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Post date: June 30 2003

States, Tobacco Companies Resolve Msa Payment Disputes

Attorney General Spitzer today announced that New York and 51 other states and jurisdictions have reached a $160 million agreement with numerous tobacco companies, resolving several disputes over payments required by the 1998 Master Settlement Agreement (MSA). This agreement will result in the payment of about $22 million to New York State and its local governments.

"This agreement demonstrates that New York will aggressively pursue all amounts owed under the MSA," said Attorney General Spitzer. "New York State and its local government expect these payments to be made, and we will not tolerate efforts by companies to circumvent their obligations under the MSA."

The most important part of the settlement involved claims against Brown & Williamson Tobacco, which is the nation's third-largest cigarette manufacturer. Under the MSA, each tobacco manufacturer makes annual payments to the states based upon the number of cigarettes that the company manufactures. Brown & Williamson manufactured cigarettes for Star Tobacco Inc. - a company that refused to join the agreement - and B&W failed to include those cigarettes in its MSA payments to the states. The states argued that this practice violated the MSA, and commenced litigation to require B&W to pay for the cigarettes that it manufactured for Star Tobacco.

In the settlement, Brown & Williamson agreed to make payments of more than $150 million to the States, in exchange for dismissal of the lawsuit and the settlement of several other issues. In addition, Brown & Williamson and the other major tobacco companies (as well as several smaller companies) agreed to take responsibility for cigarettes that they manufacture for other tobacco companies in the future. Finally, the settlement resolved a complex dispute over whether the 1998 settlement was a "significant factor" in the decline in market share that certain tobacco companies experienced during the first four years of the agreement. That issue could have resulted in substantial reductions in future MSA payments to the states, and would have taken years of litigation to resolve.

"This settlement is important for two reasons," said Attorney General Spitzer. "First, it confirms that tobacco companies who sign the MSA will be held responsible for all the cigarettes that they manufacture, and that they cannot avoid these obligations through side agreements with other companies. Second, the settlement shows that New York and the other states will take action against any company that fails to make its settlement payments or seeks to circumvent its MSA obligations in any way."

Attached are two charts. The first chart shows the MSA payments made to New York every year since 1999. The second chart shows the allocation of the $22 million payment among New York State, New York City and the 57 individual counties.

TOTAL MSA TOBACCO SETTLEMENT PAYMENTS

Year Initial Payment Annual Payment Other Payments Total
1999 $ 315 million None None $ 315 million
2000 $ 274 million $ 441 million None $ 715 million
2001 $ 247 million $ 519 million $ 6 million $ 772 million
2002 $ 248 million $ 701 million $ 7 million $ 956 million
2003 $ 273 million $ 653 million $ 22 million $ 948 million
Total   $ 3.706 billion

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