This SETTLEMENT AGREEMENT is entered into this 12h day of March,1996 by
and between Dianne Castano and Ernest Perry, the putative representative
plaintiffs (collectively, "Plaintiffs") in Dianne Castano, et al. v. The
American Tobacco Company, Inc., et al., Civil No. 94-1044, United States
District Court for the Eastern District of Louisiana ( "Castano"), for
themselves and on behalf of the plaintiff settlement class as
hereinafter defined ("Settlement Class"), and Brooke Group Ltd. ("Brooke
Group"), a Delaware corporation, and Liggett Group, Inc. ("Liggett"), a
A. On March 29, 1994, a putative class action complaint was filed to
commence the Castano action against, among others, The American Tobacco
Company, Inc., R.J. Reynoldd 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, asserting claims on behalf of a
putative class of allegedly nicotine-dependent smokers and their
families, seeking among other things, compensatory and punitive damages,
as well as certain equitable relief.
B. On February 17, 1995, in an Order and Reasons published at 160 F.R.V.
544 (E.D. La. 1995), the District Court conditionally certified Castano
as a class action. On July 26, 1995, the United States Court of Appeals
for the Fifth Circuit granted the defendants in Castano leave to appeal
the District Court's decision conditionally certifying Castano as a
class action. That appeal is presently pendiing.
D. Brooke Group and Liggett have denied, and continue to deny each and
all of the claims and contentions alleged by the plaintiffs in the
Castano case, have denied, and continue to deny, that Castano has been,
or could be, properly certified as a trial class action and have denied,
and continue to deny, any wrongdoing or any legal liability of any kind.
E. Plaintiffs and Brooke Group and Liggett recognize and support the
public interest in preventing smoking by, or promotion of smoking to,
children and adolescents.
F . The Food and Drug Administration ("FDA") has proposed certain new
reguiations purported1y concerning the sale and distribution of
nicotine- containing cigarettes and smokeless tobacco products to
children and adolescents.
G. Brooke Group and Liggett recognize and acknowledge that defending the
continued prosecution of Castano (or a similar putative class action)
against them through tria1 and appea1s would require considerab1e
resources and expense and would entail uncertainty and risk. Brooke
Group and Liggett have determined that the settlement, in accordance
with this Agreement, of the claims in Castano against them will be
beneficial to Brooke Group and Liggett.
H. Plaintiffs recognize and acknowledge that the continued prosecution
of Castano against Brooke Group and Liggett through trial and appeals
would require considerable time and expense and would entail
uncertainty, risk and delay. Plaintiffs have determined that the
settlement, in accordance with this Agreement, of the claims in Castano
against Brooke Group and Liggett will he beneficial to the class.
NOW, THEREFORE, in consideration of the foregoing and of the promises
and covenants set forth in this Agreement, Plaintiffs, on their own
behalf and on behalf of the Settlement Class, and Brooke Group and
Liggett hereby stipulate and agree that, conditional upon the approval
of the District Court as required by the Federal Rules of Civil
Procedure and as provided herein, Castano shall be settled as against
Brooke Group, Liggett and a Future Affiliate (as defined hereinbelow) of
Liggett or Brooke Group and that all claims asserted by or on behalf of
class members in Castano against Brooke Group, Liggett and such Future
Affiliate shall be dismissed with prejudice, all on the terms contained
herein, as follows:
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 Future Affiliate.
"Agreement" means this Settlement Agreement.
"Approved Smoking Cessation Programs" means a smoking cessation
treatment or program applied by the Castano Board.
"Brooke Group" means Brooke Group, Ltd. and its Present Affiliates other
"Castano" means the above-captioned acion, Clvil No. 94-1044, pending in
the United States Distict Court for the Eastern District of Louisiana.
"Castano Center for Tobacco Control Innovation And Research" ("Castano
CTCIR") and "CTCIR Document" mean, respectively, the entity to be
established as provided in Section 6 of this Agreement and the docucent
attached hereto as Exhibit 8.
"Castano Defendants" means Thc American Tobacco Co., Lorillard Tobacco
Co., Philip Morris Inc., R.J. Reynolds Tohacco Co., Brown & Williamson
Tobacco Corp., Liggett & Myers, Inc. and United States Tobacco Co.
"Castano Plaintiffs Legal Committee" means the attorneys appointed by
the District Court as plaintiffs' class counsel and designated in
Castano as Plaintiffs' Legal Committee.
"Castano Settlement Fund Boar" ("Castano Board") and "Castano Board
Document" mean, respectively, the entity to be established as provided
in Section 6 of this Agreement and the document annexed hereto as
Exhibit A, approved by the District Court to adminlster the Settlement
Fund provided for under the terms of this Agreement.
"District Court" means the United States District Court for the Eastern
District of Louisiana.
"Domestic Tobacco Operations" means the manufacture and/or sale of
cigarettes in the United States and its possessions.
"Eligible Settlement Class Members" means the Sett1ement class membexs
defined in Section 6.2.2 of this Agreement.
"Fairness Hearing" means the hearing to be conducted by the District
Court in connection with the determination of the fairness, adequacy and
reasonableness of this Agreement under Fed. R, Civ. P. 23.
"Final Order and Judgment" means the order to be entered by the District
Court, in a form which is mutually agreeable to the Parties, approving
this Agreement without material alterations, as fair, adequate and
reasonable under Fed. R. Civ. P. 23, confirming the Settlement Class
certification under Fed. R. Civ. P. 23, and making such other findings
and determinations as the District Court deems necessary and
appropriate to effectuate the terms of this Agreement.
"First Opt Out Period" means the period commencing on the Initial Notice
Date and extending for a period of time as provided in Section 7.3
"Future Affiliate" means any entity, other than an entity with a Market
Share greater than 30%, which is a defendant in Castano and which, with
the prior written approval of Brooke Group, subsequent to the date, and
during the term, of this Agreement: directly or indirectly acquires or
is acquired by Liggett or Brooke Group which directly or indirectly
acquires all or sustantially all of the stock or assets of Liggett or
Brooke Group; all or substantially all of whose stock or assets are
directly or indirectly acquired by Brooke Group or Liggett or directly
or indirectly merges or otherwise combines with Brooke Group or Liggett.
"Initial Notice" means, with respect to a Settling Defendant, the
written notice document to be provided by such Settling Defendant to
Settlement Class members as defined in Section 7.1 of this Agreement.
"Initial Notice Date" means, with respect to a Settling Defendant, the
first date upon which Initial Notice is given by such Settling Defendant
to the settlement Class pursuant to Section 7.1 of this Agreement.
"Liggett" means Liggett Group, Inc. and Liggett & Myers, Inc.
"Market Share" means, with respect to a Castano Defendant and a
specified year, the domestic market share in that year of all of such
defendant's tobacco products, as determined by The Maxwell Consumer
Report published by Wheat First Butcher Singer.
"Medical Practitioner" means, with respect to a Settlement Class member,
the medical practitioner referred to in the definition of Regular Smoker
in this Section 1.
"Notice Period" means the Initial Notice Period or a Subsequent Notice
"Parties" means the Plaintiffs, Brooke Group, Liggett and any other
settling Defendant, as hereinafter defined, if, as and when it becomes
bound by this Agreement.
"Preliminary Approval" means the District Court's conditional
certification of the Settlement Class, preliminary approval of this
Agreement, approval of the form of notice to the Settlement Class
pursuant to Fed. R. Civ. P. 23 (or the setting of a date for the
approval or submission for approval of the form of such notice), and
entry of an order substantially in the form of Exhibit C hereto.
"Present Affiliate" means, with respect to a specified corporation,
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.
"Present Value" means, with respect to a specified amount or amounts,
the present value of such amount or amounts as calculated using a
discount rate equal to the yield on 10-year Treasury Notes as reported
in the Wall Street Journal at the time of such calculation.
"Pretax Income", with respect to a specified Settling defendant other
than Liggett means, for a specified year the operating income or
equivalent designations from domestic Tobacco Operations of the Settling
Defendant and its Present Affiliates, on a consolidated basis, for the
Settling Defendant's most recent fiscal year, as reported in filings to
the United States Securities and Exchange Commission or, if there is no
such filing, as reported by the Settling Defendant's independent outside
auditors. For purposes of the consolidation intended hereby, parent
company debt and parent company corporate and other expenses, less
amortization of parent company acquisition goodwill, shall be allocated
pro rata to all operating units according to operating income.
"Pretax Income", with respect to Liggett, means for a specifled year,
the operating income af Liggett for its most recent fiscal year, as
reported in filings to the United States Securities and Exchange
Commission or, if there is no such filing, as reported by Liggett's
independent outside auditors.
"Proposed Rule" means the regulations proposed by the FDA concerning the
sale and distribution of cigarettes and other products, dated August 9,
1995, published at 21 C.F.R. Parts 801, 803, 804 and 897, and bearing
document number 95N-0253.
"Regular Smokers" means:
(a) all cigarette smokers who have been diagnosed by a medical
practitioner as nicotine-dependent; and
(b) all regular cigarette smokers who were or have been advised by a
medical practitioner that smoking has had or will have adverse health
consequences who thereafter do not or have not quit smoking; and
(c) all cigarette smokers who claim or are claimed to be addicted to
cigarette smoking; and
(d) all cigarette smokers who have smoked regularly for at least an
aggregate of one year.
"Settlement Class" means, as of each date during the term of this
agreement, a settlement class composed of
(a) all past and present Regular smokers in the United States, its
territories, possessions and the Commonnwealth of Puerto Rico; and
(b) the estates, representatives, and administrators of these Regular
(c) the spouses, children, relatives and "significant others" of these
Regular Smokers as their heirs or survivors; provided that excluded from
such settlement class are (a) all persons who, in accordance with the
terms of this Agreement and under such procedures, conditions and
deadlines may be established by the District Court in connection with
this agreement, executive a timely request for exclusion (Opt-Out) from
the Settlment class; and (b) offices, directors or employees of any of
the Castano Defendants.
"Settlement Date" means the date on which all of the following shall
have occurred: (a) the entry of the Final Order and Judgment without
material modification and (b) the achievement of finality for the Final
Order and Judgment by virtue of that order having become final and non-
appealable through (i) the expiration of all appropriate appeal periods
without an appeal having been filed, (ii) the final affirmance of the
Final Order and argument or appeal or final dismissal or denial of all
such appeals, including petitions for review, rehearing or certiorari;
or (iii) final disposition of any proceedings, including any appeals,
resulting from any appeal from the entry of the Final Order and
"Settlement Fund" means the fund established in accordance with the
terms of Section 6 of thls Agreement.
"Settling Defendants" means Brooke Group, Liggett and one Future
Affiliate of Brooke Group or Liggett, provided that in the event of any
corporate restructuring, reorganization or spinoff involving any
Settling defendant, only the corporation which, after such
reorganization or spinoff, retains the Domestic Tobacco operations of
such Settling defendant shall thereafter be treated as the Settling
Defendant for purposes of the payment obligations of Section 6 of this
"Settlling Defendants' Counsel" means the law firm of Kasowitz, Benson,
Torres & Friedman L.L.P.
"Smoking Claims Expense" means, with respect to a specified year, the
aggregate amount of the out-of-pocket expenses paid during that year by
a Settling Defendant for the payment of legal fees and costs, including
attorneys' fees and any settlements or judgments in connection with
litigation raising from smoking-related claims other than Castano,
Attorney General Actions, or other civil cases filed on or before
January 1, 1996.
"Subsequent Notice" means, with respect to a Settling Defendant, the
written notice to be provided by such Settling Defendant to Settlement
Class members as defined and provided by Section 7.4 of this Agreement.
"Subsequent Notice Dates" means the dates defined in Section 7.4 hereof.
"Subsequent Opt Out Period" means the period commencing of a Subsequent
Notice Date and extending for a reasonble period of time as provided in
Section 7.5 hereof.
2. Settlement Purposes Only.
2.1. This agreement is for settlement purposes only, and neither the
fact of, nor any provision contained in, this Agreement nor any action
taken hereunder shall constitute, be construed as, or be admissible in
evidence as, any admission of the validity of any claim, any argument or
any fact alleged or which could have been alleged by Plaintiff in
Castano 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 any of the Settling Defendants
or any admission by any of them of any claim or allegation made or which
could have been made in Castano or in any other action or proceeding of
any kind, or as any admission by any of the Plaintiffs, members of the
Settlement Class or Castano Plaintiffs' Legal Committee of the validity
of any fact or defense asserted or which could have been asserted
against them in Castano or in any other action or proceeding of any
2.2. Any preliminary or final certification of a Settlement Class
pursuant to the terms of this agreement shall not constitute and shall
not be construed as an admission on the part of any Settling Defendant
that this action, or any other proposed or certified class action, is
appropriate for trial class treatment pursuant to Fed. R. Civ. P. 23 or
any other action statute or rule. This Agreement is without prejudice to
the rights of Settling Defendants to (a) oppose trial class
certification in this action, and seek decertification or modification
of the trial class as certified in the order of February 17, 1995, or
(b) oppose certification in any other proposed or certified class
2.3 Nothing contained in this Agreement shall constitute or be
construed as any admission of the validity of the FDA's assertion of
jurisdiction over cigarettes or any other product.
3. Submission for Preliminary Approval.
Promptly after execution of this Agreement, the Parties shall jointly
submit this Agreement, through their respective attorneys, to the
District Court for Preliminary Approval and jointly more in the District
Court to lift the stay as to Settling Defendants for the limited purpose
of considering such approval. Further, Liggett shall move in the Fifth
Circuit Court of Appeals for leave to withdraw without prejudice its
interlocutory appeal of the District Court's February 17, 1995 order of
trial class certification.
4.1. This Agreement shall be binding, in accordance with the terms
hereof, upon Plaintiffs, the Settlement Class, Brooke Group, Liggett and
each other Settling Defendant; provided that the payment obligations of
this Agreement shall be binding only upon the Affiliates of such
Settling Defendants which are engaged in Domestic Tobacco Operations.
4.2. Plaintiffs and the Settlement Class shall not seek to enjoin a
spinoff or like disposition of the stock of Nabisco Holdings Inc. by RJR
Nabisco Holdings Corp. in the event that a slate of nominees proposed by
Brooke Group for election to the RJR Nabisco Holdings Corp. Board of
Directors is elected.
5. Advertising Limitations.
5.1. Each Settling Defendant, promptly after the later of the Settlement
Date and the date said Settling Defendant becomes bound by this
Agreement, shall withdraw its objections and opposition to the Proposed
Rule and to the assertion of jurisdiction by the FDA for the sole
purpose of promulgating the Proposed Rule with respect to all Castano
Defendants.By withdrawing said opposition and objections, Settling
Defendants do not and shall not be deemed to consent to or acknowledge
such jurisdiction and do not and shall not be deemed to waive or abandon
said opposition and objections in the event this Agreement is
terminated. Each Settling Defendant, notwithstanding the foregoing, may
object to or oppose the Proposed Rule to the extent that compliance is
impractical or excessively expensive. If, prior to the Proposed Rule
taking final nonappealable effect as to the tobacco industry generally,
the FDA asserts that it has acquired or can or should acquire
jurisdiction to promulgate or enforce the Proposed Rule as to a Settling
Defendant by virtue of its entry into or compliance with this Agreement
then, in such event, this Section 5 and its subparts shall be null and
void ab initio in their entirety.
5.2. Each Settling Defendant shall follow and abide by the provisions of
the Proposed Rule, insofar as they pertain solely to such Settling
Defendant's Domestic Tobacco Operations, as set forth in, and modified
by, paragraphs 5.2.1 to 5.2.9 hereof until a final determination is
reached respecting the Proposed Rule, at which time the Settling
Defendants will be bound by the Rule only insofar as, and to the extent
that, the Rule becomes an enforceable obligation binding upon all of the
Settling Defendants and non- settling Defendants.
5.2.1. Proposed Rule Section 897.16 (a), but only to the extent that
such section applies to a trade or brand name of a non-tobacco product
which is in use in the United States and has a demonstrated or likely
appeal to minors; provided that in any dispute hereunder, the Settling
Defendant shall have the burden to show compliance with this Subsection
in binding arbitration.
5.2.2. Proposed Rule Section 897.16(b), as proposed.
5.2.3. Proposed Rule Section 897.16(d), except to the extent free
samples are distributed under circumstances where no minors are present
or likely to be present.
5.2.4. Proposed Rule Section 897.30(a), as proposed.
5.2.5. Proposed Rule Section 897.30(b) but only to the extent that such
section applies to billboards within 1,000 feet of a clearly marked and
state- licensed elementary or secondary school or a clearly marked,
outdoor, municipal or other government-operated public playground for
5.2.6. Proposed Rule Section 897.32(a), to the extent that the
requirements of such section will be applicable only to a publication
whose regular readers aged less than eighteen years constitute 15% or
more of the publication's total regular readership; provided that for
those publications in which the Settling Defendants currently advertise
which exceed the 15% limitation, Settling Defendants will, through
incremental reduction, meet the requirements of this section within a
period of five (5) years.
5.2.7. Proposed Rule Section 897.34(a), to the extent such section
applies to clothing or outerwear or to any items or services, other than
clothing or outerwear, which have not prior to the date of this
Agreement been marketed, licensed, distributed or sold, and which are
more likely to appeal to minors than to adults; provided that such
section does not apply to any clothing, outerwear, items or services
customarily marketed, licensed, distributed or sold at the site and at
the time of events permissible under section 5.2.9 of this Agreement.
5.2.8. Proposed Rule Section 897.34(b), to the extent that gifts or
items distributable or redeemable pursuant to this rule are more likely
to appeal to minors than to adults.
5.2.9. Proposed Rule Section 897.34(c), except that such section will be
applicable only to an athletic, musical, artistic or other social or
cultural event whose past patrons or attendees aged less than eighteen
years constitute 15% or more of the event's total past patronage or
attendance, provided that this section does not apply to any events that
Settling Defendants have sponsored, conducted, engaged or participated
in within the lass ten years.
5.3. Notwithstanding anything to the contrary in the Proposed Rule or in
this Agreement, each such Settling Defendant will commence compliance
with Section 5.2 of this Agreement as soon as reasonably practicable;
provided that such Settling Defendant may limit its compliance to the
extent, if any, necessary to ensure that the net annual out-of-pocket
cost to the Settling Defendant of such compliance not exceed $1 million;
and provided further that such Settling Defendant shall not be obligated
pursuant hereto to breach pre-existing legal obligations, if any, it may
have with respect to the matters covered by Section 5.2 (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 cost" means the
excess of (a) the additional out-of-pocket expenditures incurred during
particular year by a particular Settling Defendant in complying with the
matters specified in Section 5.2, over (b) savings, if any, in out-of-
pocket expenditures realized during such year by such Settling Defendant
directly from the implementation; of the matters covered by Section 5.2.
5.4. If, when and to the extent that the Proposed Rule, in whole or in
part, becomes an enforceable legal obligation binding upon all of the
Castano Defendants, each Settling Defendant will comply therewith.
5.5. As promptly as reasonably practicable after becoming bound by this
Agreement, each Settling Defendant shall eliminate cartoon characters,
such as "Joe Camel", from all of its advertising and promotional
materials and activities with respect to tobacco products.
6. Castano Board; Castano CTCIR; Settlement Fund.
6.1. The Castano Plaintiffs Legal Committee, Brooke Group and Liggett
with the approval of the District Court, shall establish (a) in
accordance with the Castano Board Document annexed hereto as Exhibit A,
the Castano Board and (b) in accordance with the Castano CTCIR Document
annexed hereto as Exhibit B, the Castano CTCIR.
6.2. Except as may otherwise be provided herein, all amounts due and
owing by each Settling Defendant under this Agreement shall be paid when
due into the Settlement Fund to be administered, allocated and
distributed to Eligible Settlement Class Members by the Castano Board in
accordance with this Agreement and the Castano Board Document and under
the continuing jurisdiction and supervision of the District Court.
6.2.1. To the extent practicable, the Castano Board shall accord claims
priority in the order received from Eligible Settlement Class Members,
in accordance with the terms of the Castano Board Document and this
6.2.2. A person shall be an Eligible Settlement Class Member with
respect to a Settling Defendant under this Agreement only if such person
is a member of the Settlement Class with respect to one or more brands
of cigarettes of such Settling Defendant.
6.2.3. In order to obtain reimbursement pursuant to Section 6.4 hereof
from a Settling Defendant, an Eligible Settlement Class Member must
submit to the Castano Board an affidavit or other written statement
under penalty of perjury setting forth (a) facts demonstrating that such
person qualifies under Section 6.2.2 hereof (including but not limited
to the identity of the Settling Defendant's brands), (b) facts
demonstrating that such person is or was after the Settlement Pate
enrolled in an Approved Smoking Cessation Program (including but not
limited to the name and address of the person's Medical Practitioner, if
any, and the identity and location of such program) and (c) any other
facts or information which the Castano Board may require to ensure that
such person is an Eligible Settlement Class Member. The Castano Board
shall have the authority to determine whether and under what
circumstances an Eligible Settlement Class Member may receive
compensation or reimbursement for more than one Approved Smoking
Cessation Program. In so determining, the Castano Board shall take into
account the number of applicants in any given year, the availability of
funds to compensate Eligible Settlement Class Members for more than one
Approved Smoking Cessation Program, and a good faith adherence on the
part of the Eligible Settlement Class Members to the regimen and
requirements of the Approved Smoking Cessation Programs.
6.3. Settling Defendants shall have no interest in or responsibility for
allocations or distributions from the Settlement Fund and do not
guarantee any earnings or insure against any losses from any portion of
the Settlement Fund assets that may be maintained or administered by the
Castano Board as provided in Section 6.2 above.
6.4. Each Settling Defendant shall, beginning thirty (30) days from the
later of the Settlement Date and the date such Settling Defendant
becomes bound by this Agreement, (a) pay into the Settlement Fund
periodic payments sufficient on an ongoing basis to reimburse one-half
of the cost of Approved Smoking Cessation Programs for Eligible
Settlement Class Members, plus reasonable administrative costs for the
Castano Board and (b) except for Brooke Group and Liggett, pay into the
Castano CTCIR an amount equal to no more than $5 million in the first
year of the term hereof and, subject to the approval and control of the
Castano Board, no more than $10 million in each subsequent year up to
the fifteenth year from the date of this Agreement to fund research by
the Castano CTCIR concerning tobacco cessation programs and prevention
of smoking by minors; provided that the maximum aggregate payment due in
any year during the term of this Agreement from each Settling Defendant
shall be no more than 5% of the Settling Defendant's Pretax Income and
in no event more than fifty million dollars ($50,000,000) (such fifty
million dollar amount to be adjusted annually in accordance with changes
in the Consumer Price Index reported by the United States Government);
and provided further that, for purposes of this Section 6.4, Brooke
Group and Liggett shall be treated as a single entity, the payment
obligation of which is based upon the Pretax Income of Liggett only.
Each Settling Defendant other than Brooke Group and Liggett shall,
within 60 days of the later of the entry of the Final Order and Judgment
and the date such Settling Defendant becomes bound by this Agreement,
advance to the Settlement Fund twenty-five million dollars
($25,000,000). The advance payment shall be used to pay the costs and
expenses incurred in establishing the Castano Board and the CTCIR Board
and to fund the initial operations of each, including dissemination of
information and notice to Eligible Settlement Class Members. Such
Settling Defendant's advance payment shall be (a) credited against any
amounts due from such Settling Defendant under this Agreement and (b) in
the event of a termination of this Agreement, any unspent portion of
such advance payment shall be promptly returned to such Settling
6.5. In the event of the entry of any final monetary Judgment in Castano
(other than by way of settlement) against any one or more of the Castano
Defendants, then each Settling Defendant shall have the right to reduce
the payments it is obligated to make pursuant to this Agreement to the
extent necessary to make (i) the then Present Value of all amounts
theretofore paid and thereafter payable pursuant to this Agreement by
any Settling Defendant per percentage point of the then Market Share of
such Settling Defendant no more than seventy-five percent (75%) of (ii)
the then Present Value of the dollar amount of such judgment per
percentage point of the then Market Share of each such non-settling
Defendant; provided that such Settling Defendant give written notice of
such reduction and the method of calculating such reduction to the
Castano Board and the Castano Plaintiffs Legal Committee as soon as
practicable after the entry of such judgment.
6.6. Each Settling Defendant shall, during the term of this Agreement,
have the right to a credit against amounts due in each year pursuant to
this Agreement in an amount; equal to fifty percent (50%) of the
difference between (a) such Settling Defendant's Smoking Claims Expense
in the prior year and (b) such Settling Defendant's Smoking Claims
Expense for the twelve months prior to the date of this Agreement;
provided that the amount of such credit shall not be greater than ten
percent of the amounts that would otherwise be due from such Settling
Defendant in such year; provided further that each Settling Defendant
shall have the right to terminate this Agreement with respect to that
Settling Defendant in the event that the amount of such difference is
greater than twenty-five percent of the amount so due from such Settling
Defendant in such year (any and all payments made pursuant to this
Agreement prior to such termination shall be nonrefundable); and
provided further that such Settling Defendant, as soon as practicable
after the end of such year, give written notice of the right to any such
credit and the method of calculating such credit to the District Court,
the Castano Board and the Castano Plaintiffs Legal Committee.
6.7. With respect to each Settling Defendant, in each year beginning
with the second year such Settling Defendant becomes bound by this
Agreement, the annual payment amount due under Section 6.4 of this
Agreement from such Settling Defendant shall be decreased in proportion
to any decrease, and (only if there shall have been a prior such
decrease) increased in proportion to any increase, in such 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 a
result of a decrease in such Settling Defendant's Pretax Income and (b)
such annual payment amount shall never be increased such that the
aggregate amount of any such increases exceeds the aggregate amount of
any such decreases (and in no event more than the maximum amount set
forth in Section 6.4 hereof); and provided further that such Settling
Defendant, as soon as practicable after the end of such year, give
written notice of any such decrease or increase and the method of
calculating it to the District Court, the Castano Board and the Castano
Plaintiffs Legal Committee.
7. Notice to the Settlement Class.
7.1. Upon the later of Preliminary Approval and the date a Settling
Defendant becomes bound by this Agreement, and as the District 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
7.2. The Castano Plaintiffs Legal Committee shall establish at its sole
cost a 1-900 number in order to receive the calls and inquiries of
Settlement Class members regarding this Agreement. All income from such
calls shall, subject to District Court supervision and discretion, be
used first to defray Castano litigation costs, then to defray the
administration costs of any approved settlement, and lastly to further
fund the Castano CTCIR.
7.3. With respect tto each Settling Defendant, the Initial Notice, in a
form to be approved by the District Court, shall be disseminated as
provided in this Section 7 over the course of a period not to exceed 120
days from the Initial Notice Date, subject to approval by the District
7.4. At the end of each successive five-year interval during 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 Settlement Class.
7.5. Each Subsequent Notice, in a form to be approved by the District
Court, shall be disseminated over the course of four periods each not to
exceed 60 days from each applicable Subsequent Notice Date.
8. Settlement Class Members' Right of Exclusion/Inclusion.
8.1. A Settlement Class member may opt out of the Settlement Class at
any time during the First Opt Out Period. In order to exercise the opt
out right set forth in this Section 8.1, the Settlement Class member
must complete, personally sign and return a request for exclusion in the
form of, or containing substantially all of the information contained
in, Exhibit P hereto. Such request must be postmarked on or before the
end of the First Opt Out Period. Except as provided in Section 8.2 of
this Agreement, any Settlement Class member who has not so elected will
be a Settlement Class member for all purposes under this Agreement. Any
Settlement Class member who elects to opt out of the Settlement Class
pursuant to this Section 8.1 shall not be entitled to relief under or be
affected by this Agreement.
8.2. A person who is not an Eligible Settlement Class Member during the
First Opt Out Period may opt out of the Settlement Class only during the
first Subsequent Opt Out Period after such person becomes an Eligible
Settlement Class Member. In order to exercise the opt out right set
forth in this Section 8.2, the Settlement Class member must complete,
personally sign and return to the Castano Board a request for exclusion
in the form of (or containing substantially all of the information
contained in) Exhibit D. Such exclusion shall include an affidavit or
other written statement under penalty of perjury that the maker of such
affidavit or other statement was neither a smoker or user of cigarettes
of such Settling Defendant nor otherwise an Eligible Settlement Class
Member hereunder during any previous Notice Period hereunder. Such
request must be postmarked on or before the expiration of such first
Subsequent Opt Out Period. Any such Settlement Class member who has not
so elected will be a Settlement Class member for all purposes under this
Agreement. Any such Eligible Settlement Class Member who elects to opt
out of the Settlement Class pursuant to this Section 8.2 shall not be
entitled to relief under or be affected by this Agreement.
8.3. The Castano Board may, in its discretion. allow any person who has
elected to opt out pursuant to Section 8.1 or 8.2 of this Agreement to
withdraw that election.
9.1. Upon the later of the Settlement Date and the date each Settling
Defendant becomes bound by this Agreement, for good and sufficient
consideration as described herein, 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 and assigns shall be deemed
to and do hereby release, dismiss and discharge each and every claim,
right, and cause of action (including, without limitation, all claims
for damages, medical expenses, restitution, medical monitoring, or any
similar legal or equitable relief, under federal, state or common law)
which they had, now have, or may hereafter have against each Settling
Defendant (including its past, present and future parents, subsidiaries,
affiliates and downstream distribution entities, and their past, present
and future agents, servants, attorneys, employees, officers, directors,
shareholders, and beneficial owners) which is based on harm, injury or
damages claimed by members of the Settlement Class to be caused by
addiction to or dependence upon cigarettes which contain nicotine or
which is asserted in the Castano action in connection with, or arising
out of the acts, facts, transactions, occurrences, representations or
omissions set forth, alleged, referred to or otherwise embraced in the
complaint in Castano premised, in whole or in part, on the claimed
addictive or dependence-producing nature of nicotine contained in
cigarettes or the damage, harm or injury caused by the condition or
claimed condition of addiction or dependence resulting from the use of
cigarettes which contain nicotine; it being understood that, as a result
of such release, a Settlement Class member who does not opt out may not
claim as a basis for a current or future personal injury or wrongful
death claim against a Settling Defendant that addiction to or dependence
upon cigarettes containing nicotine was the proximate cause or a
contributing proximate cause of that injury. This release does not
extend to claims arising after the termination of this Agreement.
9.2. Nothing in this Agreement shall Prejudice or in any way interfere
with the rights of the Plaintiffs, Settlement Class members, and the
Settling Defendants to pursue all of their rights and remedies against
non-settling Castano Defendants.
10. Exclusive Remedy; Dismissal of Action; Jurisdiction of Court
10.1. This Agreement shall be the sole and exclusive remedy for any and
all released claims of Settlement Class members against the Settling
Defendants, and upon the later of entry of the Final Order and Judgment
by the District Court and the date a Settling Defendant becomes bound by
this Agreement, each Settlement Class member shall be barred from
initiating, asserting, or prosecuting any released claims against each
10.2. On the later of the Settlement Date and the date a Settling
Defendant becomes bound by this Agreement, the Castano action shall be
dismissed as against each Settling Defendant. Settlement Class members
may not commence or prosecute actions against such Settling Defendant on
claims released pursuant to this Agreement once the Final Order and
Judgment is entered, or the date such Settling Defendant becomes bound
by this Agreement, whichever comes later. The Castano Plaintiffs Legal
Committee agree to provide reasonable cooperation to stay or dismiss, as
appropriate, any action of any Settlement Class member for such released
claims pending in state or federal court against any of the Settling
10.3. The District Court shall retain exclusive and continuing
jurisdiction of Castano, all Parties, Settlement Class members and
Settling Defendants, to interpret and enforce the terms, conditions, and
obligations of this Agreement. Nothing in this Agreement shall be
construed to divest or limit the jurisdiction of the District Court with
respect to claims which are alleged or may be alleged by the Castano
class against non-settling Castano Defendants.
11.1. Unless earlier terminated in accordance with the provisions of
this Agreement, the duration of this Agreement with respect to each
Settling Defendant shall be twenty-five (25) years from the Settlement
11.2. Each Settling Defendant shall have the right to terminate this
Agreement with respect to that Settling Defendant in the event of a full
and final denial of trial class certification in Castano as to any of
the Castano Defendants; provided that to exercise such right of
termination, the Settling Defendant must give written notice of such
termination to the District Court and to the Castano Plaintiffs Legal
Committee within thirty (30) days of such denial provided further that
any and all payments made pursuant to this Agreement prior to the giving
of such notice by such Settling defendant shall be nonrefundable; and
provided further that in the event of such termination and in the event
that the Plaintiffs and/or the Castano Plaintiffs Legal Committee
commence another putative class action against the Castano Defendants in
any other forum which is substantially similar to or includes the
Settlement Class, Plaintiffs, the Castano Plaintiffs Legal Committee,
and each Settling Defendant shall enter into a class settlement of such
other putative class action on substantially the same terms as this
11.3. Each Settling Defendant shall have the right to terminate this
Agreement with respect to such Settling Defendant in the event that the
number of persons who exclude themselves from the Settlement Class
during any Notice Period is, in the sole and exclusive discretion of
such Settling Defendant, excessive; provided that such Settling
Defendant give written notice of such termination to the District Court,
the Castano Plaintiffs Legal Committee and the Castano Board and
provided further that any and all payments made pursuant to this
Agreement prior to the giving of such notice by such Settling Defendant
shall be nonrefundable.
11.4. The performance of this Agreement is expressly contingent upon the
District Court's issuance of the Final Order and Judgment. If the
District Court fails to issue such order within a sixty-day period
following conclusion of the Fairness Hearing, each Settling Defendant
may elect to terminate this Agreement with respect to such Settling
Defendant within twenty (20) business days of the end of such period.
11.5. Sections 9.1, 10.1 and 10.2 of this Agreement shall survive any
termination of this Agreement with respect to any and all Eligible
Settlement Class Members who shall have completed at least one Approved
Smoking Cessation Program under this Agreement.
11.6. Except as may be otherwise specifically provided in this
Agreement, a termination by a Settling Defendant 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.
12. Continuing Enforceability
Unless earlier terminated, as to the Settlement Class, 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 part of its property (each, a
"Bankruptcy Proceeding"). 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; provided, however,
that until such time as Liggett decides whether to reject or assume this
Agreement, Brooke Group shall have the obligation to pay the annual
installments as provided by Section 6.4 hereof and any and all rights
the Settlement Class may have not to accept such cure or performance in
any Bankruptcy Proceeding are waived.
13 Entry of Good Faith Bar Order on Contribution and Indemnity Claims:
13.1. The Parties shall request that the District Court enter an order
barring and prohibiting the commencement and prosecution of any claim or
action by any non-settling Castano Defendant against any Settling
Defendant, including but not limited to any contribution, indemnity
and/or subrogation claim seeking reimbursement for payments made or to
be made to any Settlement Class member for claims settled under this
Agreement. Settling Defendants shall be entitled to dismissal with
prejudice of any such non- settling Castano Defendant's claims against
them which violate or are inconsistent with this bar.
13.2. Any Settlement Class member making a claim against a non-settling
person for what would be a claim settled under this Agreement if
asserted against a Settling Defendant shall indemnify and hold harmless
each Settling Defendant from any claim ever asserted against such
Settling Defendant arising from such claim.
13.3. Claims by or on behalf of any Settlement Class members against
any non-settling Castano Defendants are not released and shall not be
barred, precluded, limited, or reduced as a consequence of this
Agreement or the subsequent award and distribution of funds to such
Settlement Class members from the Settlement Fund, except if and to the
extent required under federal or state law applicable under choice-of-
law doctrines in the forum in which any such claims may be instituted or
14. Expenses and Fees.
14.1. All expenses incurred in administering this Agreement, including
cost of Initial and Subsequent Notices and costs of implementing and
administering the CTCIR, shall be paid from the Settlement Fund.
14.2. The reasonable fees and expenses of the District Court, shall be
paid by the Settling Defendants separate and apart from the Settlement
14.3. Class Representatives shall be paid an appropriate and reasonable
amount by the Settling Defendants separate and apart from the Settlement
Fund, subject to the approval of the District Court.
14.4. In the event of a failure by the District Court to issue the Final
Order and Judgment or a decision by any Settling Defendant to exercise
its right to withdraw pursuant to Section 11.3 or 11.4 of this
Agreement, the Settling Defendants will bear, in accordance with the
terms of this Agreement, the costs of the Initial Notice incurred to
such point (in the case of Brooke Group and Liggett not to exceed a
total of $1 million; provided that Brooke Group, Liggett and Plaintiffs
shall each have the right to terminate this Agreement in the event that
the District Court orders Initial Notice costing in excess of
$1,000,000, unless Brooke Group and/or Liggett and/or Plaintiffs agree
to pay such excess.)
15. Tax Status of Settlement Fund.
15.1. The Settlement Fund created under this Agreement will be
established and maintained as a Qualified Settlement Fund ("QSF") in
accordance with Section 468B of the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder. Any Settling
Defendant shall be permitted, in its discretion, and at its own cost, to
seek a private letter ruling from the Internal Revenue Service ("IRS")
regarding the tax status of the Settlement Fund. The parties agree to
negotiate in good faith, subject to District Court approval, any changes
to the Agreement which may be necessary to obtain IRS approval of the
Settlement Fund as a QSF.
15.2. The Castano Board is appointed to act as administrator of the
Settlement Fund. As administrator, the Castano Board will undertake the
following actions in accordance with the regulations under IRC section
(a) the Castano Board shall apply for the tax identification number
required for the Settlement Fund; (b) the Castano Board shall file, or
cause to be filed, ail tax returns the Settlement Fund is required to
file under federal or state laws; (c) the Castano Board shall pay from
the Settlement Fund all taxes that are imposed upon the Settlement Fund
by federal or state laws; and (d) the Castano Board shall file, or cause
to be filed, tax elections available to the Settlement Fund, including a
request for a prompt assessment under IRC sec. 6501(d) if and when the
Castano Board deems it appropriate to do so.
15.3. The Settling Defendants, as transferors of the Settlement Fund,
shall prepare and file the information statements concerning their
settlement payments to the Settlement Fund as required to be provided to
the IRS pursuant to the regulations under IRC section 468B.
16. Court's Settlement Approval Order.
This Agreement is subject to and conditioned upon the issuance by the
District Court, following the Fairness Hearing, of a Final Order and
Judgment granting final approval of the Agreement in accordance with
Fed. R. Civ. P. 23 (e).
17. Effect of Default of Any Settling Defendant.
In the event any Settling Defendant fails to make a payment due and
owing under the terms of this Agreement, or is in default Of this
Agreement in any other respect, the Castano Plaintiffs Legal Committee
shall so notify the District Court. The defaulting Settling Defendant
shall then be given up to 60 calendar days to "cure" the default. If the
defaulting Settling Defendant does not "cure" the default in the time
provided in this Section 17, the Castano Plaintiffs Legal Committee may
apply to the District Court for relief.
18. Representations and Warranties.
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; and (iii) this Agreement has been
duly and validly executed and delivered by such Settling Defendant and
constitutes its legal, valid and binding obligation.
19.1. In the event that the Parties are unable to agree, after good
faith efforts, as to the determination or calculation for any applicable
year of Market Share or Pretax Income hereunder, such determination or
calculation shall be submitted to binding arbitration under the
supervision of the District Court.
19.2. The Castano Plaintiffs Legal Committee shall during the term of
this Agreement have the right, at its sole cost, to have an independent
auditor review the Settling Defendants' compliance with their payment
obligations under this Agreement; provided that any such review will not
be binding upon such Settling Defendants.
20. Most Favored Nation.
20.1. In the event of any settlement of Castano with any Castano
Defendant not a Party hereto (an "Other Settlement"), the payments due
from each Settling Defendant in each year under this Agreement shall be
reduced to the extent, if any, necessary to ensure that (a) the
percentage in each year of each Settling Defendant's Pretax Income
represented by such payments under this Agreement is at least ten
percentage points less than (b) the percentage in such year of such
Castano Defendant's Pretax Income represented by the average annual
payments due from such Castano Defendant under such Other Settlement;
provided further that, without the prior written consent of each
Settling Defendant, Plaintiffs and the Settlement Class will not enter
into any Other Settlement with any Castano Defendant under which the
percentage referred to in Section 20.1(b) is fewer than five percentage
points more than the percentage referred to in Section 20.1(a).
20.2. In the event of any Other Settlement, any terms of which are more
favorable to such Castano Defendant than are the terms of this Agreement
to a Settling Defendant, such Settling Defendant shall have the right,
in addition to its rights under Section 20.1 hereof, to replace or
modify any or all of such terms of this Agreement with, or add to this
Agreement, any or all such more favorable terms.
20.3. The respective rights of each Settling Defendant under Sections
20.1 and 20.2 hereof are cumulative and not exclusive of each other.
21.1. This Agreement, including all Exhibits attached hereto, 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, subject to District
21.2. This Agreement shall be construed under and governed by the laws
of the State of Louisiana applied without regard to its laws applicable
to choice of law.
21.3. 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.
21.4. Upon the Settlement Date, Brooke Group and Liggett shall:
(1) cooperate with the Castano Plaintiffs Legal Committee in that they
will take no steps to impede or frustrate the Castano Plaintiffs Legal
Committee investigations into, or prosecutions of, any of the non-
settling Castano Defendants, so as to secure the just, speedy and
inexpensive determination of Castano against the non-settling Castano
(2) cooperate in and facilitate reasonable non-party discovery from
Brooke Group or Liggett in connection with Castano, provided that such
information is not disclosed to any third parties except as required by
law, without the written consent of Brooke Group or Liggett, and
provided that such cooperation shall not be deemed a waiver of
(3) will review the issues relating to discovery propounded by the
Castano Plaintiffs Legal Committee against Brooke Group or Liggett,
confer with the Castano Plaintiffs Legal Committee and, if appropriate,
take reasonable steps to facilitate judicial determinations of the
privileged nature of any documents or other information within the
possession, custody or control of Brooke Group or Liggett which have
been sought in discovery by the Castano Plaintiffs Legal Committee,
(4) insofar as Brooke Group or Liggett have or obtain any material
information concerning any fraudulent or illegal conduct on the part of
any parties, including non-settling Castano Defendants or their agents,
designed to frustrate or defeat the Castano Plaintiffs against the non-
settling Defendants, or which have the effect of unlawfully suppressing
evidence relevant to Castano, such information will be disclosed to the
appropriate judicial and regulatory agencies.
21.5. This Agreement shall be binding upon and inure to the benefit of
the Settlement Class, the Settling Defendants, and their
representatives, heirs, successors, and assigns.
21.6. 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.
21.7. 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.
21.8. Any notice, request, instruction, application for District Court
approval or application for District 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 the Castano Plaintiffs Legal Committee on behalf
of Settlement Class members, or to other recipients as the District
Court may specify. As of the date of this Agreement, the respective
representatives are as follows:
Castano Plaintiffs Legal Committee
Mr. Peter J. Butler, Sr.
Plaintiffs' Legal Committee
Energy Centre - 3Oth Floor
1100 Poydras Street
New Orleans, LA 70163
Mr. Wendell H. Gauthier
Gauthier & Murphy
3500 N. Hullen
Metairie, LA 70002
Mr. Francis H. "Brother" Hare, Jr.
Hare, Wynn, Newell & Newton
The ParkWoods Bldg.
402 Office Park Dr., Suite 200
Birmingham, AL 35223
Brooke Group and Liggett
Mr. Bennett S. Lebow
Brooke Group Ltd.
100 S.E. Second Street
Miami, Florida 33131
Mr. Marc E. Kasowitz
Mr. Daniel R. Benson
Kasowitz, Benson, Torres & Friedman, L.L.P.
875 Third Avenue
New York, New York 10022
Mr. Michael L. Hirschfeld
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005-1413
The above designated representatives may be changed from time to time by
any Party upon giving notice to all other Parties in conformance with
this Section 21.8.
21.9. References to or use of a singular noun or pronoun in this
Agreement shall include the plural, unless the context implies
IN WITNESS WHEREOF the Parties have executed this Agreement as of the
day and date first written above.
CASTANO PLAINTIFFS LEGAL COMMITTEE
By : Don Barrett
Date: March 12, 1996
By: Richard M. Heimann
Date: March 12, 1996
By: Russ Hermann
Date: March 12, 1996
BROOKE GROUP LTD.
By: Bennett S. Lebow
Date: March 12, 1996
LIGGETT GROUP, INC.
By: Bennett S. Lebow
Date: March 12, 1996
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