Exhibit 10.4
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
TEXARKANA DIVISION
____________________________________
)
STATE OF TEXAS, )
)
Plaintiff, )
)
vs. ) No. 5-96CV-91
)
AMERICAN TOBACCO )
COMPANY, et al., )
)
Defendants. )
____________________________________)
STIPULATION OF AMENDMENT TO SETTLEMENT AGREEMENT
AND FOR ENTRY OF CONSENT DECREE
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 Comprehensive Settlement Agreement and Release entered into by the
parties hereto with respect to this Action on January 16, 1998 (the "Settlement
Agreement").
WHEREAS, on January 16, 1998, the State of Texas 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 January 22, 1998.
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 Texas 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 Texas 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 Texas 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 parties hereto 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, which shall
remain in full force and effect except insofar as they are expressly
3
revised by the provisions of this Stipulation of Amendment. Nothing in this
Stipulation of Amendment shall be construed to release Settling Defendants from
any of the obligations assumed in paragraphs 6 (Elimination of Billboards and
Transit Advertisements), 8 (Initial Payments) and 9 (Pilot Program Payments) of
the Settlement Agreement.
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 as Exhibit 1 hereto.
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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:
(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
November 1, 1998, the calendar year ending December 31, 1998), regardless
of when such payment is made, and (ii) with respect to all other
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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 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
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(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 this Stipulation of Amendment during the year 1998 are in settlement of
the State's claims for reimbursement for public health expenditures of the State
of Texas incurred in the year of payment or earlier years related to the subject
matter of this Action, including without limitation expenditures made by the
State's Employees' Health Insurance Program and Charity Care programs. All other
payments made by Settling Defendants pursuant to this Stipulation of Amendment
are in settlement of all of the State of Texas's claims for damages incurred by
the State in the year of payment or earlier years related to the subject matter
of this Action, including claims for reimbursement of Medicaid expenditures and
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.
5. Supplemental Initial Payment. Each MFN Settling Defendant severally
shall cause to be paid into the registry of the court and in accordance with and
subject to paragraph 17 of this Stipulation of Amendment, pro rata in proportion
to
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its Market Share, its share of $156,530,000, to be paid on or before January 4,
1999; its share of $605,090,000, to be paid on or before January 3, 2000; its
share of $605,090,000, to be paid on or before January 2, 2001; its share of
$605,090,000, to be paid on or before January 2, 2002; and its share of
$303,200,000, 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 5 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
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applicable date set forth in such paragraph 5 (a "Missed Payment"), the State of
Texas 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 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 Texas 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 Texas 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
Texas 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
9
the State of Texas from each MFN 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) 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 Texas 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 it shall
severally cause to be paid into the registry of the Court, in accordance with
and subject to paragraph 17 of this Stipulation of Amendment, pro rata in
proportion to its Market Share, its share of the following payments (subject to
adjustment for appropriate allocation among Settling Defendants by January 30,
1999): $89
10
million to be paid on or before November 1, 1998; and $201 million to be paid on
or before December 31, 1998.
Each of the Settling Defendants further agrees that, on December 31, 1999
and annually thereafter on December 31st of each year after 1999 (subject to
final adjustment within 30 days), it shall severally cause to be paid into the
registry of the Court and in accordance with and subject to paragraph 17 of this
Stipulation of Amendment, pro rata in proportion to its Market Share, its share
of 7.25% of the following amounts (in billions):
Year 1999 2000 2001 2002 2003 thereafter
----
2 3 4 5 6
Amount $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 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
payments due pursuant to this paragraph 7 on November 1, 1998 and December 31,
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 paragraph
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10 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 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 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
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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) 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 Texas
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 any
tobacco-related claims of such states that have not previously been
resolved; or
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(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 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 Texas pursuant to paragraphs 8 and 9 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 (7.25%) used to determine the State of Texas'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 Texas under the Settlement
Agreement (as revised hereby) by an amount greater than the amount of
Federal Settlement Funds that the State of Texas could elect to receive.
This paragraph 9 supersedes paragraph 12 of the Settlement Agreement,
which is hereby rendered null, void and of no further effect.
14
10. Clarification of Scope of State's Release. The release of claims
provided in paragraph 14 of the Settlement Agreement shall, with respect to the
Claims identified in subparagraph (2) thereof, apply only to monetary Claims.
This paragraph 10 does not supersede but rather supplements and clarifies the
scope of the release provided in paragraph 14 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 Texas 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 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;
15
(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 Texas, be revised to include terms comparable to such
terms.
This paragraph 11 supersedes paragraph 16 of the Settlement Agreement,
which is hereby rendered null, void and of no further effect as to any MFN
Settling Defendant. The State of Texas 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 paragraph 16 of the Settlement Agreement
(except as
16
provided in paragraph 23 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
paragraph 23 of the Settlement Agreement and paragraph 19 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 paragraph
7 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 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.
17
13. Disclosure of Payments. Each MFN Settling Defendant shall disclose to
the Office of the Attorney General and the Texas Ethics Commission, at the times
and in the manner provided below, information about the following payments:
(a) Any payment to a person required to register under Tex. Gov't
Code Ann. ss.305.005 (West 1998), 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 Texas 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 Texas in any way relating to Tobacco Products or
their use; and
(c) Any payment (other than a "political contribution" under 2
U.S.C. ss.431(8)(A)) to, or for the benefit of, a state or local official
in Texas, whether made directly by the MFN Settling Defendant or
indirectly through 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.
18
Disclosures required under this paragraph 13 shall be filed with the Office of
the Attorney General and the Texas Ethics Commission 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:
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.
Information disclosed pursuant to this paragraph is "public information" within
the meaning of Tex. Gov't Code Ann. ss. 552.002 (West 1998).
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 other indicia of product identification identical or similar
to, or identifiable with, those used for any brand of domestic Tobacco Products.
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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 Texas, 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 paragraph 4(e)(2) of the Settlement Agreement.
16. Document Production. MFN Settling Defendants shall, upon request,
provide to the State of Texas a copy of any CD-ROMs of documents that MFN
Settling Defendants have agreed to produce, pursuant to the Minnesota
Settlement,
20
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 promptly to the Court for its review and approval. If the Court
refuses to approve this Stipulation of Amendment and the Consent Decree in any
respect unacceptable to either of the parties hereto or to enter the Order
Granting Joint Motion for Approval of Agreement Regarding Disposition of
Settlement Proceeds and to Withdraw with Predjudice All Political Subdivisions'
Motions to Intervene (the "Political Subdivisions Order," in the form attached
as Exhibit 2 hereto), or if such approval or the Political Subdivisions Order is
modified in any respect unacceptable to either of the parties hereto 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 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 January 22, 1998. All payments
described in this Stipulation of Amendment shall be paid into a special escrow
account, pursuant to the terms of a mutually acceptable
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escrow agreement (the "MFN Escrow Agreement" in the form attached as Exhibit 3
hereto), and if so paid shall remain in said escrow account, until such time as
(1) the 30-day time periods to seek review of the Court's order approving this
Stipulation of Amendment and the Political Subdivisions Order have 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 order in question 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 and upon
disbursement shall be transferred into the registry of the Court. All payments
described in this Stipulation of Amendment that are not required to be paid into
the MFN Escrow Account pursuant to this paragraph 17 shall be paid into the
registry of the Court.
18. 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
22
Defendants Reynolds and Brown & Williamson shall be severally liable for their
respective shares of each payment due pursuant to the Settlement Agreement and
this Stipulation of Amendment up to (and their liability hereunder shall not
exceed) the full extent of their 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 their other
assets or earnings to satisfy such obligations.
19. Applicable Provisions of Settlement Agreement. The provisions of
paragraphs 18 (Representations of Parties), 20 (Headings), 21 (No Admission), 22
(Non-Admissibility), 23 (Amendment), 25 (Cooperation), 26 (Governing Law), 27
(Construction), 28 (Severability), 29 (Intended Beneficiaries) and 30
(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 19 shall be construed to include this Stipulation of Amendment.
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 Texas hereby irrevocably releases MFN Settling Defendants from any
claim for additional compensation pursuant to paragraphs 17(a) and (d) of the
Settlement Agreement, and the provisions of paragraphs 17(a) and (d) regarding
the State's
23
rights to additional compensation are hereby rendered null, void and of no
further effect.
21. Discovery Materials. Paragraph 22 of the Settlement Agreement is
hereby modified to permit the Attorney General of the State of Texas to seek the
dissolution of any protective order in this Action governing treatment of
discovery materials during the pendency of this Action (as well as existing
confidentiality designations), but only with regard to materials that have been
made public in other litigation pursuant to a final court order, subject to any
defenses or objections as may be made by Settling Defendants. Except as
expressly provided above, the provisions of paragraph 22 of the Settlement
Agreement with respect to discovery materials shall remain in effect for the
period of time specified therein.
22. Attorneys' Fees. Settling Defendants, the State of Texas, Private
Counsel and the Law Offices of Marc D. Murr, P.C. have entered into a separate
agreement on July 24, 1998 (the "Texas Fee Payment Agreement") that sets forth
the entire obligation of Settling Defendants with respect to payment of
attorneys' fees pursuant to paragraph 17 of the Settlement Agreement. The
parties hereto agree that the Texas Fee Payment Agreement supersedes Exhibit 1
to the Settlement Agreement, which is hereby rendered null, void and of no
further effect. The parties further agree that Settling Defendants shall not be
required to perform any obligation pursuant to this Stipulation of Amendment
(excepting Settling
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Defendants' obligations with respect to the advance to be paid pursuant to
section 12 of the Texas Fee Payment Agreement) until such time as (1) the Court
issues an order confirming that amounts payable with respect to attorneys' fees
of Texas Counsel pursuant to the Texas Fee Payment Agreement are not funds of
the State of Texas and that Settling Defendants are under no obligation to pay
such amounts to the State of Texas; (2) the 30-day period to seek review of such
order 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 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. Under no circumstances shall Settling Defendants' entry into
this Stipulation of Amendment or the Texas 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.
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
25
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 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 16 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
26
Stipulation of Amendment, against any payments due to the State of Texas
as a result of application of paragraph 16 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. MFN Settling
Defendants will provide the State of Texas with notice of any filing seeking to
obtain a Minnesota Order.
24. Entire Agreement of Parties. The Settlement Agreement (including this
Stipulation of Amendment, the Texas Fee Payment Agreement and the Consent Decree
but excluding Exhibit 1 to the Settlement Agreement, which is hereby rendered
null, void and of no further effect) contains an entire, complete and 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 Texas, and is not subject to any condition not provided
for herein.
27
IN WITNESS WHEREOF, the parties hereto, through their fully authorized
representatives, have agreed to this Stipulation of Amendment as of this 24th
day of July, 1998.
STATE OF TEXAS, acting by and through
Dan Morales, its duly elected and
authorized Attorney General
By: /s/ Dan Morales
----------------------------------
Dan Morales
Attorney General
COUNSEL TO THE STATE OF TEXAS
By: /s/ Walter Umphrey
----------------------------------
Walter Umphrey
Provost & Umphrey
By: /s/ John M. O'Quinn
----------------------------------
John M. O'Quinn
By: /s/ John Eddie Williams, Jr.
----------------------------------
John Eddie Williams, Jr.
28
By: /s/ Wayne A. Reaud
----------------------------------
Wayne A. Reaud
Reaud, Morgan & Quinn, Inc.
By: /s/ Harold W. Nix
----------------------------------
Harold W. Nix
The Nix Law Firm
By: /s/ Cary Patterson
----------------------------------
Cary Patterson
The Nix Law Firm
By: /s/ Marc D. Murr
----------------------------------
Marc D. Murr
Law Offices of Marc D. Murr, P.C.
By: /s/ Grant Kaiser
----------------------------------
Grant Kaiser
Kaiser & Morrison
By: /s/ T. Richardson, Jr.
----------------------------------
For Joseph F. Rice
Ness, Motley, Loadholt,
Richardson & Poole
29
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
----------------------------------
Charles A. Blixt
General Counsel
30
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: /s/ Arthur J. Stevens by MGK
----------------------------------
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
31
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 7.25%
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 UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
TEXARKANA DIVISION
____________________________________
)
STATE OF TEXAS, )
)
Plaintiff, )
)
vs. ) No. 5-96CV-91
)
AMERICAN TOBACCO )
COMPANY, et al., )
)
Defendants. )
____________________________________)
CONSENT DECREE
WHEREAS, on January 16, 1998, the State of Texas 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 January 22, 1998,
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;
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 Texas 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 Texas 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 Texas and Settling Defendants have agreed on the
terms of the revisions to the Settlement Agreement as set forth in a Stipulation
2
of Amendment to Settlement Agreement and for Entry of Consent Decree executed on
July 24, 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 Texas 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 Texas and Settling
Defendants, and the same is hereby approved. The Court further finds that the
Texas Fee Payment Agreement referred to in paragraph 22 of the Stipulation of
Amendment sets forth the entire obligation of Settling Defendants with respect
to payment of attorneys' fees pursuant to paragraph 17 of the Settlement
Agreement and supersedes Exhibit 1 to the Settlement Agreement, which is hereby
declared
3
to be null, void and of no further effect, that amounts payable with respect to
attorneys' fees of Texas Counsel pursuant to the Texas Fee Payment Agreement are
not funds of the State of Texas and that Settling Defendants are under no
obligation to pay such amounts to the State of Texas.
2. Jurisdiction and Venue. In keeping with the Settlement Agreement and
this Court's January 22, 1998 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 entity
acting in concert or participating with them, and only with respect to
activities in connection with the
4
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
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,
distributing, selling or offering, directly or indirectly, including by
catalogue or direct mail, in the State of Texas, 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
5
brand of 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 paragraph 4(e)(2) 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
6
(3) limiting or suppressing research into, marketing, or development of
new products.
(d) Taking any action, directly or indirectly, to target children in
Texas 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 Texas.
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 paragraphs 14 and 15 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 by 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.
7
8. Modification. This Consent Decree 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 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 23 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
8
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 Consent Decree.
DONE AND ORDERED at Texarkana, Texas, this the 24th day of July, 1998.
/s/ David Folsom
--------------------------------------
DAVID FOLSOM
JUDGE, UNITED STATES DISTRICT COURT
APPROVED:
/s/ Dan Morales
- -----------------------------------
Dan Morales, Attorney General,
For the State of Texas
Howard Waldrop
By: /s/ Josh R. Morriss, III
- -----------------------------------
Howard Waldrop
For MFN Settling Defendants
9
EXHIBIT 2
IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TEXAS
TEXARKANA DIVISION
THE STATE OF TEXAS, ) CIVIL NO.: 5:96-CV-0091
PLAINTIFF, )
)
VS. ) JUDGE: DAVID FOLSOM
)
THE AMERICAN TOBACCO ) MAGISTRATE JUDGE:
COMPANY, ET AL, ) WENDELL C. RADFORD
DEFENDANTS. )
ORDER GRANTING JOINT MOTION FOR
APPROVAL OF SETTLEMENT AGREEMENT REGARDING DISPOSITION OF
SETTLEMENT PROCEEDS AND TO WITHDRAW WITH PREJUDICE
POLITICAL SUBDIVISIONS' MOTIONS TO INTERVENE
Before the Court is a Joint Motion for Approval of Settlement Agreement
Regarding Disposition of Settlement Proceeds and to Withdraw with Prejudice
Political Subdivisions(1) Motions to Intervene. After considering the filings
related to this motion, the evidence, and the applicable law, the Court is of
the opinion the Motion should be granted. The Court therefore makes the
following findings of fact and conclusions of law.
1. The Court finds that the Agreement Regarding Disposition of Settlement
Proceeds ("Disposition Agreement") is in the public interest and
should be approved. The benefits of this agreement include certainty
for the parties and movants as well as judicial economy.
2. Therefore, the Court approves and adopts the Disposition Agreement,
attached hereto and incorporated herein, as an enforceable judgment of
this Court. The parties and movants are ordered to comply with all
terms and conditions contained in the Disposition Agreement.
- --------------
(1)Dallas County, Dallas County Hospital District, El Paso County, El Paso
County Hospital District, Harris County, Harris County Hospital District,
Montgomery County Hospital District, Nueces County, Nueces County Hospital
District, and Tarrant County Hospital District.
3. The Court further finds, as it has previously found, that the Attorney
General brought this suit on behalf of the State in its
quasi-sovereign capacity. SEE MEMORANDUM OPINION AND ORDER RE:
DEFENDANTS' MOTION TO DISMISS COUNTS 1-3 AND COUNTS 4-17 OF THE
STATE'S SECOND AMENDED COMPLAINT at 5 (Sept. 8, 1997).
4. The January 16, 1998, Comprehensive Settlement Agreement and
Release (the "CSA") negotiated by the parties and approved by the
Court defines the "State of Texas" to include "all of its officers
acting in their official capacities and any department, subdivision
or agency of the State, regardless of whether a named plaintiff".
Paragraph 14 of the CSA further provides that the Waiver and Release
given pursuant to paragraph 14 of the CSA constitutes a release of
claims of "the State of Texas (including any of its past, present or
future agents, officials acting in their official capacities, legal
representatives, agencies, departments, commissions, divisions,
subdivisions (political and otherwise), public entities,
corporations, instrumentalities and educational institutions, and
whether or not any such person or entity participates in the
settlement)".
5. The Court further finds and declares that during the litigation of
this action and the negotiation of the CSA, the Attorney General,
acting on behalf of the State in its quasi-sovereign capacity, had the
authority to and did adequately represent the State of Texas and the
persons and entities enumerated in paragraph 14 of the CSA (as quoted
in the preceding paragraph of this Order) (the "Releasing Parties"),
including, without limitation, all political subdivisions and hospital
districts of the State of Texas. Accordingly, the Court further finds
and declares that all Releasing Parties are encompassed within and
bound by the release provided pursuant to the CSA, that all Releasing
Parties are further encompassed within and bound by the Court's
January 22, 1998 Final Judgment approving and incorporating the CSA,
and that all Released Claims (as defined in paragraph 14 of the CSA)
of the Releasing Parties were fully and finally compromised, settled
and released by the CSA.
6. The Court also grants the Movants' request that the Political
Subdivisions withdraw their motions to intervene and all other motions
with prejudice to refiling. All motions filed by the Political
Subdivisions are hereby dismissed with prejudice.
7. It is further ordered that this Court shall have exclusive
jurisdiction over the provisions of this Order and the Final Judgment
in this case. All persons in privity with the parties, including all
persons represented by the parties, who seek to raise any objections
or challenges in any forum to any provision of this Judgment are
hereby enjoined from proceeding in any other state or federal court.
SEE, E.G., IN RE CORRUGATED CONTAINER ANTITRUST LITIGATION, 659 F.2d
1332, 1334-35 (5th Cir. 1981), CERT. DENIED, 456 U.S. 936 (1982);
SOUTHWEST AIRLINES CO. V. TEXAS INTERNATIONAL AIRLINES, INC., 546 F.2d
84, 91 (5th Cir.), CERT. DENIED, 434 U.S. 832 (1977)
8. The Political Subdivisions' withdrawal of all their motions with
prejudice leaves undisturbed the entirety of the merits of the January
22, 1998, Final Judgment in this cause. The Court's January 22, 1998,
Final Judgment disposed of all claims in the underlying suit. It is
therefore is a "final decision" as a matter of federal law under 28
U.S.C. Section 1291.
SIGNED JULY 24, 1998.
/s/ David Folsom
------------------------------
DAVID FOLSOM
UNITED STATES DISTRICT JUDGE
EXHIBIT 3
MFN ESCROW AGREEMENT
This escrow agreement (the "MFN Escrow Agreement") is entered into as of
July __, 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 Texas and __________ Bank, N.A., as
escrow agent (the "MFN Escrow Agent").
WITNESSETH:
WHEREAS, the State of Texas and Settling Defendants entered into a
comprehensive settlement agreement and release as of January 16, 1998 (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 Texas v. American Tobacco
Co., No. 5-96CV-91 (E.D. Tex. filed Mar. 28, 1996) (the "Action"), in the United
States District Court for the Eastern District of Texas (the "Court");
WHEREAS, the State of Texas and Settling Defendants entered into a
Stipulation of Amendment to Settlement Agreement and for Entry of Consent Decree
(the "Stipulation of Amendment") on July 24, 1998, paragraph 17 of which
provides for Court approval of the Stipulation of Amendment and the entry by the
Court of the Political Subdivisions Order attached to the Stipulation of
Amendment as Exhibit 2 thereto;
WHEREAS, the Stipulation of Amendment provides that, on the dates
specified therein, each MFN Settling Defendant shall severally pay to the State
of Texas, 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 the Stipulation of Amendment shall be paid into a
special escrow account (and if so paid shall remain in said escrow account)
until such time as (1) the 30 day periods for appeal or to seek review of the
Court's order approving this Stipulation of Amendment and the Court's entry of
the Political Subdivisions Order have 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 order in question
has been affirmed in all material respects by the court of last resort to which
such appeal or
EXHIBIT 3
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 be made 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 Texas 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 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
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 and 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 3
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 Texas; (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 Stipulation of Amendment has not received court approval or has
been canceled, terminated or has otherwise become null and void for any
reason, the MFN Escrow Agent shall upon the expiration of ten (10)
business days following the MFN Escrow Agent's receipt of notice, and
without an order of the Court, 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.
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EXHIBIT 3
(b) Upon receipt of (i) written notice signed by counsel for the MFN
Settling Defendants and counsel for the State of Texas stating that the
Availability Date has occurred and (ii) an order of the Court 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 Texas, 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 Texas 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 Texas 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 3
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 Texas (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 Texas, 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 Texas (to be shared
equally between the State of Texas and the MFN Settling Defendants),
petition the Court for the appointment of a successor MFN Escrow Agent.
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EXHIBIT 3
(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 Texas:
Hon. Dan Morales
Office of the Attorney General
P.O. Box 12548
Capitol Station
Austin, TX 78711
(512) 463-2063
With a copy to:
Walter Umphrey
Provost & Umphrey
490 Park Street
P.O. Box 4905
Beaumont, TX 77704
Fax: (409) 838-8888
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EXHIBIT 3
Settling Defendants:
Philip Morris Incorporated: R.J. Reynolds Tobacco Company:
Martin J. Barrington, Esq. Charles A. Blixt, Esq.
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, Esq. Arthur F. Golden, Esq.
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
For Brown & Williamson Tobacco Lorillard Tobacco Company:
Corporation:
Michael Walter Arthur J. Stevens, Esq.
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) 568-7187
With a copy to:
F. Anthony Burke
Brown & Williamson Tobacco Corporation
200 Brown & Williamson Tower
401 South Fourth Avenue
Louisville, KY 40202
Fax: (502) 568-7187
MFN Escrow Agent:
_________________ Bank, N.A.
Phone:
Fax:
Wire Transfer Instructions:
ABA #:
Account #:
Account Name:
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EXHIBIT 3
(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 Texas, 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 Eastern District of Texas 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
the 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.
(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
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EXHIBIT 3
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.
IN WITNESS WHEREOF, the parties have executed this MFN Escrow Agreement as
of the day and year first hereinabove written.
STATE OF TEXAS
By:
-------------------------------
Dan Morales
Attorney General
PHILIP MORRIS INCORPORATED
By:
-------------------------------
Meyer G. Koplow
Counsel
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EXHIBIT 3
R.J. REYNOLDS TOBACCO COMPANY
By:
-------------------------------
Arthur F. Golden
Counsel
BROWN & WILLIAMSON TOBACCO
CORPORATION
By:
-------------------------------
Stephen R. Patton
Counsel
LORILLARD TOBACCO COMPANY
By:
-------------------------------
Arthur J. Stevens
Senior Vice President & General Counsel
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EXHIBIT 3
_____________________ BANK, N.A.
as MFN Escrow Agent
By:
-------------------------------
Name:
Title:
11