Exhibit 10.1
IN THE CHANCERY COURT OF JACKSON COUNTY,
STATE OF MISSISSIPPI
)
IN RE MIKE MOORE, ATTORNEY GENERAL, ex. rel. ) CAUSE No. 94-1429
STATE OF MISSISSIPPI TOBACCO LITIGATION )
)
STIPULATION OF AMENDMENT TO SETTLEMENT AGREEMENT
AND FOR ENTRY OF AGREED ORDER
THIS STIPULATION OF AMENDMENT TO SETTLEMENT AGREEMENT AND FOR ENTRY OF
AGREED ORDER (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 Comprehensive Settlement Agreement and Release entered into by the parties
hereto with respect to this Action on October 17, 1997 (the "Settlement
Agreement").
WHEREAS, on July 2, 1997, the State of Mississippi and certain defendants
(the "Settling Defendants") entered into a Memorandum of Understanding (the
"MOU"), setting forth the terms of an agreement in principle to settle all
present and future claims relating to the subject matter of this Action, which
MOU contemplated that the parties would draft and execute a comprehensive
settlement agreement incorporating the terms of the MOU as well as other
customary terms and conditions, including releases;
WHEREAS, on October 17, 1997, the State of Mississippi 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 December 29, 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 this 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 Mississippi will
obtain treatment at least as relatively favorable as any such non-federal
governmental entity;
WHEREAS, on May 8, 1998, Settling Defendants entered into a pre-verdict
settlement agreement with the State of Minnesota to settle the lawsuit State of
Minnesota v. Philip Morris Inc., No. C1-94-8565 (Dist. Ct. Ramsey County, filed
Aug. 17, 1994) (the "Minnesota Settlement");
2
WHEREAS, the State of Mississippi 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 Mississippi and Settling Defendants have agreed on
the terms of revisions to the Settlement Agreement in light of the Minnesota
Settlement, as set forth in this Stipulation of Amendment and the Agreed Order
attached as Exhibit 1 hereto; and
WHEREAS, the parties hereto have further agreed jointly to petition the
Court for approval of the Agreed Order:
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. The Court may, upon the State's
application, enter the Agreed Order attached hereto as Exhibit A. 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 Agreed Order. 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 Agreed
Order, 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 any terms of the Settlement Agreement (as revised hereby) or
the Agreed Order that relate to matters other than payments are irreconcilable
with any such future federal legislation).
3. Definitions. For the purposes of the Settlement Agreement, this
Stipulation of Amendment and the Agreed Order, the following terms shall have
the meanings set forth below:
(a) "Consumer Price Index" means the Consumer Price Index for All
Urban Consumers for the most recent twelve-month period for which
4
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 for
consumption in the United States, 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, 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 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
5
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 powder 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;
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 constitute
reimbursement for public health expenditures of the State of Mississippi and the
political subdivisions and agencies of the State of Mississippi, including but
not limited to the Mississippi State Employees Health Insurance Plan, University
Medical Center and charity hospitals, as well as for Medicaid expenditures of
the State of Mississippi. Any payments made by Settling Defendants in a given
year are in settlement of claims for damages by the State in the year of payment
or earlier years related to the subject matter of this Action, including,
without limitation, claims for equitable and injunctive relief, claims for
health care
6
expenditures and claims for punitive damages, except that 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, penalty (civil or
criminal) or enhanced damages or as the cost of a tangible or intangible asset
or other future benefit. In consonance with the relief sought by this Action and
the Proposed Resolution, the parties hereto anticipate that the funds provided
hereunder and under the Settlement Agreement, other than funds provided pursuant
to the Settlement Agreement that are dedicated for the Mississippi Pilot Program
and legal expense reimbursement, will be used for health-related expenditures of
the State of Mississippi. This paragraph 4 supersedes paragraph 11 of the
Settlement Agreement, which is hereby rendered null, void and of no further
effect.
5. Supplemental Initial Payment. Each Settling Defendant severally shall
cause to be paid, pro rata in proportion to its Market Share and in accordance
with and subject to paragraph 17 of this Stipulation of Amendment, to an account
designated in writing by the State of Mississippi, its share of $41,738,000, to
be paid on or before January 4, 1999; its share of $145,173,000, to be paid on
or before January 3, 2000; its share of $145,173,000, to be paid on or before
January 2, 2001; its share of $145,173,000, to be paid on or before January 2,
2002; and its share of $72,743,000, to be paid on or before January 2, 2003. The
payments made by Settling Defendants pursuant to this paragraph shall be
adjusted upward
7
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 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 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
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
Mississippi shall provide notice to each of the 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 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
8
Mississippi shall have the option of providing notice to each of the Settling
Defendants of such continued non-payment. In the event that the State of
Mississippi elects to provide such notice, any or all of the Settling Defendants
(other than the Defaulting Defendant) shall have 15 days after receipt of such
notice to elect (in such Settling Defendant's or such 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 Mississippi does not receive the
Missed Payment, together with such accrued interest, within such additional
15-day period, all payments required to be made by each of the respective
Settling Defendants pursuant to paragraph 5 of this Stipulation of Amendment
that have yet to come due prior to the conclusion of such additional 15-day
period shall be accelerated and immediately become due and owing to the State of
Mississippi from each Settling Defendant, pro rata in proportion to its Market
Share; provided, however, that such accelerated payments (a) shall all be
adjusted upward by the greater of (i) the rate of 3% per annum or (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)
9
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 Settling Defendant to pay any amount
owed or payable to the State of Mississippi by any other Settling Defendant. All
obligations of the 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, beginning
on December 31, 1998 (subject to adjustment for appropriate allocation among
Settling Defendants by January 30, 1999), and annually thereafter on December
31st of each year after 1998 (subject to final adjustment within 30 days), it
shall severally cause to be paid to an account designated in writing by the
State of Mississippi, in accordance with and subject to paragraph 17 of this
Stipulation of Amendment, pro rata in proportion to its respective Market Share,
its share of 1.7% of the following amounts (in billions):
Year 1998 1999 2000 2001 2002 2003 thereafter
1 2 3 4 5 6
Amount $4B $4.5B $5B $6.5B $6.5B $8B $8B
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
10
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 adjustments of payments set forth
in Appendix A. This paragraph 7 supersedes paragraph 9 of the Settlement
Agreement (and, insofar as not already superseded thereby, paragraph 3 of the
MOU), 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 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 federal excise
tax 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 3 business days of receipt of
such federal excise tax 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 under paragraph 23 of the Settlement Agreement.
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)
11
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%.
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) 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 Mississippi
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;
12
(ii) such Tobacco Legislation does not provide for the
abrogation, settlement or relinquishment of state tobacco-related
claims; or
(iii) state receipt of such Federal Settlement Funds is
conditioned upon (A) the relinquishment of rights or benefits under
the Settlement Agreement (including this Stipulation of Amendment
and the Agreed Order) (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 Mississippi pursuant to paragraphs 7 and 8 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 (1.7%) used to determine the State of Mississippi'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 Settling Defendants to the State of Mississippi under
the Settlement Agreement (as revised hereby) by an amount greater than the
amount of
13
Federal Settlement Funds that the State of Mississippi could elect to
receive.
This paragraph 9 supersedes paragraph 10 of the Settlement Agreement (and,
insofar as not already superseded thereby, paragraph 5 of the MOU), 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 paragraph 13 of the Settlement Agreement shall, with respect to the
Claims identified in subparagraph (2) thereof, apply only to monetary Claims
and, further, shall not operate as a release of any person, party or entity
(whether or not a signatory to the Settlement Agreement or this Stipulation of
Amendment) as to any of the obligations undertaken in the Settlement Agreement
(as revised hereby) in connection with a monetary breach or default thereof.
This paragraph 10 does not supersede but rather supplements and clarifies the
scope of the release provided in paragraph 13 of the Settlement Agreement.
11. Limited Most-Favored Nation Provision. In partial consideration for
the monetary payments to be made by Settling Defendants pursuant to this
Stipulation of Amendment, the State of Mississippi agrees that, if 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-
15
federal governmental plaintiff than the terms of the Settlement Agreement
(including this Stipulation of Amendment and the Agreed Order) (after due
consideration of relevant differences in population or other appropriate
factors), the terms of the Settlement Agreement (including this Stipulation of
Amendment and the Agreed Order) 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 Settling Defendants with
respect to monetary payments to be made pursuant to such agreement;
(b) a guarantee by the parent company of any of 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 Agreed Order);
(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,
14
then the Settlement Agreement shall, at the option of the Office of the Attorney
General of the State of Mississippi, be revised to include terms comparable to
such terms.
This paragraph 11 supersedes paragraph 15 of the Settlement Agreement
(and, insofar as not already superseded thereby, paragraph 7 of the MOU), which
is hereby rendered null, void and of no further effect. The State of Mississippi
hereby acknowledges that, pursuant to the terms of this paragraph 11, it has
irrevocably waived any future claim to revise the terms of the Settlement
Agreement or this Stipulation of Amendment pursuant to paragraph 15 of the
Settlement Agreement (or paragraph 7 of the MOU) (except as provided in
paragraph 23 of this Stipulation of Amendment), and it hereby further covenants
and agrees that, in consideration for 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, except as expressly
provided in this paragraph 11 (or pursuant to mutually agreeable amendment by
the parties hereto as provided in paragraph 22 of the Settlement Agreement and
paragraph 19 hereof).
12. Settling Defendants' Assurances. Settling Defendants agree:
16
(a) to support the legislative initiatives to enact new laws and
administrative initiatives to promulgate new rules described in paragraph
6 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 this Settlement Agreement (including this Stipulation of
Amendment and the Agreed Order) 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 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" within the meaning of Miss. Code
Ann. ss.ss. 5-8-3, 5-8-7 (Supp. 1997)), if the 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 Mississippi in any way relating to Tobacco
Products or their use;
17
(b) Any payment to a third party, if the 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 Mississippi in any way relating to Tobacco Products or their
use; and
(c) Any payment (other than a "campaign contribution" under Miss.
Code Ann. ss.ss. 23-15-801 et. seq. (1972 & Supp. 1997) to, or for the
benefit of, a state or local official in Mississippi, whether made
directly by the Settling Defendant or indirectly through an employee of
the Settling Defendant acting within the scope of his employment, or
through an affiliate, lobbyist or other agent acting under the substantial
control of the 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 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:
o The name, address, telephone number and e-mail address of the
recipient;
o The amount of each payment described in this paragraph 13; and
o The aggregate amount of all payments described in this paragraph 13
to the recipient in the calendar year.
18
Information disclosed pursuant to this paragraph 13 is a "public record" within
the meaning of the Mississippi Public Records Act of 1983, Miss. Code Ann.
ss.ss. 25-61-1 et seq. (1972 & Supp. 1997).
14. Prohibition of Certain Payments for Product Placement. 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 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, Settling Defendants shall permanently cease marketing, licensing,
distributing, selling or offering, directly or indirectly, including by
catalogue or direct mail, in the State of Mississippi, any service or 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.
19
16. Document Production. Settling Defendants shall provide to the State of
Mississippi a copy of any CD-ROMs of documents that 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 under paragraph 23 of the Settlement
Agreement.
17. Court Approval. The parties hereto agree to submit this Stipulation of
Amendment promptly to the Court for its review and approval. If the Court
refuses to approve this Stipulation of Amendment or any material provision
hereof, or if such approval is modified in any material respect or set aside on
appeal, then this Stipulation of Amendment shall be canceled and terminated and
it and all orders issued pursuant hereto (including the Agreed Order) shall
become null and void and of no further effect. Any such cancellation or
termination of this Stipulation of Amendment shall not result in the
cancellation or termination of the Settlement Agreement as approved by the Court
on December 29, 1997. All payments described in this Stipulation of Amendment
shall be paid into a special escrow account, pursuant to the terms of a mutually
acceptable escrow agreement (the "MFN Escrow Agreement"), and if so paid shall
remain in said escrow account, until such time as (1) the time for appeal or to
seek review of the Court's order
20
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 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 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.
18. Obligations Several, Not Joint. 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.
19. Applicable Provisions of Settlement Agreement. The provisions of
paragraphs 17 (Representations of Parties); 19 (Headings), 20 (No Determination
or Admission), 21 (Non-Admissibility), 22 (Amendment), 23 (Notices), 24
(Cooperation), 26 (Construction), 27 (Severability), 28 (Intended Beneficiaries)
and 29 (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 paragraphs thereof specifically
listed in this paragraph 19 shall be construed to include this Stipulation of
Amendment.
21
20. Release of Right to Additional Compensation. In consideration for the
terms hereof, including, inter alia, the provisions of paragraph 5 hereof, the
State of Mississippi hereby irrevocably releases Settling Defendants from any
claim for additional compensation pursuant to paragraph 16 of the Settlement
Agreement (and, insofar as not already superseded thereby, paragraph 8 of the
MOU), the provisions of which regarding the State's rights to additional
compensation are hereby rendered null, void and of no further effect.
21. Governing Law. The Settlement Agreement (including this Stipulation of
Amendment and the Agreed Order) shall be governed by the laws of the State of
Mississippi without regard to the conflict of law rules of such State. This
paragraph supersedes paragraph 25 of the Settlement Agreement, which is hereby
rendered null, void and of no further effect.
22. Attorneys' Fees. The parties hereto acknowledge that the entire
obligation of Settling Defendants regarding payment of private counsel's fees
pursuant to paragraph 16 of the Settlement Agreement (and, insofar as not
already superseded thereby, paragraph 8 of the MOU) is set forth in the
Mississippi Fee Payment Agreement dated July 2, 1998. The Attorney General
represents that all of the State's outside counsel that have represented the
State in connection with this action are, by and through their authorized
representatives, signatories to the Mississippi Fee Payment Agreement. Under no
circumstances shall Settling
22
Defendants' entry into this Stipulation of Amendment or the Mississippi 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 Nations clause without incorporation of all terms of any settlement
agreement that provides the occasion for any such revision, including all terms
with respect to attorneys' fees.
23. 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 Settling Defendants are relieved from making
payments required under the Minnesota Settlement) (the "Minnesota Order"),
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 Settling
Defendants make such an election:
(a) 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, Settling Defendants shall be obligated to make any payments
23
pursuant to paragraphs 5 and 6 of this Stipulation of 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 paragraph 15 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) 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 Mississippi as a
result of application of paragraph 15 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 23.
No other provision of the Settlement Agreement, this Stipulation of Amendment or
the Consent Decree shall be affected by the Minnesota Order. Settling Defendants
will provide the State of Mississippi with notice of any filing seeking to
obtain a Minnesota Order.
24. Entire Agreement of Parties. The Settlement Agreement (including for
purposes of this paragraph 24 this Stipulation of Amendment, the Mississippi Fee
Payment Agreement and the Agreed Order) contains an entire, complete and
24
integrated statement of each and every 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 Mississippi, 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 2nd day
of July, 1998.
STATE OF MISSISSIPPI, acting by and
through Michael C. Moore, its duly
elected and authorized Attorney General
By: /s/ Michael C. Moore
-------------------------------
Michael C. Moore
Attorney General
25
PHILIP MORRIS INCORPORATED
By: /s/ Meyer G. Koplow
--------------------------------
Meyer G. Koplow
Counsel
By: /s/ Martin J. Barrington by MGK
--------------------------------
Martin J. Barrington
General Counsel
R.J. REYNOLDS TOBACCO
COMPANY
By: /s/ Arthur F. Golden
--------------------------------
Arthur F. Golden
Counsel
By: /s/ Charles A. Blixt by AFG
--------------------------------
Charles A. Blixt
General Counsel
26
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
LORILLARD TOBACCO COMPANY
By: Arthur J. Stevens by MGK
------------------------------------
Arthur J. Stevens
Senior Vice President and
General Counsel
27
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 1.7% 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 CHANCERY COURT OF JACKSON COUNTY,
STATE OF MISSISSIPPI
)
IN RE MIKE MOORE, ATTORNEY GENERAL, ex. rel. ) CAUSE No. 94-1429
STATE OF MISSISSIPPI TOBACCO LITIGATION )
)
AGREED ORDER APPROVING STIPULATION OF
AMENDMENT TO SETTLEMENT AGREEMENT
PURSUANT TO COURT ORDER OF DECEMBER 29, 1997
WHEREAS, on October 17, 1997, the State of Mississippi and certain
Defendants entered into a Comprehensive Settlement Agreement and Release (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 December 29, 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
3
EXHIBIT 1
Agreement shall be revised so that the State of Mississippi will obtain
treatment at least as relatively favorable as any such non-federal governmental
entity;
WHEREAS, on May 8, 1998, Settling Defendants entered into a pre-verdict
settlement agreement with the State of Minnesota to settle the lawsuit State of
Minnesota v. Philip Morris Inc., No. C1-94-8565 (Dist. Ct. Ramsey County, filed
Aug. 17, 1994) (the "Minnesota Settlement");
WHEREAS, the State of Mississippi and Settling Defendants agree that,
pursuant to the Most Favored Nations clause of the Settlement Agreement, the
Settlement Agreement is to be revised in light of the Minnesota Settlement;
WHEREAS, the State of Mississippi and Settling Defendants have agreed on
the terms of the revisions to the Settlement Agreement as set forth in a
Stipulation of Amendment to Settlement Agreement and for Entry of Agreed Order
executed on July 2, 1998 (the "Stipulation of Amendment");
WHEREAS, the Stipulation of Amendment provides for entry of this Agreed
Order and, further, provides that the Settling Defendants have waived as
specified therein their right to challenge the terms of this Agreed Order as
being superseded or preempted by future congressional enactments; and
WHEREAS, the Attorney General believes the entry of this Agreed Order is
appropriate and in the public interest;
4
EXHIBIT 1
NOW, THEREFORE, the State of Mississippi and Settling Defendants having
come before the Court on their joint motion Ore Tenus for approval of a
Stipulation of Amendment to the Settlement Agreement pursuant to the Most
Favored Nations clause of the Settlement Agreement and this Court's December 29,
1997 Judgment of Dismissal and Order Approving Settlement Agreement (the
"December 29, 1997 Order"), 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. Pursuant to the Settlement Agreement and this Court's
December 29, 1997 Order, this Court has continuing jurisdiction to enforce and
implement the terms of the Settlement Agreement, including the Most Favored
Nations clause of the Settlement Agreement. The Court finds that the terms of
the Stipulation of Amendment are just and in the best interests of the State of
Mississippi and Settling Defendants, and the same is hereby approved. The
parties are directed to comply with the terms of the Stipulation of Amendment.
2. Jurisdiction and Venue. In keeping with the Settlement Agreement and
this Court's December 29, 1997 Order, the Court retains jurisdiction for the
purpose of enforcement of the Settlement Agreement (as amended by the
Stipulation of Amendment) and this Agreed Order. Any party to this Agreed Order
may apply to this Court at any time for such further orders and directions as
5
EXHIBIT 1
may be necessary or appropriate for the construction and enforcement of the
Settlement Agreement, the Stipulation of Amendment and this Agreed Order.
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 Agreed Order applies only to 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 entity acting in concert
or participating with them. The remedies and penalties for a violation of this
Agreed Order shall apply only to Settling Defendants, and shall not be imposed
or assessed against any employee, officer or director of Settling Defendants or
other person or entity as a consequence of such a violation, and there shall be
no jurisdiction under this Agreed Order to impose or assess a penalty against
any employee, officer or director of Settling Defendants or other person or
entity as a consequence of a violation of this Agreed Order.
5. Effect on Third Parties. This Agreed Order 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. Settling Defendants are permanently enjoined from:
6
EXHIBIT 1
(a) On and after December 31, 1998, marketing, licensing,
distributing, selling or offering, directly or indirectly, including by
catalogue or direct mail, in the State of Mississippi, any service or 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.
(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 Agreed Order
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;
7
EXHIBIT 1
(2) limiting or suppressing research into smoking and health; or (3)
limiting or suppressing research into, marketing, or development of new
products.
(d) Taking any action, directly or indirectly, to target children in
Mississippi 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 Mississippi.
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 Agreed
Order 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 paragraphs 12, 13 and 14 of the Settlement Agreement; nor shall this Agreed
Order be construed as, or deemed to be, an admission or concession or evidence
of personal jurisdiction by any person not a party to this Agreed Order.
Defendants specifically disclaim any liability or wrongdoing whatsoever with
respect to the claims and allegations asserted against them in this Action and
Settling Defendants have entered into the Settlement Agreement and the
Stipulation of Amendment, and have stipulated to entry of this Agreed Order,
solely to avoid the further expense, inconvenience, burden and risk of
litigation.
8
EXHIBIT 1
8. Modification. This Agreed Order shall not be modified unless the party
seeking modification demonstrates, by clear and convincing evidence, that it
will suffer irreparable harm from new and unforeseen conditions; provided,
however, that the provisions of paragraph 4 of this Agreed Order 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 Settling
Defendants will comply with this Agreed Order as originally entered, even if
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
Settling Defendants shall not support modification of this Agreed Order. 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 23 of the Stipulation
of Amendment.
9. Enforcement and Attorneys' Fees. In any proceeding which results in a
finding that a Settling Defendant violated this Agreed Order, the responsible
Settling Defendant or Settling Defendants shall pay the State's costs and
attorneys' fees incurred in such proceeding.
10. Non-Exclusivity of Remedy. The remedies in this Agreed Order are
cumulative and in addition to any other remedies the State may have at law or
9
EXHIBIT 1
equity. Nothing herein shall be construed to prevent the State from bringing any
action simply because the conduct that is the basis for such action may also
violate this Agreed Order.
SO ORDERED AND ADJUDGED, this the 11th day of July, 1998.
/s/ William H. Myers
-----------------------------
WILLIAM H. MYERS,
CHANCELLOR
APPROVED:
/s/ Michael C. Moore
- ------------------------------------
MICHAEL C. MOORE, Attorney General,
for the State of Mississippi
/s/ Joe R. Colingo
- ------------------------------------
JOE R. COLINGO, for Settling Defendants
10