Exhibit 99.3
TEXAS FEE PAYMENT AGREEMENT
This Texas Fee Payment Agreement (the "Agreement") is entered into as
of July 24, 1998, by and among Philip Morris Incorporated, R.J. Reynolds Tobacco
Company, Brown & Williamson Tobacco Corporation, Lorillard Tobacco Company and
United States Tobacco Company (collectively and severally "Settling Defendants"
and each individually a "Settling Defendant"), Walter Umphrey, John M. O'Quinn,
P.C., John Eddie Williams, Jr., Reaud, Morgan & Quinn, Inc., The Nix Law Firm
and Ness, Motley, Loadholt, Richardson & Poole (collectively, "Private
Counsel"), the Law Offices of Marc D. Murr, P.C. ("Other Texas Counsel") and the
State of Texas, in connection with the lawsuit State of Texas v. American
Tobacco Co., No. 5-96CV-91 (E.D. Tex. filed Mar. 28, 1996) (the "Action").
WITNESSETH:
WHEREAS, on January 16, 1998, the State of Texas and Settling
Defendants entered into a comprehensive settlement agreement to settle and
resolve with finality all present and future civil claims relating to the
subject matter of the Action (the "Settlement Agreement"), which Settlement
Agreement was approved by the United States District Court for the Eastern
District of Texas (the "Court") and adopted as an enforceable order of the Court
pursuant to Court Order dated January 22, 1998.
WHEREAS, paragraph 17 of the Settlement Agreement and Exhibit 1 thereto
provide that Settling Defendants shall pay reasonable attorneys' fees to Private
Counsel and Other Texas Counsel (collectively "Texas Counsel"), in an amount set
by arbitration, subject to an appropriate annual cap on all such payments of
attorneys' fees by Settling Defendants, as well as other conditions set forth
therein;
WHEREAS, paragraph 16 of 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, certain Settling Defendants entered into a
pre-verdict settlement agreement with the State of Minnesota (the "Minnesota
Settlement"), which includes provisions for payment of attorneys' fees to
private counsel for the State of Minnesota;
WHEREAS, on July 24, 1998, Settling Defendants and the State of Texas
entered into a Stipulation of Amendment to Settlement Agreement and for Entry of
Consent Decree (the "Stipulation of Amendment") to resolve any disputes with
respect to the Most Favored Nation clause of the Settlement Agreement, including
any disputes regarding payment of attorneys' fees, in light of the Minnesota
Settlement; and
WHEREAS, Settling Defendants, the State of Texas and Texas Counsel, in
order to resolve any disputes with respect to paragraphs 16 and 17 of the
Settlement Agreement, and to describe more fully the procedures that will govern
Settling Defendants' payment of fees to Texas Counsel, have agreed to the terms
of this Agreement:
NOW, THEREFORE, BE IT KNOWN THAT, in consideration of their mutual
agreement to the terms of this Agreement, the State of Texas's and Settling
Defendants' mutual agreement to the terms of the Stipulation of Amendment, and
such other consideration described herein, including the release of certain
claims against Settling Defendants, the sufficiency of which is hereby
acknowledged, the parties hereto, acting by and through their authorized agents,
memorialize and agree as follows:
SECTION 1. Agreement to Pay Fees.
Settling Defendants will pay reasonable attorneys' fees to Texas
Counsel (as identified by the Attorney General pursuant to section 21 hereof)
for their representation of the State of Texas in connection with the Action.
The amount of such fees will be set by a panel of three independent arbitrators
(the "Panel") whose decisions as to the amount of fees to be paid in connection
with this Agreement ("Fee Award(s)") shall be final and not appealable. The
procedures governing Settling Defendants' obligation to pay any such Fee Awards,
including the procedures for making, and the timing of payments in satisfaction
of, such Fee Awards shall be as provided herein.
SECTION 2. Aggregate National Caps on Payment of Certain Fees.
Settling Defendants' payment of any Fee Award pursuant to this
Agreement shall be subject to the payment schedule and the annual and quarterly
aggregate national caps specified in sections 13, 14, 15 and 16 hereof, which
shall apply to:
(a) all payments of attorneys' fees pursuant to an award arbitrated by
the Panel ("Fee Award") in connection with the settlement of any tobacco and
health cases (other than non-class action personal injury cases brought directly
by or on behalf of a single natural person or the survivor of such person or for
wrongful death, or any non-class action consolidation of two or more such cases)
("Tobacco Cases") on terms that provide for payment by Settling Defendants or
other defendants acting in agreement with Settling Defendants (collectively,
"Participating Defendants") of fees with respect to private counsel retained by
the plaintiff in connection with any such case ("Outside Counsel"), subject to
an annual cap on payment of all such fees;
(b) all payments of attorneys' fees (other than fees for attorneys of
Participating Defendants) pursuant to a Fee Award for activities in connection
with Tobacco Cases resolved by operation of federal legislation that either (i)
implements the terms of the June 20, 1997 Proposed Resolution (or a
substantially equivalent federal program) (the "Proposed Resolution") or (ii)
imposes an enforceable obligation on Participating Defendants to pay attorneys'
fees with respect to Outside Counsel (any such legislation hereinafter referred
to as "Federal Legislation"); and
(c) all payments of attorneys' fees and certain other professional
fees (other than fees for attorneys or agents of Participating Defendants)
pursuant to a Fee Award for contributions made toward enacted Federal
Legislation. In the event that Federal Legislation is enacted, the terms
"Outside Counsel" and "Eligible Counsel" shall apply not only to persons
otherwise falling within the definitions of such terms herein but also to all
persons granted Fee Awards for such contributions (such persons being Eligible
Counsel with respect to each month beginning with the month the Federal
Legislation was enacted).
Nothing in this Agreement shall be construed to require any Settling
Defendant to pay Fee Awards in connection with any litigation other than the
Action.
SECTION 3. Exclusive Obligation of Settling Defendants; Release.
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The provisions set forth herein constitute the entire obligation of
Settling Defendants with respect to payment of attorneys' fees in connection
with the Action and the exclusive means by which Texas Counsel may seek payment
of fees by Settling Defendants in connection with the Action. The parties hereto
acknowledge that the provisions for payment set forth herein are the entirety of
Settling Defendants' obligations with respect to payment of attorneys' fees
pursuant to paragraph 17 of the Settlement Agreement. The State of Texas agrees
that Settling Defendants have no obligation to pay attorneys' fees pursuant to
paragraph 17 of the Settlement Agreement with respect to any counsel other than
Texas Counsel (as identified by the Attorney General pursuant to section 21
hereof), and that Settling Defendants have no other obligation to pay fees or
otherwise compensate Texas Counsel, any other counsel or representative of the
State of Texas or the State of Texas itself with respect to attorneys' fees in
connection with the Action. Each Texas Counsel hereby irrevocably releases
Settling Defendants and their respective present and former parents,
subsidiaries, divisions, affiliates, officers, directors, employees,
representatives, insurers, agents and attorneys (as well as the predecessors,
heirs, executors, administrators, successors and assigns of each of the
foregoing) from any and all claims that such counsel ever had, now has or
hereafter can, shall or may have in any way related to the Action (including but
not limited to any negotiations related to the settlement of the Action). The
foregoing shall not be construed as a release of any person or entity as to any
of the obligations undertaken in this Agreement in connection with a breach
thereof.
SECTION 4. No Effect on Texas Counsel's Fee Contracts.
The State of Texas has entered into a contingent-fee contract with
certain Private Counsel ("Private Counsel's Contract") and has entered into a
fee contract with Other Texas Counsel ("Other Texas Counsel's Contract"). The
rights and obligations, if any, of the parties to Private Counsel's Contract and
Other Texas Counsel's Contract shall be unaffected by this Agreement. Those
Private Counsel that are parties to Private Counsel's Contract shall not be
deemed to have waived any rights under Private Counsel's Contract, nor shall
Other Texas Counsel be deemed to have waived any rights under Other Texas
Counsel's Contract, as a result of their acceptance of payments made pursuant to
this Agreement. However, any Private Counsel Payments made in connection with
this Action shall be credited against any amounts that may be due to Private
Counsel that are parties to Private Counsel's Contract from the State of Texas
under Private Counsel's Contract, and any payments received pursuant to this
Agreement by Other Texas Counsel shall be credited against any amounts that may
be due to
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Other Texas Counsel from the State of Texas under Other Texas Counsel's
Contract.
SECTION 5. Composition of the Panel.
(a) The first and the second members of the Panel shall both be
permanent members of the Panel and, as such, will participate in the
determination of all Fee Awards. The third Panel member shall not be a permanent
Panel member, but instead shall be a state-specific member selected to determine
Fee Awards on behalf of Outside Counsel retained in connection with litigation
within a single state. Accordingly, the third, state-specific member of the
Panel for purposes of determining Fee Awards with respect to litigation in the
State of Texas shall not participate in any determination as to any Fee Award
with respect to litigation in any other state (unless selected to participate in
such determinations by such persons as may be authorized to make such selections
under other agreements).
(b) The members of the Panel shall be selected as follows:
(i) The first member shall be a natural person selected by
Participating Defendants, who shall advise Texas Counsel of the name of
the person selected by October 8, 1998.
(ii) The second member shall be a natural person selected by agreement
of Participating Defendants and a majority of the members of a
committee composed of the following members: Joseph F. Rice, Richard F.
Scruggs, Steven W. Berman, Walter Umphrey, two representatives of the
Castano Plaintiffs' Legal Committee and, at the option of Participating
Defendants, one additional representative to serve on behalf of counsel
for any one or more states that, subsequent to the date hereof, enter
into settlement agreements with Participating Defendants that provide
for payment of such states' Outside Counsel pursuant to an arbitrated
award of fees. Such second member shall be selected by October 1, 1998.
(iii) The third, state-specific member for purposes of determining Fee
Awards with respect to litigation in the State of Texas shall be a
natural person selected by Private Counsel, who shall notify Settling
Defendants and Other Texas Counsel of the name of the person selected
by October 15, 1998.
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SECTION 6. Commencement of Panel Proceedings.
No application for a Fee Award shall be presented to the Panel or any
Panel member until November 3, 1998. The Panel shall consider and render
decisions on applications for Fee Awards in the order in which they are
submitted or pursuant to notice by counsel having priority that they have ceded
their place to others. In the event that more than one application for a Fee
Award is submitted on the same date, the Panel shall consider and render
decisions on such applications in the order in which their respective cases were
settled. Private Counsel may seek permission from the Panel to make combined
presentations of aspects of their respective applications. Settling Defendants
shall not oppose any request to combine presentations of applications for Fee
Awards in connection with the Action, the lawsuit In re Mike Moore, Attorney
General, ex rel. State of Mississippi Tobacco Litig., No. 94-1429 (Miss. Ch.
Ct., Jackson County), or the lawsuit State of Florida v. American Tobacco Co.,
No. 95-1466 AH (15th Jud. Circuit, Palm Beach County).
SECTION 7. Costs of Arbitration.
All costs and expenses of the arbitration proceedings held by the
Panel, including compensation of Panel members (but not including any costs,
expenses or compensation of counsel making applications to the Panel), shall be
borne by Settling Defendants in proportion to their respective Market Shares.
SECTION 8. Application of Private Counsel.
Private Counsel shall make a collective written application to the
Panel for a single Fee Award (the "Private Counsel Fee Award") on November 3,
1998. All interested persons, including persons not parties hereto, may submit
to the Panel any information that they wish; but interested persons not parties
hereto may submit only written materials. The Panel shall consider all such
submissions by any party hereto and may consider any such materials submitted by
other interested persons. All written submissions relating to applications for a
Fee Award in connection with the Action shall be served on all parties hereto by
November 13, 1998. Presentations to the Panel shall, to the extent possible, be
based on affidavit or video presentation rather than live testimony. The Panel
shall preserve the confidentiality of any attorney work-product materials or
other similar confidential information that may be submitted. Settling
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Defendants will not take any position adverse to the amount of the Fee Award
requested by Private Counsel, nor will they or their representatives express any
opinion (even upon request) as to the appropriateness or inappropriateness of
the amount of any proposed Private Counsel Fee Award. The undersigned outside
counsel for Settling Defendants Philip Morris Incorporated and R.J. Reynolds
Tobacco Company will appear, if requested, to provide information as to the
nature and efficacy of the work of Private Counsel and to advise the Panel that
they support a Private Counsel Fee Award of full reasonable compensation under
the circumstances.
SECTION 9. Award of Fees to Private Counsel.
The members of the Panel will consider all relevant information
submitted to them in reaching a decision as to a Fee Award that fairly provides
for full reasonable compensation of Private Counsel for their representation of
the State of Texas in connection with the Action. The Panel shall determine the
amount of the Private Counsel Fee Award for all Private Counsel collectively no
later than December 10, 1998. Given the significance and uniqueness of the
Action, the Panel shall not be limited to an hourly-rate or lodestar analysis in
determining the amount of the Private Counsel Fee Award, but shall take into
account the totality of the circumstances. In considering the amount of the
Private Counsel Fee Award, the Panel shall not consider Fee Awards that already
have been or yet may be awarded in connection with any other Tobacco Case. The
Panel's decisions as to Fee Awards shall be in writing and shall report the
amount of the fee awarded (with or without explanation or opinion, at the
Panel's discretion).
SECTION 10. Application of Other Texas Counsel.
Other Texas Counsel may submit an application for a Fee Award separate
from Private Counsel. The procedures, schedule and process with respect to such
application on behalf of Other Texas Counsel shall be the same as the
procedures, schedule and process set forth in sections 6, 7, 8 and 9 hereof with
respect to the fee application on behalf of Private Counsel, except that
Settling Defendants shall be in no way constrained from contesting Other Texas
Counsel's entitlement to receive a Fee Award or the amount of the Fee Award
requested by Other Texas Counsel.
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SECTION 11. Allocation of Payments among Private Counsel.
All payments (including advances) made by Settling Defendants with
respect to the Private Counsel Fee Award pursuant to this Agreement ("Private
Counsel Payments") shall be paid in the first instance to Walter Umphrey, Esq.
(or such other person designated in writing by Private Counsel), on behalf of
Private Counsel. Each Private Counsel shall be entitled to receive a percentage
of such payment equal to the percentage of any fee recovery allocated to such
Private Counsel under the terms of the fee-sharing agreement among Private
Counsel (or any written amendment thereto). Settling Defendants shall have no
obligation, responsibility or liability with respect to the allocation among
Private Counsel, or with respect to any claim of misallocation, of any amounts
of any Private Counsel Payment.
SECTION 12. Advances on Payment of Fees.
Each Settling Defendant has paid to Walter Umphrey, Esq., on behalf of
Private Counsel, its respective share of $50 million, as listed in Rider B to
Exhibit 1 to the Settlement Agreement, as an advance against later Private
Counsel Payments. On or before the later of July 31, 1998 or the fifth business
day following entry by the Court of an order approving the Stipulation of
Amendment, each Settling Defendant shall severally pay to Private Counsel, pro
rata in proportion to its Market Share indicated on Schedule A hereto, its
respective share of $50 million, as a further advance against later Private
Counsel Payments. Each of the advances described in this section shall be
credited as provided in section 16 hereof.
SECTION 13. Annual Amount for 1998; Allocation.
(a) For 1998, Settling Defendants shall pay, in the manner described in
section 14 hereof, the unsatisfied amount of the Fee Awards (the "Unpaid Fees")
of Texas Counsel, and those Participating Defendants so obligated shall make
payments with respect to the Unpaid Fees of all other Outside Counsel, in an
amount not to exceed $500 million for all such payments described in this
subsection.
(b) The amount payable by Settling Defendants with respect to each Fee
Award for 1998 shall be determined as follows: The $500 million annual cap for
1998 shall be allocated equally among each month of the year. Except as provided
in section 14(b) hereof, each monthly amount shall be allocated to those
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Outside Counsel retained in connection with Tobacco Cases settled by
Participating Defendants or resolved by Federal Legislation before or during
such month, up to the amounts of their respective Unpaid Fees (such counsel
being "Eligible Counsel" with respect to such monthly amount). In the event that
the monthly amount is less than the sum of Eligible Counsel's Unpaid Fees, the
monthly amount shall be allocated to Eligible Counsel in proportion to the
amounts of their respective Unpaid Fees (the amount so allocated to each
Eligible Counsel for a given month being such counsel's Allocable Share for such
month, and the sum of each Outside Counsel's Allocable Shares for each month
being such counsel's Allocable Share for 1998).
(c) Settling Defendants represent that, as of the date of this
Agreement, the only Tobacco Cases (other than the Action) that have been settled
by Participating Defendants on terms that allow for Outside Counsel retained in
connection with such cases to seek a Fee Award from the Panel are In re Mike
Moore, Attorney General, ex rel. State of Mississippi Tobacco Litig., No.
94-1429 (Miss. Ch. Ct., Jackson County), State of Florida v. American Tobacco
Co., No. 95-1466 AH (15th Jud. Cir., Palm Beach County), and Mangini v. R.J.
Reynolds Tobacco Co., No. 939359 (Cal. Super. Ct., San Francisco County). In
addition, Outside Counsel retained in connection with Mangini v. Brown &
Williamson Tobacco Corp., No. 993893 (Cal. Super. Ct., San Francisco County),
may under the terms of the settlement in that action "apply to participate in
any national, reasonable, 'public benefit' fee award or arbitration process
created by a 'national settlement' or 'Congressional Resolution.'"
SECTION 14. Payments with Respect to Annual Amount for 1998.
(a) On December 15, 1998, each Settling Defendant shall severally pay,
pro rata in proportion to its Market Share, its share of an initial fee payment
with respect to the Private Counsel Award and the Fee Award, if any, on behalf
of Other Texas Counsel (the "Initial Texas Fee Payment"), which shall include
Texas Counsel's Allocable Share for 1998 as provided in section 13 hereof for
each month of 1998 except those with respect to which Texas Counsel's Allocable
Share could not be determined as of December 8, 1998, as a result of there being
other Eligible Counsel that, as of such date, had not yet been granted or denied
a Fee Award by the Panel (either because such counsel's application for a Fee
Award was still under consideration by the Panel or for any other reason).
(b) On January 15, 1999, each Settling Defendant shall severally pay,
pro rata in proportion to its Market Share, its share of Texas Counsel's
Allocable Share for those months of 1998 not included in the Initial Texas Fee
Payment.
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Texas Counsel's Allocable Share for any such month shall be based on an
allocation of the monthly amount among Eligible Counsel having Fee Awards as of
December 31, 1998, without regard to whether there may be other Eligible Counsel
that have not been granted or denied a Fee Award by the Panel as of such date.
(c) Notwithstanding any provision of this Agreement, Private Counsel
shall defer payment of the Private Counsel Payment due from Settling Defendant
R.J. Reynolds Tobacco Company ("Reynolds") on December 15, 1998, insofar as
necessary for the sum of all deferred amounts of any payments by Reynolds in
1998 with respect to Fee Awards to equal $62 million. Under no circumstances
shall this subsection require any increase in any payment to be made by any
other Settling Defendant. On January 5, 1999, Reynolds shall pay to Private
Counsel the amount, if any, of the Initial Texas Fee Payment deferred pursuant
to this subsection.
SECTION 15. Quarterly Amounts for 1999 and Subsequent Years; Allocation.
Within 10 business days after the end of each calendar quarter
beginning with the first calendar quarter of 1999, Settling Defendants shall
pay, in the manner provided in subsection (d) of this section, the Unpaid Fees
of Texas Counsel, and those Participating Defendants so obligated shall make
payments with respect to the Unpaid Fees of all other Outside Counsel, in an
amount not to exceed $125 million for all such payments, as follows:
(a) In the event that Federal Legislation has been enacted by the end
of the calendar quarter with respect to which such quarterly payment is being
made (the "Applicable Quarter"):
(i) the quarterly amount shall be allocated among Outside
Counsel, up to the amount of their respective Unpaid Fees. Each
Outside Counsel shall be allocated an amount of each quarterly
payment for the calendar year up to (or, in the event that the sum
of such Outside Counsel's Unpaid Fees exceeds the quarterly amount,
in proportion to) the amount of such Outside Counsel's Unpaid Fees.
Each quarterly payment shall be allocated among Outside Counsel
having Unpaid Fees, without regard to whether there are other
Outside Counsel that have not yet been granted or denied a Fee Award
by the Panel as of the end of the Applicable Quarter. Subsequent
quarterly payments shall be adjusted, if
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necessary, to account for Outside Counsel that are granted Fee Awards
in a subsequent quarter of the calendar year, as provided in paragraph
(ii)(B) of this subsection.
(ii) In the event that a quarterly payment for the calendar
year is less than the sum of all Outside Counsel's Unpaid Fees:
(A) in the case of the first such quarterly payment, the
quarterly amount shall be allocated among Outside Counsel in
proportion to the amounts of their respective Unpaid Fees.
(B) in the case of a quarterly payment after the first
quarterly payment that is less than the sum of all such Unpaid
Fees, the quarterly amount shall be allocated only to those
Outside Counsel, if any, that were not paid a proportionate
share of all prior quarterly payments for the calendar year
(either because such Outside Counsel's applications for Fee
Awards were still under consideration as of the end of the
calendar quarters with respect to which such quarterly
payments were made or for any other reason), until each such
Outside Counsel has been allocated a proportionate share of
all prior quarterly payments. In the event that the sum of all
such shares exceeds the amount of the quarterly payment, such
payment shall be allocated among such Outside Counsel in
proportion to the amounts of their respective Unpaid Fees
(without regard to whether there are other Outside Counsel
that have not yet been granted or denied a Fee Award by the
Panel as of the end of the Applicable Quarter).
(b) In the event that Federal Legislation has not been enacted by the
end of the Applicable Quarter:
(i) the quarterly amount shall be allocated equally among each
of the three months of the calendar quarter. The amount for each
such month shall be allocated among those Outside Counsel retained
in connection with Tobacco Cases settled before or during such month
(such Outside Counsel being "Eligible Counsel" with respect to such
monthly amount), each of whom shall be allocated a portion of each
such monthly amount up to (or, in the event that the sum of Eligible
Counsel's respective Unpaid Fees exceeds such monthly amount, in
proportion to) the amount of such Eligible Counsel's Unpaid Fees.
The monthly amount for each month of the calendar quarter shall be
allocated among Eligible
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Counsel having Unpaid Fees, without regard to whether there may be
Eligible Counsel that have not yet been granted or denied a Fee Award
by the Panel as of the end of the Applicable Quarter. Subsequent
quarterly payments shall be adjusted, as necessary, to account for
Eligible Counsel that are granted Fee Awards in a subsequent quarter
of the calendar year, as provided in paragraph (ii)(B) of this
subsection.
(ii) In the event that the amount for a given month is less
than the sum of all Eligible Counsel's Unpaid Fees:
(A) in the case of a first quarterly payment, such
monthly amount shall be allocated among Eligible Counsel for
such month in proportion to the amount of their respective
Unpaid Fees.
(B) in the case of a quarterly payment after the first
quarterly payment, the quarterly amount shall be allocated
among only those Outside Counsel, if any, that were Eligible
Counsel with respect to any monthly amount paid in a prior
quarter of the calendar year but were not allocated a
proportionate share of such monthly amount (either because
such counsel's applications for Fee Awards were still under
consideration as of the end of the calendar quarter containing
the month in question or for any other reason), until each
such Eligible Counsel has been allocated a proportionate share
of all such prior monthly payments for the calendar year. In
the event that the sum of all such shares exceeds the amount
of the quarterly payment, the quarterly payment shall be
allocated among Eligible Counsel in proportion to the amounts
of their respective Unpaid Fees (without regard to whether
there may be other Eligible Counsel with respect to such prior
monthly amounts that have not yet been granted or denied a Fee
Award by the Panel as of the end of the Applicable Quarter).
(c) Adjustments pursuant to paragraphs (a)(ii)(B) and (b)(ii)(B) of
this section shall be made separately for each calendar year. No amounts paid in
any calendar year shall be subject to refund, nor shall any payment in any given
calendar year affect the allocation of payments to be made in any subsequent
calendar year.
(d) Each Settling Defendant shall severally pay, pro rata in
proportion to its respective Market Share, its share of the amounts, if any,
allocated to Texas Counsel pursuant to this section.
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SECTION 16. Credits and Limitations.
Notwithstanding any other provision of this Agreement, all payments by
Settling Defendants with respect to Fee Awards shall be subject to the
following:
(a) The advances against future Private Counsel Payments described in
section 12 hereof shall be credited against and shall reduce subsequent Private
Counsel Payments, beginning with the first quarterly payment for 1999 pursuant
to section 15 hereof, in an amount equal to 50% of the Private Counsel Payment
in question, until the advances paid by Settling Defendants are fully credited;
provided, however, that the sum of all such credits applied in any calendar year
with respect to the advances made to Private Counsel described in section 12
hereof shall not exceed $50 million. The amount of any credit made against any
such Private Counsel Payment shall be counted toward the annual and quarterly
aggregate national caps on all payments made with respect to Outside Counsel, in
the amount of the credit applied to any such Private Counsel Payment in any
quarterly or annual period. All credits against Private Counsel Payments
pursuant to this section shall be allocated among Settling Defendants in
proportion to their respective contributions toward the amounts of the advances
described in section 12 hereof.
(b) Under no circumstances shall Settling Defendants be required to
make payments that would result in aggregate national payments and credits by
Participating Defendants with respect to Fee Awards:
(i) during 1998, totaling more than $500 million, except
insofar as payments to certain Outside Counsel with respect to 1997
are made in 1998, and except insofar as advances are made in 1998
against payments due in years after 1998;
(ii) during any year beginning with 1999, totaling more than
$500 million, excluding payments with respect to any Outside
Counsel's Allocable Shares for 1998 that are paid in 1999; and
(iii) during any calendar quarter beginning with the first
calendar quarter of 1999, totaling more than $125 million, excluding
payments with respect to any Outside Counsel's Allocable Shares for
1998 that are paid
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in 1999 and except to the extent that payments and credits with
respect to any prior quarter of the calendar year did not total $125
million.
SECTION 17. Contribution to National Legislation.
If Federal Legislation is enacted that implements the Proposed
Resolution, a three-member national panel including the two permanent members of
the Panel shall consider any application for Fee Awards on behalf of Outside
Counsel for contributions made toward the enactment of such Federal Legislation,
along with all applications for Fee Awards for professional fees by any other
persons who claim to have made similar contributions (other than attorneys or
agents of Participating Defendants). No person shall make more than one
application for a Fee Award in connection with any such contributions toward
enactment of such Federal Legislation. All payments with respect to such Fee
Awards, if any, shall be paid on the payment schedule and subject to, and
counted in computing, the annual and quarterly national caps described in
sections 13, 14, 15 and 16 hereof.
SECTION 18. Payments on Market Share Basis.
All payments due hereunder shall be paid by Settling Defendants pro
rata in proportion to their respective Market Shares as provided herein, and
each Settling Defendant shall be severally liable for its share of all such
payments. 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 Defendants Reynolds and Brown & Williamson shall be severally liable
for their repsective shares of each payment due pursuant to this Agreement up to
(and their liability hereunder shall not exceed) the full extent of their assets
used in, and earnings and revenues derived from, their 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. Under no circumstances shall any payment due hereunder or any
portion thereof become the joint obligation of Settling Defendants or the
obligation of any party other than the Settling Defendant from which such
payment is originally due, nor shall any Settling Defendant be required to pay a
portion of any such payment greater than
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its respective Market Share. With respect to the advance to be paid pursuant to
section 12 hereof, the Market Share of each Settling Defendant shall be as
provided in Schedule A hereto. With respect to the amount for 1998 described in
section 13 hereof, the Market Share of each Settling Defendant shall be its
respective share pursuant to Appendix A hereto for 1998. With respect to all
other payments pursuant to this Agreement, each Settling Defendant's Market
Share shall be its respective share pursuant to Appendix A hereto for the 12
month period ending on the last day of the calendar quarter immediately
preceding the calendar quarter with respect to which such payment is made.
SECTION 19. Determination of Market Share.
In the event of a disagreement between or among any Settling Defendants
as to their respective shares of any payment pursuant to this Agreement (except
payments for which each Settling Defendant's Market Share is expressly provided
herein), 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 submit copies of its audited reports of shipments of Tobacco Products
provided to the U.S. Securities and Exchange Commission ("SEC") for the period
in question (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") to a third party to be selected by agreement of Settling Defendants
(the "Third Party"), who shall within three business days determine the Market
Share of each Settling Defendant. The decision of the Third Party shall be final
and non-appealable, and shall be communicated by facsimile to each party hereto.
Each Settling Defendant shall, within two business days of receipt of the Third
Party's decision, pay Texas Counsel or such other Settling Defendant, as
appropriate, the difference, if any, between (1) the amount that such Settling
Defendant has already paid with respect to the payment in question and (2) the
amount of the payment in question that corresponds to such Settling Defendant's
Market Share as determined by the Third Party, together with interest accrued
from the original date on which the payment in question was due, at the prime
rate as published in the Wall Street Journal on the latest publication date on
or before the original date on which the payment in question was due plus 3%.
SECTION 20. Limited Waiver as to Other Terms.
15
In consideration of Settling Defendants' agreement to the terms hereof,
each Texas Counsel hereby covenants and agrees that it will not argue in any
forum (other than in proceedings before the Panel relating to their Fee Award
application) that the arrangements made in connection with the Florida
Settlement, the Mississippi Settlement or the Minnesota Settlement for payment
of fees to Outside Counsel for the States of Florida, Mississippi or Minnesota
give rise to any claim or entitlement on the part of Texas Counsel (or any other
person) in connection with this Action.
SECTION 21. State's Identification of Texas Counsel.
The Attorney General represents and warrants that Schedule B hereto
identifies all Texas Counsel.
SECTION 22. Private Counsel's Costs.
Settling Defendants have agreed to reimburse Private Counsel for
reasonable costs and expenses incurred in connection with the Action, provided
that such costs and expenses are of the same nature as costs and expenses for
which Settling Defendants would reimburse their own counsel or agents. To this
end, each Settling Defendant has paid to Walter Umphrey, Esq., on behalf of
Private Counsel, the respective amount listed for such Settling Defendant in
Rider A to Exhibit 1 to the Settlement Agreement, the sum of such payments being
$40 million, which equals Private Counsel's best estimate as of the date of the
Settlement Agreement of such costs and expenses. Private Counsel shall provide
Settling Defendants with an appropriately documented statement of their costs
and expenses consistent with the criteria set forth above. Settling Defendants
shall promptly pay the amounts of such costs and expenses in excess of $40
million, or shall receive a refund if the total of such costs and expenses is
less than $40 million. Any dispute as to the nature or amount of reimbursable
costs and expenses shall be decided with finality by the Panel.
SECTION 23. Intended Beneficiaries.
16
No part of this Agreement creates any rights on the part of, or is
enforceable by, any person or entity that is not a party hereto or a person
covered by the release described in section 3 hereof. Nor shall any part of this
Agreement bind any non-party or determine, limit or prejudice the rights of any
such person or entity.
SECTION 24. Definitions.
Terms used herein that are defined in the Settlement Agreement or the
Stipulation of Amendment are, unless otherwise defined herein, used in this
Agreement as defined in the Settlement Agreement or the Stipulation of
Amendment, as applicable.
SECTION 25. Representations of Parties.
The parties hereto hereby represent that this Agreement has been duly
authorized and, upon execution, will constitute a valid and binding contractual
obligation, enforceable in accordance with its terms, of each of the parties
hereto.
SECTION 26. No Admission.
This Agreement is not intended to be and shall not in any event be
construed as, or deemed to be, an admission or concession or evidence of any
liability or wrongdoing whatsoever on the part of any party hereto or any person
covered by the release provided under section 3 hereof. Settling Defendants
specifically disclaim and deny any liability or wrongdoing whatsoever with
respect to the claims released under section 3 hereof and enter into this
Agreement for the sole purposes of memorializing Settling Defendants' rights and
obligations with respect to payment of attorneys' fees pursuant to the
Settlement Agreement and avoiding the further expense, inconvenience, burden and
uncertainty of potential litigation.
SECTION 27. Non-admissibility.
17
This Agreement having been undertaken by the parties hereto in good
faith and for settlement purposes only, neither this Agreement nor any evidence
of negotiations relating hereto shall be offered or received in evidence in any
action or proceeding other than an action or proceeding arising under this
Agreement.
SECTION 28. Amendment and Waiver.
This Agreement may be amended only by a written instrument executed by
the Attorney General, Texas Counsel and Settling Defendants. 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
Agreement shall not be deemed to be or construed as a waiver of any other
breach, whether prior, subsequent or contemporaneous, of this Agreement.
SECTION 29. Notices.
All notices or other communications to any party hereto shall be in
writing (including but not limited to telex, telecopy or similar writing) and
shall be given to the respective parties listed on Schedule C hereto at the
addresses therein indicated. Any party hereto may change the name and address of
the person designated to receive notice on behalf of such party by notice given
as provided in this section including an updated list conformed to Schedule C
hereto.
SECTION 30. Governing Law.
This Settlement Agreement shall be governed by the laws of the State of
Texas, without regard to the conflict of law rules of such State.
SECTION 31. Construction.
None of the parties hereto shall be considered to be the drafter of
this Agreement or any provision hereof for the purpose of any statute, case law
or rule of interpretation or construction that would or might cause any
provision to be construed against the drafter hereof.
18
SECTION 32. Captions.
The captions of the sections of this Agreement are included for
convenience of reference only and shall be ignored in the construction and
interpretation hereof.
SECTION 33. Execution of Agreement.
This Agreement may be executed in counterparts. Facsimile or
photocopied signatures shall be considered valid signatures as of the date
hereof, although the original signature pages shall thereafter be appended to
this Agreement.
SECTION 34. Certain Court Orders Conditions Precedent.
The terms of this Agreement shall supersede the terms of Exhibit 1 to
the Settlement Agreement, and the parties hereto will promptly file a joint
motion requesting that the Court approve this Agreement. The parties further
agree that Settling Defendants shall not be required to perform any obligation
hereunder (excepting Settling Defendants' obligations with respect to the
advance to be paid pursuant to section 12 hereof) until such time as (1) the
Court issues an order declaring Exhibit 1 to the Settlement Agreement to be
null, void and of no further effect; (2) the Court issues an order approving the
Stipulation of Amendment; (3) the Court issues the Political Subdivisions Order
in the form attached to the
19
Stipulation of Amendment as Exhibit 2 thereto; (4) the Court issues an order
confirming that amounts payable to Texas Counsel pursuant to this Agreement are
not funds of the State of Texas and are not subject to appropriation by the
State of Texas and that Settling Defendants are under no obligation to pay such
amounts to the State of Texas; (5) the 30-day periods to seek review of such
orders have expired without the filing of any notice of appeal or petition for
review; and (6) in the event of a timely appeal or petition, such appeal or
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 petition
has been taken and such dismissal or affirmance has become no longer subject to
further appeal or review.
SECTION 35. Entire Agreement of Parties.
This Agreement contains an entire, complete and integrated statement of
each and every term and provision agreed to by and among the parties hereto with
respect to payment of attorneys' fees by Settling Defendants in connection with
the Action 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 Texas Fee Payment Agreement 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:
--------------------------------
Dan Morales
Attorney General
20
PHILIP MORRIS INCORPORATED
By:
--------------------------------
Meyer G. Koplow
Counsel
By:
--------------------------------
Martin J. Barrington
General Counsel
R.J. REYNOLDS TOBACCO COMPANY
By:
--------------------------------
Arthur F. Golden
Counsel
By:
--------------------------------
Charles A. Blixt
21
General Counsel
BROWN & WILLIAMSON TOBACCO
CORPORATION
By:
--------------------------------
Stephen R. Patton
Counsel
By:
--------------------------------
F. Anthony Burke
Vice President & General Counsel
LORILLARD TOBACCO COMPANY
By:
--------------------------------
Arthur J. Stevens
Senior Vice President &
General Counsel
UNITED STATES TOBACCO COMPANY
By:
--------------------------------
Richard H. Verheij
22
Executive Vice President &
General Counsel
TEXAS COUNSEL
By:
--------------------------------
Walter Umphrey
Provost & Umphrey
By:
--------------------------------
John M. O'Quinn, P.C.
By:
--------------------------------
John Eddie Williams, Jr.
By:
--------------------------------
Wayne A. Reaud
Reaud, Morgan & Quinn, Inc.
By:
--------------------------------
Harold W. Nix
The Nix Law Firm
23
By:
--------------------------------
Cary Patterson
The Nix Law Firm
By:
--------------------------------
Marc D. Murr
Law Offices of Marc D. Murr, P.C.
By:
--------------------------------
Joseph F. Rice
Ness, Motley, Loadholt,
Richardson & Poole
24
APPENDIX A
MARKET SHARE CALCULATION
The Market Share of each Settling Defendant for purposes of any payment
required hereunder shall be equal to the proportion of (1) such Settling
Defendant's Aggregate Sales Volume for the period in question to (2) the sum of
all Settling Defendants' Aggregate Sales Volumes for the period in question. For
purposes of the foregoing:
(a) Each Settling Defendant's Aggregate Sales Volume shall be the sum
of such Settling Defendant's Sales Volumes with respect to each type of Tobacco
Product.
(b) Each Settling Defendant's Sales Volume with respect to each type of
Tobacco Product shall be the number of Units of such type of Tobacco Product
sold within the United States by such Settling Defendant during the period in
question, as measured by such Settling Defendant's applicable Shipment Reports.
(c) A Unit of Tobacco Product means:
(1) one Cigarette;
(2) .12 ounces of Moist Snuff;
(3) .3 ounces of Loose Leaf, Plug, Twist, Roll or
other form of chewing tobacco;
(4) .25 ounces of Dry Snuff; and
(5) .16 ounces of Loose Leaf tobacco suitable for
user preparation of cigarettes.
SCHEDULE A
MARKET SHARE PERCENTAGES
Settling Defendant Percentage
Philip Morris Incorporated ...............................49.26
R.J. Reynolds Tobacco Company.............................24.49
Brown & Williamson Tobacco Corp...........................16.20
Lorillard Tobacco Company..................................8.77
United States Tobacco Company..............................1.28
------
TOTAL 100.00
SCHEDULE B
DESIGNATION OF TEXAS COUNSEL
by the Attorney General
Pursuant to section 21 of the Texas Fee Payment Agreement, I hereby
identify as Texas Counsel: (1) Walter Umphrey, John M. O'Quinn, P.C., John Eddie
Williams, Jr., Reaud, Morgan & Quinn, Inc., The Nix Law Firm and Ness, Motley,
Loadholt, Richardson & Poole ("Private Counsel") and (2) the Law Offices of Marc
D. Murr, P.C. ("Other Texas Counsel").
There are no other Texas Counsel entitled to seek any payment of
attorneys' fees by Settling Defendants under the Settlement Agreement or the
Texas Fee Payment Agreement.
-----------------------------
Dan Morales
Attorney General
SCHEDULE C
NOTICES
State of Texas
Hon. Dan Morales
Attorney General
P.O. Box 12548
Capitol Station
Austin, TX 78711
Fax: (512) 463-2063
With copies to:
- ---------------
Harold W. Nix
Walter Umphrey Cary Patterson
Provost & Umphrey The Nix Law Firm
490 Park Street 205 Linda Drive
P.O. Box 4905 P.O. Box 679
Beaumont, TX 77704 Daingerfield, TX 75638
Fax: (409) 838-8888 Fax: (903) 645-5389
John M. O'Quinn John Eddie Williams, Jr.
440 Louisiana Street, Suite 2300 8441 Gulf Freeway, Suite 600
Houston, TX 77002 Houston, TX 77017
Fax: (713) 222-6903 Fax: (713) 649-0126
Wayne A. Reaud Marc D. Murr
Reaud, Morgan & Quinn, Inc. Law Offices of Marc D. Murr, P.C.
801 Laurel 1001 Texas Avenue, Suite 1250
Beaumont, TX 77701 Houston, TX 77002-3131
Fax: (409) 833-8236 Fax: (713) 229-8003
Joseph F. Rice
Ness, Motley, Loadholt, Richardson & Poole
151 Meeting Street, Suite 600
Charleston, SC 29402
Fax: (803) 720-9290 (continued)
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
Brown & Williamson Tobacco Corp.: Lorillard Tobacco Company:
- -------------------------------- -------------------------
F. Anthony Burke, Esq. 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) 568-7297
With a copy to: United States Tobacco Company:
- -------------- -----------------------------
Stephen R. Patton, Esq. Richard H. Verheij
Kirkland & Ellis UST Inc.
200 East Randolph Dr. 100 West Putnam Avenue
Chicago, IL 60601 Greenwich, CT 06830
Fax: (312) 861-2200 Fax: (203) 863-7233
(continued)
2
Texas Counsel
-------------
Walter Umphrey Wayne A. Reaud
Provost & Umphrey Reaud, Morgan & Quinn, Inc.
490 Park Street 801 Laurel
P.O. Box 4905 Beaumont, TX 77701
Beaumont, TX 77704 Fax: (409) 833-8236
Fax: (409) 838-8888
John Eddie Williams, Jr. John M. O'Quinn
8441 Gulf Freeway, Suite 600 440 Louisiana Street, Suite 2300
Houston, TX 77017 Houston, TX 77002
Fax: (713) 649-0126 Fax: (713) 222-6903
Harold W. Nix Marc D. Murr
Cary Patterson Law Offices of Marc D. Murr, P.C.
The Nix Law Firm 1001 Texas Avenue, Suite 1250
205 Linda Drive Houston, TX 77002-3131
P.O. Box 679 Fax: (713) 229-8003
Daingerfield, TX 75638
Fax: (903) 645-5389
Joseph F. Rice
Ness, Motley, Loadholt, Richardson & Poole
151 Meeting Street, Suite 600
Charleston, SC 29402
Fax: (803) 720-9290
3