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HomeMy WebLinkAboutMINUTES - 05201997 - C16 1.. R TO: BOARD OF SUPERVISORS FROM: Victor J. Westman DATE: May 8 , 1997 SUBJECT: Settlement Agreement in Tobacco Litigation: City and County of San Francisco, et al . v. Philip Morris, et al . U. S .D. C. No. C96-2090 DLJ People of the State of California, et al . v. Philip Morris , et al . San Francisco Sup. Ct . No. 980864 SPECIFIC REQUEST (S) OR RECOMMENDATIONS) & BACKGROUND AND JUSTIFICATION RECOMMENDATION APPROVE the Settlement Agreement with Liggett & Myers Inc . , Liggett Group, Inc . , and Brooke Group Ltd. in the Tobacco Litigation (U. S .D.C. No. C96-2090 DLJ and San Francisco Sup. Ct . No. 980864) , which was filed to recover the costs incurred by the County for the provision of health care to indigents with illnesses related to tobacco use; _ and AUTHORIZE the County Counsel to sign said Settlement Agreement . CONTINUED ON ATTACHMENT: x YES SIGNATURE RECOMMENDATION OF COUNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE APPROVE OTHER SIGNATURE (S) : ACTION OF BOARD ON �hy 20, 1997 APPROVED AS RECOMMENDED X OTHER VOTE OF SUPERVISORS I HEREBY CERTIFY THAT THIS IS A X UNANIMOUS (ABSENT III TRUE AND CORRECT COPY OF AN AYES: NOES: ACTION TAKEN AND ENTERED ON THE ABSENT: ABSTAIN: MINUTES OF THE BOARD OF SUPERVISORS ON THE DATE SHOWN. Contact: Vickie Dawes ATTESTED Lby 20, 1997 cc: County Counsel PHIL BATCHELOR, CLERK OF CAO THE BOARD OF SUPERVISORS Health Services Dept . AND COUNTY ADMINISTRATOR BY&1& DEPUTY H:\VDAWE\TOBACCO\SETTLMNT.BDO Page 2 SUBJECT: Settlement Agreement in Tobacco Litigation: City and County of San Francisco, et al . v. Philip Morris , et al . U. S .D.C. No. C96-2090 DLJ People of the State of California, et al . v. Philip Morris , et al . San Francisco Sup. Ct . No. 980864 BACKGROUND: A few of the Tobacco Company Defendants in the above- referenced litigation have agreed to cooperate and provide documents to the Plaintiff Cities and Counties in order for the Cities and Counties to effectively pursue and advance these lawsuits against the remaining Tobacco Company Defendants . This Settlement Agreement does not provide for the payment of money to the Cities and Counties, but the assistance and cooperation of the Liggett Group Defendants will be invaluable in our pursuit of damages from the remaining Tobacco Company Defendants . The other Plaintiff Cities and Counties are also parties to this Settlement Agreement . H:\VDAWE\TOBACCO\SETTLMNT.BDO CALIFORNIA CITIES AND COUNTIES SETTLEMENT AGREEMENT This SETTLEMENT AGREEMENT is entered into this day of April, 1997 by and among the CALIFORNIA CITIES AND COUNTIES listed in. Appendix A hereto and the American Cancer Society, California Division, the American Heart Association, California Affiliate, the California Medical Association, and the California District of the American Academy of Pediatrics (collectively, "Plaintiffs" ) and Brooke Group Ltd. , a Delaware corporation ( "Brooke Group" ) , Liggett & Myers Inc . , a Delaware corporation ( "Myers" ) , and Liggett Group, Inc . , a Delaware corporation (which, with Myers, is hereinafter referred to as "Liggett" ) . RECITALS 1 WHEREAS, A. The Plaintiffs have brought civil actions ( "Actions" ) in various courts in California ( "Actions" ) against, among others, the American Tobacco Company, Inc . , BAT Industries, Plc, British American Tobacco Company, R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco Corporation, Philip Morris, Inc . , Liggett &Myers, Inc . , Lorillard Tobacco Company, Inc . , and United States Tobacco Company and their various parent and related companies ( "Defendants" ) , asserting claims for, among other things, expenses allegedly arising from tobacco-related matters and restitution (including disgorgement of profits) and other injunctive relief arising from unfair business practices including sales of cigarettes to minors . B . Because of the importance of the agreements and undertakings by Liggett and Brooke Group herein to the goals of Iv� � ' the Plaintiffs, including the prosecution of the Actions against non-settling defendants, Plaintiffs have agreed to extend settlement terms to Liggett and Brooke Group which will not be offered to any other defendants, all as set forth in this Settlement Agreement . C. The Plaintiffs acknowledge and agree that this Settlement Agreement, including the cooperation provisions thereof, are important to the prosecution of their Actions against the non-settling Defendants . D. The Plaintiffs and Liggett and Brooke Group recognize and support the public interest in preventing smoking by, or promotion of smoking to, children and adolescents . E . Liggett and Brooke Group have denied, and continue, to deny any wrongdoing or any legal liability of any kind in all of the above-mentioned actions . F. The Plaintiffs recognize and acknowledge that the cooperation being provided is valuable to the continued prosecution of the claims against the tobacco industry. Further, the Plaintiffs acknowledge that the change in warning labels provided for in this Settlement Agreement is a step towards properly informing consumers more fully of the truth about cigarettes and the consequences of smoking, as is the statement by Liggett also provided for herein. NOW, THEREFORE, in consideration of the foregoing and of the promises and covenants set forth/ in this Agreement, the -2- undersigned, and Liggett and Brooke Group hereby stipulate and agree that the Actions shall be settled as against Liggett and Brooke Group, and that all claims asserted in the Actions against Liggett and Brooke Group shall be dismissed, all on the terms contained herein, as follows : 1 . Definitions . As .used in and solely for the purposes of this Agreement, in addition to terms defined elsewhere in this Agreement, the following terms shall have the following respective meanings : "Affiliate" means a Present Affiliate or a Future Affiliate . "Agreement" means this Settlement Agreement . "Actions" means the actions listed in Appendix A hereto. "Brooke Group" means Brooke Group, Ltd. and its Present Affiliates other than Liggett . "Cigarette" means any product including components, accessories, or parts which is intended to be burned under ordinary conditions of use and consists of : (1) any roll of tobacco wrapped in paper or in any substance not containing tobacco; or (2) any roll of tobacco wrapped in any substances containing tobacco which, because of its appearance, the type of tobacco used in the filler, or its packaging and labeling, is -3- likely to be offered to, or purchased by, consumers as described in subparagraph (1) . "Defendants" means The American Tobacco Company, Inc . , BAT Industries, Plc, British American Tobacco Company, R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco Corporation, Philip Morris, Inc . , Liggett & Myers, Inc . , Lorillard Tobacco Company, Inc . , and United States Tobacco Company and their various parent and related companies . "Domestic Tobacco Operations" means the manufacture and/or sale of cigarettes and any other tobacco products in the United States, its territories, its possessions and the Commonwealth of Puerto Rico . "FDA Rule" means the regulations promulgated by the FDA on August 28, 1996 concerning the sale and distribution of cigarettes and other products at 60 Fed. Reg. 44396 , to be codified at 21 C. F.R. Parts 801, 803 , , 804 , 807, 820 and 897 . "Future Affiliate" means any one entity, other than an entity with a Market Share greater than 30% as of the date of this Agreement, which is a Non-settling Tobacco Company (including any successor to or assignee of its assets) if such entity or an Affiliate of such entity with the prior written approval of Brooke Group, subsequent to the date, and during the term, of this Agreement but prior to the fourth anniversary of the date of execution of this Settlement Agreement : (i) directly or indirectly acquires or is acquired by Liggett or Brooke Group; -4- (ii) directly or indirectly acquires all or substantially all of the stock or assets of Liggett _br Brooke Group; (iii) all or substantially all of whose stock or assets are directly or indirectly acquired by Liggett or Brooke Group; or (iv) directly or indirectly merges with Liggett or Brooke Group or otherwise combines on any basis with Liggett or 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 Claims Legislation" , 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 which one or more Tobacco Companies receives the benefit of a limitation of, or total or partial immunity from, liability to plaintiffs for the types of claims released under the terms of this Agreement . "Liggett" means Liggett Group, Inc . and Liggett & Myers, Inc . "National" means actually covering or potentially covering (whether by block grants to states, localities or other governmental entities or otherwise) the United States or the United States and one or more of its territories, possessions and the Commonwealth of Puerto Rico. -5- "Non-settling Tobacco Companies" means each of The American Tobacco Co. , Lorillard Tobacco Co. , Philip Morris Inc. , R.J. Reynolds Tobacco Co. , Brown & Williamson Tobacco Corp. , and United States Tobacco Co. , unless and until it becomes a Future Affiliate, as herein defined. "Other Settlement" means a settlement of an action which is not a Global Settlement . "Parent" , with respect to Liggett means Brooke Group, and with respect to any other specified corporation or entity, means another corporation, partnership or other entity which directly or indirectly controls such specified corporation or entity. "Parties" means the Plaintiffs and Brooke Group and Liggett . "Present Affiliate" means, with respect to a specified corporation or entity, another corporation, partnership or other entity which as of the date , of this Agreement, directly or. indirectly, controls, is controlled by, or is under common control with, such specified corporation or entity including any and all Parents, subsidiaries, and/or sister corporations or entities of such specified corporation or entity. "Protective Order" or "Stipulation Regarding Liggett Documents" means, with respect to privileged documents produced by a Settling Defendant in an Action, an order in that Action: (a) protecting the confidentiality of such documents; (b) -6- Appendix A hereto which execute this Agreement within six months from the date of this Agreement (unless such six-month period is extended or reopened at the option of the Settling Defendants) . "Tobacco Companies" means the Defendants . "Tobacco Snuff" means any cut, ground, powdered, or leaf tobacco that is intended to be placed in the oral cavity. 2 . Settlement Purposes Only. This Agreement is for settlement purposes only, and neither the fact of, or any provision contained in, this Agreement nor any action taken hereunder shall constitute, be construed as, or be admissible in evidence against the Settling Defendants as, any admission of the validity of any claim, any argument or any fact alleged or which could have been alleged by Plaintiffs as to their standing or as to any jurisdictional, constitutional or any other legal or factual issue in any Action or alleged or which could have been alleged 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 Settling Defendants or any admission by them of any. claim or allegation made or which could have been made in any Action or in any other action or proceeding of any kind, or as an admission by any of the Plaintiffs of the validity of any fact or defense asserted against them in any Action or in any other action or proceeding of any kind. -8- 3 . Parties . 3 . 1 . This Agreement shall be binding, in accordance with the terms hereof, upon Brooke Group, Liggett and the Plaintiffs . 3 . 2 . No Settling Defendant shall sell, use, dispose or transfer substantially all of its cigarette brands or businesses without first causing the acquiror, on behalf of itself and its successors, to be bound by all of the obligations of a Settling Defendant pursuant to Sections 4 . 1 and 4 . 3 through 4 . 7 hereunder as to such transferred brands or businesses; provided that this Section 3 . 2 shall not apply to the extent such sale, disposition or transfer is required by the Federal Trade Commission, Department of Justice, State Attorney General or court order. 4 . Cooperation; Advertising Limitations . 4 . 1 . As promptly as reasonably practicable, but no later than six months after execution of this Settlement Agreement, Settling Defendants shall cause to be printed boldly, on all of their Cigarette packages and in all of their Cigarette advertising, in addition to the warnings mandated under the Federal Cigarette Labeling and Advertising Act, as amended, 15 U. S . C. § 1331 et sea. , the statement that cigarette smoking is addictive . To the extent any Settling Defendant manufactures and sells other tobacco products, a similar warning shall be placed on such product . -9- 4 . 2 . 1 . With respect to each Settling City and County, upon execution of this Agreement, each Settling Defendant shall : (1) cooperate with each Settling City and County, and the attorneys representing such Cities and Counties, in that such Settling Defendant will take no steps to impede or frustrate these counsels, civil investigations into, or civil prosecutions of, any of the Non-settling Tobacco Companies in those actions, so as to secure the just, speedy and inexpensive determination of all such smoking-related claims against said non-settling persons and entities; (2) cooperate in and facilitate reasonable non-party discovery from Settling Defendants in connection with each Action; (3) actively assist the attorneys representing the Settling Cities and Counties in identifying and locating any and all persons known to such Settling Defendant to have documents or information that is discoverable in such proceedings, to actively assist counsel in interviewing and obtaining documents and information from all such persons, and to encourage such person to cooperate with the Plaintiffs; and shall actively assist counsel in interpreting documents -10- relating to litigation against Non-settling Tobacco Companies; and (4) insofar as such Settling Defendant has or obtains any material information concerning any fraudulent or illegal conduct on the part of any parties, including Non-settling Tobacco Companies, their agents, or their co-defendants designed to frustrate or defeat the claims of the Settling Cities and Counties against such parties, companies, agents or co-defendants, or which have the effect of unlawfully suppressing evidence relevant to smoking claims, disclose such information to the appropriate judicial and regulatory agencies . 4 . 2 . 2 . With respect to each Settling City and County, subject to, and promptly after, the entry of a Protective Order or a Stipulation Regarding Liggett Documents by the court in which the respective Action is pending, each Settling Defendant shall : (1) promptly provide all documents and information that are relevant to the subject matter of the Actions or which are likely to lead to admissible evidence in connection with the claims asserted in any of the Actions, subject to the provisions of Section 4 . 2 . 2 (2) hereof; -11- (2) waive any and all applicable attorney-client privileges and work product protections with respect to such documents and information. Such waiver shall not extend to (a) documents and information not relevant to the subject matter of the Actions or not likely to lead to admissible evidence in connection with claims asserted in any of the Actions or (b) documents subject to a joint defense or other privilege or protection which Settling Defendants cannot legally waive unilaterally, except that the waiver by the Settling Defendant shall apply, to the extent permitted by law, to its own joint defenses or other privileges . To the extent that a Settling Defendant has a good faith belief, or one or more Non-settling Tobacco Companies claims, that documents to be provided pursuant to Section 4 . 2 . 2 (1) hereof may be subject to a joint defense or other privilege (or a claim of such privilege) of one or more of the Non-settling Tobacco Companies, such documents shall be deposited under seal for in camera inspection by the court in which an Action is pending, together with a statement to such court that such Settling Defendant has concerns as to whether some or all of such documents should be protected from discovery, and the Parties agree to request that such court shall retain jurisdiction to -12- resolve that issue . Liggett will participate in proceedings, including by way of court appearances or declarations, concerning issues of whether such documents are discoverable; (3) offer their employees, and any and all other individuals over whom they have control, and help locate former employees, to provide witness interviews of such employees and to testify, in depositions and at trial; it being understood and agreed that Liggett will waive and hereby does waive any and all applicable confidentiality agreements to the extent such confidentiality agreements would restrict testimony. under this Agreement, if any, to which such witnesses may be subject ; and (4) demand from its past or current national legal counsel all documents and information obtained by them in the course of representation of any Settling Defendant which in any way relates to the cooperation required in paragraphs 4 . 2 . 1 (1) - 4 . 2 . 2 (3) above, which should be provided to the Settling Cities and Counties as provided under this paragraph. 4 . 2 . 3 . With respect to the cooperation set forth in subsections 4 . 2 . 1 and 4 . 2 . 2 above, the City Attorneys and County Counsel shall make reasonable requests for cooperation, giving due regard to the legitimate needs of the litigants requesting -13- cooperation and the burden on the Settling Defendants . The Settling Defendants shall make good faith efforts to provide the requested cooperation as promptly as reasonably practicable . Nothing in this Agreement shall waive or alter the rights of the Settling Cities and Counties to obtain discovery of Liggett as required by a court order or case management order in any Action, provided that no order is sought that is inconsistent with this Agreement . 4 . 2 .4 . In the event any Settling Defendant, absent good cause, does not provide requested cooperation as promptly as reasonably practicable after receiving written notice from a Settling City or County of such request, the Settling City or County may seek relief from the court before whom its Action is pending. 4 . 3 . Each Settling Defendant, promptly after becoming bound by this Agreement, shall consent to jurisdiction by the FDA for the sole purpose of promulgating the FDA Rule with respect to all Tobacco Companies . Further, each Settling Defendant, promptly after execution of this Agreement, shall endorse, support and assist in attempts by the FDA to have the FDA Rule become enforceable . Such efforts shall include, if and as reasonably requested by the Plaintiffs, filing appropriate amicus briefs and other court papers in litigation relating to the FDA Rule . -14- 4 .4 . Each Settling Defendant shall follow and abide by the provisions of the FDA Rule, insofar as they pertain solely to such Settling Defendant' s Domestic Tobacco Operations, as set forth in, and modified by, paragraphs 4 . 4 . 1 - 4 . 4 . 4 hereof until a final determination is reached respecting the FDA Rule at which time the Settling Defendants will 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 the Tobacco Companies . 4 .4 . 1 . FDA Rule § 897 . 16 (b) , as proposed. 4 . 4 . 2 . FDA Rule § 897 . 16 (d) , as proposed. 4 .4 . 3 . FDA Rule § 897 . 30 (a) , as proposed. 4 .4 .4 . FDA Rule § 897 . 30 (b) , but only to the extent that such section applies to billboards within 1, 000 feet of a clearly marked public or private elementary or secondary school or a clearly marked, outdoor, municipal or other government-operated public playground for children. 4 . 5 . Notwithstanding anything to the contrary in the Proposed Rule or in this Agreement, Liggett will commence compliance with Section 4 .4 of this Agreement as soon as reasonably practicable; provided that Liggett may limit its compliance to the extent, if any, necessary to ensure that the net annual out-of-pocket cost to Liggett of such compliance not exceed $1 million; and provided further that Liggett shall not be obligated pursuant hereto to breach pre-existing legal -15- obligations, if any, it may have with respect to the matters covered by Section 4 . 4 (and shall use its reasonable best efforts to minimize the degree to which any such obligations would impede its full compliance therewith) . For purposes of this paragraph, the phrase "net annual out-of-pocket costs" means the excess of (a) the additional out-of-pocket expenditures incurred during a particular year by Liggett in complying with the matters specified in Section 4 .4, over (b) savings, if any, in out-of- pocket expenditures realized during such year by Liggett directly from the implementation of the matters covered by Section 4 . 4 . 4 . 6 . If, when and to the extent that the FDA Rule, in whole or in part, becomes an enforceable legal obligation binding upon all of the Defendants, each Settling Defendant will comply therewith, without consideration of any limits or exceptions herein. If the FDA Rule does not so become such a legal obligation, Liggettshall, during the duration of this Agreement, continue to comply with Section 4 .4 . 4 . 7 . Each Settling Defendant shall not use cartoon characters, such as "Joe Camel" , in any of its advertising and promotional materials and activities with respect to tobacco products . No Settling Defendant shall enter into any new contract for advertising and promotion with respect to tobacco products using any such cartoon characters after the date the Settling Defendants become bound by this Agreement . -16- 4 . 8 Each Settling Defendant may, after becoming bound by this Settlement Agreement, continue in the lawful manufacture, advertising and/or sale of tobacco products . This Settlement Agreement does not in any way abrogate or restrict the authority or ability of the Settling Cities and Counties to enforce future compliance with the laws of their respective cities, counties and the State of California. 5 . Release . 5 . 1 . Upon the date each Settling City and County becomes bound by this Agreement, for good and sufficient consideration as described herein, each Settling City and County shall be deemed to and hereby does release, dismiss and discharge each and every civil claim, right, and cause of action (including, without limitation, all claims for damages, restitution, medical monitoring, claims arising under California Business and Professions Code H 17200 et seq. , or any other legal or equitable relief) , known or unknown, asserted or unasserted, direct or indirect, which they had, now have or may hereafter have against each Settling Defendant (including its past and present parents, subsidiaries, present affiliates, employees, directors and shareholders, but only in such capacities, vis-a-vis, each such Settling Defendant, and downstream distribution entities of Settling Defendant, but only to the extent that such downstream distribution entities would have cross-claims against Settling Defendant) , but does not in -17- any fashion release any Non-settling Tobacco Companies or other defendants in any Action except as provided for in- Section 12 hereof, (i) which was asserted in any Action, and/or (ii) which was not asserted in the Action but which is smoking-related or otherwise arises out of, or concerns, the acts, facts, transactions, occurrences, representations, or omissions set forth, alleged, referred to or otherwise embraced in the complaint of that Settling City' s and County' s Action. Upon the date each Settling Defendant becomes bound by this Agreement, for good and sufficient consideration as described herein, each such Settling Defendant shall for the duration or term of this Agreement (whichever is shorter) be deemed to and hereby does release, dismiss and discharge each and every claim, right, and cause of action (including, without limitation, all claims for damages, restitution, fees, expenses, or any other legal or equitable relief) , whether known or unknown, asserted or unasserted, which they had, now have or may hereafter have as of the effective date of this Agreement against each such Settling City and County, its public officials and employees in connection with, arising out of or related to the acts, facts, transactions, occurrences, representations, or omissions set forth, alleged or referred to or otherwise embraced in the complaints of the Settling Cities' and Counties' Actions . Provided, however, as follows : -18- 1) If this Agreement expires upon completion of its full term, these releases set forth in this Section 5 . 1 shall continue and apply in full force and effect with respect to all released claims which accrued or shall accrue prior to, through and including the date of such expiration, such that such claims shall be forever released, but only as to such claims through and including such date; if this Agreement terminates for any reason prior to its full term, these releases shall be of no further force and effect . 2) Except as specifically provided herein, these releases set forth in this Section 5 . 1 do not pertain or •apply to any other existing or potential party in any present or future Action. 3) These releases set forth in this Section 5 . 1 do not in any way release any releasee from claims which may be asserted by a releasor involving conduct unrelated to the manufacture and/or sale of tobacco products . 5 .2 . Except as specifically provided herein, nothing in this Agreement shall prejudice or in any way interfere with the rights of Settling Cities or Counties or Settling Defendants to pursue any or all of their rights and remedies against Non- settling Tobacco Companies or other parties not released hereunder. 5 . 3 . Notwithstanding section 1542 of the California Civil Code, which provides that : -19- [a] general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor, these releases set forth in this Section 5 release all claims to releasee whether known or unknown, foreseen or unforeseen, that releasor may have against releasee, and releasor understands and acknowledges the significance and consequences of waiver of California Civil Code § 1542 and hereby assumes full responsibility for any injuries, damages or losses releasor may incur. 6 . Exclusive Remedy; Dismissal of Action; Jurisdiction of Court . 6 . 1 . Except as otherwise provided in . this Agreement, this Agreement shall be the sole and exclusive remedy for any and all claims of Settling Cities and Counties released hereby against the Settling Defendants, and upon the date a Settling City or County becomes bound by this Agreement, each such Settling City and County shall be barred from initiating, asserting, or prosecuting any claims released hereby against each such Settling Defendant . 6 . 2 . Promptly after each Settling City and County becomes bound by this Agreement, each such Settling City and County shall dismiss without prejudice its corresponding Action as against such Settling Defendant, or if defendants have not yet -20- responded to a complaint, the Settling City or County may amend the complaint to delete the Settling Defendant from the Action. 7 . Term. 7 . 1 . The duration of this Agreement shall be twenty- five (25) years from the date of this Agreement; provided that in the event of a Global Settlement, the duration of this Agreement -shall be equal to the duration of the Global Settlement . The exercise by Settling Defendants of any right under the State of California Settlement Agreement to terminate that agreement with respect to the State of California shall at the election of either the Settling Cities and Counties or the Settling Defendants act as a ' termination of this Agreement . 7 . 2 . If any Settling Defendant subsequently withdraws from this Agreement, or this Agreement, for whatever reason, is terminated as provided in § 7 . 1 other than by reason of expiration of its term, then the applicable statute of limitations or any similar time requirement for a Settling City or County or a terminating Settling Defendant to file a claim that would otherwise be released hereunder against, or by any Settling Defendant shall be tolled from the date such Settling City or County became bound by this Agreement until the later of the time permitted by applicable law or for one year from the date of such termination with the effect that the parties shall be in the same position as they were at the time the Settling -21- City or County filed its original Action with respect to the statute of limitations . 7 . 3 . Except as may be otherwise specifically provided in this Agreement, a termination of this Agreement as provided for in § 7 . 1, other than by reason of expiration of its term, hereunder shall have the effect of rendering this Agreement as having no force or effect whatsoever, null and void ab initio, and not admissible as evidence for any purpose in any pending or future litigation in any jurisdiction. However, a termination shall not affect any prior cooperation or require the return of any documents produced to a Settling City or County pursuant to this Agreement . 8 . Continuing Enforceability This Agreement and each provision of or obligation arising from this Agreement shall continue and remain fully executory and enforceable if a Settling Defendant institutes or is subject to the institution against it of any proceeding or voluntary case under title 11, United States Code, or other proceeding seeking to adjudicate it insolvent or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief or protection of debtors or other proceeding seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any -22- part of its property (each, a "Bankruptcy Proceeding" ) . The Settling Cities and Counties acknowledge and agree that Brooke Group has the right but not the obligation to cure and to perform any and all obligations of Liggett under this Agreement notwithstanding the occurrence and continuation of any Bankruptcy Proceeding with respect to Liggett . 9 . Entry of Good Faith Bar Order on Contribution and Indemnity Claims 9 . 1 . Subject to, and as promptly as reasonably practicable, the Parties shall request that the respective courts in the Actions enter orders pursuant to California CCP § 877 . 6 barring and prohibiting the commencement and prosecution of any claim or action by any non-settling defendant against any Settling Defendant, for contribution, indemnity and/or subrogation. Settling Defendants shall be entitled to dismissal with prejudice of any non-settling defendants' claims against them which violate or are inconsistent with this bar, if granted. 10 . Effect of Default of Settling Defendant . In the event a Settling Defendant is in default of this Agreement in ,any other respect, Plaintiffs' Counsel shall so notify the defaulting Settling Defendant, which shall then be given 60 calendar days to "cure" the default . If the defaulting Settling Defendant does not "cure" the default in the time provided in this Section 10, Plaintiffs' Counsel may apply to the -23- Court for relief, in addition to any other remedies it may have hereunder. 11 . Representations and Warranties . 11 . 1 . Each Settling Defendant represents and warrants that it (i) has all requisite corporate power and authority to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby; (ii) the execution, delivery and performance by such Settling Defendant of this Agreement and the consummation by it of the actions contemplated herein have been duly authorized by all necessary corporate action on the part of such Settling Defendant; (iii) the Agreement has been duly and validly executed and delivered by such Settling Defendant and constitutes its legal, valid and binding obligation; and (iv) this Agreement does not violate the charter of bylaws of such Settling Defendants or any Agreement to which the Settling Defendant is a party. 11 . 2 . Each Settling City and County represents and warrants that pursuant to its statutory and/or common law authority (i) it has all requisite power and authority to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby; (ii) the execution, delivery and performance by such Settling City and County of this Agreement and the consummation by it of the actions contemplated herein have been duly authorized by all necessary action on the part of such Settling City and County; and (iii) the Agreement -24- has been duly executed and authorized by such Settling City and County and constitutes its legal, valid and binding obligation. 11 . 3 . In the event that, subsequent to April 3 , 1997, any of the Settling Defendants enters into a settlement agreement with any California City or County or with any City or County in any other State on terms (relating to amounts payable under such settlement agreement, compliance with the Proposed Rule or cooperation) that are more favorable to such city or county than those contained herein, the Settling Cities and Counties shall have the right with respect to such Settling Defendant to replace or modify any or all of the terms of this Agreement with, or add to this Agreement, any or all such more favorable terms . 12 . Future Affiliate . 12 . 1 . The terms of this Agreement shall not be binding upon or applicable to a Future Affiliate of the Settling Defendants, except as provided for in this Section 12 . 12 . 2 . (a) In the event of a Future Affiliate Transaction, the Settling Cities and Counties shall not seek to enjoin or otherwise challenge a spinoff or like disposition of the stock or assets of any Affiliate of the Future Affiliate which is not engaged in Domestic Tobacco Operations . The Settling Cities and Counties reserve the right to seek to enjoin such a spinoff in the event that such spinoff or like disposition is sought by someone other than Brooke Group or a Future Affiliate or an Affiliate of a Future Affiliate. -25- (b) In the event of and after a Future Affiliate Transaction: (i) the Settling Cities and Counties each release (pursuant to, mutatis mutandis, Section 5 . 1 hereof) and covenant not to bring suit for any claim so released against any Affiliate of the Future Affiliate, other than the Affiliate engaged in Domestic Tobacco Operations; and (ii) if prior to the Future Affiliate Transaction, a Settling City or County shall have obtained a verdict or judgment in its Action, against an Affiliate (including the Parent) of the Future Affiliate, other than against the Affiliate engaged in Domestic Tobacco Operations, such Settling City or County shall not seek to enforce such verdict or judgment against any such Affiliate other than the Affiliate engaged in Domestic Tobacco Operations . 12 . 3 . In the event a Settling. City or County obtains a verdict or judgment against a Non-settling Tobacco Company in an Action, and a Settling Defendant commences a proxy contest or similar action seeking control of such Non-settling Tobacco Company or an Affiliate thereof, then such Non-settling Tobacco Company or an Affiliate thereof will not be required to post a bond in order to stay enforcement of such verdict or judgment, and such Settling City or County will not seek to enforce such verdict or judgment against such Non-settling Tobacco Company or such Affiliate, for a period of the earlier of (i) one year from the commencement of such proxy contest or -26- action, and (ii) completion or resolution of the proxy or merger vote . 12 .4 . In the event that subsequent to a Future Affiliate Transaction, and in conformity with § 12 . 2 (b) hereof, a Settling City or County obtains a verdict or judgment against a Future Affiliate in an Action, such Future Affiliate will not be required to post a bond in order to stay enforcement of such verdict or judgment, and such Settling City or County will not seek to enforce such judgment against such Future Affiliate or an Affiliate of such Future Affiliate until the verdict or judgment becomes final and non-appealable . 12 . 5 . Prior to a Future Affiliate Transaction, Settling Defendants shall not enter into any agreement with any prospective Future Affiliate which diminishes or impairs the prospective Future Affiliate' s assets, other than in the established and/or ordinary course of business of such prospective Future Affiliate and shall use best efforts to prevent such prospective Future Affiliate from diminishing or impairing such assets . In the event of a Future Affiliate Transaction, Settling Cities and Counties reserve all of their rights to prevent the Future Affiliate from diminishing or impairing the Future Affiliate' s Tobacco assets, other than in the established and/or ordinary course of business of .such Future Affiliate . -27- 12 . 6 . With respect to subsections 12 . 1 - 12 . 5 above, nothing in these provisions, or elsewhere in this Agreement, limits the authority of the Settling Cities and Counties to challenge any transaction which they reasonably believe is in violation of federal or state antitrust law. 12 . 7 . Promptly after a Future Affiliate Transaction, a Future Affiliate shall abide by Sections 4 .4 - 4 . 7 hereof . 12 . 8 . Promptly after a Future Affiliate Transaction, Settling Defendants and the Plaintiffs and their respective counsel, each agree to exercise best efforts to negotiate in good faith a settlement of all Actions against a Future Affiliate' s Domestic Tobacco Operations . 12 . 9 As promptly as reasonably practicable after a Future Affiliate Transaction, a Future Affiliate shall agree to eliminate cartoon characters such as "Joe Camel, " from all of its advertising and promotional materials and activities with respect to tobacco products . 13 . Global Settlement . 13 . 1 . Effective upon the execution hereof, the Settling Cities and Counties and their respective counsel, each agree (a) to exercise best efforts to ensure that the financial terms, financial obligations or financial conditions of any Global Settlement are no more onerous on, or less favorable to, Brooke Group and Liggett than the financial terms, financial -28- obligations or financial conditions of this Settlement Agreement, and (b) to issue a public statement substantially in the following form and substance : The historic settlements entered into by Liggett, whereby Liggett has agreed, among other things, to provide full cooperation to certain California Cities and Counties and to consent to FDA regulation of tobacco marketing, are a major advance in our efforts to prevent smoking by children and adolescents and to ensure that the tobacco industry markets its products lawfully. Accordingly, the undersigned will use their best efforts in Congress and elsewhere to ensure that any such industry-wide resolution provide for financial terms for Liggett that reflect appropriate recognition of Liggett' s cooperative efforts . 14 . Miscellaneous . 14 . 1 . All terms of this Agreement and/or obligations created thereby shall be deemed to include a covenant of good faith and fair dealing on behalf of all parties . 14 . 2 . Brooke Group shall provide to the Settling Cities and Counties at the time of execution of this Agreement, an opinion in form satisfactory to the Settling Cities and Counties from legal counsel for the Brooke Group as to the due execution of . the Settlement Agreement by the Brooke Group and Liggett and its enforceability against the Brooke Group and -29- Liggett and such other matters contemplated by Section 11 . 1 (other than the "agreements" referenced in clause (iv) ) . 14 . 3 . Subject to the provisions of Section 14 herein, this Agreement, including all Appendices attached hereto, if any, shall constitute the entire Agreement among the parties with regard to the subject of this Agreement and shall supersede any previous agreements and understandings between the Parties with respect to the subject matter of this Agreement . This Agreement may not be changed, modified, or amended except in writing signed by all Parties . 14 .4 . This Agreement shall be construed under and governed by the laws of California without regard to its laws applicable to choice of law. 14 . 5 . This Agreement may be executed by the Parties in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument . 14 . 6 . Any judgment by a court that any provision of this Agreement, as applied to any party or to any circumstance, is invalid or unenforceable shall in no way affect any other provision of this Agreement or the application thereof in any other circumstance, and such provision so adjudged invalid or unenforceable shall be enforced to the maximum extent permitted by law. -30- 14 . 7 . This Agreement shall be binding upon and inure to the benefit of the Settling Cities or Counties, the Settling Defendants, and their representatives, heirs, successors, and assigns . 14 . 8 . Nothing in this Agreement shall be construed to subject any Settling Defendant' s parent or affiliated company to the obligations or liabilities of that Settling Defendant . . 14 . 9 . The headings of the Sections of this Agreement are included for convenience only and shall not be deemed to constitute part of this Agreement or to affect its construction. 14 . 10 . Any notice, request, instruction, or application for Court orders sought in connection with this Agreement or other document to be given by any Party to any other Party shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, if to the Settling Defendants to the attention of each Settling Defendant' s respective representative and to Plaintiffs' Counsel on behalf of the Settling Cities and Counties . 14 . 11 . References to or use of a singular noun or pronoun in this Agreement shall include the plural, unless the context implies otherwise . -31- 1 R IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day and date first written above . BROOKE GROUP LTD. CITY AND COUNTY OF SAN FRANCISCO BY By Bennett S. LeBow Louise H. Renne City Attorney Date : Date : LIGGETT GROUP, INC. COUNTY OF ALAMEDA By By Bennett S . LeBow Kelvin H. Boot, Jr. County Counsel Date : Date : KASOWITZ, BENSON, TORRES COUNTY OF MARIN & FRIEDMAN LLP By By Thomas G. Hendricks Marc E. Kasowitz County Counsel Attorneys for BROOKE GROUP LTD. and Date : LIGGETT GROUP, INC. COUNTY OF RIVERSIDE By William C. Katzenstein County Counsel Date : -32- COUNTY OF SAN BERNARDINO By Alan K. Marks County Counsel Date : COUNTY OF CONTRA COSTA By Victor J. Westman County Counsel Date : COUNTY OF MONTEREY By Douglas C. Holland County Counsel Date : COUNTY OF SACRAMENTO By Robert A. Ryan, Jr. County Counsel Date : COUNTY OF SAN MATEO By Thomas F. Casey, III County Counsel Date : -33- COUNTY OF SANTA BARBARA By Stephen Shane Stark County Counsel Date : COUNTY OF SANTA CRUZ By Dwight L. Herr County Counsel Date : COUNTY OF SANTA CLARA By Steven M. Woodside County Counsel Date : COUNTY OF SHASTA By Karen Keating Jahr County Counsel Date : COUNTY OF VENTURA By James L. McBride County Counsel Date : -34- CITY OF LOS ANGELES By JAMES K. HAHN City Attorney Date : CITY OF SAN JOSE By Joan R. Gallo Office of the City Attorney Date : AMERICAN CANCER SOCIETY, CALIFORNIA DIVISION By Date : AMERICAN HEART ASSOCIATION, CALIFORNIA AFFILIATE By Date : CALIFORNIA MEDICAL ASSOCIATION By Date : CALIFORNIA DISTRICT OF THE AMERICAN ACADEMY OF PEDIATRICS By Date : -35- APPENDIX A TO CALIFORNIA CITIES AND COUNTIES SETTLEMENT AGREEMENT The People of The State of California; American Cancer Society, California Division; American Heart Association, California Affiliate; California Medical Association; and California District of The American Academy of Pediatrics, v. Philip Morris, Inc.; R.J. Reynolds Tobacco Company; Brown& Williamson Tobacco Corporation; B.A.T. Industries P.L.C.; Lorillard Tobacco Company; Lagged Group, Inc.; The American Tobacco Company; The Council for Tobacco Research --U.S.A., Inc.; and The Tobacco Institute, Inc., and Does 1-100, inclusive, Superior Court of the State of California for the City and County of San Francisco, Case No. 980864. City and County of San Francisco; County of Alameda; County of Contra Costa; County of Marin; County of Monterey; County of Sacramento; County of San Bernardino; County of San Mateo; County of Santa Barbara; County of Santa Clara; County of Santa Cruz; County of Shasta; and County of Ventura, v. Philip Morris, Inc.; R.J. Reynolds Tobacco Company; Brown & Williamson Tobacco Corporation; B.A.T. Industries P.L.C.; Lorillard Tobacco Company; Liggett Group, Inc.; The American Tobacco Company; The Council for Tobacco Research-- U.S.A., Inc.; and The Tobacco Institute, Inc., United States District Court,Northern District of California, Civil Action No. C-96-2090-DLJ APNDXSF2.SFT