Civil Action No. 97-913

March 20, 1997


This Class Settlement Agreement is entered into this 20thday of March 1997 by and between the named and representative plaintiffs(collectively, "Plaintiffs") in Carol Fletcher, et al. v.Liggett Group Inc., et al., Civil No. 97-913, in the Circuit courtof Mobile, Alabama (the "Fletcher" Action"), forthemselves and on behalf of the plaintiff settlement class as hereinafterdefined ("Settlement Class"); and Brooke Group Ltd., a Delawarecorporation ("Brooke Group"), Liggett & Myers Inc., a Delawarecorporation ("Myers"), and Liggett Group Inc., a Delaware corporation(which, with Myers, is hereinafter referred to as "Liggett").



A. On March 29, 1997 Plaintiffs filed a complaint to commencethe Fletcher Action against Liggett and Brooke Group asserting claimson behalf of a putative nationwide class of all persons and entities whichhave incurred or are alleged to have incurred costs or other damages arisingfrom cigarette smoking, seeking, among other things, equitable/injunctiverelief, a declaratory judgment, and compensatory and/or punitive damages,according to proof, as set forth in the complaint.

B. The primary purpose of this Class Settlement Agreementis to provide certain injunctive relief sought by Plaintiffs and othersettlement class members, including the cooperation of Liggett and BrookeGroup, and to create a fund for the equitable settlement of the claimsof the settlement class members, free of the risks and costs of prolongedlitigation. The mechanism for accomplishing this purpose is the creationof a settlement fund board, to which the claims of all settlement classmembers against Liggett and Brooke Group shall be directed.

C. The injunctive relief, cooperation, and monetary settlementare components of an integrated settlement set forth in this Class SettlementAgreement. Liggett and Brooke Group agree to provide cooperation and tosubmit to the injunctive relief set forth herein in the context of a mandatoryclass settlement.

D. Apart from the Fletcher Action, hundreds ofindividual actions and putative class actions, as well as numerous actionsbrought on behalf of states and other governmental bodies and other entities,have been filed against Liggett and Brooke Group and other tobacco defendantsseeking, among other things, equitable relief and damages allegedly arisingfrom cigarette smoking. In addition to the hundreds of smoking-relatedclaims that have already been filed against these defendants in jurisdictionsthroughout the United States, many more are expected to be filed in thefuture. Smoking-related litigation has resulted in extensive discoveryconcerning the potential liability of Liggett and Brooke Group as wellas extensive consideration of the legal and factual bases of smoking-relatedlitigation.

E. The plaintiffs and the defendant tobacco companieshave spent, and continue to spend, enormous resources litigating thesesmoking-related claims. Litigating smoking-related lawsuits is depletingand will continue to deplete the defendant tobacco companies' resourcesotherwise available to compensate claimants. Absent an alternative methodof resolution, Liggett would not be able to satisfy the smoking-relatedclaims pending against it, let alone claims which may be asserted in thefuture.

F. In light of the uncertainties associated with the pendinglitigation and Liggett's financial condition, there are substantial risksthat adjudications with respect to smoking-related claims by certain settlementclass members will, as a practical matter, be dispositive of the claimsand interests of certain other settlement class members not yet adjudicatedor will substantially impair or impede the ability of such other settlementclass members to protect their interests.

G. Plaintiffs allege that Liggett and Brooke Group haveacted or refused to act on grounds generally applicable to the settlementclass, thereby making final injunctive relief appropriate with respectto the class as a whole in accordance with Rule 23 of the Alabama Rulesof Civil Procedure in the context of this settlement.

H. Counsel for the Plaintiffs have substantial experiencein the litigation of smoking-related cases and class actions, includingthe litigation and trial of individual smokers' cases.

I. Liggett has made available relevant information, andPlaintiffs, through counsel, have investigated such information and otherrelevant information and conducted discovery, as to the nature, extentand availability of Liggett's financial resources, and have concluded thatthe criteria of Alabama Rule of Civil Procedure 23(b)(1) apply to Liggettand its affiliates in the context of this settlement.

J. Plaintiffs Liggett and Brooke Group recognize and supportthe public interest in preventing smoking by, or the promotion of smokingto, children and adolescents and further recognize that it is of extremeimportance to halt any marketing efforts directed to children and adolescentsand to provide for full disclosures of material facts relating to tobaccoproducts.

K. Liggett and Brooke Group have denied, and continueto deny any wrongdoing or any legal liability of any kind in all smoking-relatedlitigation.

L. Liggett and Brooke Group recognize and acknowledgethat defending the continued prosecution of the Fletcher action(and other similar putative class actions and individual suits) againstthem, through trial and appeals, would require considerable resources andexpense, would entail uncertainly and risk, and constitute circumstancesunder which the available assets of Liggett and Brooke Group may be properlycharacterized as a "limited fund" in comparison to the aggregatepotential claims of all settlement class members. Liggett and Brooke Grouphave determined that the settlement, in accordance with this Class SettlementAgreement, of the claims asserted in the Fletcher Action againstthem will be beneficial to them by enabling Liggett to continue the legalbusiness of selling cigarettes, under terms of candor and full disclosureto the public, while avoiding bankruptcy or other insolvency that couldotherwise result from the transaction costs and potential exposure of ongoinglitigation.

M. Plaintiffs recognize and acknowledge that the continuedprosecution of the Fletcher Action and other smoking-related litigationagainst Liggett and Brooke Group through trial and appeals would requireconsiderable time and expense and would entail uncertainty, risk and delay,including the risk of bankruptcy or other insolvency of Liggett and BrookeGroup. Plaintiffs and Liggett and Brooke Group recognize that this settlementwith Liggett provides uniquely favorable terms to Liggett in recognitionof its unique situation, including its willingness to be the first tobaccoindustry defendant to settle with any of the public or private plaintiffs,its agreement to provide documents and cooperation expected to be of materialbenefit to the litigation against the other, much larger tobacco defendants,Liggett's smaller market share, and its precarious financial situation.Plaintiffs have determined that the settlement, in accordance with thisClass Settlement Agreement, of the claims asserted in the FletcherAction against Liggett and Brooke Group will be beneficial to the settlementclass by providing all class members with substantial and critical non-monetaryequitable relief, as well as the opportunity to share equitably in thecommon fund created by this Class Settlement Agreement.

NOW, THEREFORE, in consideration of the foregoing andof the promises and covenants set forth in this Class Settlement Agreement,Plaintiffs, on their own behalf and on behalf of the Settlement Class (asdefined below), and Liggett and Brooke Group hereby stipulate and agreethat, conditional upon the approval of the Court as required by Rule 23of the Alabama Rules of Civil Procedure and as provided herein, the Actionshall be settled as against Liggett and Brooke Group and that all claimsasserted by or on behalf of the putative class members in the FletcherAction against the Settling Defendants shall be dismissed with prejudice,all on the terms and conditions contained herein, as follows:

1. Definitions.

As used in and solely for the purposes of this Agreement,the following terms shall have the following respective meanings:

"Affiliate" means a Present Affiliate or a FutureAffiliate.

"Agreement" means this Settlement Agreement.

"Arbitrator" means the person or persons agreedto by the Settling States and the Settlement Class, and/or their counsel,or appointed by the Court or the Multidistrict Litigation Panel, as thecase may be, to make decisions regarding allocations of the SettlementFund between the Settling States and the Settlement Class, and to resolvedisputes of the Oversight Committee.

"Attorneys General" means those State AttorneysGeneral or other parties who have brought Attorney General Actions.

"Attorney General Actions" means actions byor on behalf of States seeking injunctive relief and/or damages in connectionwith smoking and/or Medicaid or other expenses allegedly resulting therefrom.

"Attorneys General Settlement Agreement" meansthat agreement entered into on or about March 20, 1997 between Brooke Groupand Liggett and the Attorneys General of certain states, a copy of whichis annexed hereto as Exhibit A.

"Brooke Group" means Brooke Group Lid. and itsPresent Affiliates other than Liggett.

"Cigarette" means any product including components,accessories, or parts which is intended to be burned under ordinary conditionsof use and consists of: (1) any roll of tobacco wrapped in paper or inany substance not containing tobacco; or (2) any roll of tobacco wrappedin any substances 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 describedin subparagraph (1).

"Cigarette Pack" means a unit of twenty Cigarettesor one ounce of Tobacco Snuff.

"Cost Per Cigarette Pack" means, with respectto a Tobacco Company, the aggregate costs incurred by such Tobacco Companyunder a Global Settlement during a specified year, divided by the numberof Cigarette Packs manufactured by such Tobacco Company during such year,as determined by The Maxwell Consumer Report published by Wheat First ButcherSinger or a similar or successor report.

"Court" means the Circuit Court of Mobile County,Alabama.

"Domestic Tobacco Operations" means the manufactureand/or sale of Cigarettes and any other tobacco products in the UnitedStates, its territories, its possessions and the Commonwealth of PuertoRico.

"FDA Rule" means the regulations promulgatedby the FDA concerning the sale and distribution of cigarettes and otherproducts on August 28, 1996 at 60 Fed. Reg. 44396, to be codified at 21C.F.R. Parts 801, 803, 804, 807, 820 and 897.

"Future Affiliate" means any one entity, otherthan an entity with a Market Share greater than 30% as of the date of thisAgreement, which is a non-settling Tobacco Company (including any successorto or assignee of its assets) if such entity or an Affiliate of such entitywith the prior written approval of Brooke Group, subsequent to the date,and during the term, of this Agreement but prior to the fourth anniversaryof the date of execution of this Settlement Agreement: (i) directly orindirectly acquires or is acquired by Liggett or Brooke Group; (ii) directlyor indirectly acquires all or substantially all of the stock or assetsof Liggett and Brooke Group; (iii) all or substantially all of whose stockor assets are directly or indirectly acquired by Liggett and Brooke Group;or (iv) directly or indirectly merges with Liggett and Brooke Group orotherwise combines on any basis with Liggett and Brooke Group.

"Future Affiliate Transaction" means a transaction,or series of transactions, by which an entity becomes a Future Affiliate.

"Global Settlement" means any National disposition,settlement, agreement or other arrangement, such as "Tobacco ClaimsLegislation," by way of legislation, executive order, regulation,taxation, levy, fine, class action settlement, court order or otherwise,of smoking-related litigation, in direct or indirect connection with whichone or more Tobacco Companies receives the benefit of a limitation of,or total or partial immunity from liability to the members of the SettlementClass for the types of claims released under this Agreement.

"Initial Notice" means the written notice documentto be provided by Liggett and its Present Affiliates to Settlement Classmembers as defined in Section 8.1 of this Agreement.

"Initial Notice Date" means the first date uponwhich Initial Notice is given by Liggett and its Present Affiliates tothe Settlement Class pursuant to Section 8.1 of this Agreement.

"Injury" means any physical, mental or emotionalinjury, including, by way of example and not limitation, cancer, heartdisease, emphysema, addiction and phobia.

"Liggett" means Liggett Group, Inc. and Liggett& Myers, Inc.

"Mandatory Class Fairness Hearing" means thehearing to be conducted by the Court in connection with the determinationof the fairness, adequacy and reasonableness of this Agreement under Rule23 of the Alabama Rules of Civil Procedure, insofar as the Agreement appliesto Liggett and its Present Affiliates.

"Mandatory Class Final Order and Judgment" or"Mandatory Class Final Approval" means the order to be enteredby the Court, with respect to Liggett and its Present Affiliates, approvingthis Agreement without material alterations, as fair, adequate and reasonableunder Rule 23 of the Alabama Rules of Civil Procedure, confirming the SettlementClass certification under Rule 23 thereof, and making such other findingsand determinations as the Court deems necessary and appropriate to effectuatethe terms of this Agreement and to exercise its continuing and exclusivejurisdiction over the enforcement and administration of all terms of thisSettlement Agreement.

"Mandatory Class Settlement Date" or "SettlementDate" means the date on which all of the following shall have occurred:(a) the entry of the Mandatory Class Final Order and Judgment without materialmodification, and (b) the achievement of finality for the Mandatory ClassFinal Order and Judgment by virtue of that order having become final andnon-appealable through (i) the expiration of all appropriate appeal periodswithout an appeal having been filed; (ii) final affirmance of the MandatoryClass Final Order and Judgment on appeal or final dismissal or denial ofall such appeals, including petitions for review, rehearing or certiorari;or (iii) final disposition of any proceedings, including any appeals, resultingfrom any appeal from the entry of the Mandatory Class Final Order and Judgment.

"Market Share" means, with respect to a specifiedTobacco Company and a specified year, the Domestic Tobacco Operations marketshare in that year of all of such company's cigarettes and other tobaccoproducts (as the case may be), as determined by The Maxwell Consumer Reportpublished by Wheat First Butcher Singer or a similar or successor report.

"National" means actually covering or potentiallycovering (whether by block grants to states, localities or other governmentalentities or otherwise) the United States or the United States and one ormore of its territories, possessions and the Commonwealth of Puerto Rico.

"Non-Settling Tobacco Companies" means eachof The American Tobacco Co., Lorillard Tobacco Co., Philip Morris Inc.,R.J. Reynolds Tobacco Co., Brown & Williamson Tobacco Corp., and UnitedStates Tobacco Co., unless and until it becomes a Future Affiliate, asherein defined.

"Other Settlement" means a settlement of a TobaccoAction which is not a Global Settlement.

"Oversight Committee" means a committee, madeup of no less than nine (9) individuals, to oversee the cooperation providedby the Settling Defendants under Section 5.3.1 and 5.3.2 hereof. The committeeshall have not less than 75% of its composition from representation ofthe Attorneys General.

"Parent," with respect to Liggett means BrookeGroup, and with respect to any other specified corporation or entity, meansanother corporation, partnership or other entity which directly or indirectlycontrols such specified corporation or entity.

"Parties" means the Plaintiffs and Liggett andBrooke Group.

"Personal Injury Subclass" means a settlementsubclass composed of

(a) all Smokers who reside in the United States, its territories,possessions and the Commonwealth of Puerto Rico; and

(b) the estates, representatives, and administrators ofthese Smokers; and

(c) the spouses, children, relatives and "significantothers" of these Smokers as their heirs or survivors; and

(d) all persons who, prior to or during the term of thisAgreement, have been exposed to environmental or second-hand tobacco smokeand have suffered or claim to have suffered Injury as a consequence thereof;

provided that excluded from such settlement subclass are(i) officers and directors of any of the Settling Defendants and (ii) anyperson or entity which has entered into any prior or contemporaneous settlementwith Liggett of a Tobacco Action.

"Population" means, with respect to a geographicalarea, the population of that area as reported in the most recent censusconducted by the United States Bureau of the Census.

"Population Quotient" means, with respect toan Other Settlement or judgment, a quotient whose numerator is the Populationof the United States and whose denominator is the total Population of thestate(s), jurisdictions, or other grouping of persons covered by such OtherSettlement of judgment.

"Preliminary Approval" means the Court's provisionalcertification of the Settlement Class, preliminary approval of this Agreement,approval of the form of Initial Notice to the Settlement Class pursuantto Rule 23 of the Alabama Rules of Civil Procedure, or the setting of adate for the approval or submission for approval of the form of such notice.

"Present Affiliate" means with respect to aspecified corporation, another corporation, partnership or other entitywhich as of the date of this Agreement, directly or indirectly, controls,is controlled by, or is under common control with, such specified corporationor entity including any and all Parents, subsidiaries, and/or sister corporationsor entities of such specified corporation or entity.

"Present Value" means, with respect to a specifiedamount or amounts, the present value of such amount or amounts as calculatedusing a discount rate equal to the yield on 10-year Treasury Notes as reportedin the Wall Street Journal at the time of such calculation; providedthat where such amount or amounts are not otherwise determinable, the amountor amounts to be present-valued shall be deemed to be the average for themost recent three years.

"Pretax Income," with respect to Liggett, meansfor a specified year, the "Income before Income Taxes" as determinedin accordance with generally accepted accounting principles ("GAAP")of Liggett for its most recent fiscal year, as reported in filings to theUnited States Securities and Exchange Commission or, if there is no suchfiling, as reported by Liggett's independent outside auditors. If GAAPchanges in any material respect during the term of this Agreement so thatthe benefits anticipated by the parties (in light of GAAP applicable onthe date of this Agreement), an appropriate adjustment shall be made tothe formulas and calculations hereunder to achieve the parties' expectationsas of the date hereof.

"Protective Order" of "Stipulation RegardingLiggett Documents" means, with respect to privileged documents producedby a Settling Defendant pursuant to ¶ 5.3 on order of the Court: (a)protecting the confidentiality of such documents; (b) providing that suchdocuments may be used only in actions against Non-Settling Tobacco Companiesand, to the extent permitted by law, only under seal; (c) providing that,to the extent such documents are or may be subject to the attorney-clientprivilege or attorney work product doctrine, such production or use ofthe documents does not constitute a waiver of such privilege, doctrineor protection with respect to any party other than the parties to whomthe documents are produced subject to the order. The provisions of theProtective Order shall not apply to documents claimed to be privilegedbut which are determined by the Court or by any other court not to be privilegedfor reasons other than waiver due to production pursuant to this Agreement.

"Recoupment Subclass" means a settlement subclasscomposed of: all persons or entities not in the Personal Injury Subclass(including, without limitation, any territory, city, county, state, parish,possession or any other political subdivision thereof, or any agency orinstrumentality of any of the foregoing, or any insurance company) in theUnited States, its territories, possessions, and the Commonwealth of PuertoRico, which, prior to or during the term of this Agreement, have incurredor claim to have incurred, directly or indirectly, economic loss as a resultof paying for the treatment of diseases, illnesses, or medical conditionsallegedly caused by Cigarettes (or exposure thereto, including by way ofenvironmental or second hand smoke); provided that excluded from such settlementsubclass are (i) officers and directors of any of the Settling Defendants;(ii) any person or entity which has entered into any prior or contemporaneoussettlement with Liggett of a Tobacco Action, and (iii) any State that optsout of this Settlement pursuant to Section 9 of this Agreement.

"Settlement Class" means a settlement classcomposed of the Personal Injury Subclass and the Recoupment Subclass asherein defined.

"Settlement Class Counsel" means the firms listedas Personal Injury Settlement Subclass Counsel and Recoupment SettlementSubclass Counsel in Section in 26.8 of this Agreement.

"Settlement Class Representatives" means thePlaintiffs approved by the Court to serve as Settlement Class representativesfor their respective settlement subclasses.

"Settlement Fund" means the fund establishedin accordance with the terms of Section 7 of this Agreement, which shallbe established in a reputable bank or other financial institution subjectto the jurisdiction of the Court, to provide a secure and interest-bearingfund, which shall be jointly controlled by the Settling States and theSettlement Class.

"Settlement Fund Board" or "Board"means the board which shall be established pursuant to this Agreement toadminister that portion of the Settlement Fund allocated to the SettlementClass pursuant to this Agreement. The Settlement Class representativesshall be appointed by the Court pursuant to procedures for selection ofthe representatives established by the Court. At least one-third of theBoard shall be comprised of representatives of the public health communitywho shall be designated by majority vote of the other members of the Board.

"Settling Defendants" means Brooke Group and/orLiggett.

"Settling Defendants' Counsel" means the lawfirm of Kasowitz, Benson, Torres & Friedman L.L.P.

"Settling States" means those States that enteredinto the Attorneys General Settlement Agreement.

"Smokers" means all persons who, prior to orduring the term of this Agreement, have smoked Cigarettes or have usedother tobacco products and have suffered or claim to have suffered Injuryas a consequence thereof.

"State Opt Out Period" means the period commencingon the Initial Notice Date and extending for a period of time as providedin Section 9 hereof.

"Subsequent Notice" means the written noticeto be provided by Liggett and its Present Affiliates to Settlement Classmembers as defined and provided by Section 8.4 of this Agreement.

"Subsequent Notice Dates" means the dates definedin Section 8.4 hereof.

"Tobacco Action" means any individual lawsuit,putative or certified class action lawsuit or action on behalf of a governmentalentity brought against one or more Tobacco Companies in connection withsmoking-related claims such as (without limitation) those asserted in theFletcher Action or any Attorney General Action.

"Tobacco Companies" means The American TobaccoCo., Lorillard Tobacco Co., Philip Morris Inc., R.J. Reynolds Tobacco Co.,Brown & Williamson Tobacco Corp., Liggett and United States TobaccoCo. and/or their respective Affiliates.

"Tobacco Snuff" means any cut, ground, powdered,or leaf tobacco that is intended to be placed in the oral cavity.

2. Settlement Purposes Only.

2.1. This Agreement is for settlement purposes only, andneither the fact of, nor any provision contained in, this Agreement norany action taken hereunder shall constitute, be construed as, or be admissiblein evidence against the Settling Defendants as, any admission of the validityof any claim, any argument or any fact alleged or which could have beenalleged by Plaintiffs in the Action or alleged or which could have beenalleged in any other action or proceeding of any kind or of any wrongdoing,fault, violation of law, or liability of any kind on the part of the SettlingDefendants or any admission by them of any claim or allegation made orwhich could have been made in the Action or in any other action or proceedingof any kind, or as an admission by any of the Plaintiffs or members ofthe Settlement Class of the validity of any fact or defense asserted orwhich could have been asserted against them in the Action or in any otheraction or proceedings of any kind.

3. Submission for Preliminary Approval.

Promptly after execution of this Agreement, the Partiesshall, through their respective attorneys, jointly submit this Agreementto the Court and move the Court for Preliminary Approval.

4. Parties.

4.1. This Agreement shall be binding, in accordance withthe terms hereof, upon Plaintiffs, the Settlement Class, Brooke Group andLiggett; provided that, notwithstanding anything else contained in thisAgreement, the payment obligations of this Agreement shall be binding onlyupon Liggett.

4.2. No Settling Defendant shall sell, dispose or transfersubstantially all of its cigarette brands or businesses without first causingthe acquiror, on behalf of itself and its successors, to be bound by allof the obligations of a Settling Defendants pursuant to Sections 5.2 and5.4 through 5.8 hereunder as to such transferred brands or businesses;provided that this Section 4.2 shall not apply to the extent such sale,disposition or transfer is required by the Federal Trade Commission, Departmentof Justice, State Attorney General or court order.

4.3. The Parties acknowledge and agree that the willingnessof Liggett and Brooke Group to enter into this Agreement, and in particulartheir willingness to agree to the equitable and other relief relating tocigarette marketing and to cooperation provided for in Section 5 hereof,are important to the interests of the Settlement Class.

5. Consent Decrees; Warnings; Cooperation.

5.1. Upon execution of this Settlement Agreement, Liggettshall, by and through its Director, Bennett S. LeBow, issue a public statementsubstantially in the following form and substance:

I am, and have been for a number of years, a Directorof Liggett Group, Inc., a manufacturer of cigarettes. Cigarettes were identifiedas a cause of lung cancer and other diseases as early as 1950. I, personally,am not a scientist. But, like all of you, I am aware of the many reportsconcerning the ill-effects of cigarette smoking. We at Liggett know andacknowledge that, as the Surgeon General, the FDA and respected medicalresearchers have found, cigarette smoking causes health problems, includinglung cancer, heart and vascular disease and emphysema. We at Liggett alsoknow and acknowledge that, as the Surgeon General, the Food and Drug Administrationand respected medical researchers have found, nicotine is addictive.

Liggett will continue to engage in the legal activityof selling cigarettes to adults, but will endeavor to ensure that theseadults are aware of the health risks and addictive nature of smoking. Aspart of our efforts, we will do the following:

1. In accordance with a court-approved settlement, Liggettwill set up a fund to compensate equitably those who claim to have beeninjured by our products.

2. Liggett will add a prominent warning to each of ourpackages of cigarettes and all of our cigarette advertising stating that"Smoking is Addictive."

3. Liggett supports and will not challenge Food and DrugAdministration regulations concerning the sale and distribution of nicotine-containingcigarettes and smokeless tobacco products to children and adolescents.Accordingly, Liggett has agreed to comply with many of these regulationseven before they apply to the tobacco industry generally.

4. Liggett has instructed its advertising and marketingpeople to scrupulously avoid any and all advertising or marketing whichwould appeal to children or adolescents. Liggett acknowledges that thetobacco industry markets to "youth," which means those under18 years of age, and not just those 18-24 years of age. Liggett condemnsthis practice and will not market to children. Liggett agrees that if itsees industry advertisements which in its view are aimed at children, itwill bring this to the attention of the Attorneys General.

5. In accordance with our settlement agreements, Liggettagrees to fully cooperate with the Attorneys General and Settlement ClassCounsel in their lawsuits against the other tobacco companies. To thatend, Liggett will make available to the Attorneys General, Settlement ClassCounsel and other parties with whom we have settled all relevant documentsand information, including documents subject to Liggett's own attorney-clientprivileges and work product protections and will assist those parties inobtaining prompt court adjudication of the rest of the industry's jointprivilege claims.

5.2. As promptly as reasonably practicable, but no laterthan six months after execution of the Attorneys General Settlement Agreement,Settling Defendants shall cause to be printed boldly, on all of their Cigarettepackages and in all of their Cigarette advertising, in addition to thewarnings mandated under the Federal Cigarette Labeling and AdvertisingAct, as amended, 15 U.S.C. § 1331 et seq., the statement thatcigarette smoking is addictive. To the extent any Settling Defendant manufacturesand sells other tobacco products, a similar warning shall be placed onsuch product.

5.3.1. Upon execution of this Agreement, each SettlingDefendant shall:

(1) cooperate with the Settlement Class, its members andcounsel, in that such Settling Defendant will take no steps to impede orfrustrate their investigations into, or prosecutions of, any of the non-settlingdefendants in Tobacco Actions, so as to secure the just, speedy and inexpensivedetermination of all such smoking-related claims against said non-settlingpersons and entities;

(2) cooperate in and facilitate reasonable non-party discoveryfrom Settling Defendants in connection with Tobacco Actions;

(3) actively assist the Settlement Class, its membersand counsel in identifying and locating any and all persons known to suchSettling Defendant to have documents or information that is discoverablein such proceedings, and to actively assist in interviewing and obtainingdocuments and information from all such persons, and to encourage suchperson to cooperate with the Settlement Class; and shall actively assistin interpreting documents relating to litigation against Non-settling TobaccoCompanies; and

(4) insofar as such Settling Defendant has or obtainsany material information concerning any fraudulent or illegal conduct onthe part of any parties, including Non-settling Tobacco Companies, theiragents, or their co-defendants designed to frustrate or defeat the claimsof the plaintiffs against such parties, companies, agents or co-defendants,or which have the effect of unlawfully suppressing evidence relevant tosmoking claims, disclose such information to the appropriate judicial andregulatory agencies.

5.3.2. With respect to each Settlement Class member andher counsel, subject to, and promptly after (i) the entry of a ProtectiveOrder by the Court, and (ii) an agreement by such Settlement Class memberand her counsel to abide by, and not object to this Settlement Agreement,each Settling Defendant shall:

(1) promptly provide all documents and information thatare relevant to the subject matter of the Actions or which are likely tolead to admissible evidence in connection with the claims asserted in aTobacco Action, subject to the provisions of Section 5.3.2(2) hereof;

(2) waive any and all applicable attorney-client privilegesand work product protections with respect to such documents and information.Such waiver shall not extend to (a) documents and information not relevantto the subject matter of Tobacco Actions or not reasonable likely to leadto admissible evidence in connection with claims asserted in any TobaccoAction, (b) documents subject to a joint defense or other privilege orprotection which Settling Defendants cannot legally waive unilaterally,except that the waiver by the Settling Defendant shall apply, to the extentpermitted by law, to its own joint defenses or other privileges. To theextent that a Settling Defendant has a good faith belief, or one or moreNon-settling Tobacco Companies claims, that documents to be provided pursuantto Section 5.3.2(1) hereof may be subject to a joint defense or other privilege(or claim or such privilege) of one or more of the Non-settling TobaccoCompanies, such documents shall be deposited under seal for in camerainspection by the Court, or a court in which a Tobacco Action is pending,together with a statement to the Court that such Settling Defendant hasconcerns as to whether some or all of such documents should be protectedfrom discovery, and the Parties agree to request that the Court shall retainjurisdiction to resolve that issue. Liggett will participate in proceedings,including by way of court appearances or declarations, concerning issuesof whether such documents are discoverable;

(3) offer their employees, and any and all other individualsover whom they have control, to provide witness interviews of such employeesand to testify, in depositions and at trial; it being understood and agreedthat Liggett will waive and hereby does waive any and all applicable confidentialityagreements to the extent such confidentiality agreements would restricttestimony under this Agreement, if any, to which such witnesses may besubject;

(4) demand from its part or current national legal counselall documents and information obtained in the course of representationof any Settling Defendant which in any way relates to the cooperation requiredin paragraphs 5.3.1(1) - 5.3.2(3) above, which shall be provided to theSettlement Class, its members and counsel as provided under this paragraph.

5.3.3. With respect to the cooperation set forth in paragraphs5.3.1 and 5.3.2 above,. the Attorneys General and Settlement Class Counselshall appoint, on a yearly basis, an Oversight Committee, to oversee suchcooperation so that it fairly assists them and minimizes the burden ona Settling Defendant. All requests for cooperation will be first made tothe Oversight Committee. The Oversight Committee shall coordinate suchrequests giving due regard to the legitimate needs of the litigants requestingcooperation and the burden on the Settling Defendant. Nothing in this Agreementshall waive or alter the rights of Settlement Class members to obtain discoveryof Liggett as required by a court order or case management order in anyAttorneys General Action, provided that no order is sought that is inconsistentwith this Agreement.

5.3.4. In the event the Oversight Committee cannot agreeon the sharing of cooperation by litigations, any member of the Committeemay seek resolution by an Arbitrator. In the event that the Oversight Committeecannot agree on the selection of an Arbitrator, the Oversight Committeewill petition the Multidistrict Litigation Panel for appointment of anArbitrator. In the event any Settling Defendant, absent good cause, doesnot provide requested cooperation as promptly as reasonably practicable,after receiving written notice from the Committee of such request, (1)the Committee may seek relief from an Arbitrator, and (2) the Committee,upon notice to the Settling Defendant, may petition an Arbitrator for specificperformance of such requested cooperation.

5.4. Each Settling Defendant, promptly after becomingbound by this Agreement, shall consent to jurisdiction by the FDA, forthe sole purpose of promulgating the FDA Rule with respect to all TobaccoCompanies. Further, each Settling Defendant, promptly after execution ofthis Agreement, shall endorse, support and assist n attempts by the FDAto have the FDA Rule become enforceable. Such efforts shall include, ifand as reasonably requested by the Attorneys General, filing appropriateamicus briefs and other court papers in litigation relating to the FDARule.

5.5. Each Settling Defendant shall follow and abide bythe provisions of the FDA Rule, insofar as they pertain solely to suchSettling Defendant's Domestic Tobacco Operations, as set forth in, andmodified by, paragraphs 5.5.1 - 5.5.4 hereof until a final determinationis reached respecting the FDA Rule at which time the Settling Defendantswill be bound by the FDA Rule only insofar as, and to the extent that,the FDA Rule becomes an enforceable obligation binding upon all of theTobacco Companies.

5.5.1. FDA Rule § 897.16(b), as proposed.

5.5.2. FDA Rule § 897.16(d), as proposed.

5.5.3. FDA Rule § 897.30(a), as proposed.

5.5.4. FDA Rule § 897.30(b), but only to the extentthat such section applies to billboards within 1,000 feet of a clearlymarked public or private elementary or secondary school or a clearly marked,outdoor, municipal or other government-operated public playground for children.

5.6. Notwithstanding anything to the contrary in the ProposedRule or in this Agreement, Liggett will commence compliance with Section5.5 of this Agreement as soon as reasonably practicable, according priorityas to compliance to the States listed in Appendix A to the Attorneys GeneralSettlement Agreement and then to Subsequent Settling States; provided thatLiggett may limit its compliance to the extent, if any, necessary to ensurethat the net annual out-of-pocket cost to Liggett of such compliance notexceed $1 million; and provided further that Liggett shall not be obligatedpursuant hereto to breach pre-existing legal obligations, if any, it mayhave with respect to the matters covered by Section 5.5 (and shall useits reasonable best efforts to minimize the degree to which any such obligationswould impede its full compliance therewith). For purposes of this paragraph,the phrase "net annual out-of-pocket costs" means the excessof (a) the additional out-of-pocket expenditures incurred during a particularyear by Liggett in complying with the matters specified in Section 5.5,over (b) savings, if any, in out-of-pocket expenditures realized duringsuch year by Liggett directly from the implementation of the matters coveredby Section 5.5.

5.7. If, when and to the extent that the FDA Rule, inwhole or in part, becomes an enforceable legal obligation binding uponall of the Defendants, each Settling Defendant will comply therewith, withoutconsideration of any limits or exceptions herein. If the FDA Rule doesnot so become such a legal obligation, Liggett shall, during the durationof this Agreement, continue to comply with Section 5.5.

5.8. Each Settling Defendant shall not use cartoon characters,such as "Joe Camel" in any of its advertising and promotionalmaterials and activities with respect to tobacco products. No SettlingDefendant shall enter into any new contract for advertising and promotionwith respect to tobacco products using any such cartoon characters afterthe date the Settling Defendants become bound by this Agreement.

5.9. Each Settling Defendant may, after becoming boundby this Settlement Agreement, continue in the lawful manufacture, advertisingand/or sale of tobacco products. This Settlement Agreement does not inany way abrogate or restrict the authority or ability of the RecoupmentSubclass members, to the extent such members possess such authority orability, to enforce compliance with the laws of their respective jurisdictions.

6. Global Settlement

6.1. Effective upon the execution hereof, Settlement ClassCounsel each agree (a) to exercise best efforts to ensure that the financialterms, financial obligations or financial conditions of any Global Settlementare no more onerous on, or less favorable to, Brooke Group and Liggettthan the financial terms, financial obligations or financial conditionsof this Settlement Agreement, and (b) to issue a public statement substantiallyin the following form and substance:

The historic settlements entered into by Liggett, wherebyLiggett has agreed, among other things, to provide full cooperation totwenty-two Attorneys General and a nationwide settlement class and to consentto FDA regulation of tobacco marketing, are a major advance in our effortsto prevent smoking by children and adolescents and to ensure that the tobaccoindustry markets its products lawfully. Accordingly, the undersigned counselwill use their best efforts in Congress and elsewhere to ensure that anysuch industry-wide resolution provide for financial terms for Liggett thatreflect appropriate recognition of Liggett's cooperative efforts, and whichare no more onerous on, or less favorable to Liggett than those providedfor in our Settlement Agreement.

6.2. In the event there is a Global Settlement at anytime which contains financial terms, financial obligations or financialconditions as to Liggett and Brooke Group which are more onerous on, orless favorable to, Liggett and Brooke Group than those of this SettlementAgreement, then, in addition to and not in derogation of any other rightsor remedies Liggett and Brooke Group may have, Liggett and Brooke Groupshall have the right, at their option, to withdraw from future performanceof this Agreement.

7. Settlement Fund.

7.1. Except as may otherwise be provided herein, all amountsdue and owing by each Settling Defendant under this Agreement shall bepaid when due into the Settlement Fund to be allocated and distributedto Settlement Class members and Settling States in accordance with thisand the Attorneys General Settlement Agreement. In the event that the SettlingStates and the Settlement Class Counsel cannot agree to an equitable allocationof the Settlement Fund between the Settling States and the Settlement Class,the Settling States and Settlement Class Counsel shall seek to agree onthe selection of an Arbitrator to determine such allocation. In the eventthat the Settling States and the Settlement Class Counsel cannot agreeon the selection of an Arbitrator, the Settling States and Settlement ClassCounsel will petition the Court to determine such allocation; it beingunderstood that some portion of the Settlement Fund will be allocated tocounter-market advertising.

7.2. Settling Defendant shall have no interest in or responsibilityfor allocations or distributions from the Settlement Fund and do not guaranteeany earnings or insure against any losses from any portion of the SettlementFund assets that may be maintained or administered as provided in Section7.1. above.

7.3. Subject to the terms of this Agreement, Liggett shallmake the following payments:

7.3.1. An initial payment of $25 million due 120 daysfrom the date of a Future Affiliate Transaction; and

7.3.2. Subject to the provisions of Sections 7.7 and 7.9,payments, each equivalent to 25% of Liggett's Pretax Income, due 120 daysafter the end of each fiscal year of Liggett. The first payment shall bemade with respect to the first fiscal year commencing after the date ofthis Settlement Agreement.

7.4. Liggett shall pay the reasonable and necessary expensesof the administration, allocation and distribution of the Settlement Fund;provided that Liggett shall not be obligated to pay more than $1 millionin any year for such expenses or the costs of Initial and each SubsequentNotice.

7.5. The amounts payable hereunder to the Settlement Fundshall represent the maximum amounts payable to the Settlement Fund underthis Agreement and the Attorneys General Settlement Agreements. Subjectto the approval of the Court, the Settlement Fund Board shall institutea process for the allocation of the Settlement Fund to the Settlement Class,as set forth in this Agreement.

7.6. The Court shall retain exclusive and continuing jurisdictionover the Settlement Fund, and any and all claims thereto. All allocationsof, and distributions from, the Settlement Fund to the Settlement Classshall be subject to Court approval.

7.7. In the event of a Global Settlement, the SettlingDefendants shall have the right to reduce the aggregate payments due fromLiggett in each year pursuant to this Agreement so that such aggregatepayments shall be no more than the lesser of (A) on a Cost Per CigarettePack basis, one-third of the lowest Cost Per Cigarette Pack due in suchyear from the Non-Settling Tobacco Companies under such Global Settlementand (B) on a percentage of Pretax Income basis, one-third of the lowestpercentage of Pretax Income due in such year from the Non-Settling TobaccoCompanies under such Global Settlement (such percentage to be computeras if the payments due from such companies were included in revenues andearnings).

7.8. Liggett shall receive as a credit against any andall amounts due hereunder, any and all amounts it is required to pay undera Global Settlement.

7.9. In the event that one or more States elect to optout of the Mandatory Settlement Class and action(s) are brought againstany Settling Defendant on behalf of such State(s), the annual payment amountdue under Sections 7.3.2 of this Agreement from a Settling Defendant shallbe reduced by an amount equal to the product of (i) the ratio that theMedicaid population of the States that elect to opt out of the MandatorySettlement Class then bears to the total Medicaid Population and (ii) 20%of Liggett's Pretax Income.

7.10. The Settlement Fund shall constitute the sole sourceof recovery on any and all claims against Liggett and its Present Affiliateswhich have been, will be, or could be asserted, directly or indirectly,by, on behalf, or for the benefit of any and all Settlement Class members,such that, subject to the Court's final determination that this SettlementAgreement is fair pursuant to Mandatory Class Final Approval, Liggett andits Present Affiliates shall enjoy a universal release from all claimsassociated with or resulting from the smoking of their cigarettes in considerationof their agreeing to the entry of the Consent Decree and of Liggett's paymentsinto the Settlement Fund and of the reasonable expenses of the administration,allocation, and distribution of the Settlement Fund, for the benefit ofSettlement Class members, in accordance with this Agreement.

7.11. The Board shall institute a process for the equitableadjudication of smoking-related claims against Liggett for compensatorydamages by Settlement Class members in view of, among other things, thehistory of the outcome of such claims; it being understood that all claimsfor punitive, exemplary or other such damages are hereby waived. The Boardshall also consider any and all comments, recommendations, requests andsuggestions from Settlement Class members and their counsel, as to theappropriate and equitable allocation and distribution of the SettlementFund, for evaluation and recommendation by the Board to the Court for itsapproval. The Court shall not be requested by the Parties or the Boardto make any specific orders regarding the ultimate allocation and distributionof the Settlement Fund at the time of Preliminary or Mandatory Class FinalApproval. The notice forms to be submitted to the Court for its approvalshall inform Settlement Class members that issues of allocation and distributionare reserved for future rulings, conditioned upon ad subsequent to MandatoryClass Final Approval, and that any and all Settlement Class members whowish to do so may submit their comments, recommendations, requests andsuggestions for the allocation and distribution of the Settlement Fund,under a procedure to be established by the Court. The Court will be requestedto grant Preliminary and Mandatory Class Final Approval without regardto the ultimate equitable allocation and distribution of the SettlementFund, in order to provide Settlement Class members with a full opportunityto participate in the allocation decision-making process after the SettlementFund is in place; and to avoid distracting the parties and the Court, duringthe settlement approval process, with comments or objections more properlydirected at the specifics of allocation and distribution with respect toparticular claimants rather than the common class interest in the overallfairness, adequacy, and reasonableness of the Settlement itself, in thecontext of the "limited fund" available from Liggett to pay claims,the provision of valuable equitable relief, and the compromise of disputedand risky claims.

7.12. Settling Defendants agree not to take any actionthe primary purpose of which is to reduce Liggett's payment obligationsunder this Agreement.

8. Notice to the Settlement Class.

8.1. Upon Preliminary Approval, and as the Court may direct,each Settling Defendant shall cause notice of the settlement embodied herein(the "Initial Notice") to be given to the members of the SettlementClass.

8.2. The Initial Notice to Settlement Class members shallinform them as follows:

The allocation of the Settlement Fund to specific usesor among particular claimants has not been determined. Future allocationand distribution of the Settlement Fund will be administered by the SettlementFund Board. The Board shall be comprised of representatives appointed bythe Attorneys General of certain settling states and by Settlement ClassCounsel with the approval of the Court, and it shall include representativesof the public health community. The Board shall be responsible for recommendingand implementing guidelines and procedures for the administration of claims.The Settlement Agreement does not specify any particular allocation ofSettlement proceeds. Settlement Class members will be given notice andan opportunity to be heard and make suggestions regarding allocation beforeany final allocation or distribution decisions are made.

8.3. The Initial Notice, in a form to be approved by theCourt, shall be disseminated as provided in this Section 8 over the courseof a period not to exceed ninety (90) days from the Initial Notice Date,subject to approval by the Court.

8.4. At the end of each successive three-year intervalduring the term of this Agreement ("Subsequent Notice Dates"),each Settling Defendant shall cause notice of the settlement embodied herein(the "Subsequent Notice") to be given to the members of the SettlementClass.

8.5. Each Subsequent Notice, in a form to be approvedby the court, shall be disseminated over the course of four periods eachnot to exceed sixty (60) days from each applicable Subsequent Notice Date.

9. States' Right of Exclusion/Inclusion

A Settlement Class member that is a State may opt outat any time during the thirty day period from the Initial Notice Date.In order to exercise the opt out right set forth in this Section 9, suchState must complete and return a request for exclusion in a form to beagreed upon by the Parties and approved by the Court. Such request mustbe postmarked on or before the end of the thirty day period. Any such Statethat has not so elected will be a Settlement Class member for all purposesunder this Agreement. Any State that elects to opt out of the SettlementClass pursuant to this Section 9 shall not be entitled to relief underor be affected as to a Settling Defendant by this Agreement.

10. Mandatory Class Certification As To Liggett.

The mandatory certification of the Settlement Class underRule 23(b)(1)(B) and/or 23(b)(2) of the Alabama Rules of Civil Procedureis essential to the ability of the Parties to perform the terms and conditionsset forth in this Settlement Agreement. It is the intend and understandingof the Parties that the undertakings of Liggett and Brooke Group as describedin Section 5 of this Settlement Agreement, with respect to Liggett's promotional,advertising, marketing and sales practices in order to inform the SettlementClass and the American public of the dangers of smoking and the addictivenature of nicotine, to prevent sales of cigarettes to children and adolescents,and to provide active and meaningful cooperation in the prosecution ofsmokers' claims against Non-Settling Tobacco Companies constitute injunctive,equitable, and declaratory relief of real, immediate, and ongoing benefitto the Settlement Class and the public, sufficient to satisfy the criteriaof mandatory class certification under Rule 23. The Parties shall cooperatein establishing, to the satisfaction of the Court, the evidentiary predicatesfor the Court's determination of a "limited fund" under Rule23. In the event the Settlement Class is not certified under one or moreof these mandatory provisions, or is later decertified by the Court oron appeal, Liggett and Brooke Group shall have the right and option towithdraw from this Settlement Agreement.

11. Future Affiliate.

11.1. The terms of this Agreement shall not be bindingupon or applicable to a Future Affiliate of the Settling Defendants, exceptas provided for in this Section 11.

11.2. (a) In the event of a Future Affiliate Transaction,the Settlement Class shall not seek to enjoin or otherwise challenge aspinoff or like disposition of the stock or assets of any Affiliate ofthe Future Affiliate which is not engaged in Domestic Tobacco Operations.The Settlement Class reserves the right to seek to enjoin such a spinoffin the event that such spinoff or like disposition is sought by someoneother than Brooke Group or a Future Affiliate or an Affiliate of a FutureAffiliate.

(b) In the event of and after a Future Affiliate Transaction:(1) the Settlement Class members each release (pursuant to, mutatismutandis, Section 13.1 hereof) and covenant not to bring suit for anyclaim so released against any Affiliate of the Future Affiliate, otherthan the Affiliate engaged in Domestic Tobacco Operations; and (ii) ifprior to the Future Affiliate Transaction, a Settlement Class member shallhave obtained a verdict or judgment in an action, against an Affiliateengaged in Domestic Tobacco Operations, such Settlement Class member shallnot seek to enforce such verdict or judgment against any such Affiliateother than the Affiliate engaged in Domestic Tobacco Operations.

11.3. In the event a Settlement Class member obtains averdict or judgment against a Non-settling Tobacco Company in a TobaccoAction, and a Settling Defendant commences a proxy contest or similar actionseeking control of such Non-settling Tobacco Company or an Affiliate thereof,then such Non-settling Tobacco Company or an Affiliate thereof will notbe required to post a bond in order to stay enforcement of such verdictor judgment, and such Settlement Class member will not seek to enforcesuch verdict or judgment against such Non-settling Tobacco Company or suchAffiliate, for a period of the earlier of (i) one year from the commencementof such proxy contest or action, and (ii) completion or resolution of theproxy or merger vote.

11.4. In the event that subsequent to a Future AffiliateTransaction, and in conformity with § 17.2(b) hereof, a SettlementClass member obtains a verdict or judgment against a Future Affiliate inan action, such Future Affiliate will not be required to post a bond inorder to stay enforcement of such verdict or judgment, and such SettlementClass member will not seek to enforce such judgment against such FutureAffiliate or an Affiliate of such Future Affiliate until the verdict orjudgment becomes final and non-appealable.

11.5. Prior to a Future Affiliate Transaction, SettlingDefendants shall not enter into any agreement with any prospective FutureAffiliate which diminishes or impairs the prospective Future Affiliatefrom diminishing or impairing such assets. In the event of a Future AffiliateTransaction, Settling States reserve all of their rights to prevent theFuture Affiliate from diminishing or impairing the Future Affiliate's assets,other than in the established and/or ordinary course of business of suchFuture Affiliate.

11.6. With respect to subsections 11.1 - 11.5 above, nothingin these provisions, or elsewhere in this Agreement, limits the authorityof the Settlement Class to challenge any transaction which they reasonablybelieve is in violation of federal or state antitrust law.

11.7. In the event of a Future Affiliate Transaction,after which Liggett remains as a separate entity such that Liggett's PretaxIncome is readily calculable, Section 6.3.2 hereof shall remain in effectwith respect to Pretax Income solely attributable to such separate entity.In the event of a Future Affiliate Transaction, Settling Defendants andthe Attorneys General and their respective counsel, each agree to exercisebest efforts to negotiate in good faith a payment schedule to replace thatset forth in Section 6.3.2. Nothing in this Section 17.7 affects in anyway Liggett's payment obligations under Section 7.3.1 hereof.

11.8. Promptly after a Future Affiliate Transaction, aFuture Affiliate shall abide by Sections 5.4 - 5.7 hereof.

11.9. Promptly after a Future Affiliate Transaction, SettlingDefendant and the Settlement Class Counsel, each agree to exercise bestefforts to negotiate in good faith a settlement of all claims against aFuture Affiliate.

11.10. As promptly as reasonably practicable after a FutureAffiliate Transaction, a Future Affiliate shall agree to eliminate cartooncharacters such as "Joe Camel," from all of its advertising andpromotional materials and activities with respect to tobacco products.

12. Release.

12.1. Upon the Mandatory Class Settlement Date, with respectto each Settling Defendant, for good and sufficient consideration as describedherein, all members of the Settlement Class, collectively and individually,on behalf of themselves, the persons they represent, their heirs, executors,administrators, trustees, beneficiaries, agents, attorneys, successors,assigns, affiliates, officers, directors, employees and shareholders shallbe deemed to and do hereby release, dismiss and discharge each and everyclaim, right, and cause of action (including, without limitation, all claimsfor damages, medical expenses, restitution, medical monitoring, or anysimilar legal or equitable relief, under federal, state or common law),known or unknown asserted or unasserted, direct or indirect, which theyhad, now have, or may hereafter have against each Settling Defendant (includingits past, present and future parents, subsidiaries, affiliates and theirpast, present and future agents, servants, attorneys, employees, officers,directors, shareholders, and beneficial owners) (and downstream distributionentities of Liggett, but only to the extent that such downstream distributionentities would have cross-claims against Liggett) which is based on anyand all harm, injury or damages claimed by members of the Settlement Classto be caused by smoking, addiction to, or dependence upon, cigarettes orwhich is asserted in the Action in connection with, or arising out of theconduct, acts, facts, transactions, occurrences, representations or omissionsset forth, alleged, referred to or otherwise embraced in the Action complaintor any and all other Tobacco Actions or any other smoking-related actions.

Provided, however, as follows:

1) If this Agreement expires upon completion of its fullterm, this release shall continue and apply in full force and effect withrespect to all released claims which accrued or shall accrue prior to,through and including the date of such expiration, such that such claimsshall be forever released, but only as to such claims through and includingsuch date; if this Agreement terminates for any reason prior to its fullterm, this release shall be of no further force and effect and SettlingDefendants shall be entitled to a credit to the extent otherwise providedin this Agreement against all claims covered by the release for the fullamount paid by such Settling Defendants hereunder.

2) Except as specifically provided herein, this releasedoes not pertain or apply to any other existing or potential defendantin any present or future action.

3) This release does not release Settling Defendants fromclaims which may be asserted by the Settlement Class against a SettlingDefendant involving conduct unrelated to the manufacture and/or sale oftobacco products.

12.2. Except as specifically provided herein, nothingin this Agreement shall prejudice or in any way interfere with the rightsof the Plaintiffs, Settlement Class members, and the Settling Defendantsto pursue all of their rights and remedies against Non-settling TobaccoCompanies or other defendants.

13. Exclusive Remedy; Dismissal of Action; Jurisdictionof Court.

13.1. Except as otherwise provided in this Agreement,this Agreement shall be the sole and exclusive remedy for any and all releasedclaims of Settlement Class members against the Settling Defendants, andupon the entry of the Mandatory Class Final Order and Judgment by the Court,each Settlement Class member shall be barred from initiating, asserting,or prosecuting any released claims against Brooke Group or Liggett.

13.2. On the Mandatory Class Settlement Date, the Actionshall be dismissed as against each Settling Defendant, subject to the continuingand exclusive jurisdiction of the Court over the enforcement and administrationof the Settlement Agreement, and the allocation and distribution of theSettlement Fund. Settlement Class members may not commence or prosecuteactions against Brooke Group or Liggett on claims released pursuant tothis Agreement once the Mandatory Class Final Order and Judgment is entered.The Settlement Class Counsel agree to provide reasonable cooperation tostay or dismiss, as appropriate, any action of any Settlement Class memberfor such released claims pending in state or federal court against theSettling Defendants.

13.3. The Court shall retain exclusive and continuingjurisdiction over the Action, all Parties, all Settlement Class membersand the Settlement Fund to interpret and enforce the terms, conditions,and obligations of this Agreement. Nothing in this Agreement shall be construedto divest or limit the jurisdiction of the Court with respect to claimswhich may be alleged by the Settlement Class against Non-settling TobaccoCompanies or other defendants.

14. Term.

14.1. Unless earlier terminated in accordance with theprovisions of this Agreement, the duration of this Agreement shall be twenty-five(25) years from the Liggett Settlement Date; provided that in the eventof a Global Settlement, the duration of this Agreement shall be equal tothe duration of the Global Settlement.

14.2. The performance of this Agreement by Liggett andBrooke Group is expressly contingent upon the Court's issuance of the MandatoryClass Final Order and Judgment. If the Court fails to hold the MandatoryClass Fairness Hearing within six (6) months of the date hereof or to issuea Mandatory Class Final Order and Judgment within sixty (60) days followingconclusion of the Mandatory Class Fairness Hearing, Liggett and BrookeGroup may elect to terminate this Agreement by written notice to the Courtand the Settlement Class Counsel within twenty (20) business days followingthe end of either such period.

14.3. Except as may be otherwise specifically providedin this Agreement, a termination by a Settling Defendant hereunder shallhave the effect of rendering this Agreement as having no force or effectwhatsoever, null and void ab initio, and not admissible as evidencefor any purpose in any pending or future litigation in any jurisdiction.However, a termination shall not affect any prior cooperation or requirethe return of any documents produced to a Settlement Class member pursuantto this Agreement.

15. Continuing Enforceability.

15.1. The parties acknowledge and agree that the purposeof this Agreement and mandatory certification of the Settlement Class withrespect to Liggett and its Present Affiliates is to provide the SettlementClass with certain equitable and other relief, and a secure and ongoingsource of recovery, subject to equitable allocation and distribution, whileensuring that Liggett may make its payments hereunder without risking bankruptcyor other insolvency; this Agreement is intended to be a mutually beneficialand equitable alternative to the prospect of bankruptcy.

15.2. Unless earlier terminated, as to the SettlementClass, this Agreement and each provision of or obligation arising fromthis Agreement shall continue and remain fully executory and enforceableif a Settling Defendant institutes or is subject to the institution againstit of any proceeding or voluntary case under title 11 of the United StatesCode, or other proceeding seeking to adjudicate it insolvent or seekingliquidation, winding up, reorganization, arrangement, adjustment, protection,relief or composition or it or its debts under any law relating to bankruptcy,insolvency or reorganization or relief or protection of debtors or otherproceeding seeking the entry of an order for relief or the appointmentof a receiver, trustee, custodian or other similar official for it or forany part of its property (each, a "Bankruptcy Proceeding"). BrookeGroup has the right but not the obligation to cure and to perform any andall obligations of Liggett under this Agreement notwithstanding the occurrenceand continuation of any Bankruptcy Proceeding with respect to Liggett;provided, however, that until such time as Liggett decides whether to rejector assume this Agreement, Brooke Group shall have the obligation to paythe annual installments as provided by Section 7 hereof and any and allrights the Settlement Class may have not to accept such cure or performancein any Bankruptcy Proceeding are waived.

16. Entry of Good Faith Bar Order on Contribution andIndemnity Claims; Indemnification.

16.1. The Parties shall request that the Court enter anorder barring and prohibiting the commencement and prosecution of any claimor action by any Non-settling Tobacco Company in any smoking-related litigationagainst Settling Defendants, including but not limited to any contribution,indemnity and/or subrogation claim seeking reimbursement for payments madeor to be made to any Settlement Class member for claims settled under thisAgreement. Settling Defendants shall be entitled to dismissal with prejudiceof any such Non-settling Tobacco Company's claims against them which violateor are inconsistent with this bar.

16.2. Any Settlement Class member making a claim againsta non-settling person for what would be a claim settled under this Agreementif asserted against a Settling Defendant shall indemnify and hold harmlesseach Settling Defendant from any claim ever asserted against such SettlingDefendant arising from such claim.

16.3. Claims by or on behalf of any Settlement Class membersagainst any non-settling parties are not released and shall not be barred,precluded, limited, or reduced as a consequence of this Agreement or thesubsequent award and distribution of funds to such Settlement Class membersfrom the Settlement Fund, except if and to the extent required under federalor state law applicable under choice-of-law doctrines in the forum in whichany such claims may be instituted or pursued.

17. Expenses and Fees.

17.1. Subject to Section 7.5 hereof, all reasonable andnecessary expenses incurred by the Board in administering, allocating anddistributing the Settlement Fund, and the costs of Initial and SubsequentNotices, shall be paid by the Settling Defendants in addition to, and withoutreducing, their payments into the Settlement Fund.

17.2. In addition to the above described expenses of administrationand notice, the reasonable fees and expenses of the Settlement Class Counsel,if and as approved by the Court, shall be paid by the Settling Defendantsafter the Settlement Date separate and apart from, and in addition to,their initial payments into the Settlement Fund.

17.3. In the event of a failure by the Court to issuethe Final Order and Judgment or a decision by any Settling Defendant toexercise its right to withdraw pursuant to Section 15 of this Agreement,the Settling Defendants will bear, in accordance with the terms of thisAgreement, the costs of the Initial Notice incurred to such point (in thecase of Brooke Group and Liggett not to exceed a total of $1 million; providedthat Brooke Group, Liggett and Plaintiffs shall each have the right toterminate this Agreement in the event that the Court orders Initial Noticecosting in excess of $1 million, unless Brooke Group and/or Liggett and/orPlaintiffs and/or Settlement Class Counsel agree to pay such excess.)

18. Tax Status of Settlement Fund.

18.1. The Settlement Fund created under this Agreementwill be established and maintained as a Qualified Settlement Fund ("QSF")in accordance with Section 468B of the Internal Revenue Code of 1986, asamended (the "IRC"), and the regulations promulgated thereunder.Any Settling Defendant shall be permitted, in nits discretion, and at itsown cost, to seek a private letter ruling from the Internal Revenue Service("IRS") regarding the tax status of the Settlement Fund. Theparties agree to negotiate in good faith, subject to Court approval, anychanges to the Agreement which may be necessary to obtain IRS approvalof the Settlement Fund as a QSF.

18.2. Representatives of the Settling States and the SettlementClass will be appointed to act as administrator of the Settlement Fund.As administrator, such representatives will undertake the following actionsin accordance with the regulations under IRC section 468B: (a) apply forthe tax identification number required for the Settlement Fund; (b) file,or cause to be filed, all tax returns the Settlement Fund is required tofile under federal or state laws; (c) pay from the Settlement Fund alltaxes that are imposed upon the Settlement Fund by federal or state laws;and (d) file, or cause to be filed, tax elections available to the SettlementFund, including a request for a prompt assessment under IRC sec. 6501(d),if and when the administrator deems it appropriate to do so.

18.3. The Settling Defendants, as transferors of the SettlementFund, shall prepare and file the information statements concerning theirsettlement payments to the Settlement Fund as required to be provided tothe IRS pursuant to the regulations under IRC Section 468B.

19. Court's Settlement Approval Order.

Except as specifically provided herein, this Agreementis subject to and conditioned upon the issuance by the Court, followingthe Fairness Hearing, of a Liggett Final Order and Judgment.

20. Effect of Default of Any Settling Defendant.

In the event any Settling Defendant fails to make a paymentdue and owing under the terms of this Agreement, or is in default of thisAgreement in any other respect, the Settlement Class Counsel shall so notifythe Court. The defaulting Settling Defendant shall then be given up tosixty (60) calendar days to "cure" the default. If the defaultingSettling Defendant does not "cure" the default in the time providedin this Section 20, the Settlement Class Counsel may apply to the Courtfor relief, including withdrawal from the agreement.

21. Representations and Warranties; Covenants.

21.1. Each Settling Defendant represents and warrantsthat (i) it has all requisite corporate power and authority to execute,deliver and perform this Agreement and to consummate the transactions contemplatedhereby; (ii) the execution, delivery and performance by such Settling Defendantof this Agreement and the consummation by it of the actions contemplatedherein have been duly authorized by all necessary corporate action on thepart of such Settling Defendant; and (iii) this Agreement has been dulyand validly executed and delivered by such Settling Defendant and constitutesits legal, valid and binding obligation.

21.2. Each Settling Defendant covenants and agrees forthe benefit of the Settlement Class that it will not enter into any transactioninvolving the borrowing of funds in excess of $100 million unless suchtransaction is fair from a financial perspective to the Settling Defendantand represents the reasonable exercise of such Settling Defendant's businessjudgment.

22. Arbitration.

22.1. In the event that the Parties are unable to agree,after good faith efforts, as to the determination or calculation of PretaxIncome or Market Share for any year hereunder, such determination or calculationshall be submitted to binding arbitration under the supervision of theCourt.

22.2. The Settlement Class Counsel shall during the termof this Agreement have the right, at its sole cost, to have an independentauditor review the Settling Defendants' compliance with their payment obligationsunder this Agreement; provided that any such review will not be bindingupon such Settling Defendants.

23. Most Favored Nation.

23.1. In the event of any Other Settlement with any Non-SettlingTobacco Company, the payments due from each Settling Defendant in eachyear under this Agreement shall be reduced to the extent, if any, necessaryto ensure that such payments are the lesser of (a) on a percentage of PretaxIncome basis, payments such that the percentage in each year of such SettlingDefendant's Pretax Income represented by such payments is no more thanone-third of the percentage in such year of such Non-Settling Tobacco Company'sPretax Income represented by the product of (i) the average annual paymentsdue from such Non-Settling Tobacco Company under such Other Settlementand (ii) the Population Quotient with respect to such Other Settlementand (b) on a Cost Per Cigarette Pack basis, no more than the product of(i) one-third of the lowest Cost Per Cigarette Pack due in such year fromthe Non-Settling Tobacco Companies under such Other Settlement and (ii)the Population Quotient with respect to such Other Settlement. The BenchmarkFigure set forth in this Section 23.1 does not reflect in any fashion theSettlement Class's or Settlement Class Counsels' views as to an appropriatesettlement or resolution with any Non-Settling Tobacco Company.

23.2. In the event of the entry of any final monetaryjudgment (other than by way of settlement) in a Tobacco Action, againstany one or more of the Non-Settling Tobacco Companies, then each SettlingDefendant shall have the right to reduce the payments it is obligated tomake pursuant to this Agreement to the extent, if any, necessary to makethe sum of all amounts theretofore paid and the then Present Value calculationthat the annual amounts due hereunder remain unchanged from the then mostrecent fiscal year) by any Settling Defendant per percentage point of thethen Market Share of such Settling Defendant no more than the lesser of(a) fifty (50%) of (i) the dollar amount of the product of (A) such judgmentand (B) the Population Quotient with respect to such judgment per (ii)percentage point of the then Market Share of each such Non-Settling TobaccoCompany and (b) on a Cost Per Cigarette Pack basis, no more than the productof (i) one-third of the lowest Cost Per Cigarette Pack due in each yearfrom such Non-Settling Tobacco Company under such judgment and (ii) thePopulation Quotient with respect to such judgment; provided that such SettlingDefendant shall give written notice of such reduction and the method ofcalculating such reduction to the Court and Settlement Class Counsel assoon as practicable after the entry of such judgment.

23.3. In each year beginning with the second year a SettlingDefendant becomes bound by this Agreement, the annual payment amount dueunder Section 7.3 of this Agreement from such Settling Defendant shallbe decreased in proportion to any decrease, and (only if there shall havebeen a prior such decrease) increased in proportion to any increase, insuch Settling Defendant's Market Share from the prior year; provided, however,that (a) such annual payment amount shall not be so decreased to the extent,if any, that such annual payment amount in such year is decreased as aresult of a decrease in such Settling Defendant's Pretax Income and (b)such annual payment amount shall never be increased such that the aggregateamount of any such increases exceeds the aggregate amount of any such decreases.Such Settling Defendant, as soon as practicable after the end of such year,shall give written notice of any such decrease or increase and the methodof calculating it to the Court and Settlement Class Counsel.

23.4. The Plaintiffs, on behalf of themselves (upon theexecution hereof) and the Settlement Class (upon Preliminary Approval),Settlement Class Counsel, and any attorneys or representatives or any ofthe foregoing, agree that for the next fifteen (15) years neither the Plaintiffs,the Settlement Class, nor any attorneys or representatives of the foregoingwill, without the express written consent of Brooke Group (which may bewithheld for any reason or for no reason) discuss, negotiate, support,approve or enter into any agreement or understanding with any creditor,claimant, trustee, receiver or other party-in-interest, of Liggett, BrookeGroup or any of their affiliates, other than Brooke Group itself (collectively,"Prohibited Parties"), with respect to any restructuring, liquidationor reorganization of Liggett, Brooke Group or any of their affiliates,including with respect to any plan under Chapter 11 or Chapter 7 of title11, United States Code (the "Bankruptcy Code").

23.5. The rights and remedies of each Settling Defendantunder this Section 23 are cumulative and not exclusive of each other andshall survive the termination of this Agreement.

24. Further Actions.

Each of the Parties and their respective counsel shalltake such actions and execute such additional documents as may be reasonablynecessary or appropriate to consummate or implement the settlement contemplatedby this Agreement.

25. Miscellaneous.

25.1. This Agreement, including all Exhibits attachedhereto, shall constitute the entire agreement among the Parties with regardto the subject matter of this Agreement and shall supersede any previousagreements and understandings between the Parties with respect to the subjectmatter of this Agreement. This Agreement may not be changed, modified,or amended except in writing signed by all parties, subject to Court approval.

25.2. This Agreement shall be construed under and governedby the laws of the State of Alabama.

25.3. This Agreement may be executed by the Parties inone or more counterparts each of which shall be deemed an original butall of which together shall constitute one and the same instrument.

25.4. This Agreement shall be binding upon and inure tothe benefit of the Settlement Class, the Settling Defendants, and theirrepresentatives, heirs, successors, and assigns.

25.5. Nothing in this Agreement shall be construed tosubject any Settling Defendant's parent or affiliated company to the obligationsor liabilities of that Settling Defendant.

25.6. There shall be not third party beneficiaries ofthis Agreement other than non-party releases hereunder. No person otherthan the Parties hereto, the Settlement Class members and the releaseshereunder shall have any right or claim under or in respect of this Agreement.

25.7. The headings of the Sections of this Agreement areincluded for convenience only and shall not be deemed to constitute partof this Agreement or to affects its construction.

25.8. Any notice, request, instruction, application forCourt approval or application for Court orders sought in connection withthis Agreement or other document to be given by any Party to any Partyshall be in writing and delivered personally or sent by registered or certifiedmail, postage prepaid, if to the Settling Defendants to the attention ofeach Settling Defendant's respective representative and to the SettlementClass Counsel on behalf of Settlement Class members, or to other recipientsas the Court may specify. As of the date of this Agreement, the respectiverepresentatives are as follows:

Personal Injury Settlement Subclass Counsel

Steven A. Martino


South Trust Bank Building

61 St. Joseph St., Suite 1600

Mobile, Alabama 33602

Howard M. Acosta


300 First Avenue North

St. Petersburg, Florida 33701

Norwood S. Wilner


444 E. Duval Street

Jacksonville, Florida 32202

Recoupment Settlement Subclass Counsel

Russell Jackson Drake


505 20th Street North

1100 Financial Center

Birmingham, Alabama 35203-2605

Brooke Group and Liggett

Mr. Bennett S. LeBow


100 S.E. Second Street

Miami, Florida 33131

Mr. Marc E. Kasowitz

Mr. Daniel R. Benson


1301 Avenue of the Americas

New York, New York 10019

Mr. Michael L. Hirschfeld


1 Chase Manhattan Plaza

New York, New York 10005-1413

The above designated representatives may be changed fromtime to time by any Party upon giving notice to all other Parties in conformancewith this Section 24.8.

26.9. References to or use of a singular noun or pronounin this Agreement shall include the plural, unless the context impliesotherwise.

IN WITNESS WHEREOF the Parties have executed this Agreementas of the day and date first written above.




Ads by FindLaw