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Friday, Aug. 29, 2008

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OFTEXAS, TEXARKANA DIVISION  

______________________________________

THE STATE OF TEXAS,

Plaintiff,

vs.                                                                                                                    No. 5-96CV-91

THE AMERICAN TOBACCO
COMPANY, et al.,

Defendants.

______________________________________
 
  COMPREHENSIVE SETTLEMENT AGREEMENT AND RELEASE

THIS COMPREHENSIVE SETTLEMENT AGREEMENT AND RELEASE ("SettlementAgreement") is made as of the date hereof, by and among the parties hereto, asindicated by their signatures below, to settle and resolve with finality all claimsagainst all parties to this action relating to the subject matter of this action whichhave been or could have been asserted by any of the parties to this action.

WHEREAS, the State of Texas, through its Attorney General, Dan Morales, commencedthis action on March 28, 1996, asserting various claims for monetary and injunctive reliefon behalf of the State of Texas against certain tobacco manufacturers and others asDefendants;

WHEREAS, the Defendants have denied each and every one of the State of Texas'sallegations of unlawful conduct or wrongdoing and have asserted a number of defenses tothe State of Texas's claims, which defenses have been contested by the State of Texas;

WHEREAS, the State of Texas, through its Attorney General, the Honorable DanMorales, and Private Counsel, have had a significant leadership role among the variousstates in maintaining civil litigation against the tobacco industry and in seeking toforge an unprecedented national resolution of the principal issues and controversiesassociated with the manufacture, marketing and sale of tobacco products in the UnitedStates;

WHEREAS, through the efforts of the State of Texas, Attorney General Morales,Private Counsel and others, a June 20, 1997 Memorandum of Understanding and ProposedResolution (the "Proposed Resolution") (attached as an Appendix hereto) has beenagreed to by members of the tobacco industry, state attorneys general, private litigantsand representatives of public health groups, which Proposed Resolution would provide forunprecedented and comprehensive regulation of the tobacco industry while preserving theright of individuals to assert claims for compensation;

WHEREAS, the Proposed Resolution contemplates action by the United States Congressand the President to enact and sign a new federal law with respect to the tobaccoindustry, which action the tobacco industry has agreed to support and which will requirestudy and analysis by Congress and the President; and

WHEREAS, trial of this action was scheduled to commence on January 12, 1998 and acontinuance of such trial could have prejudiced the State of Texas, the State of Texas andthe undersigned Defendants (the "Settling Defendants") have agreed to settleindependently the litigation commenced by Attorney General Morales pursuant to financialterms comparable to those contained in the Proposed Resolution, which terms will achievefor Texas immediately and with certainty the financial benefits it would receive pursuantto the Proposed Resolution, should it become law, as well as funding for a pilot programto reduce the use of Tobacco Products by children under 18 years of age;

NOW, THEREFORE, BE IT KNOWN THAT, in consideration of the payments to be made bythe Settling Defendants, the dismissal and release of claims by the State of Texas andsuch other consideration as described herein, the sufficiency of which is herebyacknowledged, the parties hereto, acting by and through their authorized agents,memorialize and agree as follows;

I. Jurisdiction. Settling Defendants and the State of Texas acknowledgethat this Court has jurisdiction over the subject matter of this action and over each ofthe parties hereto, and that this Court shall retain jurisdiction for the purposes ofimplementing and enforcing this Settlement Agreement. The parties hereto agree to presentany disputes under this Settlement Agreement, including without limitation any claims forbreach or enforcement of this Settlement Agreement, exclusively to this Court.

2. Applicability. This Settlement Agreement shall be binding upon allSettling Defendants and their successors and assigns in the manner expressly provided forherein and shall inure to their benefit and to that of their respective directors,officers, employees, attorneys, representatives, insurers, suppliers, distributors andagents, and to that of any of their present or former parents, subsidiaries, affiliates,divisions or other organizational units of any kind; and the predecessors, successors andassigns of any of the foregoing. This Settlement Agreement shall be binding on and inureto the benefit of the State of Texas, its administrators, representatives, employees,officers, agents, Private Counsel, counsel and legal representatives; all agencies,departments, commissions and divisions of the State; all subdivisions, public entities,public corporations, instrumentalities and educational institutions over which the Statehas control; and the predecessors, successors and assigns of any of the foregoing. None ofthe
rights granted or obligations assumed under this Settlement Agreement by the partieshereto may be assigned or otherwise conveyed without the express prior written consent ofall of the parties hereto.

3. Voluntary Agreement of Parties. The State of Texas and SettlingDefendants acknowledge and agree that this Settlement Agreement is voluntarily enteredinto by all parties hereto as the result of arms length negotiations during which all suchparties were represented by counsel. Settling Defendants understand and acknowledge thatcertain provisions of this Settlement Agreement impose specific requirements on them thatcould give rise to challenges under various federal and State constitutional provisions ifthe State of Texas unilaterally imposed such requirements. None of the parties hereto willseek to challenge this Settlement Agreement based on any such constitutional challenge tothe provisions contained herein.

4. Definitions. For the purposes of this Settlement Agreement, thefollowing terms shall have the meanings set forth below:
 

(a) "State" or "State of Texas" means the State of Texas, all of its officers acting in their official capacities and any department, subdivision or agency of the State, regardless of whether a named plaintiff;
(b) "Seating Defendants" means those Defendants in this action that are signatories hereto;
(c) "Market Share" means, for each year, a Settling Defendant's respective share of sales of cigarettes by unit for consumption in the United States;
(d) "Tobacco Industry" means cigarettes and smokeless tobacco as those terms are defined in the Food and Drug Administration Rule;
(e) "Billboards" includes billboards, as well as all signs and placards in arenas and stadia, whether open-air or enclosed; "Billboards" does not include: (1) any advertisements placed on or outside the premises of retail establishments licensed to sell Tobacco Products or any retail point-of-sale; and (2) billboards or advertisements in connection with the sponsorship by Settling Defendants of any transient entertainment, sporting or similar event, such as NASCAR, that appears in the State of Texas as Part of a national or multi-state tour;
(f) "Private Counsel" means Walter Umphrey, John M. O'Quinn, P.C., John Eddie Williams, Jr., Reaud, Morgan & Quinn, and The Nix Law Firm, each of whom is defined and identified as "counsel" in the Outside Counsel Agreement executed by Attorney General Dan Morales on March 22, 1996, and Ness, Motley, Loadholt, Richardson & Poole;
(g) "Transit Advertisements" means advertising on private or public vehicles and all advertisements placed at, on or within any bus stop, taxi stand, transit waiting area, train station, airport or any similar location; "Transit Advertisements" does not include any advertisements placed on or outside the premises of retail establishments licensed to sell Tobacco Products or any retail point-of-sale; and
(h) "Final Approval" means the date on which all of the following shall have occurred:

(1) The Settlement Agreement is approved by the Court;
(2) Entry is made of an order of dismissal of claims or a final judgment as provided herein; and
(3) The time for appeal or to seek permission to appeal from the Court's approval as described in (1) hereof and entry of final judgment or order of dismissal as described in (2) hereof has expired or, in the event of an appeal, the appeal has been dismissed or the approval described in (1) hereof and the judgment or order described in (2) hereof have been affirmed in all material respects by the court of last resort to which such appeal has been taken and such dismissal or affirmance has become no longer subject to further appeal or review.

5. Settlement Receipts: Use of Funds. The payments to be made by SettlingDefendants under this Settlement Agreement during the year 1998 constitute reimbursementfor public health expenditures of the State of Texas, including without limitationexpenditures made by the State's Employees' Health Insurance Program and Charity Careprograms. All other payments made by Settling Defendants pursuant to this SettlementAgreement are in satisfaction of all of the State of Texas's claims for damages incurredby the State in the year of payment or earlier years, including those for reimbursement ofMedicaid expenditures and punitive damages, except that no part of any payment under thisSettlement Agreement is made in settlement of an actual or potential liability for a fine,penalty (civil or criminal) or enhanced damages. Accordingly, subject to the orders ofthis Court and the operation of applicable law, the parties hereto anticipate that fundsdue to the State of Texas under this Settlement Agreement, other than funds dedicated forlegal expense reimbursement, will be allocated as follows, or for such other purposes asthe State of Texas may determine:

All remaining amounts, including any amounts due to be paid by Settling Defendantsafter December 31, 1998, are to be allocated to the general revenue fund of the State ofTexas to be used for such purposes as the State of Texas may determine.

6. Elimination of Billboards and Transit Advertisements. SettlingDefendants agree to discontinue all Billboards and Transit Advertisements of TobaccoProducts in the State of Texas. Settling Defendants agree to exercise their best effortsin cooperation with the State of Texas to identify all Billboards that are located within1000 feet of any public or private school or playground in the State of Texas. SettlingDefendants will remove such Tobacco Products advertisements (leaving the space unused orused for advertising unrelated to Tobacco Products) or, at the option of the State ofTexas, will allow the State of
Texas, at its expense, to substitute for the remaining term of the contract alternativeadvertising intended to discourage the use of Tobacco Products by children under the ageof 18. Settling Defendants agree to provide the State of Texas with preliminary lists ofthe locations of all Billboards and stationary Transit Advertisements within 30 days fromthe date of execution of this Settlement Agreement, such lists to be finalized within anadditional 15 days, and to remove all Billboards and Transit Advertisements for TobaccoProducts within the State of Texas at the earlier of the expiration of applicablecontracts or 4 months from the date the final lists are supplied to the State of Texas.Settling Defendants also agree to cooperate to secure the expedited removal of up to 50Billboards or stationary Transit Advertisements designated by the State of Texas, within30 days after their designation.

Each Settling Defendant shall provide the Court and the Attorney Central, or hisdesignee, with the name of a contact person to whom the State of Texas may directinquiries during the time such Billboards and Transit Advertisements are being eliminated,from whom the State of Texas may obtain periodic reports as to the progress of theirelimination and who will be responsible for ensuring that appropriate action is taken toremove any Billboards or Transit Advertisements that have not been eliminated in a timelymanner.

7. Support of Legislation and Rules. Following Final Approval of thisSettlement Agreement, the Settling Defendants will not challenge existing or proposedlegislative or administrative initiatives insofar as they effectuate the following:

(a) The prohibition of the sale of cigarettes in vending machines, except in adult-only locations and facilities;
(b) The strengthening of civil penalties for sales of Tobacco Products to children under the age of 18 years, including the suspension or revocation of retail licenses; and
(c) The strengthening of civil penalties for possession of Tobacco Products by children under the age of 18 years.

8. Initial Payments. Each Settling Defendant severally shall cause to bepaid into the registry of the Court in accordance with paragraph 11 of this SettlementAgreement, the respective amounts listed for such Settling Defendant in Schedule A hereto,such amounts representing its share of the following payments: $204 million to be paid onor before February 1, 1998; $73 million to be paid on or before July 1, 1998; $146 millionto be paid on or before October 1, 1998; and $302 million to be paid on or before November1, 1998; the aggregate amount of such payments ($723 million) being the State of Texas'sgood faith estimate of the portion Texas would receive of the $10 billion payment providedfor in Paragraph A on page 34 of the June 20, 1997 Proposed Resolution.

9. Pilot Program Payments. In support of the State of Texas's demonstratedcommitment to the meaningful and immediate reduction of the use of Tobacco Products bychildren under the age of 18 years, Settling Defendants agree to support a pilot program,the elements of which shall be aimed specifically at the reduction of the use of TobaccoProducts by children under the age of 18 years. Accordingly, each Settling Defendantseverally shall cause to be paid into the registry of the Court in accordance withparagraph 11 of this Settlement Agreement, the respective amounts listed for such SettlingDefendant in Schedule B hereto, such amounts representing its share of the followingpayments: $74 million to be paid on or before February 1, 1998; $27 million to be paid onor before July 1, 1998; $54 million to be paid on or before October 1, 1998; and $109million to be paid on or before November 30, 1998.

The pilot program shall commence within a reasonable period after Final
Approval of this Settlement Agreement, and shall last for a period of no less than 24months. The amounts paid by Settling Defendants pursuant to this paragraph 9 in support ofthe pilot program shall be used for general enforcement, media, educational and otherprograms directed to the underage users or potential underage users of Tobacco Products,but shall not be directed against any particular tobacco company or companies or anyparticular brand of Tobacco Products.

10. Annual Payments. Each of the Settling Defendants agrees that, on thedates specified in this paragraph 10 with regard to 1998, and annually thereafter onDecember 31st of each year after 1998 (subject to final adjustment within 30 days), itshall severally cause to be paid into the registry of the Court in accordance withparagraph 11 of this Settlement Agreement, pro rata in proportion to itsrespective Market Share, its share of 7.25% of the following amounts (in billions):
 
 

Year

1998

 1999 2000 2001 2002 2003 thereafter
1 2 3 4 5 6
Amount $4B $4.5B $5B $6.5B $6.5B $8B $8B

 
 
The above amounts represent the amounts contemplated under the Proposed Resolution to bepaid to the several States, without regard to the possibility of any claims forreimbursement or credit by any other person or entity including any federal governmentagency. The payments made by Settling Defendants pursuant to this paragraph 10 shall beadjusted upward by the greater of 3% or the Consumer Price Index applied each year on theprevious year, beginning with the first annual payment. Such payments will also bedecreased or increased, as the case may be, in accordance with decreases or increases involume of domestic tobacco product volume sales as provided in Paragraph B.5 on pages34-35 of the Proposed Resolution.

Settling Defendants shall make their first annual payment pursuant to thisparagraph 10, without adjustment, and without regard to any first annual payment dateprovided for under any legislation implementing the Proposed Resolution (or asubstantially equivalent federal program), as follows. Each Settling Defendant severallyshall cause to be paid into the registry of the Court, in accordance with paragraph 11 ofthis Settlement Agreement, its respective share of the following payments; $89 million tobe paid on or before November 1, 1998; and $201 million to be paid on or before December31, 1998. The payments to be made by Settling Defendants in 1998 in the manner describedabove shall be credited against any first annual payment due before February 28, 1999under legislation implementing the Proposed Resolution (or a substantially equivalentfederal program).

11. Payment of Settlement proceeds. Any payment made pursuant to thisSettlement Agreement shall be made to the registry of the Court; provided, that any suchpayments due to be made before Final Approval shall be paid into a special escrow account(the "Escrow Account"), to be held in escrow pending Final Approval pursuant tothe terms of a mutually acceptable escrow agreement (the "Escrow Agreement"),and shall be disbursed only as provided by the terms of the Escrow Agreement. Upon FinalApproval and pursuant to the terms of the Escrow Agreement, the amounts held in escrowpursuant to this paragraph 11 and the terms of the Escrow Agreement shall be transferredinto the registry of the Court. Any funds held in the registry of the Court shall bedisbursed only in accordance with the orders of the Court.

12. Adjustments in Event of Federal Resolution. In the event thatlegislation implementing the Proposed Resolution (or a substantially equivalent federalprogram) is enacted into law, the settlement provided herein shall remain in place, butthe terms of such legislation shall supersede the Settling Defendants' obligations underthis Settlement Agreement, except such provisions as relate to the pilot program andexcept to the extent that the parties hereto have otherwise expressly agreed. The SettlingDefendants agree that they will advocate the passage of the federal legislationcontemplated by the Proposed Resolution, including the funding to the States contemplatedtherein. In order to provide Settling Defendants with a full credit for all payments madehereunder pursuant to paragraphs 8 and 10 of this Settlement Agreement in the event ofsuch legislation, and to the extent that the payments made pursuant to paragraphs 8 and 10of this Settlement Agreement differ from the amounts to be received by the State of Texaspursuant to such legislation, the State of Texas and the Settling Defendants shall takewhatever steps are necessary to ensure that the principal amount of payments received bythe State of Texas will be the same as the amounts it would receive pursuant to suchlegislation.

13. State of Texas's Dismissal of Claims. Upon approval of this SettlementAgreement by the Court, the State of Texas shall dismiss, with prejudice as to SettlingDefendants (including their parents and affiliates), and without prejudice as to DefendantHill & Knowlton, all claims in this action.

14. State of Texas's Waiver and Release. Upon Final Approval, the State ofTexas shall release and forever discharge all Defendants and their present and formerparents, subsidiaries, divisions, affiliates, officers, directors, employees,representatives, insurers, suppliers, agents, attorneys and distributors (and thepredecessors, heirs, executors, administrators, successors and assigns of each of theforegoing), from any and all manner of civil claims, demands, actions, suits and causes ofaction, damages whenever incurred, liabilities of any nature whatsoever, including civilpenalties, as well as costs, expenses and attorneys' fees (except as to SettlingDefendants' obligations under paragraph 17 of this Settlement Agreement), known orunknown, suspected or unsuspected, accrued or unaccrued, whether legal, equitable orstatutory ("Claims") that the State of Texas (including any of its past, presentor future agents, officials acting in their official capacities, legal representatives,agencies, departments, commissions, divisions, subdivisions (political and otherwise),public entities, corporations, instrumentalities and educational institutions, and whetheror not any such person or entity participates in the settlement), whether directly,indirectly, representatively, derivatively or in any other capacity, ever had, now has orhereafter can, shall or may have, as follows:

(1) for the past, as to any Claims that were or could have been made in this action or any comparable federal or state action; and
(2) for the future, only as to Claims directly or indirectly based on, arising out of or in any way related to, in whole or in part, the use of or exposure to Tobacco Products manufactured in the ordinary course of business, including without limitation any future claims for reimbursement for health care costs allegedly associated with use of or exposure to Tobacco Products (such past and future Claims hereinafter referred to as the "Released Claims").

The State of Texas hereby covenants and agrees that it shall not hereafter sue orseek to establish civil liability against any person or entity covered by the releaseprovided under this paragraph 14 based, in whole or in part, upon any of the ReleasedClaims, and the State of Texas agrees that this covenant and agreement shall be a completedefense to any such civil action or proceeding; provided, however, that Defendant Mill& Knowlton shall be entitled to the foregoing release and covenant not to sue onlyupon its assent, whenever given, to comply with the non-economic provisions of thisSettlement Agreement, including waiver of claims, if any.

15. Settling Defendants' Waiver, Dismissal and Release of Claims. UponFinal Approval of this Settlement Agreement by the Court, Settling Defendants shall waiveany and all claims against the State of Texas and any of its officers, employees, agents,Private Counsel, counsel, witnesses (fact or expert), whistleblowers or contractors,relating to or in connection with this litigation and shall dismiss, with prejudice, anypending claims or actions against such persons or entities, including but not limited to PhilipMorris, Inc. v. Morales, Cause No. 95-14807 (120th Judicial Dist., Tex.).

In addition, upon Final Approval Settling Defendants shall release and foreverdischarge the State of Texas and any of its employees, Private Counsel, counsel, witnesses(fact or expert), whistleblowers or contractors, divisions, officers, employees, agents,officials acting in their official capacities, legal representatives, agencies,departments, commissions, divisions, subdivisions (political and otherwise), publicentities, corporations, instrumentalities and educational institutions and insurers andthe predecessors, heirs, executors, administrators, successors and assigns of each of theforegoing, from any and all manner of civil claims, demands, actions, suits and causes ofaction, damages whenever incurred, liabilities of any nature whatsoever, including costs,expenses, penalties and attorneys' fees, known or unknown, suspected or unsuspected,accrued or unaccrued, whether legal, equitable or statutory, arising out of or in any wayrelated to, in whole or in part, the litigation of this lawsuit, that Settling Defendants(including any of their present and former parents, subsidiaries, divisions, affiliates,officers, directors, employees, witnesses (fact or expert), representatives, insurers,agents, attorneys and distributors and the predecessors, heirs, executors, administrators,successors and assigns of each of the foregoing, and whether or not any such personparticipates in the settlement), whether directly, indirectly, representatively,derivatively or in any other capacity, ever had, now has or hereafter can, shall or mayhave.

16. Most-Favored Nation. Settling Defendants agree that if they enter intoany future pre-verdict settlement agreement of other litigation brought by a non-federalgovernmental plaintiff on terms more favorable to such governmental plaintiff than theterms of this Settlement Agreement (after due consideration of relevant differences inpopulation or other appropriate factors), the terms of this Settlement Agreement will berevised so that the State of Texas will obtain treatment at least as relatively favorableas any such non-federal governmental entity. In addition, Settling Defendants agree that,in the event of any future settlement or final judgment with respect to the claims fornon-economic injunctive relief pending in the lawsuit entitled State of Florida v.American Tobacco Co., Civ. Action No. 95-1466 AH (15th Judicial Cir., Palm BeachCounty, Fla.), the terms of this Settlement Agreement will be revised so that the State ofTexas will receive benefits comparable to the terms of any such settlement or finaljudgment (after due consideration of relevant differences in population or otherappropriate factors).

17. Costs, Expenses and Fees. (a) Reimbursement of Costs and Expenses.Settling Defendants will reimburse the Office of the Attorney General and otherappropriate State agencies and Private Counsel for reasonable costs and expenses incurredin connection with this litigation, provided that such costs and expenses are of the samenature as costs and expenses for which Settling Defendants would reimburse their owncounsel or agents. Within 30 days after the date of this Settlement Agreement, eachSettling Defendant shall severally cause to be paid to the Attorney General the respectiveamount listed for such Settling Defendant in Schedule C hereto. The sum of such paymentsshall equal $5 million; such amount being the Attorney General's best estimate of suchcosts and expenses (with costs for public employees to be fixed at prevailing marketrates). In addition, within 30 days after the date of this Settlement Agreement, SettlingDefendants shall, pursuant to the terms of Exhibit 1 hereto, pay to Walter Umphrey asrepresentative of Private Counsel an amount equivalent to Private Counsel's best estimateof their reasonable costs and expenses consistent with the criteria set forth above. TheAttorney General (for his office and for other
appropriate State entities) and Private Counsel shall provide Settling Defendants with anappropriately documented statement of their costs and expenses. Settling Defendants shallpromptly pay the amount of such costs and expenses in excess of the amounts already paid,or shall receive a refund if the total of such costs and expenses is less than amountsalready paid. Any dispute as to the nature or amount of reimbursable costs and expensesshall be decided with finality by the persons selected to award fees, as provided below.

(b) Payment of Fees. Pursuant to the terms of Exhibit 1, SettlingDefendants will pay reasonable attorneys' fees to Private Counsel and any other counselretained by the State of Texas for their representation of the State of Texas inconnection with this action. The State of Texas has retained Private Counsel to representit in connection with this Action, and has advised Settling Defendants that it has enteredinto an agreement dated March 22, 1996 regarding the payment of attorneys' fees to PrivateCounsel.

(c) Exclusive Obligation of Settling Defendants as to Fees. The provisionsfor payment of fees set forth in this Settlement Agreement and Exhibit I hereto constitutethe entire obligation of Settling Defendants with respect to attorneys' fees in connectionwith this action and the exclusive means by which Private Counsel or other counselrepresenting the State of Texas in connection with this action may seek payment of fees bythe Settling Defendants. Settling Defendants shall have no other obligation to pay fees orotherwise compensate Private Counsel or any other counsel or representative of the Stateof Texas.

(d) Additional Compensation for State in Event of National Legislation. Iflegislation implementing the Proposed Resolution (or a substantially equivalent federalprogram) is enacted, Settling Defendants and the State of Texas contemplate that the Stateof Texas and any other similar state which has made an exceptional contribution to securethe resolution of these matters may apply to the national panel of independent arbitratorsdescribed in section 2(h) of Exhibit I for reasonable compensation for its efforts insecuring enactment of such legislation. Any amount awarded to the State of Texas by suchpanel shall be paid in conjunction with awards to other governmental entities and shall bepaid in proportion to the respective unpaid amounts of such awards, subject to a separateannual cap of $1OO million on the total of all such payments to be made by SettlingDefendants.

18. Representations of Parties. The respective parties hereto herebyrepresent that this Settlement Agreement has been duly authorized and, upon execution,will constitute a valid and binding contractual obligation, enforceable in accordance withits terms, of each of the parties hereto. The State represents that all of the State'soutside counsel that have represented the State of Texas in connection with this actionare, by and through their authorized representatives, signatories to this SettlementAgreement.

19. Court Approval. If the Court refuses to approve this SettlementAgreement or any material provision hereof, or if such approval is modified in anymaterial respect or set aside on appeal, or if the Court does not enter an order ofdismissal of claims or final judgment as provided for in paragraph 13 of this SettlementAgreement, or if the Court enters the order of dismissal of claims or final judgment andappellate review is sought, and on such review such order of dismissal or final judgmentis not affirmed in its entirety as to all material aspects of such order or finaljudgment, then this Settlement Agreement shall be canceled and terminated and it and allorders issued pursuant hereto shall become null and void and of no effect.

20. Headings. The headings of the paragraphs of this Settlement Agreementare not binding and are for reference only and do not limit, expand or otherwise affectthe contents of this Settlement Agreement.

21. No Determination or Admission. This Settlement Agreement having beingexecuted prior to the taking of any testimony, no final determination of violation of anyprovision of law has been made in this action. This Settlement Agreement and anyproceedings taken thereunder are not intended to be and shall not in any event beconstrued as, or deemed to be, an admission or concession or evidence of any liability orany wrongdoing whatsoever on the part of any party hereto or any person covered by thereleases provided under paragraphs 14 and 15 hereof. The Settling Defendants specificallydisclaim and deny any liability or wrongdoing whatsoever with respect to the allegationsand claims asserted against them in this action and enter into this Settlement Agreementsolely to avoid the further expense, inconvenience, burden and uncertainty of litigation.

22. Non-Admissibility. The settlement negotiations resulting in thisSettlement Agreement have been undertaken by the parties hereto in good faith and forsettlement purposes only, and neither this Settlement Agreement nor any evidence ofnegotiations hereunder shall be offered or received in evidence in this action, or anyother action or proceeding, for any purpose other than in an action or proceeding arisingunder this Settlement Agreement. In addition to the foregoing, notwithstanding theconclusion of the settlement provided for herein, any restrictions imposed by anyprotective order in this action governing treatment of discovery materials during thependency of this action shall remain in effect, and existing confidentiality designationsshall remain undisturbed until the earlier of the enactment of legislation implementingthe Proposed Resolution (or a substantially equivalent federal program) or December 31,1999. Thereafter, any party to the action may make any motion with respect to suchdiscovery materials; provided, however, that nothing in this paragraph 22 shall precludeundersigned counsel from seeking disclosure of such materials in other actions or SettlingDefendants from agreeing otherwise in any other action.

23. Amendment: Waiver. This Settlement Agreement may be amended only by awritten instrument executed by the Attorney General, Private Counsel and the SettlingDefendants. The waiver of any rights conferred hereunder shall be effective only if madeby written instrument executed by the waiving party. The waiver by any party of any breachof this Settlement Agreement shall not be deemed to be or construed as a waiver of anyother breach, whether prior, subsequent or contemporaneous, of this Settlement Agreement.

24. Notices. All notices or other communications to any party to thisSettlement Agreement shall be in writing (and shall include telex, telecopy or similarwriting) and shall be given to the respective parties hereto at the following addresses.Any party hereto may change the name and address of the person designated to receivenotice on behalf of such party by notice given as provided in this paragraph.

State of Texas:
 

For Philip Morris Incorporated:

For R.J. Reynolds Tobacco Company:

For Brown & Williamson Tobacco Corporation:

For Lorillard Tobacco Company:

For United States Tobacco Company:

25. Cooperation. The parties hereto agree to use their best efforts and tocooperate with each other to cause this Settlement Agreement to become effective, toobtain all necessary approvals, consents and authorizations, if any, and to execute alldocuments and to take such other action as may be appropriate in connection therewith.Consistent with the foregoing, the pasties hereto agree that they will not directly orindirectly assist or encourage any challenge to this Settlement Agreement by any otherperson. All parties hereto agree to support the integrity and enforcement of the terms ofthis Settlement Agreement.

26. Governing Law. This Settlement Agreement shall be governed by the lawsof the State of Texas.

27. Construction. None of the parties hereto shall be considered to be thedrafter of this Settlement Agreement or any provision hereof for the purpose of anystatute, case law or rule of interpretation or construction that would or might cause anyprovision to be construed against the drafter hereof.

28. Severability. In the event that any non-material provision of this SettlementAgreement is found to be invalid, the remainder of this Settlement Agreement shall befully enforceable. The proposed allocations of amounts received by the State of Texas setforth in paragraph 5 of this Settlement Agreement shall not be considered material forpurposes of this paragraph 28 or any other provision of this Settlement Agreement.

29. Intended Beneficiaries. This action was brought by the State of Texas,through its Attorney General, to recover certain monies and to promote the health andwelfare of the people of Texas. No portion of this Settlement Agreement shall provide anyrights to, or be enforceable by, any person or entity that is not a party hereto, or aperson coveted by the releases provided in paragraphs 14 and 15 of this SettlementAgreement, and no portion of this Settlement Agreement shall bind any non-party ordetermine, limit or prejudice the rights of any such person or entity.

30. Counterparts. This Settlement Agreement may be executed incounterparts. Facsimile or photocopied signatures shall be considered as valid signaturesas of the date hereof, although the original signature pages shall thereafter be appendedto this Settlement Agreement

IN WITNESS WHEREOF, the parties hereto, through their fully authorizedrepresentatives, have agreed to this Comprehensive Settlement Agreement and Release as ofthis 16th day of January, 1998.