1207
& Dent, P.A.
734 Delmas Avenue
Pascagoula, MS 39567
Steve W. Berman Phone: 206-623-7292
Hagens & Berman, P.S. Fax: 206-623-0594
1301 Fifth Avenue, Suite 2900
Seattle, WA 98101
William M. Dolan, III Phone: 401-276-2600
Brown, Rudnick, Freed & Gesmer Fax: 401-276-2601
One Providence Washington Plaza
Providence, RI 02903
Richard M. Heimann Phone: 415-956-1000
Lieff, Cabraser, Heimann & Bernstein Fax: 415-956-1008
Embaracadero Center West
275 Battery Street, 30th Floor
San Francisco, CA 94111
South Carolina Ronald L. Motley Phone: 843-720-9000
Joseph F. Rice Fax: 843-720-9290
Ness, Motley, Loadholt, Richardson
& Poole
151 Meeting Street
P.O. Box 1137
Charleston, SC 29402
S-22
<PAGE>
South Dakota None
Tennessee John McCarthur Phone: 919-363-9913
3116 Pleasant Plains Rd. Fax: 919-363-9914
Apex, NC 27502
Utah Ronald L. Motley Phone: 843-720-9000
Joseph F. Rice Fax: 843-720-9290
Ness, Motley, Loadholt, Richardson
& Poole
151 Meeting Street
P.O. Box 1137
Charleston, SC 29402
Gary F. Bendinger Phone:
Giauque, Crockett, Bendinger Fax: 801-531-1486
& Peterson
170 South Main Street, Suite 400
Salt Lake City, UT 84101
Steve Crockett Phone: 801-533-8383
Giauque, Crockett, Bendinger Fax: 801-531-1486
& Peterson
170 South Main Street, Suite 400
Salt Lake City, UT 84101
Robert A. Peterson Phone: 801-533-8383
Giauque, Crockett, Bendinger Fax: 801-531-1486
& Peterson
170 South Main Street, Suite 400
Salt Lake City, UT 84101
Vermont Ronald L. Motley Phone: 843-720-9000
Joseph F. Rice Fax: 843-720-9290
Ness, Motley, Loadholt, Richardson
& Poole
151 Meeting Street
P.O. Box 1137
Charleston, SC 29402
S-23
<PAGE>
Richard F. Scruggs Phone: 228-762-6068
Scruggs, Millette, Bozeman Fax: 228-762-1207
& Dent, P.A.
734 Delmas Avenue
Pascagoula, MS 39567
Thomas Anderson Phone: 802-864-9891
Sheehy, Brue, Gray & Furlong Fax: 802-864-6815
Gateway Square
30 Main Street
Burlington, VT 05402
Steve W. Berman Phone: 206-623-7292
Hagens & Berman, P.S. Fax: 206-623-0594
1301 Fifth Avenue, Suite 2900
Seattle, WA 98101
Robert B. Carey Phone: 719-635-7131
Norton , Frickey & Associates Fax: 719-635-2920
2301 East Pikes Peak
Colorado Springs, CO 80909
Scot L. Kline Phone: 802-864-0880
Miller, Eggleston & Cramer, LTD. Fax: 802-864-0328
P.O. Box 1489
Burlington, VT 05402-1489
Virgin Islands Stephen C. Braverman Phone: 215-665-3864
Buchanan Ingersoll, P.C. Fax: 215-665-8760
11 Penn Center, 14th Floor
1835 Market Street
Philadelphia, PA 19103-2985
Virginia None
S-24
<PAGE>
Washington Joseph F. Rice Phone: 843-720-9000
Ness, Motley, Loadholt, Richardson Fax: 843-720-9290
& Poole
151 Meeting Street
P.O. Box 1137
Charleston, SC 29402
Richard F. Scruggs Phone: 228-762-6068
Scruggs, Millette, Bozeman Fax: 228-762-1207
& Dent, P.A.
734 Delmas Avenue
Pascagoula, MS 39567
Steve W. Berman Phone: 206-623-7292
Hagens & Berman, P.S. Fax: 206-623-0594
1301 Fifth Avenue, Suite 2900
Seattle, WA 98101
William J. Leedom Phone: 206-622-5511
Bennett, Bigelow & Leedom Fax: 206-622-8986
999 Third Avenue, Suite 2150
Seattle, WA 98101
Paul N. Luvera Phone: 206-467-6090
Luvera, Barnett, Brindley, Beninger Fax: 206-467-6961
& Cunningham
6700 Columbia Center
701 Fifth Avenue, Suite 6700
Seattle, WA 98104
John W. Barrett Phone: 601-834-2376
Barrett Law Offices Fax: 601-834-2409
404 Court Square North
Lexington, MS 39095
West Virginia Ronald L. Motley Phone: 843-720-9000
Joseph F. Rice Fax: 843-720-9290
Susan Nial
Ness, Motley, Loadholt, Richardson
& Poole
151 Meeting Street
P.O. Box 1137
Charleston, SC 29402
S-25
<PAGE>
R. Edison Hill Phone: 304-345-5667
Hill, Peterson, Carper, Bee Fax: 304-345-1519
& Deitzler
Northgate Business Park
500 Tracy Way
Charleston, WV 25311
Douglas B. Hunt Phone: 304-343-2999
Hunt & Barber, L.C. Fax: 304-344-3516
1116A Kanawha Boulevard East
Charleston, WV 25301
Scott S. Segal Phone: 304-344-9100
810 Kanawha Boulevard East Fax: 304-344-9105
Charleston, WV 25301
Wisconsin Thomas J. Basting, Sr. Phone: 608-756-4141
David J. Macdougall Fax: 608-756-9000
Brennan, Steil, Basting &
Macdougall, S.C.
1 E. Milwaukee St.
P.O. Box 1148
Janesville, WI 53545-3011
Robert L. Habush (Lead Counsel) Phone: 414-271-0900
Jeffrey P. Archibald Fax: 414-271-6854
Habush, Habush, Davis & Rottier
777 E. Wisconsin Ave., #2300
Milwaukee, WI 53202
Robert D. Scott Phone: 414-273-4000
Ross A. Anderson Fax: 414-223-5000
Whyte, Hirschboeck, Dudek, S.C.
111 East Wisconsin Ave.
Milwaukee, WI 53202-7405
Wyoming None
S-26
<PAGE>
EXHIBIT T
MODEL STATUTE
Section __. Findings and Purpose.(1)
(a) Cigarette smoking presents serious public health concerns to the State
and to the citizens of the State. The Surgeon General has determined that
smoking causes lung cancer, heart disease and other serious diseases, and that
there are hundreds of thousands of tobacco-related deaths in the United States
each year. These diseases most often do not appear until many years after the
person in question begins smoking.
(b) Cigarette smoking also presents serious financial concerns for the
State. Under certain health-care programs, the State may have a legal obligation
to provide medical assistance to eligible persons for health conditions
associated with cigarette smoking, and those persons may have a legal
entitlement to receive such medical assistance.
(c) Under these programs, the State pays millions of dollars each year to
provide medical assistance for these persons for health conditions associated
with cigarette smoking.
(d) It is the policy of the State that financial burdens imposed on the
State by cigarette smoking be borne by tobacco product manufacturers rather than
by the State to the extent that such manufacturers either determine to enter
into a settlement with the State or are found culpable by the courts.
(e) On _______, 1998, leading United States tobacco product manufacturers
entered into a settlement agreement, entitled the "Master Settlement Agreement,"
with the State. The Master Settlement Agreement obligates these manufacturers,
in return for a release of past, present and certain future claims against them
as described therein, to pay substantial sums to the State (tied in part to
their volume of sales); to fund a national foundation devoted to the interests
of public health; and to make substantial changes in their advertising and
marketing practices and corporate culture, with the intention of reducing
underage smoking.
(f) It would be contrary to the policy of the State if tobacco product
manufacturers who determine not to enter into such a settlement could use a
resulting cost advantage to derive large, short-term profits in the years before
liability may arise without ensuring that the State will have an eventual source
of recovery from them if they are proven to have acted culpably. It is thus in
the interest of the State to require that such
- ----------
(1) [A State may elect to delete the "findings and purposes" section in its
entirety. Other changes or substitutions with respect to the "findings and
purposes" section (except for particularized state procedural or technical
requirements) will mean that the statute will no longer conform to this model.]
T-1
<PAGE>
manufacturers establish a reserve fund to guarantee a source of compensation and
to prevent such manufacturers from deriving large, short-term profits and then
becoming judgment-proof before liability may arise.
Section __. Definitions.
(a) "Adjusted for inflation" means increased in accordance with the
formula for inflation adjustment set forth in Exhibit C to the Master Settlement
Agreement.
(b) "Affiliate" means a person who directly or indirectly owns or
controls, is owned or controlled by, or is under common ownership or control
with, another person. Solely for purposes of this definition, the terms "owns,"
"is owned" and "ownership" mean ownership of an equity interest, or the
equivalent thereof, of ten percent or more, and the term "person" means an
individual, partnership, committee, association, corporation or any other
organization or group of persons.
(c) "Allocable share" means Allocable Share as that term is defined in the
Master Settlement Agreement.
(d) "Cigarette" means any product that contains nicotine, is intended to
be burned or heated under ordinary conditions of use, and consists of or
contains (1) any roll of tobacco wrapped in paper or in any substance not
containing tobacco; or (2) tobacco, in any form, that is functional in the
product, 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 a cigarette; or (3) any roll of tobacco wrapped in any
substance 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 a cigarette described in clause (1) of
this definition. The term "cigarette" includes "roll-your-own" (i.e., any
tobacco which, because of its appearance, type, packaging, or labeling is
suitable for use and likely to be offered to, or purchased by, consumers as
tobacco for making cigarettes). For purposes of this definition of "cigarette,"
0.09 ounces of "roll-your-own" tobacco shall constitute one individual
"cigarette."
(e) "Master Settlement Agreement" means the settlement agreement (and
related documents) entered into on _______, 1998 by the State and leading United
States tobacco product manufacturers.
(f) "Qualified escrow fund" means an escrow arrangement with a federally
or State chartered financial institution having no affiliation with any tobacco
product manufacturer and having assets of at least $1,000,000,000 where such
arrangement requires that such financial institution hold the escrowed funds'
principal for the benefit of releasing parties and prohibits the tobacco product
manufacturer placing the funds into escrow from using, accessing or directing
the use of the funds' principal except as consistent with section ___(b)-(c) of
this Act.
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(g) "Released claims" means Released Claims as that term is defined in the
Master Settlement Agreement.
(h) "Releasing parties" means Releasing Parties as that term is defined in
the Master Settlement Agreement.
(i) "Tobacco Product Manufacturer" means an entity that after the date of
enactment of this Act directly (and not exclusively through any affiliate):
(1) manufactures cigarettes anywhere that such manufacturer intends
to be sold in the United States, including cigarettes intended to be sold
in the United States through an importer (except where such importer is an
original participating manufacturer (as that term is defined in the Master
Settlement Agreement) that will be responsible for the payments under the
Master Settlement Agreement with respect to such cigarettes as a result of
the provisions of subsections II(mm) of the Master Settlement Agreement
and that pays the taxes specified in subsection II(z) of the Master
Settlement Agreement, and provided that the manufacturer of such
cigarettes does not market or advertise such cigarettes in the United
States);
(2) is the first purchaser anywhere for resale in the United States
of cigarettes manufactured anywhere that the manufacturer does not intend
to be sold in the United States; or
(3) becomes a successor of an entity described in paragraph (1) or
(2).
The term "Tobacco Product Manufacturer" shall not include an affiliate of
a tobacco product manufacturer unless such affiliate itself falls within any of
(1) - (3) above.
(j) "Units sold" means the number of individual cigarettes sold in the
State by the applicable tobacco product manufacturer (whether directly or
through a distributor, retailer or similar intermediary or intermediaries)
during the year in question, as measured by excise taxes collected by the State
on packs (or "roll-your-own" tobacco containers) bearing the excise tax stamp of
the State. The [fill in name of responsible state agency] shall promulgate such
regulations as are necessary to ascertain the amount of State excise tax paid on
the cigarettes of such tobacco product manufacturer for each year.
Section __. Requirements.
Any tobacco product manufacturer selling cigarettes to consumers within
the State (whether directly or through a distributor, retailer or similar
intermediary or intermediaries) after the date of enactment of this Act shall do
one of the following:
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(a) become a participating manufacturer (as that term is defined in
section II(jj) of the Master Settlement Agreement) and generally perform its
financial obligations under the Master Settlement Agreement; or
(b) (1) place into a qualified escrow fund by April 15 of the year
following the year in question the following amounts (as such amounts are
adjusted for inflation) --
1999: $.0094241 per unit sold after the date of enactment of
this Act;(2)
2000: $.0104712 per unit sold after the date of enactment of
this Act;(3)
for each of 2001 and 2002: $.0136125 per unit sold after the
date of enactment of this Act;
for each of 2003 through 2006: $.0167539 per unit sold after
the date of enactment of this Act;
for each of 2007 and each year thereafter: $.0188482 per unit
sold after the date of enactment of this Act.
(2) A tobacco product manufacturer that places funds into escrow
pursuant to paragraph (1) shall receive the interest or other appreciation
on such funds as earned. Such funds themselves shall be released from
escrow only under the following circumstances --
(A) to pay a judgment or settlement on any released claim
brought against such tobacco product manufacturer by the State or
any releasing party located or residing in the State. Funds shall be
released from escrow under this subparagraph (i) in the order in
which they were placed into escrow and (ii) only to the extent and
at the time necessary to make payments required under such judgment
or settlement;
(B) to the extent that a tobacco product manufacturer
establishes that the amount it was required to place into escrow in
a particular year was greater than the State's allocable share of
the total payments that such manufacturer would have been required
to make in that year under the Master Settlement Agreement (as
determined pursuant to section IX(i)(2) of the Master Settlement
Agreement, and before any of the adjustments or offsets described in
section IX(i)(3) of that Agreement other than the Inflation
Adjustment) had it been a participating
- ----------
(2) [All per unit numbers subject to verification]
(3) [The phrase "after the date of enactment of this Act" would need to be
included only in the calendar year in which the Act is enacted.]
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manufacturer, the excess shall be released from escrow and revert
back to such tobacco product manufacturer; or
(C) to the extent not released from escrow under subparagraphs
(A) or (B), funds shall be released from escrow and revert back to
such tobacco product manufacturer twenty-five years after the date
on which they were placed into escrow.
(3) Each tobacco product manufacturer that elects to place funds
into escrow pursuant to this subsection shall annually certify to the
Attorney General [or other State official] that it is in compliance with
this subsection. The Attorney General [or other State official] may bring
a civil action on behalf of the State against any tobacco product
manufacturer that fails to place into escrow the funds required under this
section. Any tobacco product manufacturer that fails in any year to place
into escrow the funds required under this section shall --
(A) be required within 15 days to place such funds into escrow
as shall bring it into compliance with this section. The court, upon
a finding of a violation of this subsection, may impose a civil
penalty [to be paid to the general fund of the state] in an amount
not to exceed 5 percent of the amount improperly withheld from
escrow per day of the violation and in a total amount not to exceed
100 percent of the original amount improperly withheld from escrow;
(B) in the case of a knowing violation, be required within 15
days to place such funds into escrow as shall bring it into
compliance with this section. The court, upon a finding of a knowing
violation of this subsection, may impose a civil penalty [to be paid
to the general fund of the state] in an amount not to exceed 15
percent of the amount improperly withheld from escrow per day of the
violation and in a total amount not to exceed 300 percent of the
original amount improperly withheld from escrow; and
(C) in the case of a second knowing violation, be prohibited
from selling cigarettes to consumers within the State (whether
directly or through a distributor, retailer or similar intermediary)
for a period not to exceed 2 years.
Each failure to make an annual deposit required under this section
shall constitute a separate violation.(4)
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(4) [A State may elect to include a requirement that the violator also pay
the State's costs and attorney's fees incurred during a successful prosecution
under this paragraph (3).]
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EXHIBIT U
STRATEGIC CONTRIBUTION FUND PROTOCOL
The payments made by the Participating Manufacturers pursuant to section
IX(c)(2) of the Agreement ("Strategic Contribution Fund") shall be allocated
among the Settling States pursuant to the process set forth in this Exhibit U.
Section 1
A panel committee of three former Attorneys General or former Article III
judges ("Allocation Committee") shall be established to determine allocations of
the Strategic Contribution Fund, using the process described herein. Two of the
three members of the Allocation Committee shall be selected by the NAAG
executive committee. Those two members shall choose the third Allocation
Committee member. The Allocation Committee shall be geographically and
politically diverse.
Section 2
Within 60 days after the MSA Execution Date, each Settling State will
submit an itemized request for funds from the Strategic Contribution Fund, based
on the criteria set forth in Section 4 of this Exhibit U.
Section 3
The Allocation Committee will determine the appropriate allocation for
each Settling State based on the criteria set forth in Section 4 below. The
Allocation Committee shall make its determination based upon written
documentation.
Section 4
The criteria to be considered by the Allocation Committee in its
allocation decision include each Settling State's contribution to the litigation
or resolution of state tobacco litigation, including, but not limited to,
litigation and/or settlement with tobacco product manufacturers, including
Liggett and Myers and its affiliated entities.
Section 5
Within 45 days after receiving the itemized requests for funds from the
Settling States, the Allocation Committee will prepare a preliminary decision
allocating the Strategic Contribution Fund payments among the Settling States
who submitted itemized requests for funds. All Allocation Committee decisions
must be by majority vote. Each Settling State will have 30 days to submit
comments on or objections to the draft decision. The Allocation Committee will
issue a final decision allocating the Strategic Contribution Fund payments
within 45 days.
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<PAGE>
Section 6
The decision of the Allocation Committee shall be final and
non-appealable.
Section 7
The expenses of the Allocation Committee, in an amount not to exceed
$100,000, will be paid from disbursements from the Subsection VIII(c) Account.
U-2
EXHIBIT 99
Contact: Bob Minkoff
(917) 663-2946
FOR IMMEDIATE RELEASE Chris Kircher
(917) 663-3597
PHILIP MORRIS COMPANIES INC.
RESUMES SHARE REPURCHASE PROGRAM.
DECLARES REGULAR QUARTERLY DIVIDEND OF $0.44 PER SHARE
NEW YORK, November 25, 1998 -- Philip Morris Companies Inc. (NYSE: MO)
today announced the resumption of its previously authorized three-year, $8
billion share repurchase program, which will now run through the end of November
2001.
"Our decision to resume our share repurchase program reflects our
confidence in the future of Philip Morris," said Geoffrey C. Bible, chairman of
the board and chief executive officer. "Together with our recent dividend
increase, it demonstrates our steadfast commitment to enhancing shareholder
value." The resumption of the share repurchase program follows the company's
August announcement of a 10% increase in its quarterly dividend.
Separately, the company's board of directors today declared a regular
quarterly dividend of $0.44 per common share, payable on January 11, 1999 to
stockholders of record as of December 15, 1998.
With 1997 operating revenues of $72 billion, the Philip Morris family of
companies is the world's largest producer and marketer of consumer packaged
goods. Philip Morris Companies Inc. has five principal operating companies:
Kraft Foods, Inc. (comprising Kraft Foods North America and Kraft Foods
International), Miller Brewing Company, Philip Morris International Inc., Philip
Morris Incorporated (PM USA) and Philip Morris Capital Corporation.
* * *
