Exhibit 10.5
TEXAS FEE PAYMENT AGREEMENT
This Texas Fee Payment Agreement (the "Agreement") is entered into as of
July 24, 1998, by and among Xxxxxx Xxxxxx Incorporated, X.X. Xxxxxxxx Tobacco
Company, Xxxxx & Xxxxxxxxxx Tobacco Corporation, Lorillard Tobacco Company and
United States Tobacco Company (collectively and severally "Settling Defendants"
and each individually a "Settling Defendant"), Xxxxxx Xxxxxxx, Xxxx X. X'Xxxxx,
P.C., Xxxx Xxxxx Xxxxxxxx, Jr., Xxxxx, Xxxxxx & Xxxxx, Inc., The Xxx Law Firm
and Ness, Motley, Loadholt, Richardson & Xxxxx (collectively, "Private
Counsel"), the Law Offices of Xxxx X. Xxxx, P.C. ("Other Texas Counsel") and the
State of Texas, in connection with the lawsuit State of Texas v. American
Tobacco Co., No. 5-96CV-91 (E.D. Tex. filed Mar. 28, 1996) (the "Action").
WITNESSETH:
WHEREAS, on January 16, 1998, the State of Texas and Settling Defendants
entered into a comprehensive settlement agreement to settle and resolve with
finality all present and future civil claims relating to the subject matter of
the Action (the "Settlement Agreement"), which Settlement Agreement was approved
by the United States District Court for the Eastern District of Texas (the
"Court") and adopted as an enforceable order of the Court pursuant to Court
Order dated January 22, 1998.
WHEREAS, paragraph 17 of the Settlement Agreement and Exhibit 1 thereto
provide that Settling Defendants shall pay reasonable attorneys' fees to Private
Counsel and Other Texas Counsel (collectively "Texas Counsel"), in an amount set
by arbitration, subject to an appropriate annual cap on all such payments of
attorneys' fees by Settling Defendants, as well as other conditions set forth
therein;
WHEREAS, paragraph 16 of the Settlement Agreement contains a "Most Favored
Nation" clause which provides that, in the event that Settling Defendants enter
into a future pre-verdict settlement agreement of other litigation brought by a
non-federal governmental plaintiff on terms more favorable to such governmental
plaintiff than the terms of the Settlement Agreement (after due consideration of
relevant differences in population or other appropriate factors), the terms of
the Settlement Agreement shall be revised so that the State of Texas will obtain
treatment at least as relatively favorable as any such non-federal governmental
entity;
WHEREAS, on May 8, 1998, certain Settling Defendants entered into a
pre-verdict settlement agreement with the State of Minnesota (the "Minnesota
Settlement"), which includes provisions for payment of attorneys' fees to
private counsel for the State of Minnesota;
WHEREAS, on July 24, 1998, Settling Defendants and the State of Texas
entered into a Stipulation of Amendment to Settlement Agreement and for Entry of
Consent Decree (the "Stipulation of Amendment") to resolve any disputes with
respect to the Most Favored Nation clause of the Settlement Agreement, including
any disputes regarding payment of attorneys' fees, in light of the Minnesota
Settlement; and
WHEREAS, Settling Defendants, the State of Texas and Texas Counsel, in
order to resolve any disputes with respect to paragraphs 16 and 17 of the
Settlement Agreement, and to describe more fully the procedures that will govern
Settling Defendants' payment of fees to Texas Counsel, have agreed to the terms
of this Agreement:
NOW, THEREFORE, BE IT KNOWN THAT, in consideration of their mutual
agreement to the terms of this Agreement, the State of Texas's and Settling
Defendants' mutual agreement to the terms of the Stipulation of Amendment, and
such other consideration described herein, including the release of certain
claims against Settling Defendants, the sufficiency of which is hereby
acknowledged, the parties hereto, acting by and through their authorized agents,
memorialize and agree as follows:
SECTION 1. Agreement to Pay Fees.
Settling Defendants will pay reasonable attorneys' fees to Texas Counsel
(as identified by the Attorney General pursuant to section 21 hereof) for their
representation of the State of Texas in connection with the Action. The amount
of such fees will be set by a panel of three independent arbitrators (the
"Panel") whose decisions as to the amount of fees to be paid in connection with
this Agreement ("Fee Award(s)") shall be final and not appealable. The
procedures governing Settling Defendants' obligation to pay any such Fee Awards,
including the procedures for making, and the timing of payments in satisfaction
of, such Fee Awards shall be as provided herein.
2
SECTION 2. Aggregate National Caps on Payment of Certain Fees.
Settling Defendants' payment of any Fee Award pursuant to this Agreement
shall be subject to the payment schedule and the annual and quarterly aggregate
national caps specified in sections 13, 14, 15 and 16 hereof, which shall apply
to:
(a) all payments of attorneys' fees pursuant to an award arbitrated by the
Panel ("Fee Award") in connection with the settlement of any tobacco and health
cases (other than non-class action personal injury cases brought directly by or
on behalf of a single natural person or the survivor of such person or for
wrongful death, or any non-class action consolidation of two or more such cases)
("Tobacco Cases") on terms that provide for payment by Settling Defendants or
other defendants acting in agreement with Settling Defendants (collectively,
"Participating Defendants") of fees with respect to private counsel retained by
the plaintiff in connection with any such case ("Outside Counsel"), subject to
an annual cap on payment of all such fees;
(b) all payments of attorneys' fees (other than fees for attorneys of
Participating Defendants) pursuant to a Fee Award for activities in connection
with Tobacco Cases resolved by operation of federal legislation that either (i)
implements the terms of the June 20, 1997 Proposed Resolution (or a
substantially equivalent federal program) (the "Proposed Resolution") or (ii)
imposes an enforceable obligation on Participating Defendants to pay attorneys'
fees with respect to Outside Counsel (any such legislation hereinafter referred
to as "Federal Legislation"); and
(c) all payments of attorneys' fees and certain other professional fees
(other than fees for attorneys or agents of Participating Defendants) pursuant
to a Fee Award for contributions made toward enacted Federal Legislation. In the
event that Federal Legislation is enacted, the terms "Outside Counsel" and
"Eligible Counsel" shall apply not only to persons otherwise falling within the
definitions of such terms herein but also to all persons granted Fee Awards for
such contributions (such persons being Eligible Counsel with respect to each
month beginning with the month the Federal Legislation was enacted).
Nothing in this Agreement shall be construed to require any Settling
Defendant to pay Fee Awards in connection with any litigation other than the
Action.
3
SECTION 3. Exclusive Obligation of Settling Defendants; Release.
The provisions set forth herein constitute the entire obligation of
Settling Defendants with respect to payment of attorneys' fees in connection
with the Action and the exclusive means by which Texas Counsel may seek payment
of fees by Settling Defendants in connection with the Action. The parties hereto
acknowledge that the provisions for payment set forth herein are the entirety of
Settling Defendants' obligations with respect to payment of attorneys' fees
pursuant to paragraph 17 of the Settlement Agreement. The State of Texas agrees
that Settling Defendants have no obligation to pay attorneys' fees pursuant to
paragraph 17 of the Settlement Agreement with respect to any counsel other than
Texas Counsel (as identified by the Attorney General pursuant to section 21
hereof), and that Settling Defendants have no other obligation to pay fees or
otherwise compensate Texas Counsel, any other counsel or representative of the
State of Texas or the State of Texas itself with respect to attorneys' fees in
connection with the Action. Each Texas Counsel hereby irrevocably releases
Settling Defendants and their respective present and former parents,
subsidiaries, divisions, affiliates, officers, directors, employees,
representatives, insurers, agents and attorneys (as well as the predecessors,
heirs, executors, administrators, successors and assigns of each of the
foregoing) from any and all claims that such counsel ever had, now has or
hereafter can, shall or may have in any way related to the Action (including but
not limited to any negotiations related to the settlement of the Action). The
foregoing shall not be construed as a release of any person or entity as to any
of the obligations undertaken in this Agreement in connection with a breach
thereof.
SECTION 4. No Effect on Texas Counsel's Fee Contracts.
The State of Texas has entered into a contingent-fee contract with certain
Private Counsel ("Private Counsel's Contract") and has entered into a fee
contract with Other Texas Counsel ("Other Texas Counsel's Contract"). The rights
and obligations, if any, of the parties to Private Counsel's Contract and Other
Texas Counsel's Contract shall be unaffected by this Agreement. Those Private
Counsel that are parties to Private Counsel's Contract shall not be deemed to
have waived any rights under Private Counsel's Contract, nor shall Other Texas
Counsel be deemed to have waived any rights under Other Texas Counsel's
Contract, as a result of their acceptance of payments made pursuant to this
Agreement. However, any Private Counsel Payments made in connection with this
Action shall be credited against any amounts that may be due to Private Counsel
that are parties to Private Counsel's Contract from the State of Texas under
Private
4
Counsel's Contract, and any payments received pursuant to this Agreement by
Other Texas Counsel shall be credited against any amounts that may be due to
Other Texas Counsel from the State of Texas under Other Texas Counsel's
Contract.
SECTION 5. Composition of the Panel.
(a) The first and the second members of the Panel shall both be permanent
members of the Panel and, as such, will participate in the determination of all
Fee Awards. The third Panel member shall not be a permanent Panel member, but
instead shall be a state-specific member selected to determine Fee Awards on
behalf of Outside Counsel retained in connection with litigation within a single
state. Accordingly, the third, state-specific member of the Panel for purposes
of determining Fee Awards with respect to litigation in the State of Texas shall
not participate in any determination as to any Fee Award with respect to
litigation in any other state (unless selected to participate in such
determinations by such persons as may be authorized to make such selections
under other agreements).
(b) The members of the Panel shall be selected as follows:
(i) The first member shall be a natural person selected by
Participating Defendants, who shall advise Texas Counsel of the name of
the person selected by October 8, 1998.
(ii) The second member shall be a natural person selected by
agreement of Participating Defendants and a majority of the members of a
committee composed of the following members: Xxxxxx X. Xxxx, Xxxxxxx X.
Xxxxxxx, Xxxxxx X. Xxxxxx, Xxxxxx Xxxxxxx, two representatives of the
Xxxxxxx Plaintiffs' Legal Committee and, at the option of Participating
Defendants, one additional representative to serve on behalf of counsel
for any one or more states that, subsequent to the date hereof, enter into
settlement agreements with Participating Defendants that provide for
payment of such states' Outside Counsel pursuant to an arbitrated award of
fees. Such second member shall be selected by October 1, 1998.
(iii) The third, state-specific member for purposes of determining
Fee Awards with respect to litigation in the State of Texas shall be a
natural person selected by Private Counsel, who shall notify Settling
5
Defendants and Other Texas Counsel of the name of the person selected by
October 15, 1998.
SECTION 6. Commencement of Panel Proceedings.
No application for a Fee Award shall be presented to the Panel or any
Panel member until November 3, 1998. The Panel shall consider and render
decisions on applications for Fee Awards in the order in which they are
submitted or pursuant to notice by counsel having priority that they have ceded
their place to others. In the event that more than one application for a Fee
Award is submitted on the same date, the Panel shall consider and render
decisions on such applications in the order in which their respective cases were
settled. Private Counsel may seek permission from the Panel to make combined
presentations of aspects of their respective applications. Settling Defendants
shall not oppose any request to combine presentations of applications for Fee
Awards in connection with the Action, the lawsuit In re Xxxx Xxxxx, Attorney
General, ex rel. State of Mississippi Tobacco Litig., No. 94-1429 (Miss. Ch.
Ct., Xxxxxxx County), or the lawsuit State of Florida v. American Tobacco Co.,
No. 95-1466 AH (15th Jud. Circuit, Palm Beach County).
SECTION 7. Costs of Arbitration.
All costs and expenses of the arbitration proceedings held by the Panel,
including compensation of Panel members (but not including any costs, expenses
or compensation of counsel making applications to the Panel), shall be borne by
Settling Defendants in proportion to their respective Market Shares.
SECTION 8. Application of Private Counsel.
Private Counsel shall make a collective written application to the Panel
for a single Fee Award (the "Private Counsel Fee Award") on November 3, 1998.
All interested persons, including persons not parties hereto, may submit to the
Panel any information that they wish; but interested persons not parties hereto
may submit only written materials. The Panel shall consider all such submissions
by any party hereto and may consider any such materials submitted by other
interested persons. All written submissions relating to applications for a Fee
Award in connection with the Action shall be served on all parties hereto by
November 13, 1998. Presentations to the Panel shall, to the extent possible, be
based on affidavit or video presentation rather than live testimony. The Panel
shall preserve the confidentiality of any attorney work-product materials or
other
6
similar confidential information that may be submitted. Settling Defendants will
not take any position adverse to the amount of the Fee Award requested by
Private Counsel, nor will they or their representatives express any opinion
(even upon request) as to the appropriateness or inappropriateness of the amount
of any proposed Private Counsel Fee Award. The undersigned outside counsel for
Settling Defendants Xxxxxx Xxxxxx Incorporated and X.X. Xxxxxxxx Tobacco Company
will appear, if requested, to provide information as to the nature and efficacy
of the work of Private Counsel and to advise the Panel that they support a
Private Counsel Fee Award of full reasonable compensation under the
circumstances.
SECTION 9. Award of Fees to Private Counsel.
The members of the Panel will consider all relevant information submitted
to them in reaching a decision as to a Fee Award that fairly provides for full
reasonable compensation of Private Counsel for their representation of the State
of Texas in connection with the Action. The Panel shall determine the amount of
the Private Counsel Fee Award for all Private Counsel collectively no later than
December 10, 1998. Given the significance and uniqueness of the Action, the
Panel shall not be limited to an hourly-rate or lodestar analysis in determining
the amount of the Private Counsel Fee Award, but shall take into account the
totality of the circumstances. In considering the amount of the Private Counsel
Fee Award, the Panel shall not consider Fee Awards that already have been or yet
may be awarded in connection with any other Tobacco Case. The Panel's decisions
as to Fee Awards shall be in writing and shall report the amount of the fee
awarded (with or without explanation or opinion, at the Panel's discretion).
SECTION 10. Application of Other Texas Counsel.
Other Texas Counsel may submit an application for a Fee Award separate
from Private Counsel. The procedures, schedule and process with respect to such
application on behalf of Other Texas Counsel shall be the same as the
procedures, schedule and process set forth in sections 6, 7, 8 and 9 hereof with
respect to the fee application on behalf of Private Counsel, except that
Settling Defendants shall be in no way constrained from contesting Other Texas
Counsel's entitlement to receive a Fee Award or the amount of the Fee Award
requested by Other Texas Counsel.
7
SECTION 11. Allocation of Payments among Private Counsel.
All payments (including advances) made by Settling Defendants with respect
to the Private Counsel Fee Award pursuant to this Agreement ("Private Counsel
Payments") shall be paid in the first instance to Xxxxxx Xxxxxxx, Esq. (or such
other person designated in writing by Private Counsel), on behalf of Private
Counsel. Each Private Counsel shall be entitled to receive a percentage of such
payment equal to the percentage of any fee recovery allocated to such Private
Counsel under the terms of the fee-sharing agreement among Private Counsel (or
any written amendment thereto). Settling Defendants shall have no obligation,
responsibility or liability with respect to the allocation among Private
Counsel, or with respect to any claim of misallocation, of any amounts of any
Private Counsel Payment.
SECTION 12. Advances on Payment of Fees.
Each Settling Defendant has paid to Xxxxxx Xxxxxxx, Esq., on behalf of
Private Counsel, its respective share of $50 million, as listed in Rider B to
Exhibit 1 to the Settlement Agreement, as an advance against later Private
Counsel Payments. On or before the later of July 31, 1998 or the fifth business
day following entry by the Court of an order approving the Stipulation of
Amendment, each Settling Defendant shall severally pay to Private Counsel, pro
rata in proportion to its Market Share indicated on Schedule A hereto, its
respective share of $50 million, as a further advance against later Private
Counsel Payments. Each of the advances described in this section shall be
credited as provided in section 16 hereof.
SECTION 13. Annual Amount for 1998; Allocation.
(a) For 1998, Settling Defendants shall pay, in the manner described in
section 14 hereof, the unsatisfied amount of the Fee Awards (the "Unpaid Fees")
of Texas Counsel, and those Participating Defendants so obligated shall make
payments with respect to the Unpaid Fees of all other Outside Counsel, in an
amount not to exceed $500 million for all such payments described in this
subsection.
(b) The amount payable by Settling Defendants with respect to each Fee
Award for 1998 shall be determined as follows: The $500 million annual cap for
1998 shall be allocated equally among each month of the year. Except as provided
in section 14(b) hereof, each monthly amount shall be allocated to those
8
Outside Counsel retained in connection with Tobacco Cases settled by
Participating Defendants or resolved by Federal Legislation before or during
such month, up to the amounts of their respective Unpaid Fees (such counsel
being "Eligible Counsel" with respect to such monthly amount). In the event that
the monthly amount is less than the sum of Eligible Counsel's Unpaid Fees, the
monthly amount shall be allocated to Eligible Counsel in proportion to the
amounts of their respective Unpaid Fees (the amount so allocated to each
Eligible Counsel for a given month being such counsel's Allocable Share for such
month, and the sum of each Outside Counsel's Allocable Shares for each month
being such counsel's Allocable Share for 1998).
(c) Settling Defendants represent that, as of the date of this Agreement,
the only Tobacco Cases (other than the Action) that have been settled by
Participating Defendants on terms that allow for Outside Counsel retained in
connection with such cases to seek a Fee Award from the Panel are In re Xxxx
Xxxxx, Attorney General, ex rel. State of Mississippi Tobacco Litig., No.
94-1429 (Miss. Ch. Ct., Xxxxxxx County), State of Florida v. American Tobacco
Co., No. 95-1466 AH (15th Jud. Cir., Palm Beach County), and Xxxxxxx v. X.X.
Xxxxxxxx Tobacco Co., No. 939359 (Cal. Super. Ct., San Francisco County). In
addition, Outside Counsel retained in connection with Xxxxxxx x. Xxxxx &
Xxxxxxxxxx Tobacco Corp., No. 993893 (Cal. Super. Ct., San Francisco County),
may under the terms of the settlement in that action "apply to participate in
any national, reasonable, 'public benefit' fee award or arbitration process
created by a 'national settlement' or 'Congressional Resolution.'"
SECTION 14. Payments with Respect to Annual Amount for 1998.
(a) On December 15, 1998, each Settling Defendant shall severally pay, pro
rata in proportion to its Market Share, its share of an initial fee payment with
respect to the Private Counsel Award and the Fee Award, if any, on behalf of
Other Texas Counsel (the "Initial Texas Fee Payment"), which shall include Texas
Counsel's Allocable Share for 1998 as provided in section 13 hereof for each
month of 1998 except those with respect to which Texas Counsel's Allocable Share
could not be determined as of December 8, 1998, as a result of there being other
Eligible Counsel that, as of such date, had not yet been granted or denied a Fee
Award by the Panel (either because such counsel's application for a Fee Award
was still under consideration by the Panel or for any other reason).
(b) On January 15, 1999, each Settling Defendant shall severally pay, pro
rata in proportion to its Market Share, its share of Texas Counsel's Allocable
9
Share for those months of 1998 not included in the Initial Texas Fee Payment.
Texas Counsel's Allocable Share for any such month shall be based on an
allocation of the monthly amount among Eligible Counsel having Fee Awards as of
December 31, 1998, without regard to whether there may be other Eligible Counsel
that have not been granted or denied a Fee Award by the Panel as of such date.
(c) Notwithstanding any provision of this Agreement, Private Counsel shall
defer payment of the Private Counsel Payment due from Settling Defendant X.X.
Xxxxxxxx Tobacco Company ("Xxxxxxxx") on December 15, 1998, insofar as necessary
for the sum of all deferred amounts of any payments by Xxxxxxxx in 1998 with
respect to Fee Awards to equal $62 million. Under no circumstances shall this
subsection require any increase in any payment to be made by any other Settling
Defendant. On January 5, 1999, Xxxxxxxx shall pay to Private Counsel the amount,
if any, of the Initial Texas Fee Payment deferred pursuant to this subsection.
SECTION 15. Quarterly Amounts for 1999 and Subsequent Years; Allocation.
Within 10 business days after the end of each calendar quarter beginning
with the first calendar quarter of 1999, Settling Defendants shall pay, in the
manner provided in subsection (d) of this section, the Unpaid Fees of Texas
Counsel, and those Participating Defendants so obligated shall make payments
with respect to the Unpaid Fees of all other Outside Counsel, in an amount not
to exceed $125 million for all such payments, as follows:
(a) In the event that Federal Legislation has been enacted by the end of
the calendar quarter with respect to which such quarterly payment is being made
(the "Applicable Quarter"):
(i) the quarterly amount shall be allocated among Outside Counsel,
up to the amount of their respective Unpaid Fees. Each Outside Counsel
shall be allocated an amount of each quarterly payment for the calendar
year up to (or, in the event that the sum of such Outside Counsel's Unpaid
Fees exceeds the quarterly amount, in proportion to) the amount of such
Outside Counsel's Unpaid Fees. Each quarterly payment shall be allocated
among Outside Counsel having Unpaid Fees, without regard to whether there
are other Outside Counsel that have not yet been granted or denied a Fee
Award by the Panel as of the end of the Applicable Quarter. Subsequent
quarterly payments shall be adjusted, if
10
necessary, to account for Outside Counsel that are granted Fee Awards in a
subsequent quarter of the calendar year, as provided in paragraph (ii)(B)
of this subsection.
(ii) In the event that a quarterly payment for the calendar year is
less than the sum of all Outside Counsel's Unpaid Fees:
(A) in the case of the first such quarterly payment, the
quarterly amount shall be allocated among Outside Counsel in
proportion to the amounts of their respective Unpaid Fees.
(B) in the case of a quarterly payment after the first
quarterly payment that is less than the sum of all such Unpaid Fees,
the quarterly amount shall be allocated only to those Outside
Counsel, if any, that were not paid a proportionate share of all
prior quarterly payments for the calendar year (either because such
Outside Counsel's applications for Fee Awards were still under
consideration as of the end of the calendar quarters with respect to
which such quarterly payments were made or for any other reason),
until each such Outside Counsel has been allocated a proportionate
share of all prior quarterly payments. In the event that the sum of
all such shares exceeds the amount of the quarterly payment, such
payment shall be allocated among such Outside Counsel in proportion
to the amounts of their respective Unpaid Fees (without regard to
whether there are other Outside Counsel that have not yet been
granted or denied a Fee Award by the Panel as of the end of the
Applicable Quarter).
(b) In the event that Federal Legislation has not been enacted by the end
of the Applicable Quarter:
(i) the quarterly amount shall be allocated equally among each of
the three months of the calendar quarter. The amount for each such month
shall be allocated among those Outside Counsel retained in connection with
Tobacco Cases settled before or during such month (such Outside Counsel
being "Eligible Counsel" with respect to such monthly amount), each of
whom shall be allocated a portion of each such monthly amount up to (or,
in the event that the sum of Eligible Counsel's respective Unpaid Fees
exceeds such monthly amount, in proportion to) the amount of such Eligible
Counsel's Unpaid Fees. The monthly amount
11
for each month of the calendar quarter shall be allocated among Eligible
Counsel having Unpaid Fees, without regard to whether there may be
Eligible Counsel that have not yet been granted or denied a Fee Award by
the Panel as of the end of the Applicable Quarter. Subsequent quarterly
payments shall be adjusted, as necessary, to account for Eligible Counsel
that are granted Fee Awards in a subsequent quarter of the calendar year,
as provided in paragraph (ii)(B) of this subsection.
(ii) In the event that the amount for a given month is less than the
sum of all Eligible Counsel's Unpaid Fees:
(A) in the case of a first quarterly payment, such monthly
amount shall be allocated among Eligible Counsel for such month in
proportion to the amount of their respective Unpaid Fees.
(B) in the case of a quarterly payment after the first
quarterly payment, the quarterly amount shall be allocated among
only those Outside Counsel, if any, that were Eligible Counsel with
respect to any monthly amount paid in a prior quarter of the
calendar year but were not allocated a proportionate share of such
monthly amount (either because such counsel's applications for Fee
Awards were still under consideration as of the end of the calendar
quarter containing the month in question or for any other reason),
until each such Eligible Counsel has been allocated a proportionate
share of all such prior monthly payments for the calendar year. In
the event that the sum of all such shares exceeds the amount of the
quarterly payment, the quarterly payment shall be allocated among
Eligible Counsel in proportion to the amounts of their respective
Unpaid Fees (without regard to whether there may be other Eligible
Counsel with respect to such prior monthly amounts that have not yet
been granted or denied a Fee Award by the Panel as of the end of the
Applicable Quarter).
(c) Adjustments pursuant to paragraphs (a)(ii)(B) and (b)(ii)(B) of this
section shall be made separately for each calendar year. No amounts paid in any
calendar year shall be subject to refund, nor shall any payment in any given
calendar year affect the allocation of payments to be made in any subsequent
calendar year.
12
(d) Each Settling Defendant shall severally pay, pro rata in proportion to
its respective Market Share, its share of the amounts, if any, allocated to
Texas Counsel pursuant to this section.
SECTION 16. Credits and Limitations.
Notwithstanding any other provision of this Agreement, all payments by
Settling Defendants with respect to Fee Awards shall be subject to the
following:
(a) The advances against future Private Counsel Payments described in
section 12 hereof shall be credited against and shall reduce subsequent Private
Counsel Payments, beginning with the first quarterly payment for 1999 pursuant
to section 15 hereof, in an amount equal to 50% of the Private Counsel Payment
in question, until the advances paid by Settling Defendants are fully credited;
provided, however, that the sum of all such credits applied in any calendar year
with respect to the advances made to Private Counsel described in section 12
hereof shall not exceed $50 million. The amount of any credit made against any
such Private Counsel Payment shall be counted toward the annual and quarterly
aggregate national caps on all payments made with respect to Outside Counsel, in
the amount of the credit applied to any such Private Counsel Payment in any
quarterly or annual period. All credits against Private Counsel Payments
pursuant to this section shall be allocated among Settling Defendants in
proportion to their respective contributions toward the amounts of the advances
described in section 12 hereof.
(b) Under no circumstances shall Settling Defendants be required to make
payments that would result in aggregate national payments and credits by
Participating Defendants with respect to Fee Awards:
(i) during 1998, totaling more than $500 million, except insofar as
payments to certain Outside Counsel with respect to 1997 are made in 1998,
and except insofar as advances are made in 1998 against payments due in
years after 1998;
(ii) during any year beginning with 1999, totaling more than $500
million, excluding payments with respect to any Outside Counsel's
Allocable Shares for 1998 that are paid in 1999; and
(iii) during any calendar quarter beginning with the first calendar
quarter of 1999, totaling more than $125 million, excluding payments with
13
respect to any Outside Counsel's Allocable Shares for 1998 that are paid
in 1999 and except to the extent that payments and credits with respect to
any prior quarter of the calendar year did not total $125 million.
SECTION 17. Contribution to National Legislation.
If Federal Legislation is enacted that implements the Proposed Resolution,
a three-member national panel including the two permanent members of the Panel
shall consider any application for Fee Awards on behalf of Outside Counsel for
contributions made toward the enactment of such Federal Legislation, along with
all applications for Fee Awards for professional fees by any other persons who
claim to have made similar contributions (other than attorneys or agents of
Participating Defendants). No person shall make more than one application for a
Fee Award in connection with any such contributions toward enactment of such
Federal Legislation. All payments with respect to such Fee Awards, if any, shall
be paid on the payment schedule and subject to, and counted in computing, the
annual and quarterly national caps described in sections 13, 14, 15 and 16
hereof.
SECTION 18. Payments on Market Share Basis.
All payments due hereunder shall be paid by Settling Defendants pro rata
in proportion to their respective Market Shares as provided herein, and each
Settling Defendant shall be severally liable for its share of all such payments.
Due to the particular corporate structures of Settling Defendants X.X. Xxxxxxxx
Tobacco Company ("Xxxxxxxx") and Xxxxx & Xxxxxxxxxx Tobacco Corporation ("Xxxxx
& Xxxxxxxxxx") with respect to their non-domestic tobacco operations, Settling
Defendants Xxxxxxxx and Xxxxx & Xxxxxxxxxx shall be severally liable for their
repsective shares of each payment due pursuant to this Agreement up to (and
their liability hereunder shall not exceed) the full extent of their assets used
in, and earnings and revenues derived from, their manufacture and sale in the
United States of Tobacco Products intended for domestic consumption, and no
recourse shall be had against any of their other assets or earnings to satisfy
such obligations. Under no circumstances shall any payment due hereunder or any
portion thereof become the joint obligation of Settling Defendants or the
obligation of any party other than the Settling Defendant from which such
payment is originally due, nor shall any Settling Defendant be required to pay a
portion of any such payment greater than its respective Market Share. With
respect to the advance to be paid pursuant to section 12 hereof, the Market
Share of each Settling Defendant shall be as provided in Schedule A hereto. With
respect to the amount for 1998 described in section 13 hereof, the Market Share
of
14
each Settling Defendant shall be its respective share pursuant to Appendix A
hereto for 1998. With respect to all other payments pursuant to this Agreement,
each Settling Defendant's Market Share shall be its respective share pursuant to
Appendix A hereto for the 12 month period ending on the last day of the calendar
quarter immediately preceding the calendar quarter with respect to which such
payment is made.
SECTION 19. Determination of Market Share.
In the event of a disagreement between or among any Settling Defendants as
to their respective shares of any payment pursuant to this Agreement (except
payments for which each Settling Defendant's Market Share is expressly provided
herein), each Settling Defendant shall pay its undisputed share of such payment
promptly, on or before the date on which such payment is due, and shall within
21 days submit copies of its audited reports of shipments of Tobacco Products
provided to the U.S. Securities and Exchange Commission ("SEC") for the period
in question (or, in the case of any Settling Defendant that does not provide
such reports to the SEC, audited reports of shipments containing the same
shipment information as contained in the reports provided to the SEC) ("Shipment
Reports") to a third party to be selected by agreement of Settling Defendants
(the "Third Party"), who shall within three business days determine the Market
Share of each Settling Defendant. The decision of the Third Party shall be final
and non-appealable, and shall be communicated by facsimile to each party hereto.
Each Settling Defendant shall, within two business days of receipt of the Third
Party's decision, pay Texas Counsel or such other Settling Defendant, as
appropriate, the difference, if any, between (1) the amount that such Settling
Defendant has already paid with respect to the payment in question and (2) the
amount of the payment in question that corresponds to such Settling Defendant's
Market Share as determined by the Third Party, together with interest accrued
from the original date on which the payment in question was due, at the prime
rate as published in the Wall Street Journal on the latest publication date on
or before the original date on which the payment in question was due plus 3%.
SECTION 20. Limited Waiver as to Other Terms.
In consideration of Settling Defendants' agreement to the terms hereof,
each Texas Counsel hereby covenants and agrees that it will not argue in any
forum (other than in proceedings before the Panel relating to their Fee Award
application) that the arrangements made in connection with the Florida
Settlement, the Mississippi Settlement or the Minnesota Settlement for payment
15
of fees to Outside Counsel for the States of Florida, Mississippi or Minnesota
give rise to any claim or entitlement on the part of Texas Counsel (or any other
person) in connection with this Action.
SECTION 21. State's Identification of Texas Counsel.
The Attorney General represents and warrants that Schedule B hereto
identifies all Texas Counsel.
SECTION 22. Private Counsel's Costs.
Settling Defendants have agreed to reimburse Private Counsel for
reasonable costs and expenses incurred in connection with the Action, provided
that such costs and expenses are of the same nature as costs and expenses for
which Settling Defendants would reimburse their own counsel or agents. To this
end, each Settling Defendant has paid to Xxxxxx Xxxxxxx, Esq., on behalf of
Private Counsel, the respective amount listed for such Settling Defendant in
Rider A to Exhibit 1 to the Settlement Agreement, the sum of such payments being
$40 million, which equals Private Counsel's best estimate as of the date of the
Settlement Agreement of such costs and expenses. Private Counsel shall provide
Settling Defendants with an appropriately documented statement of their costs
and expenses consistent with the criteria set forth above. Settling Defendants
shall promptly pay the amounts of such costs and expenses in excess of $40
million, or shall receive a refund if the total of such costs and expenses is
less than $40 million. Any dispute as to the nature or amount of reimbursable
costs and expenses shall be decided with finality by the Panel.
SECTION 23. Intended Beneficiaries.
No part of this Agreement creates any rights on the part of, or is
enforceable by, any person or entity that is not a party hereto or a person
covered by the release described in section 3 hereof. Nor shall any part of this
Agreement bind any non-party or determine, limit or prejudice the rights of any
such person or entity.
SECTION 24. Definitions.
Terms used herein that are defined in the Settlement Agreement or the
Stipulation of Amendment are, unless otherwise defined herein, used in this
Agreement as defined in the Settlement Agreement or the Stipulation of
Amendment, as applicable.
16
SECTION 25. Representations of Parties.
The parties hereto hereby represent that this Agreement has been duly
authorized and, upon execution, will constitute a valid and binding contractual
obligation, enforceable in accordance with its terms, of each of the parties
hereto.
SECTION 26. No Admission.
This Agreement is not intended to be and shall not in any event be
construed as, or deemed to be, an admission or concession or evidence of any
liability or wrongdoing whatsoever on the part of any party hereto or any person
covered by the release provided under section 3 hereof. Settling Defendants
specifically disclaim and deny any liability or wrongdoing whatsoever with
respect to the claims released under section 3 hereof and enter into this
Agreement for the sole purposes of memorializing Settling Defendants' rights and
obligations with respect to payment of attorneys' fees pursuant to the
Settlement Agreement and avoiding the further expense, inconvenience, burden and
uncertainty of potential litigation.
SECTION 27. Non-admissibility.
This Agreement having been undertaken by the parties hereto in good faith
and for settlement purposes only, neither this Agreement nor any evidence of
negotiations relating hereto shall be offered or received in evidence in any
action or proceeding other than an action or proceeding arising under this
Agreement.
SECTION 28. Amendment and Waiver.
This Agreement may be amended only by a written instrument executed by the
Attorney General, Texas Counsel and Settling Defendants. The waiver of any
rights conferred hereunder shall be effective only if made by written instrument
executed by the waiving party. The waiver by any party of any breach of this
Agreement shall not be deemed to be or construed as a waiver of any other
breach, whether prior, subsequent or contemporaneous, of this Agreement.
SECTION 29. Notices.
All notices or other communications to any party hereto shall be in
writing (including but not limited to telex, telecopy or similar writing) and
shall be given to the respective parties listed on Schedule C hereto at the
addresses therein
17
indicated. Any party hereto may change the name and address of the person
designated to receive notice on behalf of such party by notice given as provided
in this section including an updated list conformed to Schedule C hereto.
SECTION 30. Governing Law.
This Settlement Agreement shall be governed by the laws of the State of
Texas, without regard to the conflict of law rules of such State.
SECTION 31. Construction.
None of the parties hereto shall be considered to be the drafter of this
Agreement or any provision hereof for the purpose of any statute, case law or
rule of interpretation or construction that would or might cause any provision
to be construed against the drafter hereof.
SECTION 32. Captions.
The captions of the sections of this Agreement are included for
convenience of reference only and shall be ignored in the construction and
interpretation hereof.
SECTION 33. Execution of Agreement.
This Agreement may be executed in counterparts. Facsimile or photocopied
signatures shall be considered valid signatures as of the date hereof, although
the original signature pages shall thereafter be appended to this Agreement.
SECTION 34. Certain Court Orders Conditions Precedent.
The terms of this Agreement shall supersede the terms of Exhibit 1 to the
Settlement Agreement, and the parties hereto will promptly file a joint motion
requesting that the Court approve this Agreement. The parties further agree that
Settling Defendants shall not be required to perform any obligation hereunder
(excepting Settling Defendants' obligations with respect to the advance to be
paid pursuant to section 12 hereof) until such time as (1) the Court issues an
order declaring Exhibit 1 to the Settlement Agreement to be null, void and of no
further effect; (2) the Court issues an order approving the Stipulation of
Amendment; (3) the Court issues the Political Subdivisions Order in the form
attached to the
18
Stipulation of Amendment as Exhibit 2 thereto; (4) the Court issues an order
confirming that amounts payable to Texas Counsel pursuant to this Agreement are
not funds of the State of Texas and are not subject to appropriation by the
State of Texas and that Settling Defendants are under no obligation to pay such
amounts to the State of Texas; (5) the 30-day periods to seek review of such
orders have expired without the filing of any notice of appeal or petition for
review; and (6) in the event of a timely appeal or petition, such appeal or
petition has been dismissed or the order in question has been affirmed in all
material respects by the court of last resort to which such appeal or petition
has been taken and such dismissal or affirmance has become no longer subject to
further appeal or review.
SECTION 35. Entire Agreement of Parties.
This Agreement contains an entire, complete and integrated statement of
each and every term and provision agreed to by and among the parties hereto with
respect to payment of attorneys' fees by Settling Defendants in connection with
the Action and is not subject to any condition not provided for herein.
IN WITNESS WHEREOF, the parties hereto, through their fully authorized
representatives, have agreed to this Texas Fee Payment Agreement as of this 24th
day of July, 1998.
STATE OF TEXAS, acting by and through Xxx
Xxxxxxx, its duly elected and authorized Attorney
General
By: /s/ Xxx Xxxxxxx
-----------------------------------------
Xxx Xxxxxxx
Attorney General
19
XXXXXX XXXXXX INCORPORATED
By: /s/ Xxxxx X. Xxxxxx
--------------------------------
Xxxxx X. Xxxxxx
Counsel
By: /s/ Xxxxxx X. Xxxxxxxxxx by MGK
--------------------------------
Xxxxxx X. Xxxxxxxxxx
General Counsel
X.X. XXXXXXXX TOBACCO COMPANY
By: /s/ Xxxxxx X. Xxxxxx
--------------------------------
Xxxxxx X. Xxxxxx
Counsel
By: /s/ Xxxxxxx X. Xxxxx
--------------------------------
Xxxxxxx X. Xxxxx
General Counsel
20
XXXXX & XXXXXXXXXX TOBACCO
CORPORATION
By: /s/ Xxxxxxx X. Xxxxxx
------------------------------------
Xxxxxxx X. Xxxxxx
Counsel
By: /s/ F. Xxxxxxx Xxxxx
------------------------------------
F. Xxxxxxx Xxxxx
Vice President & General Counsel
LORILLARD TOBACCO COMPANY
By: /s/ Xxxxxx X. Xxxxxxx by MGK
------------------------------------
Xxxxxx X. Xxxxxxx
Senior Vice President & General Counsel
UNITED STATES TOBACCO COMPANY
By: /s/ Xxxxxxx X. Xxxxxxx
-----------------------------------
Xxxxxxx X. Xxxxxxx
Executive Vice President & General Counsel
21
TEXAS COUNSEL
By: /s/ Xxxxxx Xxxxxxx
------------------------------------
Xxxxxx Xxxxxxx
Xxxxxxx & Xxxxxxx
By: /s/ Xxxx X. X'Xxxxx, P.C.
------------------------------------
Xxxx X. X'Xxxxx, P.C.
By: /s/ Xxxx Xxxxx Xxxxxxxx, Jr.
------------------------------------
Xxxx Xxxxx Xxxxxxxx, Jr.
By: /s/ Xxxxx X. Xxxxx
------------------------------------
Xxxxx X. Xxxxx
Xxxxx, Xxxxxx & Xxxxx, Inc.
By: /s/ Xxxxxx X. Xxx
------------------------------------
Xxxxxx X. Xxx
The Xxx Law Firm
22
By: /s/ Xxxx Xxxxxxxxx
------------------------------------
Xxxx Xxxxxxxxx
The Xxx Law Firm
By: /s/ Xxxx X. Xxxx by Xxx X. Xxxxxx with permission
------------------------------------
Xxxx X. Xxxx
Law Offices of Xxxx X. Xxxx, P.C.
By: /s/ X. Xxxxxxxxxx, Xx.
------------------------------------
For Xxxxxx X. Xxxx
Ness, Motley, Loadholt, Xxxxxxxxxx & Xxxxx
1
APPENDIX A
MARKET SHARE CALCULATION
The Market Share of each Settling Defendant for purposes of any payment
required hereunder shall be equal to the proportion of (1) such Settling
Defendant's Aggregate Sales Volume for the period in question to (2) the sum of
all Settling Defendants' Aggregate Sales Volumes for the period in question. For
purposes of the foregoing:
(a) Each Settling Defendant's Aggregate Sales Volume shall be the sum of
such Settling Defendant's Sales Volumes with respect to each type of Tobacco
Product.
(b) Each Settling Defendant's Sales Volume with respect to each type of
Tobacco Product shall be the number of Units of such type of Tobacco Product
sold within the United States by such Settling Defendant during the period in
question, as measured by such Settling Defendant's applicable Shipment Reports.
(c) A Unit of Tobacco Product means:
(1) one Cigarette;
(2) .12 ounces of Moist Snuff;
(3) .3 ounces of Loose Leaf, Plug, Twist, Roll or other form of
chewing tobacco;
(4) .25 ounces of Dry Snuff; and
(5) .16 ounces of Loose Leaf tobacco suitable for user preparation
of cigarettes.
SCHEDULE A
MARKET SHARE PERCENTAGES
Settling Defendant Percentage
------------------ --------------
Xxxxxx Xxxxxx Incorporated .................................49.26
X.X. Xxxxxxxx Tobacco Company...............................24.49
Xxxxx & Xxxxxxxxxx Tobacco Corp.............................16.20
Lorillard Tobacco Company....................................8.77
United States Tobacco Company................................1.28
----------
TOTAL 100.00
SCHEDULE B
DESIGNATION OF TEXAS COUNSEL
by the Attorney General
Pursuant to section 21 of the Texas Fee Payment Agreement, I hereby
identify as Texas Counsel: (1) Xxxxxx Xxxxxxx, Xxxx X. X'Xxxxx, P.C., Xxxx Xxxxx
Xxxxxxxx, Jr., Xxxxx, Xxxxxx & Xxxxx, Inc., The Xxx Law Firm and Ness, Motley,
Loadholt, Richardson & Xxxxx ("Private Counsel") and (2) the Law Offices of Xxxx
X. Xxxx, P.C. ("Other Texas Counsel").
There are no other Texas Counsel entitled to seek any payment of
attorneys' fees by Settling Defendants under the Settlement Agreement or the
Texas Fee Payment Agreement.
/s/ Xxx Xxxxxxx
-----------------------------
Xxx Xxxxxxx
Attorney General
SCHEDULE C
NOTICES
State of Texas
Xxx. Xxx Xxxxxxx
Attorney General
X.X. Xxx 00000
Xxxxxxx Xxxxxxx
Xxxxxx, XX 00000
Fax: (000) 000-0000
With copies to:
Xxxxxx X. Xxx
Xxxxxx Xxxxxxx Xxxx Xxxxxxxxx
Xxxxxxx & Xxxxxxx The Xxx Law Firm
000 Xxxx Xxxxxx 000 Xxxxx Xxxxx
X.X. Xxx 0000 X.X. Xxx 000
Xxxxxxxx, XX 00000 Xxxxxxxxxxxx, XX 00000
Fax: (000) 000-0000 Fax: (000) 000-0000
Xxxx X. O'Xxxxx Xxxx Xxxxx Xxxxxxxx, Jr.
000 Xxxxxxxxx Xxxxxx, Xxxxx 0000 0000 Xxxx Xxxxxxx, Xxxxx 000
Xxxxxxx, XX 00000 Xxxxxxx, XX 00000
Fax: (000) 000-0000 Fax: (000) 000-0000
Xxxxx X. Xxxxx Xxxx X. Xxxx
Xxxxx, Xxxxxx & Xxxxx, Inc. Law Offices of Xxxx X. Xxxx, P.C
801 Laurel 0000 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxx, XX 00000 Xxxxxxx, XX 00000-0000
Fax: (000) 000-0000 Fax: (000) 000-0000
Xxxxxx X. Xxxx
Xxxx, Motley, Loadholt, Richardson & Xxxxx
000 Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxxx, XX 00000
Fax: (000) 000-0000 (continued)
Settling Defendants
Xxxxxx Xxxxxx Incorporated: X.X. Xxxxxxxx Tobacco Company:
Xxxxxx X. Xxxxxxxxxx, Esq. Xxxxxxx X. Xxxxx, Esq.
Xxxxxx Xxxxxx Incorporated X.X. Xxxxxxxx Tobacco Company
000 Xxxx Xxxxxx 000 Xxxxx Xxxx Xxxxxx
Xxx Xxxx, XX 00000-0000 Xxxxxxx-Xxxxx, XX 00000
Fax: (000) 000-0000 Fax: (000) 000-0000
With a copy to: With a copy to:
Xxxxx X. Xxxxxx, Esq. Xxxxxx X. Xxxxxx, Esq.
Wachtell, Lipton, Xxxxx & Xxxx Xxxxx Xxxx & Xxxxxxxx
00 Xxxx 00xx Xxxxxx 000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000 Xxx Xxxx, XX 00000
Fax: (000) 000-0000 Fax: (000) 000-0000
Xxxxx & Xxxxxxxxxx Tobacco Corp.: Lorillard Tobacco Company:
F. Xxxxxxx Xxxxx, Esq. Xxxxxx X. Xxxxxxx, Esq.
Xxxxx & Xxxxxxxxxx Tobacco Corp. Lorillard Tobacco Company
200 Xxxxx & Xxxxxxxxxx Tower 000 Xxxxx Xxxxxx Xxxx
000 Xxxxx Xxxxxx Xxxxxx Xxxxxxxxxx, XX 00000
Xxxxxxxxxx, XX 00000 Fax: (000) 000-0000
Fax: (000) 000-0000
With a copy to: United States Tobacco Company:
Xxxxxxx X. Xxxxxx, Esq. Xxxxxxx X. Xxxxxxx
Xxxxxxxx & Xxxxx UST Inc.
000 Xxxx Xxxxxxxx Xx. 000 Xxxx Xxxxxx Xxxxxx
Xxxxxxx, XX 00000 Xxxxxxxxx, XX 00000
Fax: (000) 000-0000 Fax: (000) 000-0000
(continued)
2
Texas Counsel
Xxxxxx Xxxxxxx Xxxxx X. Xxxxx
Xxxxxxx & Xxxxxxx Xxxxx, Xxxxxx & Xxxxx, Inc.
000 Xxxx Xxxxxx 000 Xxxxxx
P.O. Box 4905 Beaumont, TX 77701
Xxxxxxxx, XX 00000 Fax: (000) 000-0000
Fax: (000) 000-0000
Xxxx Xxxxx Xxxxxxxx, Jr. Xxxx X. X'Xxxxx
0000 Xxxx Xxxxxxx, Xxxxx 000 440 Louisiana Street, Suite 2300
Houston, TX 77017 Xxxxxxx, XX 00000
Fax: (000) 000-0000 Fax: (000) 000-0000
Xxxxxx X. Xxx Xxxx X. Xxxx
Xxxx Xxxxxxxxx Law Offices of Xxxx X. Xxxx, P.C.
The Xxx Law Firm 0000 Xxxxx Xxxxxx, Xxxxx 0000
000 Xxxxx Xxxxx Xxxxxxx, XX 00000-0000
X.X. Xxx 000 Fax: (000) 000-0000
Xxxxxxxxxxxx, XX 00000
Fax: (000) 000-0000
Xxxxxx X. Xxxx
Xxxx, Motley, Loadholt, Richardson & Xxxxx
000 Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxxx, XX 00000
Fax: (000) 000-0000
3
