Exhibit 10.1
IN THE CIRCUIT COURT OF THE FIFTEENTH JUDICIAL CIRCUIT
PALM BEACH COUNTY, FLORIDA
STATE OF FLORIDA, et al.,
Plaintiffs,
v. Civil Action No. 95-1466 AH
AMERICAN TOBACCO
COMPANY, et al.,
Defendants.
/
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STIPULATION OF AMENDMENT TO SETTLEMENT AGREEMENT
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AND FOR ENTRY OF CONSENT DECREE
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THIS STIPULATION OF AMENDMENT TO SETTLEMENT AGREEMENT AND FOR ENTRY OF
CONSENT DECREE (the "Stipulation of Amendment") is made as of the date hereof,
by and among the parties hereto, as indicated by their signatures below, to
amend the Settlement Agreement entered into by the parties hereto with respect
to this Action on August 25, 1997 (the "Settlement Agreement").
WHEREAS, on August 25, 1997, the State of Florida and Settling
Defendants entered into the Settlement Agreement 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 Settlement Agreement was approved and adopted as an
enforceable order of the Court pursuant to Court Order dated August 25, 1997;
WHEREAS, the Settlement Agreement contains a "Most Favored Nation"
clause which provides that, in the event that Settling Defendants enter into a
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 the Settlement Agreement (after due consideration of
relevant differences in population or other appropriate factors), the terms of
the Settlement Agreement shall be revised so that the State of Florida will
obtain treatment at least as relatively favorable as any such non-federal
governmental entity;
WHEREAS, on May 8, 1998, Settling Defendants Philip Morris
Incorporated, R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco
Corporation and Lorillard Tobacco Company (the "MFN Settling Defendants")
entered into a pre-verdict settlement agreement with the State of Minnesota (the
"Minnesota Settlement") to resolve the lawsuit State of Minnesota v. Philip
Morris Inc., No. C1-94-8565 (Dist. Ct. Ramsey County, filed Aug. 17, 1994);
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WHEREAS, the State of Florida and Settling Defendants agree that,
pursuant to the Most Favored Nation clause of the Settlement Agreement, the
Settlement Agreement is to be revised in light of the Minnesota Settlement;
WHEREAS, the State of Florida and Settling Defendants have agreed on
the terms of revisions to the Settlement Agreement, including revisions in light
of the Minnesota Settlement, as set forth in this Stipulation of Amendment and
the attached Consent Decree; and
WHEREAS, the State of Florida and MFN Settling Defendants have further
agreed jointly to petition the Court for approval of the Consent Decree:
NOW, THEREFORE, BE IT KNOWN THAT, pursuant to the Most Favored Nation
clause of the Settlement Agreement and in consideration of their mutual
agreement to the terms of this Stipulation of Amendment (including, inter alia,
waiver of any further claim to revise the Settlement Agreement pursuant to the
Most Favored Nation clause, except as expressly provided herein), and such other
consideration as described herein, the sufficiency of which is hereby
acknowledged, the parties hereto, acting by and through their authorized agents,
memorialize and agree as follows:
1. Amendment of Settlement Agreement. The provisions of this
Stipulation of Amendment supplement the terms of the Settlement Agreement,
3
which shall remain in full force and effect except insofar as they are expressly
revised by the provisions of this Stipulation of Amendment.
2. Voluntary Agreement of the Parties. This Stipulation of Amendment
is entered into voluntarily by the parties hereto. The State and Settling
Defendants understand that Congress may enact legislation dealing with some of
the issues addressed in the Settlement Agreement, this Stipulation of Amendment
or the Consent Decree. The MFN Settling Defendants and their assigns,
affiliates, agents and successors hereby voluntarily waive any right to
challenge the Settlement Agreement, this Stipulation of Amendment or the Consent
Decree, directly or through third parties, on the ground that any term thereof
or hereof is unconstitutional, outside the power or jurisdiction of the Court or
preempted by or in conflict with any current or future federal legislation
(except insofar as the non-economic terms of the Settlement Agreement (as
revised hereby) or the Consent Decree are irreconcilable with any such future
federal legislation). The Court may, upon the State's application, enter a
Consent Decree in the form attached hereto as Exhibit 1.
3. Definitions. For the purposes of the Settlement Agreement, this
Stipulation of Amendment and the Consent Decree, the following terms shall have
the meanings set forth below:
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(a) "Consumer Price Index" means the Consumer Price Index for All
Urban Consumers for the most recent twelve-month period for which such
percentage information is available, as published by the Bureau of Labor
Statistics of the U.S. Department of Labor;
(b) "Market Share" means a Settling Defendant's respective share of
sales of Cigarettes, by number of individual Cigarettes shipped in the
United States for domestic consumption, as measured by such Settling
Defendant's audited reports of shipments of Tobacco Products provided to
the U.S. Securities and Exchange Commission ("SEC") (or, in the case of any
Settling Defendant that does not provide such reports to the SEC, audited
reports of shipments containing the same shipment information as contained
in the reports provided to the SEC) ("Shipment Reports"), during (i) with
respect to payments made pursuant to paragraph 7 of this Stipulation of
Amendment, the calendar year ending on the date on which the payment at
issue is due (or, in the case of the payment due on September 15, 1998, the
calendar year ending December 31, 1998), regardless of when such payment is
made, and (ii) with respect to all other payments made pursuant to this
Stipulation of Amendment and the Settlement Agreement, the calendar year
immediately preceding the year in
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which the payment at issue is due, regardless of when such payment is made;
(c) "Cigarettes" means any product which contains nicotine, is
intended to be burned or heated under ordinary conditions of use, and
consists of or contains (i) any roll of tobacco wrapped in paper or in any
substance not containing tobacco; or (ii) 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 (iii) 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 subparagraph (i) of this paragraph;
(d) "Smokeless Tobacco" means any product that consists of cut,
ground, powdered or leaf tobacco that contains nicotine and that is
intended to be placed in the oral cavity;
(e) "Tobacco Products" means Cigarettes and Smokeless Tobacco; and
(f) "Children" means persons under the age of 18;
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The above definitions supplement the definitions provided in the Settlement
Agreement and, insofar as they differ, supersede them.
4. Settlement Receipts. The payments to be made by Settling Defendants
under the Settlement Agreement and this Stipulation of Amendment are in
settlement of all of the State of Florida's claims for damages incurred by the
State in the year of payment or earlier years related to the subject matter of
this Action, and no part of any payment under the Settlement Agreement or this
Stipulation of Amendment is made in settlement of an actual or potential
liability for a fine, civil penalty, criminal penalty or enhanced damages or as
the cost of a tangible or intangible asset or other future benefit. This
paragraph 4 supplements and clarifies section II.B(4) of the Settlement
Agreement and does not and is not intended to change the characterization of
settlement payments described in section II.B(4) of the Settlement Agreement.
5. Supplemental Initial Payment. Each MFN Settling Defendant severally
shall cause to be paid, pro rata in proportion to its Market Share and in
accordance with and subject to paragraphs 17 and 18 of this Stipulation of
Amendment, to an account designated in writing by the State of Florida, its
share of $123,470,000, to be paid on or before January 4, 1999; its share of
$464,590,000, to be paid on or before January 3, 2000; its share of
$464,590,000, to be paid on or before January 2, 2001; its share of
$464,590,000, to be paid on or
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before January 2, 2002; and its share of $232,760,000, to be paid on or before
January 2, 2003. The payments made by MFN Settling Defendants pursuant to this
paragraph shall be adjusted upward by the greater of 3% or the actual total
percent change in the Consumer Price Index applied each year on the previous
year, beginning with the payment due to be made on or before January 3, 2000.
The payments due to be made by MFN Settling Defendants pursuant to this
paragraph on or before January 3, 2000, on or before January 2, 2001, on or
before January 2, 2002, and on or before January 2, 2003, will also be decreased
or increased, as the case may be, in accordance with the formula for adjustment
of payments set forth in Appendix A hereto. The payment due to be made by MFN
Settling Defendants pursuant to this paragraph 5 on or before January 4, 1999,
shall not be subject to adjustment for inflation or in accordance with the
formula for adjustment of payments set forth in Appendix A hereto.
6. Acceleration of Supplemental Initial Payment. In the event that any
MFN Settling Defendant fails to make any payment required of it pursuant to
paragraph 5 of this Stipulation of Amendment (a "Defaulting Defendant") by the
applicable date set forth in such paragraph 5 (a "Missed Payment"), the State of
Florida shall provide notice to each of the MFN Settling Defendants of such
non-payment. The Defaulting Defendant shall have 15 days after receipt of such
notice to pay the Missed Payment, together with interest accrued from the
original
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applicable due date at the prime rate as published in the Wall Street Journal on
the latest publication date on or before the date of default plus 3%. If the
Defaulting Defendant does not make such payment within such 15-day period, the
State of Florida shall have the option of providing notice to each of the MFN
Settling Defendants of such continued non-payment. In the event that the State
of Florida elects to provide such notice, any or all of the MFN Settling
Defendants (other than the Defaulting Defendant) shall have 15 days after
receipt of such notice to elect (in such MFN Settling Defendant's or such MFN
Settling Defendants' sole and absolute discretion) to pay the Missed Payment,
together with interest accrued from the original applicable due date at the
prime rate as published in the Wall Street Journal on the latest publication
date on or before the date of default plus 3%. In the event that the State of
Florida does not receive the Missed Payment, together with such accrued
interest, within such additional 15-day period, all future payments required to
be made by each of the respective MFN Settling Defendants pursuant to paragraph
5 of this Stipulation of Amendment shall at the end of such additional 15-day
period be accelerated and immediately become due and owing to the State of
Florida from each MFN Settling Defendant, pro rata in proportion to its Market
Share and in accordance with and subject to paragraph 18 of this Stipulation of
Amendment; provided, however, that such accelerated payments (a) shall all be
adjusted upward by the greater of (i) the rate of 3% per annum or
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(ii) the actual total percent change in the Consumer Price Index, in either
instance for the period between January 1 of the year in which the acceleration
of payments pursuant to this paragraph occurs and the date on which such
accelerated payments are made pursuant to this paragraph 6, and (b) shall all
immediately be adjusted in accordance with the formula for adjustment of
payments set forth in Appendix A hereto.
Nothing in this paragraph 6 shall be deemed under any circumstance to
create any obligation on the part of any MFN Settling Defendant to pay any
amount owed or payable to the State of Florida by any other MFN Settling
Defendant. All obligations of the MFN Settling Defendants pursuant to this
paragraph 6 are intended to be and shall remain several, and not joint.
7. Annual Payments. Each of the Settling Defendants agrees that on or
before September 15, 1998 it shall severally cause to be paid to an account
designated in writing by the State of Florida, pro rata in proportion to its
respective Market Share and in accordance with and subject to paragraph 18 of
this Stipulation of Amendment, its share of $220 million (subject to adjustment
for appropriate allocation among Settling Defendants by January 30, 1999).
Each of the Settling Defendants further agrees that, on or before
December 31, 1999 and annually thereafter on or before December 31st of each
year after 1999 (subject to final adjustment within 30 days), it shall severally
cause to be paid
10
into an account designated by the State of Florida, pro rata in proportion to
its respective Market Share and in accordance with and subject to paragraph 18
of this Stipulation of Amendment, its share of 5.5% of the following amounts (in
billions):
Year 1999 2000 2001 2002 2003 thereafter
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Amount $4.5B $5B $6.5B $6.5B $8B $8B
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The payments made by Settling Defendants pursuant to this paragraph 7
shall be adjusted upward by the greater of 3% or the actual total percent change
in the Consumer Price Index applied each year on the previous year, beginning
with the annual payment due on December 31, 1999. Such payments will also be
decreased or increased, as the case may be, beginning with the annual payment
due on December 31, 1999, in accordance with the formula for adjustment of
payments set forth in Appendix A hereto. Settling Defendants shall pay the
payment due on September 15, 1998 without adjustment for inflation or in
accordance with the formula for adjustments of payments set forth in Appendix A
hereto. This paragraph 7 supersedes section II.B(3) of the Settlement Agreement,
which is hereby rendered null, void and of no further effect.
8. Determination of Market Share. In the event of a disagreement
between or among any Settling Defendants as to their respective shares of any
payment due to be paid on a Market Share basis pursuant to the Settlement
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Agreement and this Stipulation of Amendment, each Settling Defendant shall pay
its undisputed share of such payment promptly on or before the date on which
such payment is due, and shall, within 21 days of such date, submit copies of
its Shipment Reports for the year in question to a third party to be selected by
agreement of Settling Defendants (the "Third Party"), who shall determine the
Market Share of each Settling Defendant within three business days of receipt of
such Shipment Reports. The decision of the Third Party shall be final and
non-appealable, and shall be communicated by facsimile to each person designated
to receive notice hereunder. Each Settling Defendant shall, within two business
days of receipt of the Third Party's decision, pay the State or such other
Settling Defendant, as appropriate, the difference, if any, between (1) the
amount that such Settling Defendant has already paid with respect to the payment
in question and (2) the amount of the payment in question that corresponds to
such Settling Defendant's Market Share as determined by the Third Party,
together with interest accrued from the original date on which the payment in
question was due, at the prime rate as published in the Wall Street Journal on
the latest publication date on or before the original date on which the payment
in question was due plus 3%. In the event of any disagreement by or among
Settling Defendants as to their respective shares of the payment due on
September 15, 1998 pursuant to this Stipulation of Amendment, the procedures for
resolving such disagreement shall be
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as described in this paragraph, except that each Settling Defendant shall not be
required to provide its Shipment Reports to the Third Party until January 21,
1999.
9. Adjustments in Event of Federal Legislation. In the event that
federal tobacco legislation is enacted before November 30, 2000 that provides
for payments by tobacco companies (whether in the form of settlement payment,
tax or otherwise) ("Tobacco Legislation"):
(a) MFN Settling Defendants shall be entitled to receive a dollar for
dollar offset against the annual payments required under paragraph 7 of
this Stipulation of Amendment of any amounts that the State of Florida
could elect to receive pursuant to such Tobacco Legislation ("Federal
Settlement Funds"), up to the full amount of such annual payments, except
to the extent that:
(i) such Federal Settlement Funds are required to be used for
purposes other than health care or tobacco-related purposes;
(ii) such Tobacco Legislation provides the opportunity for other
states to elect to receive Federal Settlement Funds but does not
provide for the abrogation, settlement or relinquishment of
tobacco-related claims of such states that have not previously been
resolved; or
(iii) state receipt of such Federal Settlement Funds is
conditioned upon (A) the relinquishment of rights or benefits under
the Settlement
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Agreement (including this Stipulation of Amendment and the Consent
Decree) (excepting any annual payment amounts subject to the offset);
or (B) actions or expenditures by the state unrelated to health care
or tobacco (including but not limited to tobacco education, cessation,
control or enforcement).
(b) Nothing in this paragraph 9 shall reduce (i) the payments made to
the State of Florida pursuant to sections II.B(1) and (2) of the Settlement
Agreement and paragraphs 5 and 6 of this Stipulation of Amendment (by
offset, credit, recoupment, refund or otherwise); or (ii) the percentage
figure (5.5%) used to determine the State of Florida's annual payments
pursuant to paragraph 7 of this Stipulation of Amendment. Nothing in this
paragraph 9 is intended to or shall reduce the total amounts payable by MFN
Settling Defendants to the State of Florida under the Settlement Agreement
(as revised hereby) by an amount greater than the amount of Federal
Settlement Funds that the State of Florida could elect to receive. This
paragraph 9 supersedes section II.B(5) of the Settlement Agreement, which
is hereby rendered null, void and of no further effect.
10. Clarification of Scope of State's Release. The release of claims
provided in section II.C(2) of the Settlement Agreement shall, with respect to
the Claims therein released as to the future, apply only to monetary Claims. The
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foregoing sentence does not supersede but rather supplements and clarifies the
scope of the release provided in section II.C(2) of the Settlement Agreement. In
addition, the State of Florida hereby agrees to dismiss with prejudice those
claims dismissed pursuant to the Court's Order Approving and Adopting Certain
Stipulations of the Parties as Enforceable Orders of this Court, dated April 24,
1998 (the "April 24th Order") and the Stipulation of Voluntary Dismissal Without
Prejudice of Count III of the Plaintiffs' Third Amended Complaint, dated April
24, 1998 (the "April 24th Stipulation"). The State of Florida further agrees
that, notwithstanding anything to the contrary in the Settlement Agreement, the
April 24th Order or the April 24th Stipulation, the claims dismissed pursuant to
the April 24th Order and the April 24th Stipulation shall be treated as Released
Claims for purposes of section II.C(2) of the Settlement Agreement.
11. Limited Most-Favored Nation Provision. In partial consideration
for the monetary payments to be made by MFN Settling Defendants pursuant to this
Stipulation of Amendment, the State of Florida agrees that, if MFN Settling
Defendants enter into any future pre-verdict settlement agreement of other
similar litigation brought by a non-federal governmental plaintiff, or any
amendment to any such existing settlement agreement, on terms more favorable to
such non-federal governmental plaintiff than the terms of the Settlement
Agreement (including this Stipulation of Amendment and the Consent Decree)
(after due
15
consideration of relevant differences in population or other appropriate
factors), the terms of the Settlement Agreement (including this Stipulation of
Amendment and the Consent Decree) shall not be revised except as follows: to the
extent, if any, such other pre-verdict settlement agreement includes terms that
provide:
(a) for joint and several liability among MFN Settling Defendants with
respect to monetary payments to be made pursuant to such agreement;
(b) a guarantee by the parent company of any of MFN Settling
Defendants or other assurances of payment or creditors' remedies with
respect to monetary payments to be made pursuant to such agreement;
(c) for the implementation of non-economic tobacco-related public
health measures different from those contained in the Settlement Agreement
(including this Stipulation of Amendment and the Consent Decree);
(d) for no offset of Federal Settlement Funds against annual
settlement payments pursuant to such settlement agreement; or
(e) for an offset term more favorable to the plaintiff than the offset
provisions of paragraph 9 of this Stipulation of Amendment, then the
Settlement Agreement shall, at the option of the Office of the Attorney
General of the State of Florida, be revised to include terms comparable to
such terms.
This paragraph 11 supersedes section IV of the Settlement Agreement,
which is hereby rendered null, void and of no further effect as to any MFN
Settling
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Defendant. The State of Florida hereby acknowledges that, pursuant to the terms
of this paragraph 11, it has irrevocably waived any future claim against MFN
Settling Defendants to revise the terms of the Settlement Agreement or this
Stipulation of Amendment pursuant to section IV of the Settlement Agreement
(except as provided in paragraph 27 of this Stipulation of Amendment), and it
hereby further covenants and agrees that, in consideration for MFN Settling
Defendants' agreement to the terms of this Stipulation of Amendment, it shall
not hereafter seek to revise the Settlement Agreement or this Stipulation of
Amendment as to MFN Settling Defendants, except as expressly provided in this
paragraph 11 (or pursuant to mutually agreeable amendment by the parties hereto
as provided in section VI.D of the Settlement Agreement and paragraph 20
hereof).
12. MFN Settling Defendants' Assurances. MFN Settling Defendants
agree:
(a) to support the legislative initiatives to enact new laws and
administrative initiatives to promulgate new rules described in section
II.A(2) of the Settlement Agreement; and
(b) not to support in Congress or any other forum legislation, rules
or policies which would preempt, override, abrogate or diminish the State's
rights or recoveries under the Settlement Agreement (as amended hereby).
Except as specifically provided in the foregoing sentence, nothing in the
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Settlement Agreement (including this Stipulation of Amendment and the
Consent Decree) shall be deemed to restrain the parties from advocating
terms of any national settlement or taking any other positions on issues
relating to tobacco.
13. Disclosure of Payments. Each MFN Settling Defendant shall disclose
to the Office of the Attorney General and the Office of the Governor, at the
times and in the manner provided below, information about the following
payments:
(a) Any payment to a "lobbyist" or "principal" within the meaning of
the Joint Rules of the Florida House and Senate, Section 1.1(2)(d) and
(f), if the MFN Settling Defendant knows or has reason to know that the
payment will be used, directly or indirectly, to influence legislative or
administrative action or the official action of state or local government
in Florida in any way relating to Tobacco Products or their use;
(b) Any payment to a third party, if the MFN Settling Defendant knows
the payment is partly in consideration for the third party attending,
offering testimony at, or participating before a state or local government
hearing in Florida in any way relating to Tobacco Products or their use;
and
(c) Any payment (other than a "political contribution" under 2 U.S.C.
Section 431(8)(A)) to, or for the benefit of, a state or local official in
Florida, whether made directly by the MFN Settling Defendant or indirectly
through
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an employee of the MFN Settling Defendant acting within the scope of his
employment, or through an affiliate, lobbyist or other agent acting under
the substantial control of the MFN Settling Defendant.
Disclosures required under this paragraph 13 shall be filed with the Office of
the Attorney General and the Office of the Governor on the first day of
February, May, August and November of each year (beginning November 1, 1998)
for any and all payments made through the first day of the previous month, and
shall be transmitted in electronic format or such format as the Attorney
General may require, with the following information:
- The name, address, telephone number and e-mail address of the
recipient;
- The amount of each payment described in this paragraph 13; and
- The aggregate amount of all payments described in this paragraph 13 to
the recipient in the calendar year.
Information disclosed pursuant to this paragraph is a "public record" within
the meaning of the Florida Public Records Act, Ch. 119, Florida Statutes.
14. Prohibition of Certain Payments for Product Placement. MFN
Settling Defendants shall not make or cause to be made, in connection with any
motion picture made in the United States, any payment, direct or indirect, to
any person to use, display, make reference to or use as a prop any cigarette,
cigarette package, advertisement for cigarettes, or any other item bearing the
brand name, logo, symbol, motto, selling message, recognizable color or pattern
of colors, or any
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other indicia of product identification identical or similar to, or identifiable
with, those used for any brand of domestic Tobacco Products.
15. Prohibition on Promotional Merchandise. On and after December 31,
1998, MFN Settling Defendants shall permanently cease marketing, licensing,
distributing, selling or offering, directly or indirectly, including by
catalogue or direct mail, in the State of Florida, any item (other than Tobacco
Products or any item of which the sole function is to advertise Tobacco
Products) which bears the brand name (alone or in conjunction with any other
word), logo, symbol, motto, selling message, recognizable color or pattern of
colors, or any other indicia of product identification identical or similar to,
or identifiable with, those used for any brand of domestic Tobacco Products,
except that nothing in this paragraph shall (i) require any MFN Settling
Defendant to terminate, breach or violate any licensing agreement or contract in
existence as of July 1, 1998 for the remaining term of such contract; (ii)
prohibit the distribution to any employee (18 years of age or older) of an MFN
Settling Defendant of any item described above that is intended for the personal
use of such employee by such MFN Settling Defendant; or (iii) prohibit items
necessarily incidental to or ordinarily distributed in connection with any
sponsorship described in section I.D(7) of the Settlement Agreement.
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16. Document Production. MFN Settling Defendants shall, upon request,
provide to the State of Florida a copy of any CD-ROMs of documents that MFN
Settling Defendants have agreed to produce, pursuant to the Minnesota
Settlement, to the document depository established in connection with the
lawsuit State of Minnesota v. Philip Morris Inc., No. C1-94-8565 (Dist. Ct.
Ramsey County, filed Aug. 17, 1994), with a copy of the accompanying transmittal
letter provided to each person designated to receive notice hereunder.
17. Court Approval. The parties hereto agree to submit this
Stipulation of Amendment to the Court for its review and approval, and further,
to move that the Court enter the Consent Decree in the form attached hereto as
Exhibit 1. If the Court refuses to approve this Stipulation of Amendment and the
Consent Decree in any respect unacceptable to any of the parties hereto and such
refusal is not reversed on appeal, or if such approval is modified in any
respect unacceptable to any of the parties hereto or is set aside on appeal,
then this Stipulation of Amendment shall be canceled and terminated and it and
all orders issued pursuant hereto (including the Consent Decree) shall become
null and void and of no further effect. Any such cancellation or termination of
this Stipulation of Amendment shall not of itself result in the cancellation or
termination of, or otherwise affect, the Settlement Agreement as approved by the
Court on August 25, 1997. All payments described in paragraphs 5 and 6 of this
Stipulation of Amendment shall
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be paid into a special escrow account in a New York City bank, pursuant to the
terms of a mutually acceptable escrow agreement in the form attached hereto as
Exhibit 2 (the "MFN Escrow Agreement"), and if so paid shall remain in said
escrow account, until such time as (1) the 30-day time period to seek review of
the Court's order approving this Stipulation of Amendment has expired without
the filing of any notice of appeal or petition for review; or (2) in the event
of a timely appeal or petition, the appeal or the petition has been dismissed or
the Court's order has been affirmed in all material respects by the court of
last resort to which such appeal or petition has been taken and such dismissal
or affirmance has become no longer subject to further appeal or review. Any
payments made into escrow shall be disbursed from escrow only in strict
accordance with the terms of the MFN Escrow Agreement, which shall not be
modified without the express written consent of MFN Settling Defendants and the
State of Florida.
18. Escrow Pending Resolution of Certain Claims. Certain of the
State's private counsel (the "Lienors") have filed attorneys' charging liens
against any payments to be made to the State of Florida pursuant to the
settlement of the Action (the "Liens"), and the State of Florida has contested
the validity and enforceability of the Liens. Until such time as the question of
the validity and enforceability of the Liens (including any attorneys' charging
liens that may be filed by the State's private counsel after the date hereof)
has been conclusively
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resolved by the court of last resort to which such question may be presented,
each payment to be made by Settling Defendants pursuant to this Stipulation of
Amendment shall be paid in accordance with such directions as may be issued by
the Court as necessary to preserve the claim of the Lienors to the portion of
the payment in question that is claimed to be subject to the Liens.
Notwithstanding any other provision of this Stipulation of Amendment (i) any
payment by Settling Defendants that is made in accordance with such directions
shall fully satisfy Settling Defendants' obligations with respect to the payment
in question, and (ii) upon the conclusive resolution of the question of the
validity and enforceability of the Liens by the court of last resort to which
such question may be presented, the portion of each payment to be made by
Settling Defendants pursuant to this Stipulation of Amendment that is claimed to
be subject to the Liens shall be paid to the State of Florida or to the Lienors
(or any of them) in accordance with such conclusive determination.
19. Payment Responsibility. All obligations of the Settling Defendants
pursuant to the Settlement Agreement and this Stipulation of Amendment are
intended to be and shall remain several, and not joint. Due to the particular
corporate structures of Settling Defendants R.J. Reynolds Tobacco Company
("Reynolds") and Brown & Williamson Tobacco Corporation ("Brown & Williamson")
with respect to their non-domestic tobacco operations, Settling
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Defendants Reynolds and Brown & Williamson shall each be severally liable for
its respective share of each payment due pursuant to the Settlement Agreement
and this Stipulation of Amendment up to (and its liability hereunder shall not
exceed) the full extent of its assets used in, and earnings derived from, the
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.
20. Applicable Provisions of Settlement Agreement. The provisions of
sections VI.A (Headings), VI.B (No Admission), VI.C (Non-Admissibility), VI.D
(Amendment), VI.E (Cooperation), VI.F (Governing Law), VI.G (Construction), VI.H
(Intended Beneficiaries) and VI.I (Counterparts) of the Settlement Agreement
shall be equally applicable to this Stipulation of Amendment as though fully set
forth herein, and all references to the Settlement Agreement in the sections
thereof specifically listed in this paragraph 20 shall be construed to include
this Stipulation of Amendment.
21. Pilot Program. The provisions of section II.B(2) of the Settlement
Agreement that restrict the manner in which the pilot program funds provided for
therein may be expended are hereby rendered null, void and of no further effect.
22. Release of Right to Additional Compensation. In consideration for
the terms hereof, including, inter alia, the provisions of paragraph 5 hereof,
the State
24
of Florida hereby irrevocably releases MFN Settling Defendants from any claim
for additional compensation pursuant to section V of the Settlement Agreement,
and the provisions of section V regarding the State's rights to costs and
additional compensation are hereby rendered null, void and of no effect.
23. Notices. All notices or other communications to any party to the
Settlement Agreement shall be in writing (and shall include telex, telecopy or
similar writing) and shall be given to the respective parties hereto at the
following addresses. 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 paragraph.
State of Florida:
-----------------
Hon. Robert A. Butterworth
Attorney General's Office
The Capitol
Suite PL01
Tallahassee, FL 32399-1050
Fax: (850) 413-0632
With a copy to:
---------------
Joseph F. Rice
Ness, Motley, Loadholt, Richardson & Poole
151 Meeting Street, Suite 600
Charleston, SC 29402
Fax: (803) 720-9290
25
Philip Morris Incorporated: R.J. Reynolds Tobacco Company:
--------------------------- ------------------------------
Martin J. Barrington Charles A. Blixt
Philip Morris Incorporated R.J. Reynolds Tobacco Company
120 Park Avenue 401 North Main Street
New York, NY 10017-5592 Winston-Salem, NC 27102
Fax: (212) 907-5399 Fax: (336) 741-2998
With a copy to: With a copy to:
--------------- ---------------
Meyer G. Koplow Arthur F. Golden
Wachtell, Lipton, Rosen & Katz Davis Polk & Wardwell
51 West 52nd Street 450 Lexington Avenue
New York, NY 10019 New York, NY 10017
Fax: (212) 403-2000 Fax: (212) 450-4800
Brown & Williamson Tobacco Corp.: Lorillard Tobacco Company:
--------------------------------- --------------------------
F. Anthony Burke Arthur J. Stevens
Brown & Williamson Tobacco Corp. Lorillard Tobacco Company
200 Brown & Williamson Tower 714 Green Valley Road
401 South Fourth Avenue Greensboro, NC 27408
Louisville, KY 40202 Fax: (336) 335-7707
Fax: (502) 568-7297
With a copy to: United States Tobacco Company:
--------------- ------------------------------
Stephen R. Patton Richard H. Verheij
Kirkland & Ellis UST Inc.
200 East Randolph Dr. 100 West Putnam Avenue
Chicago, IL 60601 Greenwich, CT 06830
Fax: (312) 861-2200 Fax: (203) 863-7233
24. Representation of Parties. The parties hereto represent that the
Settlement Agreement and this Stipulation of Amendment have been duly authorized
and, upon execution, will (together with the Consent Decree) constitute
26
valid and binding contractual obligations, enforceable in accordance with their
terms, of each of the parties hereto.
25. Severability. In the event that any non-material provision of the
Settlement Agreement (as revised hereby) is modified or found to be invalid or
unenforceable, the remainder thereof shall be fully enforceable.
26. Attorneys' Fees. Settling Defendants, the State of Florida and
certain private counsel for the State of Florida have entered into a separate
agreement on September 11, 1998 (the "Florida Fee Payment Agreement") that sets
forth the entire obligation of Settling Defendants with respect to payment of
attorneys' fees pursuant to section V of the Settlement Agreement. The parties
hereto agree that MFN Settling Defendants shall not be required to perform any
obligation pursuant to paragraphs 5 and 6 of this Stipulation of Amendment until
such time as (1) the Court issues the Consent Decree in the form attached as
Exhibit 1 hereto; (2) the 30-day period to seek review of the Court's order
entering the Consent Decree has expired without the filing of any notice of
appeal or petition for review; and (3) in the event of a timely appeal or
petition, such appeal or petition has been dismissed or the Court's order
entering the Consent Decree has been affirmed in all material respects by the
court of last resort to which such appeal or petition has been taken and such
dismissal or affirmance has become no longer subject to further appeal or
review. Under no circumstances shall Settling Defendants' entry into this
27
Stipulation of Amendment or the Florida Fee Payment Agreement be construed as,
or deemed to be, evidence of or an admission or concession that the Settlement
Agreement can be revised pursuant to the Most Favored Nation clause without
incorporation of all terms of any settlement agreement that provides the
occasion for any such revision, including all terms thereof with respect to
attorneys' fees.
27. Conditioned on Minnesota Settlement. In the event that a court
order or other judicial determination is issued on or before January 2, 2003
that overturns, voids or invalidates the Minnesota Settlement or otherwise
declares it to be unenforceable (such that MFN Settling Defendants are relieved
from making payments required under the Minnesota Settlement) (the "Minnesota
Order"), MFN Settling Defendants shall have the option to elect not to make any
payment pursuant to paragraphs 5 and 6 of this Stipulation of Amendment that
becomes due on or after the date of such Minnesota Order. In the event that MFN
Settling Defendants make such an election:
(a) MFN Settling Defendants shall not be obligated to make any payment
pursuant to paragraphs 5 and 6 of this Stipulation of Amendment that
becomes due on or after the date of the Minnesota Order; provided, however,
that if the Minnesota Order is reversed on appeal or otherwise set aside,
MFN Settling Defendants shall be obligated to make any payments pursuant to
paragraphs 5 and 6 of this Stipulation of
28
Amendment that were not made when initially due as result of the Minnesota
Order;
(b) the provisions of paragraph 11 of this Stipulation of Amendment
shall not apply to preclude the application of section IV of the Settlement
Agreement with respect to any pre-verdict settlement agreement described
therein entered into after the date of the Minnesota Order; and
(c) MFN Settling Defendants shall be entitled to a credit, in the
amount of any payments made pursuant to paragraphs 5 and 6 of this
Stipulation of Amendment, against any payments due to the State of Florida
as a result of application of section IV of the Settlement Agreement in
connection with any pre-verdict settlement agreement entered into after the
date of the Minnesota Order, pursuant to subparagraph (b) of this paragraph
27.
No other provision of the Settlement Agreement, this Stipulation of Amendment or
the Consent Decree shall be affected by the Minnesota Order. MFN Settling
Defendants will provide the State of Florida with notice of any filing seeking
to obtain a Minnesota Order.
28. Entire Agreement of Parties. The Settlement Agreement (including
this Stipulation of Amendment, Florida Fee Payment Agreement and the Consent
Decree) contains an entire, complete and integrated statement of each and every
29
term and provision agreed to by and among the parties hereto relating in any way
to the settlement of the tobacco litigation brought by the State of Florida, and
is not subject to any condition not provided for herein.
IN WITNESS WHEREOF, the parties hereto, through their fully authorized
representatives, have agreed to this Stipulation of Amendment as of this
eleventh day of September, 1998.
STATE OF FLORIDA, acting by and
through Lawton M. Chiles, Jr.,
its duly elected and authorized
Governor, and Robert A.
Butterworth, its duly elected
and authorized Attorney General
By: /s/LAWTON M. CHILES, JR.
-------------------------
Lawton M. Chiles, Jr.
Governor
By: /s/ROBERT A. BUTTERWORTH
-------------------------
Robert A. Butterworth
Attorney General
PHILIP MORRIS INCORPORATED
By: /s/MEYER G. KOPLOW
-------------------------
Meyer G. Koplow
Counsel
By: /s/MARTIN J. BARRINGTON
-------------------------
Martin J. Barrington
General Counsel
30
R.J. REYNOLDS TOBACCO
COMPANY
By: /s/ARTHUR F. GOLDEN
-------------------------
Arthur F. Golden
Counsel
By: /s/CHARLES A. BLIXT
-------------------------
Charles A. Blixt
Executive Vice President &
General Counsel
BROWN & WILLIAMSON TOBACCO
CORPORATION
By: /s/STEPHEN R. PATTON
-------------------------
Stephen R. Patton
Counsel
By: /s/F. ANTHONY BURKE
-------------------------
F. Anthony Burke
Vice President & General Counsel
31
LORILLARD TOBACCO COMPANY
By: /s/ARTHUR J. STEVENS
-------------------------
Arthur J. Stevens
Senior Vice President &
General Counsel
UNITED STATES TOBACCO
COMPANY
By: /s/RICHARD H. VERHEIJ
-------------------------
Richard H. Verheij
Executive Vice President &
General Counsel
32
APPENDIX A
FORMULA FOR CALCULATING VOLUME ADJUSTMENTS
Any payment that by the terms of the Stipulation of Amendment is to be
adjusted pursuant to this Appendix (the "Applicable Base Payment") shall be
adjusted pursuant to this Appendix in the following manner:
(A) in the event the aggregate number of cigarettes shipped for domestic
consumption by Settling Defendants in the Applicable Year (as defined
hereinbelow) (the "Actual Volume") is greater than the aggregate number of
cigarettes shipped for domestic consumption by Settling Defendants in 1997
(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 multiplied by the ratio of
the Actual Volume to the Base Volume, and the resulting product shall
be divided by 0.98; and
(ii)if a reduction of the Applicable Base Payment results from the
application of subparagraph (B)(i) of this Appendix, but the Settling
Defendants' aggregate net operating profits from domestic sales of
cigarettes for the Applicable Year (the "Actual Net Operating Profit")
is greater than the Settling Defendants' aggregate net operating
profits from domestic sales of cigarettes in 1997 (the "Base Net
Operating Profit") (such Base Net Operating Profit being adjusted
upward by the greater of the rate of 3% per annum or the actual total
percent change in the Consumer Price Index, in either instance for the
period between January 1, 1998 and the date on which the payment at
issue is made), then the amount by which the Applicable Base Payment
is reduced by the application of subparagraph (B)(i) shall be reduced
(but not below zero) by 5.5% of 25% of such increase in such profits.
For purposes of this Appendix, "net operating profits from domestic
sales of cigarettes" shall mean net operating profits from domestic
sales of cigarettes as reported to the United States Securities and
Exchange Commission ("SEC") for the Applicable Year
or, in the case of a Settling Defendant that does not report
profits to the SEC, as reported in financial statements prepared
in accordance with generally accepted accounting principles and
audited by a nationally recognized accounting firm. The
determination of Settling Defendants' aggregate net operating
profits from domestic sales of cigarettes shall be derived using
the same methodology as was employed in deriving such Settling
Defendants' aggregate net operating profits from domestic sales
of cigarettes in 1997. Any increase in an Applicable Base Payment
pursuant to this subparagraph B(ii) shall be payable within 120
days after the date that the payment at issue was required to be
made.
(C) "Applicable Year" means (i) with respect to the payments made
pursuant to paragraph 7 of the Stipulation of Amendment, the calendar
year ending on the date on which the payment at issue is due,
regardless of when such payment is made; and (ii) with respect to all
other payments made pursuant to the Stipulation of Amendment, the
calendar year immediately preceding the year in which the payment at
issue is due, regardless of when such payment is made.
2
EXHIBIT 1
IN THE CIRCUIT COURT OF THE FIFTEENTH JUDICIAL CIRCUIT
PALM BEACH COUNTY, FLORIDA
STATE OF FLORIDA, et al.,
Plaintiffs,
v. Civil Action No. 95-1466 AH
AMERICAN TOBACCO
COMPANY, et al.,
Defendants.
- - -------------------------------/
CONSENT DECREE
WHEREAS, on August 25, 1997, the State of Florida and certain
defendants entered into a Settlement Agreement (the "Settlement Agreement") to
settle and resolve with finality all present and future 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 Settlement Agreement was approved and adopted as an
enforceable order of the Court pursuant to Court Order dated August 25, 1997, in
which the Court expressly retained continuing jurisdiction to enforce and
implement the terms of the Settlement Agreement, including the Most Favored
Nation clause of the Settlement Agreement;
EXHIBIT 1
WHEREAS, the Settlement Agreement contains a "Most Favored Nation"
clause which provides that, in the event that Settling Defendants enter into a
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 the Settlement Agreement (after due consideration of
relevant differences in population or other appropriate factors), the terms of
the Settlement Agreement shall be revised so that the State of Florida will
obtain treatment at least as relatively favorable as any such non-federal
governmental entity;
WHEREAS, on May 8, 1998, Settling Defendants Philip Morris
Incorporated, R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco
Corporation and Lorillard Tobacco Company (the "MFN Settling Defendants")
entered into a pre-verdict settlement agreement with the State of Minnesota (the
"Minnesota Settlement") to resolve the lawsuit State of Minnesota v. Philip
Morris Inc., No. C1-94-8565 (Dist. Ct. Ramsey County, filed Aug. 17, 1994);
WHEREAS, the State of Florida and MFN Settling Defendants agree that,
pursuant to the Most Favored Nation clause of the Settlement Agreement, the
Settlement Agreement is to be revised in light of the Minnesota Settlement;
WHEREAS, the State of Florida and Settling Defendants have agreed on
the terms of revisions to the Settlement Agreement as set forth in a Stipulation
of
2
EXHIBIT 1
Amendment to Settlement Agreement and for Entry of Consent Decree executed on
September 11, 1998 (the "Stipulation of Amendment");
WHEREAS, the Stipulation of Amendment provides for entry of this
Consent Decree, which sets forth certain terms of injunctive relief, and
further, provides that the MFN Settling Defendants have waived as specified
therein their right to challenge the terms of this Consent Decree as being
superseded or preempted by future congressional enactments; and
WHEREAS, the Attorney General believes the entry of this Consent
Decree is appropriate and in the public interest;
NOW, THEREFORE, the State of Florida and MFN Settling Defendants having
come before the Court on their joint motion for approval of a Stipulation of
Amendment to the Settlement Agreement, and the Court having reviewed and
considered the Stipulation of Amendment and otherwise being fully advised in the
premises, it is hereby ORDERED, ADJUDGED and DECREED as follows:
1. Approval. The Court finds that the terms of the Stipulation of
Amendment are just and in the best interests of the State of Florida and
Settling Defendants, and the same is hereby approved and adopted as an
enforceable order of the Court, which shall supersede any prior court order
insofar as inconsistent therewith. The Court further finds that the Stipulation
of Amendment and the Florida Fee Payment Agreement set forth the State and
Settling Defendants'
3
EXHIBIT 1
agreement as to certain matters addressed in this Court's April 16, 1998 Order
Implementing Most Favored Nation Provision of Florida Settlement Agreement and
Exhibit 1 thereto (the "April 16th Order") and accordingly hereby amends the
April 16th Order (and all other orders of the Court relating thereto) so as to
conform it to the terms of the Florida Fee Payment Agreement. In addition, the
Court finds that amounts payable by Settling Defendants pursuant to the Florida
Fee Payment Agreement are not funds of the State of Florida and are not subject
to appropriation by the State of Florida pursuant to 1998 Fla. Sess. Law Serv.
Ch. 98-63 (C.S.S.B. 1270) (West) and that Settling Defendants are under no
obligation to pay such amounts to the State of Florida. In addition, pursuant to
paragraph 10 of the Stipulation of Amendment, the claims of the State of Florida
dismissed pursuant to the Court's Order Approving and Adopting Certain
Stipulations of the Parties as Enforceable Orders of this Court, dated April 24,
1998 (the "April 24th Order") and the Stipulation of Voluntary Dismissal Without
Prejudice of Count III of the Plaintiffs' Third Amended Complaint, dated April
24, 1998 (the "April 24th Stipulation") are hereby dismissed with prejudice and,
notwithstanding anything to the contrary in the Settlement Agreement, the April
24th Order or the April 24th Stipulation, the claims dismissed pursuant to the
April 24th Order and the April 24th Stipulation shall be treated as Released
Claims for purposes of section II.C(2) of the Settlement Agreement.
4
EXHIBIT 1
2. Jurisdiction and Venue. In keeping with the Settlement Agreement and
this Court's August 25, 1997 Order, the Court expressly retains jurisdiction for
the purpose of enforcement of the Settlement Agreement (as amended by the
Stipulation of Amendment) and this Consent Decree, as well as other issues
relating to the settlement of this Action that are currently pending before the
Court. Any party to this Consent Decree may apply to this Court at any time for
such further orders and directions as may be necessary or appropriate for the
construction and enforcement of the Settlement Agreement, the Stipulation of
Amendment and this Consent Decree.
3. Definitions. The definitions set forth in the Settlement Agreement
(as supplemented or superseded by the Stipulation of Amendment) are incorporated
by reference herein.
4. Applicability. This Consent Decree applies only to MFN Settling
Defendants 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 participating with them, and only with respect to
activities in connection with the manufacture and sale in the United States of
Tobacco Products intended for domestic consumption. The remedies and penalties
for a violation of this Consent Decree shall apply only to MFN Settling
Defendants, and shall not be imposed or
5
EXHIBIT 1
assessed against any employee, officer or director of MFN Settling Defendants or
other person or entity as a consequence of such a violation, and there shall be
no jurisdiction under this Consent Decree to impose or assess a penalty against
any employee, officer or director of MFN Settling Defendants or other person or
entity as a consequence of a violation of this Consent Decree.
5. Effect on Third Parties. This Consent Decree is not intended to and
does not vest standing in any third party with respect to the terms hereof, or
create for any person other than the parties hereto a right to enforce the terms
hereof.
6. Injunctive Relief. MFN Settling Defendants are permanently enjoined
from:
(a) On and after December 31, 1998, marketing, licensing for
distribution or sale, distributing, selling or offering, directly or
indirectly, including by catalogue or direct mail, in the State of Florida,
any item (other than Tobacco Products or any item the sole function of
which is to advertise Tobacco Products) which bears the brand name (alone
or in conjunction with any other word), logo, symbol, motto, selling
message, recognizable color or pattern of colors, or any other indicia or
product identification identical or similar to, or identifiable with, those
used for any domestic brand of Tobacco Products, except that nothing in
this paragraph shall (i) require any MFN Settling Defendant to terminate,
6
EXHIBIT 1
breach or violate any licensing agreement or contract in existence as of
July 1, 1998 for the remaining term of such contract; (ii) prohibit the
distribution to any employee (18 years of age or older) of an MFN Settling
Defendant of any item described above that is intended for the personal use
of such employee by such MFN Settling Defendant; or (iii) prohibit items
necessarily incidental to or ordinarily distributed in connection with any
sponsorship described in section I.D(7) of the Settlement Agreement.
(b) Making any material misrepresentation of fact regarding the health
consequence of using any Tobacco Product, including any tobacco additives,
filters, paper or other ingredients; provided, however, that nothing in
this paragraph shall limit the exercise of any First Amendment right or any
defense or position which persons bound by this Consent Decree may assert
in any judicial, legislative or regulatory forum.
(c) Entering into any contract, combination or conspiracy between or
among themselves which has the purpose or effect of: (1) limiting
competition in the production or distribution of information about the
health hazards or other consequences of the use of Tobacco Products; (2)
limiting or suppressing research into smoking and health; or (3) limiting
or suppressing research into, marketing, or development of new products.
7
EXHIBIT 1
(d) Taking any action, directly or indirectly, to target children in
Florida in the advertising, promotion, or marketing of cigarettes, or
taking any action the primary purpose of which is to initiate, maintain or
increase the incidence of underage smoking in Florida.
7. No Determination or Admission. The Settlement Agreement having been
executed prior to the taking of any testimony, no final determination of any
violation of any provision of law has been made in this Action. This Consent
Decree 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 any
wrongdoing whatsoever on the part of any person covered by the releases provided
in sections II(C)(1) and (2) of the Settlement Agreement; nor shall this Consent
Decree be construed as, or deemed to be, an admission or concession or evidence
of personal jurisdiction with respect to any person not a party to this Consent
Decree. Defendants specifically disclaim any liability or wrongdoing whatsoever
with respect to the claims and allegations asserted against them in this Action
and MFN Settling Defendants have entered into the Settlement Agreement and the
Stipulation of Amendment, and have stipulated to entry of this Consent Decree,
solely to avoid the further expense, inconvenience, burden and risk of
litigation.
8. Modification. This Consent Decree shall not be modified unless the
party seeking modification demonstrates, by clear and convincing evidence, that
it
8
EXHIBIT 1
will suffer irreparable harm from new and unforeseen conditions; provided,
however, that the provisions of paragraph 4 of this Consent Decree shall in no
event be subject to modification. Changes in the economic conditions of the
parties shall not be grounds for modification. It is intended that MFN Settling
Defendants will comply with this Consent Decree as originally entered, even if
MFN Settling Defendants' obligations hereunder are greater than those imposed
under current or future law. Therefore, a change in law that results, directly
or indirectly, in more favorable or beneficial treatment of any one or more of
the MFN Settling Defendants shall not support modification of this Consent
Decree. The provisions of this paragraph shall not be construed to limit or
affect any future modification of the Settlement Agreement (as amended by the
Stipulation of Amendment) in the manner provided in paragraphs 11 and 27 of the
Stipulation of Amendment.
9. Enforcement and Attorneys' Fees. In any proceeding which results in
a finding that a MFN Settling Defendant violated this Consent Decree, the
responsible MFN Settling Defendant or MFN Settling Defendants shall pay the
State's costs and attorneys' fees incurred in such proceeding.
10. Non-Exclusivity of Remedy. The remedies in this Consent Decree are
cumulative and in addition to any other remedies the State may have at law or
equity. Nothing herein shall be construed to prevent the State from bringing any
9
action simply because the conduct that is the basis for such action may also
violate this Consent Decree.
DONE AND ORDERED at Palm Beach County, Florida, this the __th day of
September, 1998.
--------------------------------------------
CIRCUIT JUDGE
APPROVED:
- - ----------------------------------------
Robert A. Butterworth, Attorney General,
Florida Bar No. 114422
For the State of Florida
- - ----------------------------------------
Stephen J. Krigbaum, Esq.,
Florida Bar No. 0978019
For MFN Settling Defendants
10
EXHIBIT 2
MFN ESCROW AGREEMENT
This escrow agreement (the "MFN Escrow Agreement") is entered into as
of _________, 1998 by and among Philip Morris Incorporated, R.J. Reynolds
Tobacco Company, Brown & Williamson Tobacco Corporation and Lorillard Tobacco
Company (collectively and severally, "MFN Settling Defendants" and each
individually a "MFN Settling Defendant"), the State of Florida and _____ _____
[Bank], as escrow agent (the "MFN Escrow Agent").
WITNESSETH:
WHEREAS, the State of Florida and Settling Defendants entered into a
comprehensive settlement agreement and release as of August 27, 1997 (the
"Settlement Agreement"), setting forth the terms and conditions of an agreement
to settle and resolve with finality all present and future claims relating to
the subject matter of the litigation entitled State of Florida v. American
Tobacco Co., No. 95-1466 AH (Fifteenth Jud. Cir., Palm Beach County) (the
"Action"), in the Circuit Court of Palm Beach County, Florida (the "Court");
WHEREAS, the State of Florida and Settling Defendants entered into a
Stipulation of Amendment to Settlement Agreement and for Entry of Consent Decree
(the "Stipulation of Amendment") on September 11, 1998, paragraph 17 of which
provides for Court approval of the Stipulation of Amendment;
WHEREAS, paragraph 5 of the Stipulation of Amendment provides that, on
the dates specified therein, each MFN Settling Defendant shall severally pay to
the State of Florida, pro rata in proportion to its Market Share, its respective
share of the amounts indicated for each date;
WHEREAS, paragraph 17 of the Stipulation of Amendment further provides
that all payments described in paragraphs 5 and 6 of the Stipulation of
Amendment shall be paid into a special escrow account in an appropriate New York
City bank (and if so paid shall remain in said escrow account) until such time
as (1) the 30 day period for appeal or to seek review of the Court's order
approving the Stipulation of Amendment has expired without the filing of any
notice of appeal or petition for review; or (2) in the event of any such appeal
or petition, the appeal or the petition has been dismissed or the Court's order
has been affirmed in all material respects by the court of last resort to which
such
1
EXHIBIT 2
appeal or petition has been taken and such dismissal or affirmance has become no
longer subject to further appeal or review (the "Availability Date"); and
WHEREAS, the parties hereto believe that at least one of the payments
described in the preceding paragraphs may become due prior to the Availability
Date:
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Appointment of MFN Escrow Agent.
MFN Settling Defendants and the State of Florida hereby appoint the MFN
Escrow Agent to act as escrow agent on the terms and conditions set forth
herein, and the MFN Escrow Agent hereby accepts such appointment on such terms
and conditions.
SECTION 2. Deposit.
In the event that any payment pursuant to paragraph 5 or 6 of the
Stipulation of Amendment becomes due on a date prior to the Availability Date,
each MFN Settling Defendant shall severally deliver to the MFN Escrow Agent in
immediately available funds such MFN Settling Defendant's respective share of
the payment in question (the sum of such shares being the "Initial Deposit").
Upon receipt, the MFN Escrow Agent shall deposit the Initial Deposit into a
separate escrow account established for such purpose and governed by the terms
of this MFN Escrow Agreement (the "MFN Escrow Account"). Any subsequent payment
pursuant to paragraph 5 or 6 of the Stipulation of Amendment that becomes due
prior to the Availability Date shall be delivered to the MFN Escrow Agent and
added to the Initial Deposit (the Initial Deposit and any subsequent payments
deposited into the MFN Escrow Account, including any payments of interest or
other income on investment of the MFN Escrow Amount or any portion thereof,
being the "MFN Escrow Amount") and shall be governed by the terms of this MFN
Escrow Agreement. All such deliveries of funds are subject to the right of MFN
Settling Defendants to obtain, pursuant to section 4(a) of this MFN Escrow
Agreement, prompt return of the entire MFN Escrow Amount (less appropriate
deductions for administrative fees and expenses, including taxes and other
related costs) in the event that the Stipulation of Amendment is cancelled or
terminated pursuant to paragraph 17 of the Stipulation of Amendment. The MFN
Escrow Amount shall be maintained, invested and disbursed by the MFN Escrow
Agent strictly in accordance with this MFN Escrow Agreement.
2
EXHIBIT 2
SECTION 3. Investment of MFN Escrow Amount.
The MFN Escrow Agent shall invest and reinvest the MFN Escrow Amount in
either (i) direct obligations of, or obligations the principal and interest on
which are unconditionally guaranteed by, the United States of America (including
government-sponsored agencies) or the State of Florida; (ii) repurchase
agreements fully collateralized by securities of the kind specified 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 a State thereof (a "United States Bank")
and having a combined capital surplus in excess of $250,000,000; or (iv) demand
deposits with any United States Bank or any federal savings and loan institution
having a combined capital surplus in excess of $250,000,000. Any loss on any
such investment, including, without limitation, any penalty for any liquidation
required to fund a disbursement, shall be borne pro rata by the parties in
proportion to their ultimate entitlement to the MFN Escrow Amount. The MFN
Escrow Agent's fees and all expenses, including taxes and other related costs,
shall, to the extent possible, be paid out of income earned. Whenever the MFN
Escrow Agent shall pay all or any part of the MFN Escrow Amount to any party as
provided herein, the MFN Escrow Agent shall also pay to such party all interest
and profits earned to the date of payment on such amount, less deductions for
fees and all expenses, including taxes and other related fees.
SECTION 4. Release of the MFN Escrow Amount.
After receipt, the MFN Escrow Agent shall deliver the MFN Escrow Amount
as set forth below:
(a) Following receipt of written notice signed by counsel for
the MFN Settling Defendants certifying that such notice has been
delivered by counsel for the MFN Settling Defendants to all parties
hereto and stating that the Court has not approved the Stipulation of
Amendment as provided in paragraph 17 thereof or that the Court's
approval has been modified in any respect unacceptable to any of the
parties thereto or set aside on appeal, the MFN Escrow Agent shall upon
the expiration of ten (10) business days following the MFN Escrow
Agent's receipt of such notice disburse the entire MFN Escrow Amount
(including any interest thereon, as provided in Section 3) to the MFN
Settling Defendants on the same pro rata basis as such funds were
contributed to the MFN Escrow Account.
3
EXHIBIT 2
(b) Upon receipt of (i) written notice signed by counsel for
the MFN Settling Defendants and counsel for the State of Florida
stating that the Availability Date has occurred and (ii) an order of
the Court pursuant to applicable Florida law so directing, the MFN
Escrow Agent shall proceed to distribute the MFN Escrow Amount in
accordance with such Court order.
(c) For its services, the MFN Escrow Agent shall receive fees
in accordance with the MFN Escrow Agent's customary fees in similar
matters. All such fees shall constitute a direct charge against the MFN
Escrow Amount, but the MFN Escrow Agent shall not debit the MFN Escrow
Amount for any such charge until it shall have presented its statement
to and received approval by counsel for the MFN Settling Defendants and
counsel for the State of Florida, which approval shall not be
unreasonably withheld. Such approval shall be deemed given if the MFN
Escrow Agent has not received written objections from either counsel
for MFN Settling Defendants or counsel for the State of Florida within
30 days after presentment of its statement. Such fees and all expenses
charged against the MFN Escrow Amount shall, to the extent possible, be
paid out of interest earned. In the event that counsel for MFN Settling
Defendants or counsel for the State of Florida objects in writing to
such fees, the MFN Escrow Agent shall not debit the MFN Escrow Amount
except upon a court order approving such fees.
SECTION 5. Substitute Form W-9; Qualified Settlement Fund.
Each of the signatories to this MFN Escrow Agreement shall provide the
MFN Escrow Agent with a correct taxpayer identification number on a substitute
Form W-9 within 90 days of the date hereof and indicate thereon that it is not
subject to backup withholding. It is anticipated that the MFN Escrow Account
established pursuant to this MFN Escrow Agreement shall be treated as a
Qualified Settlement Fund for federal tax purposes pursuant to Treas. Reg. ss.
1.468B-1.
SECTION 6. Termination of MFN Escrow Account.
This MFN Escrow Agreement (other than the MFN Escrow Agent's right to
indemnification set forth in Section 7) shall terminate when the MFN Escrow
Agent shall have released from the MFN Escrow Account all amounts pursuant to
Section 4 hereof.
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EXHIBIT 2
SECTION 7. MFN Escrow Agent.
(a) The MFN 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 hereof, and it shall incur no
liability hereunder or in connection herewith for anything whatsoever
other than as a result of its own negligence or willful misconduct. In
the event the MFN Escrow Agent fails to receive the instructions
contemplated by Section 4 hereof or receives conflicting instructions,
the MFN Escrow Agent shall be fully protected in refraining from acting
until such instructions are received or such conflict is resolved by
written agreement or court order.
(b) MFN Settling Defendants, on the same pro rata basis as the
funds constituting the MFN Escrow Amount were contributed to the MFN
Escrow Account, agree to indemnify, hold harmless and defend the MFN
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 hereunder or in connection herewith prior
to the Availability Date, except such as shall result solely and
directly from its own negligence or willful misconduct. The MFN Escrow
Agent shall not be bound in any way by any agreement or contract
between MFN Settling Defendants and the State of Florida (whether or
not the MFN Escrow Agent has knowledge thereof) and the only duties and
responsibilities of the MFN Escrow Agent shall be to hold and invest
the MFN Escrow Amount received hereunder and to release such MFN Escrow
Amount in accordance with the terms of this MFN Escrow Agreement.
(c) The MFN 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 MFN Escrow
Agent, selected by the MFN Settling Defendants and agreeable to the
State of Florida, shall have been appointed and shall have accepted
such appointment in writing. If an instrument of acceptance by a
successor MFN Escrow Agent shall not have been delivered to the MFN
Escrow Agent within 30 days after the giving of such notice of
resignation, the resigning MFN Escrow Agent may, at the expense of MFN
Settling Defendants and the State of Florida (to be shared equally
between the State of Florida and the MFN Settling Defendants), petition
the Court for the appointment of a successor MFN Escrow Agent.
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EXHIBIT 2
(d) Upon the Availability Date having occurred, provided that
MFN Settling Defendants have performed all of their obligations
required to be performed prior to the Availability Date, all duties and
obligations of MFN Settling Defendants hereunder shall cease, with the
exception of any indemnification obligation of MFN Settling Defendants
incurred prior to the Availability Date.
SECTION 8. Miscellaneous.
(a) Notices. All notices or other communications to any party
or other person hereunder shall be in writing (which shall include
telex, telecopy or similar writing) and shall be given to the
respective parties or persons at the following addresses. Any party or
person may change the name and address of the person designated to
receive notice on behalf of such party or person by notice given as
provided in this paragraph.
State of Florida:
-----------------
Hon. Robert A. Butterworth
Attorney General's Office
The Capitol
Suite PL01
Tallahassee, FL 32399-1050
Fax: (850) 413-0632
With a copy to:
---------------
Joseph F. Rice, Esq.
Ness, Motley, Loadholt, Richardson & Poole
151 Meeting Street, Suite 600
Charleston, SC 29402
Fax: (843) 720-9290
MFN Settling Defendants:
------------------------
For Philip Morris Incorporated:
-------------------------------
Martin J. Barrington
Philip Morris Incorporated
120 Park Avenue
New York, NY 10017-5592
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EXHIBIT 2
Fax: (212) 907-5399
With a copy to:
---------------
Meyer G. Koplow
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Fax: (212) 403-2000
For R.J. Reynolds Tobacco Company
---------------------------------
Charles A. Blixt
R.J. Reynolds Tobacco Company
401 North Main Street
Winston-Salem, NC 27102
Fax: (336) 741-2998
With a copy to:
---------------
Arthur F. Golden
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Fax: (212) 450-4800
For Brown & Williamson Tobacco Corporation:
-------------------------------------------
Michael Walter
Brown & Williamson Tobacco Corporation
200 Brown & Williamson Tower
401 South Fourth Avenue
Louisville, KY 40202
Fax: (502) 568-7187
With a copy to:
---------------
F. Anthony Burke
Brown & Williamson Tobacco Corporation
200 Brown & Williamson Tower
401 South Fourth Avenue
Louisville, KY 40202
Fax: (502) 568-7297
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EXHIBIT 2
For Lorillard Tobacco Company:
------------------------------
Arthur J. Stevens
Lorillard Tobacco Company
714 Green Valley Road
Greensboro, NC 27408
Fax: (336) 335-7707
MFN Escrow Agent:
-----------------
[Bank]
[Bank Address]
Phone:
Fax:
Wire Transfer Instructions:
ABA #:
Account #:
Account Name:
(b) Successors and Assigns. The provisions of this MFN Escrow
Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns.
(c) Governing Law. This MFN Escrow Agreement shall be
construed in accordance with and governed by the laws of the State of
Florida, without regard to the conflicts of law rules of such state.
(d) Jurisdiction and Venue. The parties hereto irrevocably and
unconditionally submit to the jurisdiction of the United States
District Court for the Southern District of New York for purposes of
any suit, action or proceeding seeking to enforce any provision of, or
based on any right arising out of, this MFN Escrow Agreement, and the
parties hereto agree not to commence any such suit, action or
proceeding except in such court. The parties hereto hereby irrevocably
and unconditionally waive any objection to the laying of venue of any
such suit, action or proceeding in such court and hereby further
irrevocably waive and agree not to plead or claim in such court that
any such suit, action or proceeding has been brought in an inconvenient
forum.
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EXHIBIT 2
(e) Definitions. Terms used herein that are defined in the
Settlement Agreement or the Stipulation of Amendment are, unless
otherwise defined herein, used in this MFN Escrow Agreement as defined
in the Settlement Agreement or the Stipulation of Amendment, as
appropriate.
(f) Amendments. This MFN Escrow Agreement may be amended only
by written instrument executed by all parties hereto. 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 of this MFN Escrow Agreement shall not be deemed to be or
construed as a waiver of any other breach, whether prior, subsequent or
contemporaneous, of this MFN Escrow Agreement.
(g) Counterparts; Effectiveness. This MFN Escrow 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. This MFN Escrow Agreement shall become
effective when each party hereto shall have signed a counterpart
hereof. Delivery by facsimile of a signed agreement shall be deemed
delivery for purposes of acknowledging acceptance hereof; however, an
original executed signature page must promptly thereafter be appended
to this MFN Escrow Agreement, and an original executed agreement shall
promptly thereafter be delivered to each party hereto.
(h) Captions. The captions herein are included for convenience
of reference only and shall be ignored in the construction and
interpretation hereof.
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EXHIBIT 2
IN WITNESS WHEREOF, the parties have executed this MFN Escrow Agreement
as of the day and year first hereinabove written.
STATE OF FLORIDA
By:
-----------------------------------------
Robert A. Butterworth
Attorney General
PHILIP MORRIS INCORPORATED
By:
-----------------------------------------
Meyer G. Koplow
Counsel
R.J. REYNOLDS TOBACCO COMPANY
By:
-----------------------------------------
Arthur F. Golden
Counsel
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EXHIBIT 2
BROWN & WILLIAMSON TOBACCO
CORPORATION
By:
-----------------------------------------
Stephen R. Patton
Counsel
LORILLARD TOBACCO COMPANY
By:
-----------------------------------------
Arthur J. Stevens
Senior Vice President & General Counsel
_________________ [BANK],
as MFN Escrow Agent
By:
-----------------------------------------
Name:
Title:
11