Draft agreement -- continued

debate and issues

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Provides Court Jurisdiction For Implementation and Enforcement

  • Settling states or tobacco companies may apply to the court to enforce or interpret the terms of the agreement, although before applying to the court a party must give the other parties and NAAG 30-days notice (unless the Attorney General determines there is a public health of safety concern requiring faster action).
  • If the court issues an enforcement order enforcing the agreement and party violates that order, the court may order monetary, civil contempt or criminal sanctions to enforce compliance with the enforcement order.
  • Key public health provisions of the agreement are included in consent decrees to be filed in each sate.
  • Settling states or tobacco companies may apply to the court to enforce the terms of the consent decree.
  • A settling state may not seek to enforce the consent decree of another settling state.
  • A state is not required to give any prior notice before sending an order to enforce a consent decree from the court-except that a 10-day notice is required if the claimed violation involves targeting youth or making material misrepresentations about tobacco products (unless the Attorney General determines there is a public health or safety concern requiring faster action, or the party has committed substantially similar violation previously).
  • If the court finds the consent decree has been violated, the court may award any relief available under the consent decree or the law in the state.
  • Allows settling state AGs access to company documents, records and personnel to enforce the agreement.

NAAG Provides Implementation And Enforcement Coordination

NAAG will:

  • Receive $150,000 per year until 2007 from the industry for oversight costs.
  • Monitor potential conflicting court interpretations involving the settlement.
  • Convene two meetings each year and one national conference every three years to evaluate the success of the settlement and coordinate AG efforts.
  • Assist states with inspection and discovery activities which are conducted to enforce the settlement.

State Enforcement Fund Established

  • On March 31, 1999, the industry is directed to pay $50 million which will be used to assist settling states in enforcing and implementing th agreement and to investigate and litigate potential violations of state tobacco laws.

Financial Recovery

States Will Recover $---Billion

  • Total "up-front" and annual payments from tobacco companies to the states over the next 25 years will total $---billion.
  • Distributions to states will be made based on formulas agreed to by Attorneys General.

Up-front Payments Total $12 Billion

  • Tobacco companies will pay $2.4 billion per year, starting in October, 1998, and one January 5 in 2000, 2001, 2002 and 2003.

Annual Payments Begin April 15, 2000

If all states participate in the settlement, annual payments will "ramp-up" beginning with a $4.5 billion payment on April 15, 1999. Ensuing April 15 payments will be at the following rates:

  • 2000: $4.5 billion
  • 2001: $5 billion
  • 2002-2003: $6.5 billion
  • 2004-2017: $8.139 billion (plus $861 million to the strategic fund)
  • 2018 on: $9 billion
  • Payment calculations for the industry will be made by an independent auditor paid for by the industry and by a fund established in the agreement.
  • The independent auditor will be selected by the NAAG executive committee and the companies.
  • Both up-front and annual payments will be allocated to the states based on a formula developed by Attorneys General.

Strategic Contribution Fund

  • On April 15, 2008 and on April 15 each year through 2017, the companies will pay $861 million into a strategic contribution fund.
  • Money from the fund will be allocated to states based on a strategic contribution formula developed by Attorneys General. The allocation formula will reflect the contribution made by states toward resolution of the state lawsuits against tobacco companies.

Payments Subject to Inflation Factor

  • Payments made by tobacco companies (annual payments, strategic contribution fund, up-front payments) will be adjusted annually based on an inflation factor.

Annual Payments Subject to Adjustments

  • The amount of the annual payments will be subject to "volume adjustments." Tobacco company payments will rise if cigarette sales increase and fall if fewer cigarettes are sold.
  • Annual payments also are subject on Non Settling States adjustment. If states fail to participate in the settlement, the annual payments made by tobacco companies will be reduced by the settlement share amounts which have been allocated to those non settling states.

Non-Participating Manufacturers Adjustment

  • Settlement negotiations originated with the four major tobacco companies, but an early goal was to ensure public health and other initiatives achieved in the agreement are extended industry-wide. To achieve that goal, attempts were made to involve additional companies in the negotiations and to develop provisions which would encourage all tobacco companies to follow terms of the settlement.
  • --- companies, which represent ---% of the market, have signed on to the settlement.
  • States may pass model laws that effectively create a reserve fund for non participating manufacturers to pay future claims.
  • If the aggregate market share of companies participating in the agreement decline by greater than two percent, their annual payment is reduced by three percent for each percent lost over the two percent threshold. States which have not passed a model law would have their annual payments reduced.
  • States which pass the model law would not have their annual payments reduced.
  • If a state's model law is struck down by the court, a state would get the annual payment reduced, but in a lesser amount.

Federal Legislation Adjustment

  • If federal legislation requires participating tobacco companies to make payments to the federal government, and some portion of that money is sent to the settling states, those payments may be offset, dollar for dollar, from the annual payments, under certain enumerated circumstances.

Cost Recovery and Attorney Fees

States Recover Cost, Expenses and Market Rate For Attorney Fees

  • Tobacco companies will reimburse offices of state Attorneys General offices and other political subdivisions for all reasonable costs and expenses and in-house attorney fees.
  • Establishes a $150 million aggregate cap for all amounts paid will be subject to reasonable verification by any requesting company.

Industry Will Pay Outside Attorney Fees

  • No state dollars will be used to pay outside counsel.
  • Two payment methods are available - liquidated fee agreement and arbitration.
  • Outside counsel can negotiate a liquidated fee agreement with the industry, and if accepted, would be paid from a $1.25 billion pool of money from the tobacco industry.
  • If outside counsel rejects the liquidated fee process or cannot agree to an offer, they can go through arbitration.
  • A three-member arbitration panel will be established with two permanent members and a member from the state represented by the outside counsel.
  • The industry will pay whatever arbiters award, but timing of the payment will be subject to a $500-million-per-year cash flow cap.

Miscellaneous Provisions

Release Provisions

  • If an Attorney General does not have the authority to release claims for political subdivisions or certain other entities and that political subdivision or entity proceeds with a lawsuit and wins a judgment or settlement (and the AG agrees to the settlement), the amount of the recovery will be taken out of the state's settlement share.

Court Approval of Settlements and Consent Decrees Required

  • Within 30 days of the Master Settlement Agreement execution date, states must go to court to have the settlement approved and their consent decrees entered and approved.
  • Non-filing states which want a consent decree will have 30 days to file suite and enter the settlement agreement and consent decree.

Most Favored Nation Provisions

  • If tobacco companies, before October 1, 2000, enter into an agreement with better financial terms, settlement states will get the benefit of the agreement. (This does not apply to any agreement reached after the seating of a jury or commencement of trial.)
  • There is no time limit on non-economic terms. If more favorable non-economic terms are offered in a future agreement, settling states at their option may benefit.
  • If a settling state enters into an agreement with a company not participating in this settlement and the terms are more favorable to the industry, settling companies can benefit, but only within that state.

Settlement Amendment Provisions

  • The settlement can be amended only if all affected states and all affected companies agree to the amendment.

Key Dates

There are three critical dates in the agreement: Master Settlement Execution Date, State Specific Finality date and Final Approval date.

  • Master Settlement Agreement Execution: this is the starting date and it occurs when Attorneys General and the companies sign the agreement. Various public health provisions are triggered by this date.
  • State Specific Finality: This date occurs when a state court approves the settlement and consent decree and appeal time has run, or, if there is an appeal, the appeal has been decided in favor of approval. This important date keys more public health initiatives and vest the state for financial recovery.
  • Final Approval: This is the earlier of June 30, 2000, or the date when 80 percent of the settling states reach State Specific Finality and states with 80 percent of the financial allocation reach State Specific Finality.

No money is dispersed to the states until Final Approval is reached.

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