<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
August 25, 1997
Date of Report (Date of earliest event reported)
- --------------------------------------------------------------------------------
RJR NABISCO HOLDINGS CORP.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 1-10215 13-3490602
(Jurisdiction of (Commission file number) (I.R.S. Employer
Incorporation or Identification No.)
Organization)
- --------------------------------------------------------------------------------
RJR NABISCO, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 1-6388 56-0950247
(Jurisdiction of (Commission file number) (I.R.S. Employer
Incorporation or Identification No.)
Organization)
- --------------------------------------------------------------------------------
1301 Avenue of the Americas
New York, New York 10019
(212) 258-5600
(Address, including zip code, and telephone number,
including area code, of Registrants' principal
executive offices)
- --------------------------------------------------------------------------------
<PAGE>
ITEM 5. OTHER EVENTS.
On August 25, 1997, counsel representing R.J. Reynolds Tobacco Company
("RJRT") and certain other major tobacco companies signed a Settlement Agreement
(the "Agreement") with Lawton M. Chiles, Jr., Governor of the State of Florida,
and Robert A. Butterworth, Attorney General, to settle claims asserted by the
State of Florida against RJRT, RJR Nabisco, Inc. ("RJRN") and others in
litigation seeking reimbursement for certain State expenditures for treating
smoking related illnesses. Pursuant to the Agreement, all of these claims
against RJRT and RJRN have been dismissed, except certain claims for
non-monetary relief. The Agreement also provides that the State of Florida will
waive any and all future claims against RJRT, RJRN and others relating to the
use of or exposure to tobacco products.
The Agreement requires the tobacco companies to discontinue all billboard
advertisements, as well as all advertisements that appear on vehicles and in
certain public areas, within several months. In addition, the Agreement
requires the tobacco companies to make an initial $550 million payment to the
State of Florida on September 15, 1997, and subsequent annual payments beginning
with $220 million in September 1998, and, subject to various adjustments, $247.5
million at the end of 1999, $275 million for 2000, $357.5 million for 2001,
$357.5 million for 2002, and $440 million each year thereafter. The Agreement
also requires the tobacco companies to make a one-time $200 million payment on
September 15, 1997, to fund a two-year program against youth smoking. Based on
discussions with other tobacco company signatories to the Agreement, RJRT
believes that its share of the initial $550 million payment will be
approximately $40 million, subject to a possible adjustment, and that the
subsequent annual payments will be allocated on the basis of market share.
Terms similar to those contained in the Florida Agreement will apply to the
settlement of a similar lawsuit brought on behalf of the State of Mississippi by
Michael C. Moore, its attorney general, against RJRT and others to recover
certain amounts expended by the State of Mississippi in treating smoking related
illnesses. On July 2, 1997, lawyers representing RJRT and certain other parties
and Mr. Moore signed a Memorandum of Understanding (the "Memorandum") setting
forth an agreement in principle to settle the Mississippi litigation. Under the
Memorandum, the tobacco companies are required to accord Mississippi terms as
favorable as those contained in any other settlement of similar litigation.
Accordingly, the final settlement with Mississippi will include the same
advertising restrictions imposed under the Florida Agreement and similar payment
obligations as well. Pursuant to the Memorandum, the tobacco companies made an
initial $170 million payment to the State of Mississippi on July 30, 1997, and
they will be required to make additional annual payments, beginning with $68
million in December 1998, and, subject to various adjustments, $76.5 million in
2
<PAGE>
1999, $85 million in 2000, $110.5 million in 2001, $110.5 million in 2002, and
$136 million annually thereafter. The tobacco companies will also be required
to make a one-time payment of approximately $60 million to fund a two-year
program against youth smoking. RJRT has paid approximately $12 million, subject
to a possible adjustment, as its share of the initial $170 million payment. By
agreement among the tobacco company signatories to the Memorandum, the annual
payments will be allocated on the basis of market share.
With respect to both the Florida and the Mississippi settlements, the
tobacco companies have agreed to make such payments as are necessary to cover
the States' litigation costs and those of its private counsel, estimated at $37
million for both States together, as well as private counsel's fees. The
tobacco companies' payment of such fees, together with those to be paid in
connection with any future settlement of similar litigation, will be made in
amounts to be awarded by a panel of arbitrators, subject to an aggregate annual
cap of $500 million prorated from the date of settlement, and is to be
allocated among the tobacco companies on the basis of market share.
In the event that federal legislation is passed that substantially
implements the proposed resolution described in the Current Report on Form 8-K
filed by RJR Nabisco Holdings Corp. and RJR Nabisco, Inc. on June 24, 1997, both
the Florida and the Mississippi settlements would be largely superseded.
However, whatever the terms of such legislation, no downward adjustment will be
made to the overall amount required to be paid by the tobacco companies to
Florida and Mississippi through 1998 under their respective settlements. In
addition, both settlements provide that, if federal legislation is enacted, the
tobacco companies will make additional payments to Florida and Mississippi for
their unique role in the national resolution, in amounts to be set by a panel of
arbitrators, subject to certain limitations. The tobacco companies have agreed
not to oppose requests for compensation of $250 million on the part of Florida
and $75 million on the part of Mississippi, to be paid over five years and
subject to an annual cap for all such payments to settling states of $100
million.
RJRN believes that, by settling these cases, it has resolved litigation
that could otherwise have materially affected the results of operations or cash
flows of RJRN in particular quarterly or annual periods or its financial
condition. Nonetheless, the financial consequences of these settlements for
RJRT are hard to predict, and may depend, among other things, on (i) the amount
of the future annual payments required of RJRT; (ii) the effect of discontinuing
most forms of outdoor advertising in the States of Florida and Mississippi on
consumption of tobacco products within those States; and (iii) the impact of the
advertising restrictions on RJRT's competitive position in Florida and
Mississippi. In addition, the negotiation and announcement of these agreements
could also affect (i) other federal, state and local regulation of the tobacco
industry, including the federal legislative resolution proposed on June 20,
1997; (ii) public attitudes toward smoking and the tobacco industry; (iii) the
climate for pending litigation against
3
<PAGE>
RJR Nabisco Holdings Corp. ("Holdings"), RJRN, RJRT and other tobacco companies;
and (iv) the number of new smoking and health claims filed against the industry.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
Exhibits
(1) Press Release of R.J. Reynolds Tobacco Company, Philip Morris
Incorporated, Brown and Williamson Tobacco Corporation and the
Lorillard Tobacco Company dated August 25, 1997.
(2) Settlement Agreement dated August 25, 1997.
4
<PAGE>
SIGNATURES
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.
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
(Registrants)
By:/s/ Robert F. Sharpe, Jr.
-----------------------------
Robert F. Sharpe, Jr.
Senior Vice President and
General Counsel
Date: September 4, 1997
5
<PAGE>
EXHIBIT 1
FOR IMMEDIATE RELEASE CONTACT: Scott Williams
FRIDAY, JUNE 20, 1997 202-739-0225
Steve Duchesne
202-739-0245
Bozell Sawyer Miller Group
Washington, D.C. -- The following statement regarding the settlement
of pending litigation in Florida was issued today by Philip Morris,
Incorporated; RJ Reynolds Tobacco Company; Brown & Williamson Tobacco
Corporation; the Lorillard Tobacco Company; and U.S. Tobacco:
Today's settlement with the State of Florida addresses the financial
issues in Florida and is a concrete demonstration that the industry is
prepared to cooperate with government and the public health authorities
to emphasize that it does not want kids to smoke. The settlement,
however, cannot effect the comprehensive array of public health
provisions contained in the proposed national settlement which
addresses all of the issues involving the regulation and sale of,
and liability for, tobacco. The Florida agreement, like the
Mississippi settlement, will be largely superseded by the June 20th,
1997 comprehensive resolution, if enacted by the Congress and signed
by the President.
This is another step in a process to end the climate of confrontation
and litigation that has marked the national debate on tobacco related
issues. While this case dealt with specific concerns of the State of
Florida, the comprehensive settlement represents the best opportunity
to achieve immediate and meaningful resolution of outstanding issues
regarding tobacco, including a reduction in the use of tobacco products
by minors and the preservation of adults' rights to use tobacco.
The settlement provides Florida with a $550 million payment by
September 15, 1997, and an additional $200 million for a pilot program
directed at reducing the use of tobacco by kids. Commencing in
September 1998, the companies will pay Florida a 5.5 percent share of
the annual ongoing payments which are contemplated to be paid to the
states. Without giving effect to adjustments for inflation and changes
in sales volume, this would result in payments to Florida of $220
million in 1998 and $247.5 million in 1999. These payments would
increase to $440 million by the sixth year and continue at that level
thereafter. Giving effect to other adjustments, Florida will receive $1
billion from the settlement by September 15, 1998.
The industry will also be taking down all public billboards, transit, and
stadium advertising in Florida. A similar pilot program and the
advertising restrictions will also be extended to Mississippi.
<PAGE>
While today's settlement is important, we remain committed to the passage
of the comprehensive settlement we agreed to on June 20, 1997.
<PAGE>
EXHIBIT 2
IN THE CIRCUIT COURT OF THE FIFTEENTH JUDICIAL CIRCUIT,
IN AND FOR PALM BEACH COUNTY, FLORIDA
THE STATE OF FLORIDA, et al.,
Plaintiffs,
v. Civil Action No.
95-1466 AH
THE AMERICAN TOBACCO
COMPANY, et al.,
Defendants.
_______________________________/
SETTLEMENT AGREEMENT
This Settlement Agreement is made as of this 25th day of
August, 1997, by and among the undersigned, and is intended to
settle and resolve with finality all present and future civil
claims against all parties to this litigation relating to the
subject matter of this litigation, which have been or could have
been asserted by any of the parties hereto.
WHEREAS, the State of Florida commenced this action in
February, 1995, asserting various claims for monetary and
injunctive relief on behalf of the State of Florida against
tobacco manufacturers and other defendants;
WHEREAS, Defendants have contested the claims in
Florida's complaint and amended complaints and Plaintiffs have
contested the claims in Defendants' counter and cross claims
against the Florida Department of Corrections and deny each and
every one of the Defendants' allegations;
<PAGE>
WHEREAS, the State of Florida has, through its
Governor, the Honorable Lawton M. Chiles, Jr. and its Attorney
General, the Honorable Robert A. Butterworth, had a leadership
role among the various states in maintaining civil litigation
against the tobacco industry and in seeking to forge an
unprecedented national resolution of the principal issues and
controversies associated with the manufacture, marketing and sale
of tobacco products in the United States;
WHEREAS, through the efforts of the State of Florida
and others a June 20, 1997 Memorandum of Understanding and
attached Proposed Resolution ("Proposed Resolution") has been
agreed to by members of the tobacco industry, state attorneys
general, private litigants and representatives of public health
groups which would provide for unprecedented and comprehensive
regulation of the tobacco industry while preserving the right of
individuals to assert claims for compensation;
WHEREAS, the Proposed Resolution contemplates action by
the United States Congress and the President to enact and sign a
new federal law with respect to the tobacco industry, which
action the tobacco industry has agreed to support and which will
require study and analysis by Congress and the President;
WHEREAS, jury selection in this action commenced on
August 1, 1997, and trial of the action is anticipated to last
several months and a continuance of such trial could prejudice
the State of Florida. The State of Florida and the undersigned
defendants have agreed to settle independently the litigation
commenced by the State of Florida pursuant to financial terms
comparable to the Proposed Resolution, which terms will achieve
for Florida immediately the financial benefits it would receive
pursuant to the national Proposed Resolution, should it become
law;
2
<PAGE>
NOW THEREFORE, it is hereby agreed as follows:
I. GENERAL PROVISIONS
A. JURISDICTION
The Settling Defendants and Plaintiffs acknowledge that this
Court has jurisdiction over the subject matter of this action and
over each of the parties to this Settlement Agreement.
Jurisdiction is retained by the Court for the purposes of
enabling any party to this Settlement Agreement to apply to the
Court at any time for further orders and directions as may be
necessary and appropriate to implement or enforce this Settlement
Agreement, and the parties hereto agree to present any disputes
under this Settlement Agreement to this Court.
Notwithstanding the dismissal of claims provided for herein,
the parties hereto agree that the Court will retain jurisdiction
over the State of Florida's claims for non-economic injunctive
relief provided by the Proposed Resolution. The parties hereto
jointly request the Court to set a trial date for the first
Monday in August, 1998, or such later date as the Court may
direct, said trial to proceed only if the Proposed Resolution or
a substantially equivalent federal program has not been enacted.
If the Proposed Resolution or a substantially equivalent federal
program is not enacted by June 1, 1998, the parties may, with the
Court's permission, commence any appropriate pre-trial
proceedings relevant to the trial of such issues. If the
Proposed Resolution or a substantially equivalent federal program
is enacted, any remaining claims shall be dismissed with
prejudice.
B. APPLICABILITY
This Settlement Agreement shall be binding upon all Settling
Defendants and their successors and assigns in the manner
expressly provided for herein and shall inure to their
3
<PAGE>
benefit and to that of their respective directors, officers,
employees, attorneys, representatives, insurers, suppliers,
distributors, agents and of any of their present or former parents,
subsidiaries, affiliates, divisions, or other organizational
units of any kind. This Settlement Agreement shall be binding on
and inure to the benefit of the State of Florida, the named
Plaintiffs, their administrators, representatives, employees,
officers, agents, legal representatives; all Agencies,
Departments, Commissions, and Divisions of the State; all
subdivisions, public entities, public corporations,
instrumentalities, and educational institutions over which the
State has control; and their predecessors, successors and
assigns.
C. VOLUNTARY AGREEMENT OF PARTIES
Settling Defendants understand and acknowledge that certain
provisions of this Settlement Agreement impose certain
requirements on them that could give rise to challenges under
federal and State constitutions if the State of Florida
unilaterally imposed them. The parties hereto acknowledge and
agree that this Settlement Agreement is voluntarily entered into
by all parties hereto as the result of arms length negotiations
during which all parties were represented by counsel. None of
the parties hereto will seek to void this Settlement Agreement
based on any constitutional challenge to the provisions contained
herein.
D. DEFINITIONS
1. "Plaintiffs" means collectively the Plaintiffs, State of
Florida, Lawton M. Chiles, Jr., individually and as Governor of
the State of Florida, the Department of Business and Professional
Regulation, the Agency for Health Care Administration and the
Department of Legal Affairs.
4
<PAGE>
2. "State" or "State of Florida" means collectively the
Plaintiffs, State of Florida, Lawton M. Chiles, Jr., individually
and as Governor of the State of Florida, the Department of
Business and Professional Regulation, the Agency for Health Care
Administration, and the Department of Legal Affairs, all of its
officers acting in their official capacities and any other
department, subdivision or agency of the State, regardless of
whether a named Plaintiff.
3. "Settling Defendants" means those Defendants in this
Action that are signatories to this Settlement Agreement.
4. "Non-Settling Defendants" means those Defendants that
are not signatories to this Settlement Agreement.
5. "Market Share" means, for each year, a Settling
Defendant's respective share of sales of cigarettes for
consumption in the United States.
6. "Tobacco Products" shall be defined in the same manner
as in the Food and Drug Administration Rule and shall include
Roll-Your-Own, Little Cigars and Fine Cut.
7. "Billboards" includes billboards, as well as all signs
and placards in arenas and stadia, whether open-air or enclosed.
"Billboards" does not include: (1) any advertisements placed on
or outside the premises of retail establishments licensed to sell
Tobacco Products or any retail point-of-sale; and (2) billboards
or advertisements in connection with the sponsorship by the
Settling Defendants of any entertainment, sporting or similar
event, such as NASCAR, that appears in the State of Florida as
part of a national or multi-state tour.
8. "Transit Advertisements" means advertising on private or
public vehicles and all advertisements placed at, on or within
any bus stop, taxi stand, waiting area, train station, airport or
any similar location.
5
<PAGE>
9. "Final Approval" means the date on which all of the
following shall have occurred:
a. The Settlement Agreement is approved by the Court;
b. Entry is made of an order of dismissal of claims or a
final judgment as provided herein; and
c. The time for appeal or to seek permission to appeal
from the Court's approval as described in (a) hereof,
and entry of such final judgment or order of dismissal
as described in (b) hereof has expired or if appealed,
the appeal has been dismissed or the approval and
judgment or order have been affirmed by the court of
last resort to which such appeal has been taken and
such affirmance has become no longer subject to further
appeal or review.
II. OBLIGATIONS OF PARTIES
A. NON-MONETARY PROVISIONS
1. Elimination of Billboards and Transit Advertisements.
Settling Defendants agree to discontinue all Billboards and
Transit Advertisements of Tobacco Products in the State of
Florida. Settling Defendants agree to exercise their best
efforts in cooperation with the State of Florida to identify all
Billboards that are located within 1000 feet of any public or
private school or playground in the State of Florida. Settling
Defendants will remove such Tobacco Product advertisements
(leaving the space unused or used for advertising unrelated to
Tobacco Products) or, at the option of the State of Florida, will
allow the State of Florida, at its expense, to substitute for the
remaining term of the contract alternative advertising intended
to discourage the use of Tobacco Products by children under the
age of 18. Settling Defendants agree to provide the State of
Florida with a preliminary list of the location of all Billboards
and Stationary
6
<PAGE>
Transit Advertisements within 30 days from the date of execution of
this Settlement Agreement, such list to be finalized within an
additional 15 days, and to remove all Billboards and Transit
Advertisements for Tobacco Products within the State of Florida at
the earlier of the expiration of applicable contracts or 4 months
from the date the final list is supplied to the State of Florida. The
parties hereto also agree to cooperate to secure the expedited removal
of up to 50 Billboards or stationary Transit Advertisements designated
by the State of Florida, within 30 days after their designation.
Each Settling Defendant shall provide the Court and the
Attorney General, or his designee, with the name of a contact
person to whom Plaintiffs may direct inquiries during the time
such Billboards and Transit Advertisements are being eliminated,
from whom the Plaintiffs may obtain periodic reports as to the
progress of their elimination and who will be responsible for
ensuring that appropriate action is taken to remove any
Billboards that have not been timely eliminated.
2. Support of Legislation and Rules. Following Final
Approval of this Settlement Agreement, Settling Defendants agree
to support legislative initiatives to enact new laws and
administrative initiatives to promulgate new rules intended to
effectuate the following:
a. The prohibition of the sale of cigarettes in vending
machines, except in adult-only locations and
facilities;
b. The strengthening of civil penalties for sales of
Tobacco Products to children under the age of 18,
including the suspension or revocation of retail
licenses; and
c. The strengthening of civil penalties for possession of
Tobacco Products by children under the age of 18.
7
<PAGE>
3. Document Disclosure. Settling Defendants and the State
of Florida agree to cooperate to secure the expedited review of
any decisions issued prior to the date of this Settlement
Agreement regarding the inapplicability of any assertion of
privilege with respect to documents or other material. The
documents covered by this provision are those documents and
materials which have been presented to the Special Master, the
Honorable R. William Rutter, Jr., and as to which a Report and
Recommendation has been issued requiring the disclosure and
production of such documents or materials, for whatever reason.
B. MONETARY PROVISIONS
1. Initial Payment -- General. On or before September 15,
1997, Settling Defendants shall, pursuant to a mutually
acceptable Escrow Agreement, cause to be paid into a special
escrow account (the "Escrow Account"), for the benefit of the
State of Florida, to be held in escrow pending Final Approval,
the sum of $550 million; that being Plaintiffs' good faith
estimate of the portion Florida would receive of the $10 billion
payment provided for in Paragraph A on page 34 of the June 20,
1997 Memorandum of Understanding and attached Proposed
Resolution.
2. Initial Payment -- Pilot Program. In support of
Florida's demonstrated commitment to the meaningful and immediate
reduction of the use of Tobacco Products by children under the
age of 18, Settling Defendants also agree to support a pilot
program (the "Pilot Program") by the State of Florida, the
elements of which shall be aimed specifically at the reduction of
the use of Tobacco Products by persons under the age of 18 years.
Accordingly, on or before September 15, 1997, the Settling
Defendants shall, pursuant to the Escrow Agreement, cause to be
paid into a second special escrow account (the "Second Escrow
Account"), for the benefit of the State of
8
<PAGE>
Florida, to be held in escrow pending Final Approval of this
Settlement Agreement, the sum of $200 million. The Pilot Program
will commence upon Final Approval of this Settlement Agreement and
last for a 24-month period following such date. The $200 million
amount payable by Settling Defendants in support of the Pilot Program
shall be used only after approval by the Court and at the rate of
approximately $100 million per 12-month period for general enforcement,
media, educational and other programs directed to the underage users or
potential underage users of Tobacco Products, but shall not be
directed against the tobacco companies or any particular tobacco
company or companies or any particular brand of Tobacco Products.
3. Annual Payments. On September 15, 1998, (subject to
adjustment for actual market share by January 30, 1999), and
annually thereafter, on December 31st (subject to final
adjustment within 30 days), each of the Settling Defendants
agrees, severally and not jointly, that it shall cause to be paid
into a special account for the benefit of the State of Florida
(the "Account"), pro rata in proportion equal to its respective
Market Share, its share of 5.5% of the following amounts (in
billions):
Year 1 2 3 4 5 6 thereafter
Amount $4B $4.5B $5B $6.5B $6.5B $8B $8B
The payments made to the Account by the Settling Defendants
pursuant to the calculation set forth in this paragraph shall be
adjusted upward by the greater of 3% or the Consumer Price Index
applied each year on the previous year, beginning with the first
annual payment. Such Payments will also be decreased or
increased, as the case may be, in accordance with decreases or
increases in volume of domestic tobacco product volume sales as
provided in Paragraph B.5 on pages 34-35 of the Proposed
Resolution. Any payment pursuant to this paragraph that is due
9
<PAGE>
to be paid before Final Approval of this Settlement Agreement
shall be paid into the Escrow Account and shall be disbursed only
as provided by the terms of the Escrow Agreement. On September
15, 1998, Settling Defendants shall pay $220 million without any
adjustment, that being Settling Defendants' and the State's best
estimate of the first such annual payment (in respect of 1998).
4. Use of Funds. The monies received under this Settlement
Agreement constitute not only reimbursement for Medicaid expenses
incurred by the State of Florida, but also settlement of all of
Florida's other claims, including those for punitive damages,
RICO and other statutory theories. In consonance with the
Proposed Resolution, other than the Pilot Program and legal
expense reimbursement, the parties hereto anticipate that funds
provided hereunder, only after approval by the Court, will be
used for children's health care coverage and other health-related
services, to reimburse the State of Florida for medical expenses
incurred by the State, for mandated improvements in State
enforcement efforts regarding the reduction of sales of Tobacco
Products to minors, and to ensure the Proposed Resolution's
performance targets. The funds provided hereby may be used for
such purposes as the State match required to draw federal funds
to provide children's health care coverage and for enhancement of
children's and adolescents' substance abuse services, substance
abuse prevention and intervention and children's mental health
services.
5. Adjustments in Event of Federal Resolution. In the
event that the Proposed Resolution is enacted as federal
legislation, or if any substantially equivalent federal program
is enacted, the settlement provided herein shall remain in place,
but the terms of such Proposed Resolution or federal program
shall supersede the provisions of this Settlement Agreement,
10
<PAGE>
except for the Pilot Program and to the extent that the parties
hereto have otherwise expressly agreed. In order to provide the
Settling Defendants with a full credit for all payments made
hereunder pursuant to paragraphs II.B.1 and II.B.3 of this
Settlement Agreement in the event of the enactment of the
Proposed Resolution or substantially equivalent federal program,
and to the extent that the payments made pursuant to paragraphs
II.B.1 and II.B.3 of this Settlement Agreement shall differ from
the amounts to be received by the State of Florida pursuant to
such Proposed Resolution or substantially equivalent federal
program, the parties hereto shall take whatever steps are
necessary to ensure that the principal amount of payments
received by the State of Florida will be the same as the amounts
it would receive pursuant to the Proposed Resolution or
substantially equivalent federal program.
C. DISMISSAL, WAIVER AND RELEASE OF CLAIMS
1. Dismissal of Plaintiffs' Claims. Upon approval of this
Settlement Agreement by the Court, Plaintiffs shall dismiss, with
prejudice as to Settling Defendants (including their parents and
affiliates), and without prejudice as to other Non-Settling
Defendants, all claims in this Action, except to the extent such
claims seek non-economic injunctive relief provided by the
Proposed Resolution. In the event any Non-Settling Defendants
agree to comply with the non-economic terms contained in this
Settlement Agreement, Plaintiffs shall dismiss with prejudice all
claims against any such Non-Settling Defendants, except to the
extent such claims seek non-economic injunctive relief provided
by the Proposed Resolution.
2. Plaintiffs' Waiver and Release. On the Final Approval
Date, the State of Florida shall release and forever discharge
all Defendants and their present and former parents,
subsidiaries, divisions, affiliates, officers, directors,
employees, representatives, insurers, agents,
11
<PAGE>
attorneys and distributors (and the predecessors, heirs, executors,
administrators, successors, and assigns of each of the foregoing)
(the "Released Parties"), from any and all manner of civil
claims, demands, actions, suits, and causes of action, damages
whenever incurred, liabilities of any nature whatsoever,
including costs, expenses, penalties and attorneys' fees
("Claims"), known or unknown, suspected or unsuspected, accrued
or unaccrued, whether legal, equitable or statutory, both past,
as to any claims that were or could have been made in this action
or any comparable federal action, and as to the future, as to all
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,
that the State of Florida (including any of its past, present or
future agents, officials acting in their official capacities,
legal representatives, agencies, departments, commissions,
divisions, subdivisions (political and otherwise), public
entities, corporations, instrumentalities, and educational
institutions, and whether or not any such person or entity
participates in the settlement), whether directly, indirectly,
representatively, derivatively or in any other capacity, ever
had, now has or hereafter can, shall or may have (hereinafter,
collectively, the "Released Claims"). Notwithstanding any
provision herein, Plaintiffs do not release the claims for
non-economic relief reserved under this Settlement Agreement, and
Defendants retain all defenses thereto.
The State of Florida hereby covenants and agrees that it
shall not, hereafter, sue or seek to establish civil liability
against any Released Party based, in whole or in part, upon any
of the Released Claims. The State of Florida agrees that this
covenant and agreement shall be a complete defense to any such
civil action or proceeding; provided, however, that those
Non-Settling Defendants which are not parents or affiliates of
the Settling Defendants shall be entitled
12
<PAGE>
to the foregoing release and covenant not to sue only upon their
assent to comply with the non-economic provisions of this Settlement
Agreement and the Waiver of Claims.
3. Settling Defendants' Waiver and Dismissal of Claims.
Upon Final Approval, Settling Defendants shall waive any and all
claims against any of the Plaintiffs in this action including the
State, or against any of their officers, employees, agents,
counsel, witnesses (fact or expert), whistle-blowers or
contractors, relating to or in connection with this litigation
and shall dismiss, with prejudice, any pending claims or actions
against such persons or entities that arise out of this
litigation of this lawsuit.
IV. MOST FAVORED NATION
The Settling Defendants agree that if they enter into any
future pre-verdict settlement agreement of other litigation
brought by a non-federal governmental plaintiff on terms more
favorable to such governmental plaintiff than the terms of this
Settlement Agreement (after due consideration of relevant
differences in population or other appropriate factors), the
terms of this Settlement Agreement will be revised so that the
State of Florida will obtain treatment at least as relatively
favorable as any such non-federal governmental entity.
V. COSTS AND FEES
On or before September 30, 1997, the Settling Defendants
shall cause to be paid to the Attorney General of Florida $10
million for the best estimate of costs and expenses attributable
to his office and other appropriate state agencies or entities in
connection with this litigation (cost for public employees shall
be at prevailing market rates); and on or before September 30,
1997, the Settling Defendants shall further cause to be paid $12
million to the Plaintiffs' private counsel for their best
estimate of their costs and expenses. Thereafter the Attorney
General's
13
<PAGE>
Office, the appropriate state entities and Florida's private
counsel shall provide the Settling Defendants with an
appropriately documented statement of their costs and expenses.
The Settling Defendants shall promptly pay the amount of such
costs and expenses in excess of the above $22 million, or shall
receive a refund or a credit against other payments due hereunder
if the total of such costs and expenses shall be less than
$22 million. Any dispute as to the nature or amount of
reimbursable costs and expenses shall be decided with finality by
the persons selected to award fees, as provided below.
Settling Defendants agree to pay, separately and apart from
the above, reasonable attorneys' fees to private counsel. If the
Proposed Resolution or substantially equivalent federal program
is enacted, the amount of such fees will be set by a panel of
independent arbitrators with finality, subject to an appropriate
annual cap on all such payments and other conditions. In the
absence of any such legislation enacting the Proposed Resolution
or a substantially equivalent federal program, attorneys' fees in
connection with this litigation will be awarded in the same
manner (subject to the appropriate annual cap and other
conditions) by three independent arbitrators selected by the
parties hereto.
In addition to the foregoing, in the event of the enactment
of the Proposed Resolution or other substantially equivalent
federal program, the parties hereto contemplate that the State of
Florida and any other similar state which has made an exceptional
contribution to secure the resolution of these matters may apply
to the panel of independent arbitrators for reasonable
compensation for its efforts in securing the Proposed Resolution,
subject to an appropriate separate annual cap on all such
payments.
14
<PAGE>
VI. MISCELLANEOUS
A. HEADINGS. The headings of the paragraphs and sections
of this Settlement Agreement are not binding and are for
reference only and do not limit, expand, or otherwise affect the
contents of this Settlement Agreement.
B. NO ADMISSION. This Settlement Agreement and any
proceedings taken hereunder are not intended and shall not in any
event be construed as, or deemed to be, an admission or
concession or evidence of any liability or any wrongdoing
whatsoever on the part of any party or any Released Party. The
parties hereto and Released Parties specifically disclaim and
deny any liability or wrongdoing whatsoever with respect to the
allegations and claims asserted against them in this action and
enter into this Settlement Agreement solely to avoid the further
expense, inconvenience, burden and uncertainty of litigation.
C. NON-ADMISSIBILITY. These settlement negotiations have
been undertaken by the parties in good faith and for settlement
purposes only, and neither this Settlement Agreement nor any
evidence of negotiations hereunder, shall be offered or received
in evidence in this Action, or any other action or proceeding,
for any purpose other than in an action or proceeding arising
under this Settlement Agreement.
D. AMENDMENT. This Settlement Agreement may be amended
only by a writing executed by all signatories hereto and any
provision hereof may be waived only by an instrument in writing
executed by the waiving party. The waiver by any party of any
breach of this Settlement Agreement shall not be deemed to be or
construed as a waiver of any other breach, whether prior,
subsequent, or contemporaneous, of this Settlement Agreement.
15
<PAGE>
E. COOPERATION. The parties to this Settlement Agreement
and their attorneys agree to use their best efforts and to
cooperate with each other to cause this Settlement Agreement 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 therewith.
The parties hereto may agree, without further order of the Court,
to reasonable extensions of time to carry out any of the
provisions of this Settlement Agreement.
F. GOVERNING LAW. This Settlement Agreement shall be
governed by the law of the State of Florida.
G. CONSTRUCTION. None of the parties hereto shall be
considered to be the drafter of this Settlement Agreement or 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.
H. INTENDED BENEFICIARIES. This Action was brought by the
State of Florida, through its Governor and Attorney General, to
recover certain monies and to promote the health and welfare of
the people of Florida. No portion of this Settlement Agreement
shall provide any rights to, or be enforceable by, any person or
entity that is not a party hereto or a Released Party.
I. COUNTERPARTS. This Settlement Agreement may be
executed in counterparts. Facsimile or photocopied signatures
shall be considered as valid signatures as of the date hereof,
although the original signature pages shall thereafter be
appended to this Settlement Agreement.
16
<PAGE>
ENTERED INTO THIS 25th DAY OF AUGUST, 1997.
WEST PALM BEACH,
STATE OF FLORIDA
By:
/s/ Lawton Chiles /s/ Robert A. Butterworth
--------------------------- ----------------------------
Lawton M. Chiles, Jr., Robert A. Butterworth,
Governor Attorney General
PHILIP MORRIS INCORPORATED R.J. REYNOLDS TOBACCO COMPANY
By: By:
/s/ Meyer G. Koplow /s/ Arthur F. Golden
---------------------------- --------------------------
BROWN & WILLIAMSON TOBACCO LORILLARD TOBACCO COMPANY
CORPORATION
By: By:
/s/ Arthur F. Golden /s/ Meyer G. Koplow
---------------------------- --------------------------
UNITED STATES TOBACCO COMPANY
By:
/s/ Meyer G. Koplow
----------------------------
