Exhibit 99.4
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
TEXARKANA DIVISION
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)
STATE OF TEXAS, )
)
Plaintiff, )
)
vs. ) No. 5-96CV-91
)
AMERICAN TOBACCO )
COMPANY, et al., )
)
Defendants. )
)
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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
7
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
8
paragraph 5 of this Stipulation of Amendment (a "Defaulting Defendant") by the
applicable date set forth in such paragraph 5 (a "Missed Payment"), the State of
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
9
additional 15-day period be accelerated and immediately become due and owing to
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
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payments set forth in Appendix A hereto. This paragraph 7 supersedes paragraph
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
12
payment in question was due, at the prime rate as published in the Wall Street
Journal on the latest publication date on or before the original date on which
the payment in question was due plus 3%.
9. Adjustments in Event of Federal Legislation. In the event that
federal tobacco legislation is enacted before November 30, 2000 that provides
for payments by tobacco companies (whether in the form of settlement payment,
tax or otherwise) ("Tobacco Legislation"):
(a) 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.
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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.
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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. Section 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. Section 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:
- The name, address, telephone number and e-mail address of the
recipient;
- The amount of each payment described in this paragraph 13; and
- The aggregate amount of all payments described in this paragraph 13 to
the recipient in the calendar year.
Information disclosed pursuant to this paragraph is "public information" within
the meaning of Tex. Gov't Code Ann. Section 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,
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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
24
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:
-----------------------------
Dan Morales
Attorney General
COUNSEL TO THE STATE OF TEXAS
By:
-----------------------------
Walter Umphrey
Provost & Umphrey
By:
-----------------------------
John M. O'Quinn
By:
-----------------------------
John Eddie Williams, Jr.
28
By:
-----------------------------
Wayne A. Reaud
Reaud, Morgan & Quinn, Inc.
By:
-----------------------------
Harold W. Nix
The Nix Law Firm
By:
-----------------------------
Cary Patterson
The Nix Law Firm
By:
-----------------------------
Marc D. Murr
Law Offices of Marc D. Murr, P.C.
By:
-----------------------------
Grant Kaiser
Kaiser & Morrison
By:
-----------------------------
Joseph F. Rice
Ness, Motley, Loadholt,
Richardson & Poole
29
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
General Counsel
BROWN & WILLIAMSON TOBACCO
CORPORATION
30
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
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;
EXHIBIT 1
WHEREAS, the Settlement Agreement contains a "Most Favored Nation"
clause which provides that, in the event that Settling Defendants enter into a
future pre-verdict settlement agreement of other litigation brought by a
non-federal governmental plaintiff on terms more favorable to such governmental
plaintiff than the terms of the Settlement Agreement (after due consideration of
relevant differences in population or other appropriate factors), the terms of
the Settlement Agreement shall be revised so that the State of 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
of
2
EXHIBIT 1
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
3
EXHIBIT 1
Settlement Agreement, which is hereby declared 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 manufacture and
4
EXHIBIT 1
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 brand of Tobacco Products, except that
nothing in this paragraph
5
EXHIBIT 1
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 (3) limiting or suppressing research into, marketing, or development
of new products.
6
EXHIBIT 1
(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.
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
7
EXHIBIT 1
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
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.
8
EXHIBIT 1
DONE AND ORDERED at Texarkana, Texas, this the 24th day of July, 1998.
-----------------------------------
DAVID FOLSOM
JUDGE, UNITED STATES DISTRICT COURT
APPROVED:
- ------------------------------
Dan Morales, Attorney General,
For the State of Texas
- ------------------------------
Harold Waldrop
For MFN Settling Defendants
9