NATIONAL TOBACCO GROWER SETTLEMENT TRUST

Dated:

July 19, 1999


TRUST AGREEMENT

WHEREAS, Philip Morris Incorporated, Brown & Williamson Tobacco Corporation, Lorillard Tobacco Company and R.J. Reynolds Tobacco Company (collectively, the “Settlors”) are parties to that Master Settlement Agreement, dated November 23, 1998 (the “MSA”), that settled certain claims (the “Claims”) against the Settlors brought and threatened to be brought by the states that are party to the MSA (the “Settling States”);

WHEREAS, the parties to the MSA recognized that potential reductions in tobacco consumption resulting from the MSA may adversely affect Tobacco Growers and Tobacco Quota Owners (as defined in Section 4.01 hereof);

WHEREAS, as part of the consideration for settling the Claims, the MSA obligates the Settlors to, “within 30 days after the MSA Execution Date, meet with the political leadership of States with grower communities to address these economic concerns” (the “Grower State Obligation”);

WHEREAS, the Settlors, in accordance with their obligation under the MSA, have met with the political leadership of those states within which there are Tobacco Growers and Tobacco Quota Owners (the “Grower States”);

WHEREAS, as a result of the discussions with the Grower States and in satisfaction of the Grower State Obligation, the Settlors have agreed to the establishment of this Trust as a mechanism to provide aid to Tobacco Growers and Tobacco Quota Owners and thereby to ameliorate potential adverse economic consequences to the Grower States;


WHEREAS, the Grower States have determined and hereby acknowledge through their execution of this Trust Agreement and the letter set forth in Schedule D that the establishment of this Trust and the making of the payments required hereunder shall satisfy in full all obligations undertaken by the Settlors in the MSA, as described above, to address the economic concerns of the Grower States with respect to Tobacco Growers and Tobacco Quota Owners;

WHEREAS, the effectiveness of this Trust Agreement is conditioned upon the issuance of an Order by the Superior Court of Wake County of the State of North Carolina (the “Court of Jurisdiction”) approving this Trust and the payments hereunder as satisfying the Grower State Obligation under the MSA and retaining jurisdiction over this Trust;

WHEREAS, the Trustee signatory hereto desires to assume the obligations of Trustee as set forth in this Trust Agreement;

NOW, THEREFORE, this Agreement is made this __ day of July, 1999, by and among the Settlors, the Grower States and The Chase Manhattan Bank (hereinafter, together with any successors in office, called the “Trustee”), as follows:

The Settlors hereby agree to deliver to the Trustee the property and interests in property described in Schedule A, annexed hereto and by this reference made a part hereof, subject to the reductions and limitations described therein;

TO HAVE AND TO HOLD said property and interests in property and such additional property as may from time to time be added thereto as provided herein, together with the proceeds and reinvestments thereof (hereinafter collectively called the “Trust Estate”), unto the Trustee;

IN TRUST NEVERTHELESS, for the uses and purposes and upon the terms and conditions hereinafter set forth:


First:  DISPOSITIVE PROVISIONS.  The trustee shall manage, invest and reinvest the trust estate as follows:

1.01.        NAME.  This Trust shall be known as the National Tobacco Grower Settlement Trust.

1.02.        PAYMENTS OF INCOME AND PRINCIPAL.  On or before December 31 of each year of this Trust, or on a prior Business Day if December 31 does not fall on a Business Day, the Trustee shall pay out and/or place into a reserve account for each individual Grower State the Distributable Amount (as defined in Section 1.03 hereof) in accordance with the instructions contained in the signed statement (or other alternative documents acceptable to the Trustee) validly submitted each year (as provided below) by that Grower State’s certification body listed on Schedule B hereof (the “Certification Entity”).  Any interest or earnings on the principal of the Trust Estate (not including interest or earnings on funds in the reserve accounts for individual Grower States) to the extent not used by the Trustee to pay for administrative expenses or taxes or placed in reserve by the Trustee for future administrative expenses or taxes, shall be allocated to the Distributable Amounts as set forth in Section 1.03.

Except as provided in this Section and Sections 1.05, 2.04 and 2.12 below, it is expected that the Trustee shall distribute all of the net income and principal of the Trust to Tobacco Growers and/or Tobacco Quota Owners, and/or allocate such funds to reserve accounts for individual Grower States once per year on or before December 31 of each year of this Trust.  Any concern for preserving a fund to be turned over to a charitable organization upon termination of this Trust shall be entirely subordinated to the policy of providing economic assistance to Tobacco Growers and Tobacco Quota Owners in accordance with the written instructions of the Certification Entities of the Grower States during the term of this Trust.

Each Certification Entity shall deliver to the Trustee a plan describing the categories of persons or entities to whom distributions will be made and explaining


how each such category falls within the definition of “Tobacco Grower” or “Tobacco Quota Owner” as set forth in one or more of the clauses of Section 4.01(a), Section 4.01(b) or Section 4.01(c).  The Trustee shall review the plan for the purpose of determining whether the plan is consistent with the foregoing specified clauses.  If the Trustee determines that the plan is not so consistent or if the plan does not include information sufficient to enable the Trustee to make such determination, the Trustee shall so inform the Certification Entity that submitted the plan and solicit a revised plan that remedies any deficiencies.  If the Trustee determines that the plan (or a revised plan) is consistent with the terms of the Trust Agreement, the Trustee shall so inform the Certification Entity.  After receipt of such notification, the Certification Entity shall submit to the Trustee a signed statement including the following:  (i) the names, addresses and tax identification numbers (with accompanying IRS Forms W-9 or successor forms) of Tobacco Growers and/or Tobacco Quota Owners of the Grower State for which such Certification Entity is acting that are to receive a payment from this Trust for such year; (ii) the respective amount each such Tobacco Grower and/or Tobacco Quota Owner is to receive out of that Grower State’s Distributable Amount; (iii) the amount, if any, of the Distributable Amount to be paid to the Certification Entity (or its designee) for its reasonable administrative expenses already incurred (minus any amounts previously advanced by the Trustee), together with a detailed statement of such expenses (including expenses for which advances were previously made) that will be (or were) paid with funds from the Trust; and (iv) a certification that (a) the designated payments are consistent with the plan approved by the Trustee, (b) the Certification Entity expenses to be paid with funds from the Trust are reasonable, (c) every recipient listed therein is either a Tobacco Grower, a Tobacco Quota Owner or both and (d) no payments from this Trust to any such recipient are conditioned upon such recipient’s engaging or not engaging in any activity for which funds of this Trust are not permitted to be used, including but not limited to lobbying and political activities.  Such signed statement shall include a representation on behalf of the Certification Entity through its principal officers in their official capacities that it has made a good faith, reasonable effort to determine the accuracy of the information provided to the Trust.  If a


Certification Entity provides all the necessary information set forth above, but does not include an IRS Form W-9 (or successor form) for any individual or entity designated to receive payments from the Trust, the Trustee shall nevertheless make payments to such individual or entity subject to its right in all events to withhold required amounts for income tax purposes and make all appropriate filings with government tax authorities.

The Certification Entity of a Grower State that establishes and operates private administrative offices shall be entitled to receive advances against the Distributable Amount for such Grower State for the operation of such offices including salaries for office staff, and payments for legal counsel and other agents, rent, office equipment and other related office expenses.  Such requests for advances shall be made on a quarterly basis, and the aggregate amount of such advances during any year (including 1999) shall not exceed $400,000 per Grower State.  In calendar year 1999, such requests shall be made in accordance with any schedule established by the Trustee.  Beginning with calendar year 2000, such requests shall be submitted to the Trustee not less than 30 days prior to  the end of each calendar quarter.

With respect to the Class A Grower States listed in Section 1.03 below, the plan and statement referred to in the preceding paragraph shall be signed by the Chairman of the Board of Directors of the Grower State’s Certification Entity, or such other interim, or assistant Chairman as may be elected or appointed by such Certification Entity.  With respect to each Class B state listed in Section 1.03 below, such plan and statement shall be signed by the respective Grower State’s Governor, Attorney General and Commissioner of Agriculture, or such other persons who may be holding these official positions on an acting basis (which officials together shall constitute the “Certification Entity” for the Class B Grower State).  (In the event that a Class B Grower State has no Commissioner of Agriculture, the Grower State’s equivalent of such official shall sign such plan and statement in the stead of a Commissioner of Agriculture.) The Trustee may in its sole discretion accept any reasonable alternative method proposed by the Certification Entities to designate, and provide the required information with respect to, the amounts to be paid to individual Tobacco Growers and/or Tobacco Quota Owners from the Distributable Amounts (as defined below) for their respective Grower States.

Each Certification Entity shall submit its plan to the Trustee on or before October 1, 1999 for the first year of the Trust and on or before June 1  of each year thereafter. 


The Trustee shall notify each Certification Entity of the estimated Distributable Amount for the Certification Entity’s Grower State on or before November 15 of each year.  Each Certification Entity shall deliver to the Trustee the signed statement provided above on or before December 1 of each year.  The Trustee may in its sole discretion modify any of the dates in this schedule for completing the process set forth in this Section 1.02, provided however that in all events the Trustee shall place any portion of a Distributable Amount for a Grower State that is not otherwise distributed, for whatever reason, on or before December 31 of each year into a reserve account for the pertinent Grower State by December 31 of the same year.

In addition to the information required in its signed statement, a Certification Entity may instruct the Trustee in writing to set aside, from the Distributable Amount for its Grower State, a reserve amount within this Trust to address the anticipated decline in annual payments to this Trust by the Settlers due to the reductions and limitations set forth in Schedule A hereof.  The Trustee shall withhold and place in a reserve account for that Grower State any portion of the respective Distributable Amount set forth in such instructions.  Amounts set aside in reserve for a Grower State, as well as any interest or earnings subsequently earned thereon, shall be held for distribution in future years (but not beyond the term of this Trust) in accordance with the provisions of this Trust pursuant to written instructions validly given by the Certification Entity for that Grower State.

The Trustee shall be entitled to rely on written communications submitted to the Trustee by the Certification Entities.  However, in the event that the Trustee obtains notice from the Court of Jurisdiction that any Certification Entity has made a false, ambiguous or untrue statement to the Trustee and the Trust is required to make additional payments or to incur additional expenses as a result of such false, ambiguous or untrue statement, then the Trustee shall deduct, dollar for dollar, from that Grower State’s current and/or future allocations an amount equal to any such additional payments or expenses.  The Trustee shall not make such a deduction from the Grower State’s allocation if, and to the extent that, the Grower State reimburses the Trust for any such additional payments or expenses.  The Trustee may, if it determines that it is appropriate to do so, withhold a portion of the Grower State’s current and/or future allocations in an amount reasonably anticipated will be necessary to offset any additional payments or expenses


 incurred by the Trust due to a false, ambiguous or untrue statement by the Certification Entity for that Grower State, with any portion thereof ultimately determined not to be necessary to offset such additional payments or expenses to be added back to the Distributable Amount of such Grower State at the time of such determination.

The Trustee shall not distribute any monies from this Trust to any Tobacco Grower or Tobacco Quota Owner unless and until the pertinent Certification Entity has submitted a valid signed statement (or alternative documentation acceptable to the Trustee) pursuant to this Section 1.02.  If the Trustee is unable to distribute any or all of the Distributable Amount for a Grower State by December 31 of a given year (e.g., because the Grower State’s Certification Entity has not timely complied with the requirements of this Section 1.02), the Trustee shall, on or before December 31 of that year, place the remaining amount of the Distributable Amount in a reserve account for that Grower State to be disbursed as soon as practicable after receiving a valid signed statement (or alternative documentation acceptable to the Trustee) pursuant to a plan approved by the Trustee pursuant to this Section 1.02.

Notwithstanding any other provision of this Trust, the Trustee shall not distribute any monies to Tobacco Growers or Tobacco Quota Owners in any Grower State that is a Settling State under the MSA unless such Settling State has achieved State-Specific Finality under the MSA (as defined in the MSA).  As of the date of this Agreement, there are five Grower States that are Settling States under the MSA as to which there appears to be a dispute about whether they have achieved State-Specific Finality:  (i) Alabama; (ii) Missouri; (iii) Pennsylvania; (iv) Tennessee and (v) Virginia.  As to these five Grower States, for the period during which the parties to the Trust Agreement do not agree that any of these five Grower States has achieved State-Specific Finality, or until there has been a finding by the Court of Jurisdiction that a Grower State has achieved State-Specific Finality, and such Grower State also has not met either of the conditions set forth below in subsections (a) and (b) of this paragraph, the Trustee shall place the Distributable Amount otherwise calculated for that Grower State for such period in a hold-separate account for that Grower State, which account shall be separate and distinct from the reserve account for the Grower State.  Once such a Grower State achieves State-Specific Finality, the


Trustee shall transfer the amount in the hold-separate account for that Grower State, including interest and other earnings on the account but less administrative expenses and taxes related to the account (which administrative expenses and taxes the Trustee shall pay from funds in the hold-separate account), to the Distributable Amount for that Grower State for distribution as set forth in this Section 1.02.  The Trustee shall reallocate the funds in a Grower State’s hold separate account to the other Grower States in proportion to the percentages set forth in Section 1.03 and shall not allocate future amounts received by the Trust to that Grower State if either of the following two conditions is met:  (a) that Grower State has not achieved State-Specific Finality under the MSA on or before December 31, 2001 (or such later date as extended pursuant to Section XVIII(u) (1) of the MSA) or (b) there is a final, non-appealable judicial determination that has the effect of precluding that Grower State from participating in the MSA.  Further, in the event that either such condition is met, the Settlors shall be entitled to the MSA Finality Adjustment set forth in Schedule A.  The Court of Jurisdiction shall notify the Trustee if either of these two conditions is met with respect to any Grower State and shall notify the Trustee if any Grower State achieves State-Specific Finality under the MSA after the date of this Agreement.  With respect to the five Grower States set forth above in this paragraph, the Trustee shall deem such Grower State not to have achieved State-Specific Finality unless and until it receives notice from the Court of Jurisdiction that such Grower State has achieved State-Specific Finality under the MSA.  If a Grower State meets either of the two conditions set forth in subsections (a) and (b) of this paragraph, such a Grower State may nonetheless participate in the Trust as a Grower State in future years if it subsequently enters into another settlement agreement with the Settlers and (i) such settlement agreement becomes final and is approved by and is subject to the continuing jurisdiction of the Court of Jurisdiction; (ii) such settlement agreement provides that the Grower State is entitled to participate in this Trust as a Grower State; and (iii) the participation in this Trust by the Grower State would not have an adverse economic impact on the Trust or the other Grower States or an adverse effect on


the tax treatment of payments to the Trust by the Settlors.  The Court of Jurisdiction shall notify the Trustee in writing of such participation by a Grower State.

The Trustee may, but is not obligated to, establish the date that it will distribute funds to Tobacco Growers and Tobacco Quota Holders in a Grower State whose Certification Entity has complied with the requirements of this Section 1.02 regardless of whether any other Certification Entity has so complied.

If, for any reason, the Trust does not receive all of the funds provided in this Agreement, the Trustee shall pro rate the Distributable Amounts in the same proportions set forth in Section 1.03 to account for any such shortfall.

Notwithstanding any other provision of this Trust, this Trust shall not create any fixed right or interest in any individual or entity not a signatory to the Trust Agreement (the Certification Entities being deemed signatories by virtue of the signatures of their respective Grower States), including without limitation any Tobacco Grower or Tobacco Quota Owner.  No person or entity, including without limitation Tobacco Growers and Tobacco Quota Owners, shall have the right to bring any claim or complaint as a direct or indirect third party beneficiary of this Trust.  The Trustee acting pursuant to this Trust Agreement shall have the sole right to prosecute any complaint against any one or more Settlors on behalf of the Trust and the Trust’s direct and indirect beneficiaries based on the obligation to make payments to this Trust as set forth in Schedule A, including all adjustments therein.

1.03.        DISTRIBUTABLE AMOUNTS.  The amounts required to be paid each year to the Trust by the Settlors pursuant to Schedule A hereto, as calculated taking into account the adjustments set forth therein, plus any interest or earnings on such amounts after they are received by the Trust but before they are placed in reserve for an individual Grower State, less any funds required by the Trustee for reasonable current or estimated future administrative expenses (including, without limitation, any fees and expenses and out


of pocket costs of any agents appointed hereunder or counsel) or taxes or other purposes pursuant to this Trust Agreement, shall be the “Annual Aggregate Amount” for such year.  The Trustee shall, for each year, allocate the Annual Aggregate Amount among each of the Grower States referenced on Schedule B according to the following fixed percentages (calculated on the basis of the 1998 basic quota for production of tobacco for use in cigarettes and, where no quota existed, 1998 production of tobacco for use in cigarettes):

Class A Grower States:

Georgia                        5.85%

Kentucky                     29.66%

North Carolina            37.95%

South Carolina            6.94%

Tennessee                    7.57%

Virginia             6.58%

 

Class B Grower States:

Alabama                       0.05%

Florida                         1.13%

Indiana                         1.16%

Maryland                      0.62%

Missouri                       0.42%

Ohio                             1.36%

Pennsylvania                 0.43%

West Virginia                0.28%

 

The amount so allocated to each Grower State in a given year plus any remaining balance in a reserve account (excluding any amounts required to pay any taxes or other expenses related to funds in the reserve account) set aside for that Grower State shall be the “Distributable Amount” for each Grower State for that given year.

1.04.        CERTIFICATION ENTITIES OF CLASS A STATES.  Certification Entities of the Class A Grower States (as defined above) shall at all times conform to the minimum requirements described in Schedule C hereto.  The Trustee or the Court of Jurisdiction shall grant an exemption to the requirements set forth in Schedule C to the minimum extent necessary to enable a Grower State Certification Entity to


comply with the Grower State’s laws and constitution based upon a certification from such Grower State’s Attorney General setting forth the minimum required exemption and describing the pertinent limitations of such Grower State’s laws and constitution.

1.05.        ADMINISTRATIVE EXPENSES.  In any year of the Trust ending before January 1, 2011, except as provided in Section 2.12 and in this Section 1.05 and in the absence of prior approval by the Court of Jurisdiction, all expenses incurred in the administration of this Trust shall not exceed the lesser of (i) all pre-tax interest and other pre-tax earnings on amounts paid to the Trust or (ii) five percent (5%) of such amounts paid to the Trust by the Settlors in the given year.  The Trustee shall give the following priority to payment of expenses:  (i) the Trustee’s fees and expenses; (ii) the fees and expenses of agents retained by the Trustee on behalf of the Trust; (iii) the fees and expenses of the Independent Accountant (as defined in Schedule A); and (iv) any other administrative expenses of the Trust.  In the event that the Trust has insufficient administrative funds available to continue its operations, the Certification Entities and/or the Grower States may, in their sole discretion, contribute funds to the Trust, and the Trustee shall be authorized to use such funds to pay the Trust’s administrative expenses.  The payment of any administrative expense of this Trust or of any Certification Entity shall not increase the payment obligations of any Settlor.  For purposes of calculating administrative expenses hereunder, payment of taxes pursuant to Section 3.02 shall not constitute an administrative expense.

1.06.        PROHIBITION ON LOBBYING AND POLITICS.  No funds of this Trust shall ever be used, directly or indirectly, to influence legislation or to participate in any political campaign.

1.07.        TERM.  This Trust shall terminate on December 31, 2014, unless otherwise provided by the Court of Jurisdiction.  Upon petition by one or more Certification Entities or the Trustee with notice to all Certification Entities, Settlers and the Trustee, the Court of Jurisdiction


may in its discretion extend or shorten the term of the Trust for good cause; provided, that no such modification of the term shall in any way increase, or alter the timing of, the payment obligations of the Settlers beyond what is set forth in Schedule A, subject to the adjustments and limitations therein.

1.08.        DISPOSITION UPON TERMINATION.  Upon termination of this Trust, the Trust Estate, as then constituted, together with all accrued, accumulated and/or undistributed net income therefrom (after accounting for all past and anticipated administrative expenses and taxes of the Trust), shall be distributed to one or more non-governmental tax-exempt organizations of the type described in Section 170(c) (2) (to be used only for purposes described in Section 170(c) (2) (B)) of the Internal Revenue Code of 1986, as amended (or any similar provision of any Federal income tax law in effect at the time of such distribution) (the “Internal Revenue Code” or “Code”) as the Certification Entities each in their sole discretion shall determine, taking into account the purpose of this Trust to provide economic assistance to Tobacco Growers and Tobacco Quota Owners within the Grower States referenced on Schedule B hereto.  Each Certification Entity shall be entitled to designate the non-governmental tax-exempt organization (as described in the preceding sentence) to receive that portion of any such residual assets equal to the sum of (i) the allocation percentage for its Grower State as set forth in Section 1.03 multiplied by the residual assets not held in any reserve account, plus (ii) any residual assets remaining in the reserve account for its Grower State.  If any residual assets remain undesignated for distribution by the Certification Entities, the Trustee shall distribute such remaining assets as provided in this Section 1.08 as determined by the Trustee, taking into account the purpose of this Trust to provide economic assistance to Tobacco Growers and Tobacco Quota Owners within the Grower States referenced on Schedule B hereto.  The Certification Entities and Trustee shall take all reasonable measures to maximize the funds distributed pursuant to Section 1.02 and minimize the funds distributed pursuant to this Section 1.08.


 

1.09.        SPENDTHRIFT PROVISION.  All payments, both of principal of the Trust Estate and of current and accumulated income therefrom, to or for the benefit of any Tobacco Grower or Tobacco Quota Owner under this Agreement, are to be free from anticipation, alienation, assignment, attachment and pledge by such individual or entity and are to be free from control by the creditors of such individual or entity by any proceedings at law or in equity.

1.10.        ADDITIONS TO TRUST ESTATE.  The Trustee shall receive, hold and administer hereunder, as part of the Trust Estate (i) the funds delivered to it from time to time by the Settlors pursuant to Schedule A hereto, subject to the adjustments and limitations described therein; (ii) any recoveries with respect to amounts previously expended by the Trust (such as, without limitation, refunds of taxes or administrative expenses previously paid by the Trust); and (iii) any interest or other earnings on any of the foregoing.  The Trustee may receive, hold and administer other funds only if and to the extent the Trustee receives a written opinion from qualified legal counsel stating that the receipt, holding and administration of such additional funds will not adversely affect the treatment of the Trust as a qualified settlement fund as described in Section 4.06; provided, however, that under no circumstances shall the Trustee accept any contributions for the purpose of funding distributions to any Tobacco Grower or Tobacco Quota Owner other than the contributions by the Settlors required pursuant to Schedule A, subject to the adjustments and limitations therein.

1.11.        IRREVOCABILITY AND PROHIBITION ON REVERSION.  This Trust is and shall be irrevocable, and the Settlors shall have no power to amend or alter it.  The Trustee shall have the power to amend this Agreement with the prior approval of the Court of Jurisdiction and with prior notice to each of the Certification Entities solely as shall be necessary to ensure the Trust carries out its intended purposes in implementation of the MSA and to comply with the provisions of Section 4.06 below, provided that the Trust shall not be amended in any manner that adversely affects the treatment of the Trust as a qualified settlement fund (as


described in Section 4.06 below) or otherwise adversely affects the financial interests of the Settlors without the prior written consent of all Settlors.  Under no circumstances, and notwithstanding any other provision of this Trust, shall any amount of principal or income held in this Trust ever revert to the Settlors.


Second:     TRUSTEE.  The appointment of a successor trustee, provisions governing resignation and compensation of the trustee and the general rules governing the relationship of the trustee to interested or third parties are as follows:

2.01.        DESIGNATION AND QUALIFICATION OF TRUSTEE AND SUCCESSOR TRUSTEE.  There shall be one Trustee of this Trust.  The Chase Manhattan Bank is the initial Trustee of this Trust.  No individual or entity that is then a Tobacco Grower or Tobacco Quota Owner, a Settlor or an Affiliate (as defined in Schedule A) of a Settler, or a Certification Entity or is then an officer, director, employee or agent of any Settlor, any Affiliate of any Settler or any Certification Entity shall serve as Trustee of this Trust.

A.                 Subject to the provisions of the Trust, The Chase Manhattan Bank shall serve as Trustee for the term of the Trust, unless the Trustee resigns or is removed prior to the termination of the Trust.

B.                 In the event that a corporate Trustee designated or acting hereunder shall at any time merge or consolidate with, or shall sell, assign or transfer substantially all of its assets and business to, another corporation, state or national, the corporation into which it is merged or consolidated or to which such sale, assignment or transfer shall be made shall thereupon (to the extent it is authorized to exercise fiduciary powers) become and be the Trustee hereunder in the place and stead of the corporate Trustee formerly designated or acting hereunder with the same effect as though originally so named.

C.                 Any Certification Entity or Settlor may petition the Court of Jurisdiction to remove the Trustee for cause with notice to each of the Certification Entities and each of the Settlors.  In addition, if Settlers representing at least sixty-six and two-thirds


percent of the Relative Market Share (as defined in Schedule A) and Certification Entities representing Grower States with at least sixty-six and two-thirds percent of the allocations set forth in Section 1.03 jointly petition the Court of Jurisdiction to remove the Trustee, the Court of Jurisdiction shall remove the Trustee and appoint a successor Trustee as provided in subsection 2.01(D).

D.                 In the event that the Trustee named above or any successor Trustee fails or ceases to serve as Trustee of this Trust (except as provided under Section 2.01(B) hereof), or the Trustee is removed by the Court of Jurisdiction, the Court of Jurisdiction shall appoint a successor Trustee (with prior notice to each of the Certification Entities and each of the Settlors) to serve the remainder of the term of the Trust, unless the successor Trustee sooner resigns or is removed.  The Court of Jurisdiction shall make reasonable efforts to select as any successor Trustee a financial institution with its principal headquarters in the United States.  Such appointment shall be made by a duly acknowledged written instrument delivered to the individual or entity so appointed.

E.                  The Trustee shall cease to be the Trustee of this Trust upon (a) if the Trustee is an entity other than an individual, its resignation, filing for bankruptcy, its failing to satisfy a condition to service as Trustee under this Section 2.01 or its conviction (or the conviction of any one of its officers, directors, or employees responsible for carrying out the duties of the Trustee) of a felony or any crime of moral turpitude (including but not limited to fraud or embezzlement) or at such time as it becomes unable to discharge the duties of Trustee for


any reason as determined by the Court of Jurisdiction or (b) if the Trustee is an individual, his or her death, resignation, filing for bankruptcy, or adjudication as an incompetent, or at such time as he or she either fails to satisfy a condition to service as Trustee under this Section 2.01 or is convicted of a felony or any crime of moral turpitude (including but not limited to fraud or embezzlement) or at such time as he or she becomes unable to discharge the duties of Trustee by reason of accident, progressive or intermittent physical or mental deterioration or other similar cause as certified by one licensed physician affirming that he or she has examined such Trustee and that he or she has concluded, based on such examination, that such individual is unable to discharge the duties as Trustee.

F.                  A0ny replacement or successor Trustee shall qualify by a duly acknowledged acceptance of this Trust delivered to the Court of Jurisdiction.  Any replacement or successor Trustee shall have all the rights, powers, duties and obligations herein granted to the original Trustee.

2.02.        EXONERATION FROM BOND.  No bond or other security shall be exacted or required of any Trustee appointed by this Agreement or pursuant to Section 2.01 in any jurisdiction.

2.03.        RESIGNATION.  The Trustee hereof may resign and be discharged as Trustee at any time and for any reason by delivering a written notice of such resignation to the Court of Jurisdiction, which notice shall be conditioned upon the Court of Jurisdiction appointing a successor Trustee who is willing and able to serve and receipt of an acceptance of appointment from the Successor Trustee.  The resigning Trustee may at any time petition the Court of Jurisdiction to appoint a successor Trustee.  The Court of Jurisdiction shall


appoint a successor Trustee who is qualified hereunder and willing to serve and who shall deliver a written acceptance of its appointment to (i) the retiring Trustee, (ii) the Court of Jurisdiction, (iii) each of the Certification Entities, and (iv) each of the Settlors.  Upon delivery of such acceptance, the resignation of the retiring Trustee shall thereupon become effective, and the successor Trustee shall have all rights, powers and duties of the Trustee hereunder.  The resigning Trustee shall promptly transfer to the successor Trustee all funds and properties held as part of the Trust Estate hereunder.

2.04.        COMPENSATION.  The initial Trustee shall be entitled to receive compensation for all services rendered hereunder and reimbursement of its expenses, advances and disbursements in accordance with the proposal submitted by The Chase Manhattan Bank dated April 23, 1999 as amended by its letter dated June 17, 1999.  Any changes (including without limitation extension of the term of the fee schedule in the proposal, as amended) to the fees of the Trustee shall be subject to review and approval by the Court of Jurisdiction.  Any successor Trustee shall be entitled to reasonable compensation for services performed at the rate or rates and in the manner prescribed for trusts as allowed by the law of North Carolina or by the custom of its banking and trust community, subject to review and approval by the Court of Jurisdiction.  Any compensation or reimbursement paid to the Trustee pursuant to this Section 2.04 (without limiting the indemnification provided in Section 2.12) shall be paid as provided in Section 1.05.

2.05.        WITHDRAWAL AND DEPOSIT OF FUNDS.  The Trustee, when acting hereunder, may withdraw the funds of this Trust, wheresoever and with whomsoever deposited, by checks, notes, drafts, electronic funds transfers or other orders for the payment of money and may authorize for deposit, collection or transfer any checks, notes, drafts or other orders for the payment of money.  Notwithstanding any other provision of this Trust Agreement, any authorization to withdraw funds of this Trust in an amount in excess of $1 million, either in a single transaction or a series of related transactions, shall require the written approval of


the Trustee exercising its own power and may not be authorized by anyone to whom the Trustee has delegated any powers.  Notwithstanding the foregoing, in the event that the Trustee is a financial institution, it shall not be required to make such authorization to itself.

2.06.        ACTS OF TRUSTEE.  Acts of the Trustee shall in all cases be done through and by a duly acknowledged instrument, which may be such instrument or instruments as are typically used by the Trustee in the ordinary course of its standard banking procedures, provided that such Trustee is a financial institution.

2.07.        TRUSTEE DEALING WITH SELF.  The Trustee shall not be disqualified in the exercise of any powers conferred by the provisions of this Agreement because of any interest it may have in any enterprise, and the Trustee may provide financial, investment and related services to the Trust, provided the consideration paid by the Trust for such services is reasonable as set forth in Section 2.04 above.  Upon petition by any Settlor or Certification Entity with notice to all Settlers and Certification Entities, the Court of Jurisdiction shall review the terms of any dealings between the Trustee and the Trust and shall have the power to prohibit such dealings if the terms are not reasonable as set forth in Section 2.04.  Other than the Trustee itself, no individual or entity that is employed by, serving as an officer or director for, or is otherwise affiliated with the Trustee may enter into any dealings with the Trust unless such dealings are for commercially reasonable terms disclosed to and approved in advance by the Court of Jurisdiction.

2.08.        TRANSACTIONS WITH THIRD PARTIES.  It is recognized under this Agreement that the Trustee has full power and authority to act hereunder, and no person or organization dealing with the Trustee hereunder shall be required to inquire into or to investigate its authority for entering into any transaction or to see to the application of the proceeds of any such transaction.

2.09.        ACCOUNTS.  The Trustee shall prepare, or cause to be prepared, an account of its acts and transactions


at least annually.  Such account shall be prepared according to generally accepted accounting principles applicable to trusts by the accountant for the Trust appointed as set forth in Section 4.02 or by such successor nationally recognized accounting firm selected by the Trustee.

The Trustee shall, on or before April 30 of each year, present the Trust account to all of the Certification Entities, which presentation shall include at least the following:  (i) the account prepared pursuant to this Section 2.09; (ii) the report of the most recent annual audit prepared pursuant to Section 2.10; (iii) disclosure of the terms of any dealings between the Trustee and the Trust during the prior year and, to the extent such information is available at the time of preparation, the terms of any such dealings that the Trustee expects to occur during the next year; (iv) an accounting of the funds received and distributed by the Trust and the investment activities of the Trust; and (v) the amount of the payments made by the Settlers for the period, including the written statements delivered to the Trustee by the Independent Accountant in accordance with Schedule A as well as any adjustments to those amounts made in response to objections by the Trustee or the Settlors.  If a Certification Entity approves such account, it may deliver to the Trustee a duly acknowledged instrument which contains an approval of the account and a written release which shall discharge the Trustee with respect to all acts, transactions, or omissions reflected in said account (except for fraudulent acts or omissions or acts or omissions committed in bad faith) without the necessity of any application to or approval by or order of any court.  The approval and release shall be binding on the Certification Entity that submitted such approval and release.  If Certification Entities accounting for 75 percent or more of the allocation percentages set forth in Section 1.03 deliver.  (or, as provided below, are deemed to have delivered) such an approval and release, such release shall be binding on all persons and entities at any time having or claiming any interest in this Trust, including without limitation any Certification Entities which objected to such account, except upon a showing of fraud or bad faith by the Trustee.  Any such person who executes and delivers (or is deemed to


have executed and delivered) an approval and release on behalf of a Certification Entity shall be fully absolved of all question and liability therefor except for fraud or bad faith in executing and delivering such release.  If no release or written objection to the account is delivered to the Trustee by a Certification Entity within sixty (60) days of submission of such account to the Certification Entity, such failure to respond shall constitute an approval of the account and a release by such Certification Entity as hereinabove provided.

The Trustee may also from time to time present a summary of the Trust accounts to one or more of the Certification Entities and Settlors for informational purposes.

The Trustee also shall respond within a reasonable time to reasonable written requests for information from Certification Entities concerning reserve accounts for their respective Grower States.

2.10.        AUDITS.  The Trustee shall submit its accounts and the Trust’s books and records in respect of the previous period to an annual independent, certified financial audit by the accountant specified in Section 4.02 or to its successor nationally recognized firm of certified public accountants selected by the Trustee.  The audit report prepared by the accounting firm in connection with such audit shall be included in the materials disclosed to the Certification Entities pursuant to Section 2.09.  The cost of such audits shall be an administrative expense of the Trust.

2.11.        LIABILITY.  When acting hereunder, except for willful misconduct or gross negligence, the Trustee shall not be liable for any act, omission, loss, damage or expense arising from the administration of this Trust, including any investment loss, provided that the Trust Estate is invested pursuant to Section 3.04 hereof.  The Trustee shall not be liable for any acts, omissions or defaults of any agent, attorney, custodian, nominee or depository properly appointed or selected with reasonable care.  The Trustee shall be liable only for such Trustee’s own acts or omissions


occasioned by the gross negligence or willful misconduct of such Trustee; nor shall the Trustee be liable in regard to the exercise or non-exercise of any powers and discretions properly delegated pursuant to the provisions of this Agreement.

2.12.        INDEMNIFICATION.  The Trustee of this Trust and its officers, directors and employees shall be entitled to indemnification from the Trust Estate (without regard to the limitation set forth in Section 1.05) for any liability, losses, costs, expenses, actions or suits incurred by the Trustee in connection with the administration of this Trust unless such liability results from acts or omissions occasioned by the gross negligence or willful misconduct of such Trustee, its officers, directors or employees.  The Trustee shall be indemnified from the Trust Estate for any expenses, including, but not limited to, legal fees and expenses, incurred as a result of any allegation of liability or in connection with any litigation or arbitration relating to this Trust, except in relation to matters as to which the Trustee shall be adjudged to be liable for gross negligence or willful misconduct.

2.13.        DUTIES AND RESPONSIBILITIES OF THE TRUSTEE.  The Trustee undertakes to perform such duties and only such duties as are specifically set forth herein, and no implied covenants or obligations shall be read into this Agreement against the Trustee.  In the absence of bad faith or gross negligence on its part, the Trustee shall not be liable for any action taken, suffered, or omitted by it in the performance of its duties hereunder.  The Trustee shall not be liable for any error of judgment made in good faith unless the Trustee shall have been grossly negligent in ascertaining the pertinent facts.

2.14.        RIGHTS OF THE TRUSTEE.  The Trustee may rely and shall be protected in acting or refraining from acting upon any communication authorized hereunder and upon any written instruction, notice, request, direction, consent, report, certificate or other instrument, paper or document believed by it to be genuine.


The Trustee may consult with counsel and/or accountants and the advice of such counsel and/or accountants shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon.

The Trustee shall not be required to advance, expend or risk its own funds or otherwise incur or become exposed to financial liability in the performance of its duties hereunder.

The Trustee may perform its duties and exercise its rights hereunder either directly or by or through agents or attorneys and shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder.

The Trustee shall have the right to liquidate any investments held in order to provide funds necessary to make required payments under this Agreement.  The Trustee shall not have any liability for any loss sustained as a result of any liquidation of any investment prior to its maturity.

Anything in this Agreement to the contrary notwithstanding, in no event shall the Trustee be liable for special, indirect or consequential loss or damage of any kind whatsoever (including but not limited to lost profits of another party), even if the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action.

The Trustee shall not be responsible for calculating any of the amounts payable by the Settlors under Schedule A, subject to the adjustments and limitations therein, and may rely on the statement of the Independent Accountant (as defined in Schedule A) for the calculation of such payments.  The Trustee shall not be responsible for calculating any amounts payable to any Certification Entity for its administrative expenses or to any Tobacco Grower or Tobacco Quota Owner and may rely on information furnished to the Trustee by the Certification Entities.


 

Subject to the limitations set forth in Section 1.05, as security for the Trustee’s rights to receive compensation for its services, reimbursement for its expenses and to indemnification hereunder, the Trustee shall have a lien prior to all other persons upon all property and funds held by the Trustee hereunder.


Third:  TRUSTEE’S POWERS.  The trustee shall have, with respect to the trust estate, the following powers, all of which powers are fiduciary powers to be exercised in a fiduciary capacity and in the best interests of this trust and the beneficiaries thereof, and which are to be exercised as the trustee, acting in such fiduciary capacity, in its discretion, shall determine and which are intended in no way to limit the general powers of the office, namely:

3.01.        PAYMENT OF EXPENSES OF ADMINISTRATION.  To incur and pay any and all, reasonable expenses of administration of this Trust (including without limitation the reasonable compensation of the Independent Accountant referenced in Schedule A) and all charges, taxes and expenses upon or connected with this Trust or the Trust Estate in the discharge of its fiduciary obligations under this Agreement.  The Trustee may establish and fund one or more accounts for reasonable current and expected future administrative expenses, provided however that the Trustee may only fund a reserve account for administrative expenses that are reimbursable pursuant to Section 2.12 if such administrative expenses are expected to be incurred on or after January 1, 2011 and the reserve account is not established or funded prior to January 1, 2006.  In the absence of prior approval from the Court of Jurisdiction, all-expenses incurred in the administration of this Trust shall be paid in accordance with and subject to the limitations in Section 1.05.  For purposes of the limitations in Section 1.05 (and without limiting Section 2.12), the amount of any funds that the Trustee sets aside for expected future administrative expenses shall be included in the calculation of the administrative expenses for the year in which the funds are set aside.  Such expenses of administration and taxes either shall be taken into account in calculating the Annual Aggregate Amount or shall be charged against the reserves of the respective Grower States, as provided in Sections 1.02 and 1.03 and using such reasonable allocation methods as the Trustee may determine in its sole discretion, provided that the reserve account for a Grower State shall not be charged for administrative expenses and taxes unless such expenses and taxes are related to the operation and maintenance of the reserve account.


 

3.02.        PAYMENT OF TAXES.  To pay any and all federal, state, local and foreign taxes levied upon or assessed against this Trust or the Trust Estate.  Such payments of taxes either shall be taken into account in calculating the Annual Aggregate Amount or shall be charged against the reserve accounts of the respective Grower States, as provided in Sections 1.02 and 1.03 and using such reasonable allocation methods as the Trustee may determine in its sole discretion, provided that the reserve account for a Grower State shall not be charged for taxes unless such taxes are allocable to the operation and maintenance of the reserve account.

3.03.        RETENTION OF PROPERTY.  The Trustee shall convert any assets that it receives to cash or a cash-equivalent and, other than for funds required to be immediately available for the payment of administrative expenses, taxes or distributions shall invest such funds pursuant to Section 3.04 within a reasonable period of time.  The Trustee may liquidate all assets necessary for distribution up to two Business Days prior to the scheduled date of the distribution.

3.04.        INVESTMENT OF TRUST ESTATE.  To invest and reinvest all or any part of the Trust Estate, including any undistributed income therefrom, only in (i) direct obligations of, or obligations the timely payment of principal and interest on which are fully and unconditionally guaranteed by, the United States of America or any agency thereof, maturing no more than one year after the date of acquisition thereof; (ii) repurchase agreements fully collateralized by securities described in clause (i) above and with a counterparty whose long-term debt securities are rated “AA” or higher by Standard & Poor’s and “Aa” or higher by Moody’s; (iii) interest-bearing time or demand deposits with, or certificates of deposit maturing within 90 days of the acquisition thereof and issued by, any bank or trust company organized under the laws of the United States of America or of any of the 50 States thereof and having combined capital, surplus and undistributed profits in excess of $500,000,000 whose long-term unsecured debt is rated “AA” or higher by Standard & Poor’s and “Aa” or higher by Moody’s;


and (iv) money market funds that invest solely in securities described in clauses (i) and/or (ii) above, so long as (x) such funds are rated Aaa by Moody’s and AAAm by Standard & Poor’s and (y) absent extraordinary circumstances, monies from the Trust invested in such a fund represent no more than 10% of the total monies invested in such fund, at the time of such investment.  The corporate Trustee is hereby expressly authorized to, but shall not be required to, invest in assets managed by such Trustee or by an affiliate of such Trustee, including without limitation the Chase Vista U.S.  Government Money Market Fund (Institutional Share Class), provided such fund meets the investment standards set forth herein.  Also provided that the Trustee adheres to the investment standards set forth herein, the Trustee shall not be liable for any investment loss.

3.05.        MANAGEMENT OF TRUST ESTATE.  To sell, exchange, partition or otherwise dispose of all or any part of the Trust Estate at public or private sale, without prior application to or approval by or order of any court, upon such terms and in such manner and at such prices as it shall determine; and to execute and deliver any and all deeds, bills of sale, assignments or other instruments in connection with these powers, all at such times, in such manner and upon such terms and conditions as it may deem expedient.  The Trustee’s determination of manner of sales, terms, prices and the exercise of other powers granted herein, if reasonably made, is not to be questioned.  No person dealing with it shall be bound to see to the application of any consideration.

3.06.        ALLOCATION OF RECEIPTS AND EXPENDITURES.  To determine whether any receipt, the nature of which is not completely clear under the applicable law and the general principles of the law of trusts, shall be treated as principal or income or partly each, and to determine whether any expenditure, the nature of which is not completely clear under the applicable law and the general principles of the law of trusts, shall be charged to principal or income or partly each, except that the Trustee shall allocate to income any dividend or interest accrued but unpaid on any asset at the time such asset becomes subject to the provisions of this


Agreement, and the Trustee shall allocate to principal (i) all receipts representing a return of capital, (ii) all realized gains or losses resulting from the sale or other disposition of any property and (iii) all receipts which, for Federal tax purposes, are treated as capital gains or losses or as distributions of principal.

3.07.        AUTHORIZATION TO BORROW MONEY.  To borrow money (including from the Trustee or any affiliate thereof, or from any corporate depository of Trust Assets or affiliate thereof) for any fiduciary purpose in connection with the administration of this Trust; to execute promissory notes or other obligations for amounts so borrowed; and to secure the payment of any amounts so borrowed by mortgage or pledge of any assets forming a part of the Trust Estate.

3.08.        EXTENSION OF OBLIGATIONS AND NEGOTIATION OF CLAIMS.  To renew or extend the time of payment of any obligation, secured or unsecured, payable to or by this Trust, for as long a period or periods of time and on such terms as the Trustee shall determine (but not beyond the term of the Trust); and to adjust, settle, compromise and arbitrate claims or demands in favor of or against this Trust, including claims for taxes, upon such terms as the Trustee deems advisable.

3.09.        REGISTRATION OF SECURITIES.  To hold any bonds or other property in the name of a nominee, in a street name or by other title-holding device.

3.10.        LOCATION OF ASSETS.  Subject to applicable state law, to keep any property belonging to the Trust Estate at any place within the United States.

3.11.        RETENTION OF PROFESSIONAL AND ADMINISTRATIVE SERVICES.  To engage attorneys, accountants, custodians, agents, clerks, staff, investment counsel and such other persons (including any firm or entity in which any Trustee may be a partner or have an interest) and employees as it shall deem advisable and to pay reasonable fees therefor.  Such expenses shall be paid as described in Section 1.05.  The Trustee shall be permitted from time to time to enter


into one or more escrow and administration agreements with financial institutions pursuant to which such financial institution shall agree with the Trustee to provide certain services and to perform certain of the duties of the Trustee as more specifically described therein.

3.12.        DELEGATION OF POWERS.  To delegate to other persons such ministerial or investment powers and duties as the Trustee may reasonably deem to be advisable.  Any such delegation shall be revocable at any time by the Trustee.

3.13.        DISTRIBUTIONS IN CASH OR KIND.  Except as provided in this Section 3.13, in effecting any payment or distribution of principal of the Trust Estate or of any current or accumulated income therefrom, to divide and distribute in kind property of any nature or interests therein, without application to or approval by or order of any court and without the necessity of converting the same to cash, to assign different properties or kinds of property to and among the individuals or entities receiving such payments or distributions and to make such payments or distributions in cash or in kind, or partly in cash and partly in kind, including on a non-pro rata basis, at valuations determined by the Trustee.  Any assets to be so divided or distributed in kind shall be valued at their respective values on the date of their division or distribution.  The Trustee’s valuations of such assets shall be made with due regard to all factors properly entering into the determination of value, and once so made any such valuations shall be final and binding on all persons at any time having or claiming any interests hereunder.  Notwithstanding the foregoing, the Trustee shall cause all payments to Tobacco Growers and/or Tobacco Quota Owners to be made by check, direct deposit or electronic funds transfer.

3.14.        TAXES.  To exercise, subject to the provisions of Section 4.06 hereof, any rights of election or other rights which may from time to time be available to it under or in.  respect of the provisions of the Internal Revenue Code or of any other tax law, and, without limiting the generality of the foregoing, to file tax returns, as


appropriate, and to arrange for extensions of time for filing returns.

3.15.        INSURANCE.  To purchase insurance for purposes and in coverage amounts as the Trustee reasonably deems advisable.

3.16.        POWERS OF TRUSTEE TO CONTINUE UNTIL FINAL DISTRIBUTION.  To exercise any of such powers from the effective date of this Agreement until such time as the entire principal of, and income from, the Trust Estate shall have been actually distributed by the Trustee.

3.17.        DISCRETION IN EXERCISE OF POWERS.  To do any and all other acts which it shall deem proper to effectuate the powers specifically conferred upon it by this Trust Agreement.


Fourth:  DEFINITIONS AND MISCELLANEOUS.  Definitions applicable to this agreement and miscellaneous provisions are as follows:

4.01.        TOBACCO GROWER AND TOBACCO QUOTA OWNER.

(a)                “Tobacco Grower” shall mean an individual or entity who, during a base period established by the Certification Entity for the pertinent Grower State, was one or more of the following:

(i)                  the principal producer of tobacco for use in Cigarettes on a farm where tobacco was produced pursuant to a tobacco farm marketing quota or farm acreage allotment established under the Agricultural Adjustment Act of 1938 (7 U.S.C. § 1281 et seq.) (which may include an operator, tenant, or sharecropper who shared in the risk of producing a crop and who was entitled to share in the revenues derived from marketing the Cigarette tobacco crop from the farm);

(ii)                a producer who owned a farm that produced tobacco for use in Cigarettes pursuant to a lease and transfer to that farm of all or a part of a tobacco farm marketing quota or farm acreage allotment established under the Agricultural Adjustment Act of 1938 (7 U.S.C.  § 1281 et seq.);

(iii)               a producer who rented farm land to produce tobacco for use in Cigarettes under a tobacco farm marketing quota or farm acreage allotment established under the Agricultural Adjustment Act of 1938 (7 U.S.C.  § 1281 et seq.);

(iv)              an individual or entity in Maryland or Pennsylvania who in connection with the production of Maryland Type 32 tobacco for use in Cigarettes was one of the following:


 

(a)                the principal producer of such tobacco (which may include an operator, tenant, or sharecropper who shared in the risk of producing a crop and who was entitled to share in the revenues derived from marketing the Cigarette tobacco crop from the farm); or

(b)               a producer who owned or rented a farm that produced Maryland Type 32 tobacco for use in Cigarettes.

(b)               “Tobacco Quota Owner” shall mean the owner of record of a tobacco farm marketing quota or farm acreage allotment established under the Agricultural Adjustment Act of 1938 (7 U.S.C.  § 1281 et seq.) during a base period established by the Certification Entity for the Grower State in which the farm is located.

(c)                In the event of the death of a Tobacco Grower or Tobacco Quota Owner, “Tobacco Grower” and “Tobacco Quota Owner” also shall include the estate, any trust(s) for family members, and any successor(s) in interest of the Tobacco Grower or Tobacco Quota Owner as established to the satisfaction of the pertinent Certification Entity.

(d)               The determination of whether an individual or entity is a Tobacco Grower or Tobacco Quota Owner and the establishment of a base period shall be made each year by the Certification Entity for the Grower State referenced on Schedule B in which the land on which the tobacco is grown is located.  The Trustee may rely on representations from the Certification Entities that all conditions are met and shall accept without liability such determinations by a Grower State Certification Entity, provided that the Certification Entities represent that both of the following conditions are satisfied:

(i)                  the base period used by the Certification Entity did not include any period prior to 1993; and


 

(ii)                the determination is not broader than, although such determination expressly may be more narrow than, the definitions set forth herein (i.e., the Certification Entity may exclude from its allocation of its Distributable Amount individuals or entities that fall within the definition, but the Certification Entity may not include any one or more individuals or entities that fall outside of any reasonable interpretation of the definitions set forth herein).

4.02.        INITIAL AGENTS.  The initial depository for the funds of this Trust shall be The Chase Manhattan Bank; the initial accountants for this Trust shall be Price Waterhouse Coopers LLP; and the initial counsel for this Trust shall be Kelley Drye & Warren LLP.  The Trustee may change the depository, accountants or counsel for the Trust at any time.  The accountants for the Trust shall also be eligible to act as the Independent Accountant as defined in Schedule A, which all parties hereto agree shall not constitute an impermissible conflict of interest hereunder.

4.03.        NO DETERMINATION OR ADMISSION.  This Trust is not intended to be and shall not in any event be construed or deemed to be, or represented or caused to be represented as, an admission or concession or evidence of (1) any liability or any wrongdoing whatsoever on the part of any Settlor or (2) personal jurisdiction over any person or entity, except to the extent necessary for the Court of Jurisdiction to resolve any suit, action or proceeding seeking to interpret or enforce any provision of, or based on any right arising out of, this Trust Agreement.  Each Settlor specifically disclaims and denies any liability or wrongdoing whatsoever with respect to the Claims.  Each Settlor has entered into this Trust Agreement solely to satisfy the Grower State Obligation.

4.04.        NON-ADMISSIBILITY.  The negotiations resulting in this Trust Agreement have been undertaken by the Grower States and the Settlors in good faith and solely to satisfy the Grower State Obligation, and no evidence of negotiations or discussions underlying this Trust Agreement shall be offered or


received in evidence in any action or proceeding for any purpose.  Neither this Trust Agreement nor any public discussions, public statements or public comments with respect to this Trust Agreement by any Grower State or Settlor or their agents shall be offered or received in evidence in any action or proceeding for any purpose other than in an action or proceeding arising under or relating to this Trust Agreement.

4.05.        PAYMENTS IN SETTLEMENT.  All payments made by the Settlors under this Trust Agreement are in discharge of certain obligations that the Settlors undertook in the MSA, and no part of any such payments is made in settlement of an actual or potential liability for a fine, penalty (civil or criminal) or enhanced damages or is the cost of a tangible or intangible asset or other future benefit or relates to any future period.  The Grower States confirm that the releases they have given to the Settlors cover, and thus bar, any claims for damages allegedly incurred by the Grower States as a result of adverse economic consequences suffered by the tobacco grower communities in the respective Grower States.

4.06.        QUALIFIED SETTLEMENT FUND; TAX FILINGS.  The Trust established pursuant to this Trust Agreement is intended by the Settlors and the Grower States to be a qualified settlement fund for federal tax purposes as described in Treas.  Reg.  §1.468B-l.  The Trustee shall comply with all requirements applicable to qualified settlement funds, including without limitation all tax filing, payment and reporting requirements imposed by Treasury Regulations issued under Section 468B of the Code, any successor provisions thereto, any comparable provisions of state or local tax laws, or otherwise, except to the extent there has been a final determination, binding on the applicable tax authority, the Trustee and the Settlors that other requirements apply to the Trustee.  In addition, the Trustee may require, as a condition for making any payment hereunder, that the intended recipient provide a correct taxpayer identification number on IRS Form W-9 (or successor or substitute form) and indicate thereon that it is not subject to backup withholding.  Any Tobacco Grower or Tobacco Quota Owner who does not comply with such request within a reasonable time period established by the Trustee shall be subject to backup


withholding on all payments by the Trust as determined by the Trustee.

4.07.        TAXABLE YEAR AND ACCOUNTING METHOD.  The taxable year of this Trust shall be the calendar year.  The Trust shall use an accrual method of accounting within the meaning of Section 446(c) of the Code.

4.08.        HEADINGS.  The Section headings set forth in this Agreement and the Table of Contents are inserted for convenience of reference only and shall be disregarded in the construction or interpretation of any of the provisions of this Agreement.

4.09.        PARTICULAR WORDS.  Any word contained in the text of this Agreement shall be read as the singular or plural and as the masculine, feminine or neuter as may be applicable or permissible in the particular context.  Unless otherwise specifically stated, the words “or” and “any” shall be taken to mean “any one or more or all of.”  Any of the following words, wherever used in this Agreement, shall be taken, unless the context requires otherwise, to include all of the others:  “deliver,” “distribute,” “convey,” “pay,” “pay over,” “transfer,” “assign” and “grant.”  Unless otherwise-specifically stated, the word “person” shall be taken to mean and include an individual, partnership, association, company or corporation.

4.10.        SEVERABILITY OF PROVISIONS.  Except as provided in this Section 4.10, if any provision of this Agreement or its application to any person or in any circumstances shall be invalid and unenforceable, the application of such provision to persons and in circumstances other than those as to which it is invalid or unenforceable and the other provisions of this Agreement shall not be affected by such invalidity or unenforceability.  Notwithstanding any provision of this Trust Agreement and without limitation, the obligations of the Settlors to make payments to the Trust are expressly conditioned upon the continuing validity and enforceability of all the provisions contained in Sections 4.05 and 4.06, Schedule A, and Schedule D.


 

4.11.        NOTICES UNDER AGREEMENT.  Any notice, request, representation, disclosure, direction, instruction or other correspondence required by this Agreement to be given to any person shall be in writing and shall be deemed to have been properly given when received.  Any notice or other communication made pursuant to this Agreement shall be sent, as applicable, to the persons set forth below.  Each person may change its designated recipients by written notice to all other parties to this Agreement.

 

 


ALABAMA

 

Pryor, The Honorable Bill

Office of the Attorney

General

State House

Montgomery, AL 36130

 

Siegelman, The Honorable Don

Office of the Governor

State Capitol, Suite N-104

600 Dexter Avenue

Montgomery, AL 36130-27511

 

Thompson, The Honorable Jack

Agriculture and Industries

Department

1445 Federal Drive

Montgomery, AL 36107-1100

 

FLORIDA

 

Bush, The Honorable Jeb

Office of the Governor

The Capitol

Tallahassee, FL 32399-0001

 


 

 

Butterworth, The Honorable

Robert A.

Office of the Attorney

General

The Capitol

Tallahassee, FL 32399-1050

 

Crawford, The Honorable Bob

Crawford

Agriculture and Consumer

Services Dpmt.

The Capitol

Tallahassee, FL 32399-0810

 

GEORGIA

 

Baker, The Honorable Thurbert E.

Office of the Attorney

General

40 Capitol Square

Atlanta, GA 30334

 

Barnes, The Honorable Roy

Office of the Governor

203 State Capitol

Atlanta, GA 30334

 


Irvin, The Honorable Thomas T.

Agriculture Department

Agriculture Building, Capitol Square

Atlanta, GA 30334

 

INDIANA

 

Kernan, The Honorable Joe

Office of the Lieutenant

Governor

Indiana State House

Room 333

Indianapolis, IN 46204

 

Modisett, The Honorable Jeffrey A.

Office of the Attorney General

Indiana Government Center South

402 West Washington Street, 5th Fl.

Indianapolis, IN 46204-2770

 

O’Bannon, The Honorable Frank

Office of the Governor

206 State House

200 West Washington Street

Indianapolis, IN 46204

 

KENTUCKY

 

Chandler, The Honorable Albert B, III

Office of the Attorney General

State Capitol, Suite 118

700 Capitol Avenue

Frankfort, Kentucky 40601

 


Patton, The Honorable Paul E.

Office of the Governor

100 State Capitol

Frankfort, Kentucky 40601

 

Smith, The Honorable Billy Ray

Agriculture Department

Capital Annex, Room 188

Frankfort, Kentucky 40601

 

MARYLAND

 

Curran, The Honorable Joseph, Jr.

Office of the Attorney General

State of Maryland

200 St. Paul Place

Baltimore, Maryland 21202

 

Glendening, The Honorable Parris N.

Office of the Governor

State of Maryland

100 State Circle - State House

Annapolis, MD 21401

 

Virts, The Honorable Henry A.

Secretary of Agriculture

State of Maryland

50 Harry S. Truman Parkway

Annapolis, MD 21401

 

MISSOURI

 

Carnahan, The Honorable Mel

Office of the Governor

216 State Capital

P.O.  Box 720

Jefferson City, MI 65102

 


Nixon, The Honorable Jeremiah W.

Office of the Attorney General

Supreme Court Building

207 W. High Street

Jefferson City, MI 65101

 

Saunders, The Honorable John L.

Agriculture Department

1616 Missouri Blvd.

Jefferson City, MI 65102

 

NORTH CAROLINA

 

Easley, The Honorable Michael F.

Office of the Attorney

General

Justice Department

New Bern & Salisbury Streets

Raleigh, North Carolina 27602-0629

 

Graham, The Honorable James A.

Agriculture department

Two W.  Edenton Street

Raleigh, North Carolina 27611

 

Hunt, The Honorable James B., Jr.

Office of the Governor

16 W.  Jones Street

Raleigh, North Carolina 27603-8001

 


OHIO

 

Dailey, The Honorable Fred L.

Agriculture Department

8995 East Main Street

Reynoldsburg, Ohio 43068

 

Montgomery, The Honorable Betty D.

Office of the Attorney General

30 East Broad, 17th Floor

Columbus, Ohio 43215-3428

 

Taft, The Honorable Bob

Office of the Governor

Vern Riffe Center, 30th Floor

77 South High Street

Columbus, Ohio 43215

 

PENNSYLVANIA

 

Fisher, The Honorable Mike

Office of the Attorney General

Strawberry Square - 16th Floor

Harrisburg, PA 17120

 

Hayes, The Honorable Samuel E., Jr.

Department of Agriculture

2301 N. Cameron Street

Harrisburg, PA 17110

 

Ridge, The Honorable Tom

Office of the Governor

225 Main Capitol

Harrisburg, PA 17120

 


SOUTH CAROLINA

 

Condon, The Honorable Charlie

Office of the Attorney General

Rembert Dennis Building

1000 Assembly St.  - Room 501

Columbia, South Carolina 29211

 

Hodges, The Honorable Jim

Office of the Governor

State House

1100 Gerzais Columbia Street

Columbia, South Carolina 29201

 

Tindal, The Honorable D. Leslie

Agriculture Department

1200 Senate Street, Suite 527

Columbia, South Carolina 29201

 

TENNESSEE

 

Summers, The Hon. Paul G.

Office of the Attorney General

425 Fifth Avenue North

Nashville, Tennessee 37243

 

Sundquist, The Honorable Don

Office of the Governor

State Capitol

Nashville, Tennessee 37243- 0001

 

Wheeler, The Honorable Dan

Agriculture Department

440 Hogan Road

Nashville, Tennessee 37220

 


VIRGINIA

 

Courter, The Honorable J. Carlton, III

Department of Agriculture and

Consumer Services

1100 Bank Street

Washington Bldg., Suite 210

Richmond, VA 23219

 

Earley, The Honorable Mark L.

Office of the Attorney General

900 E. Main Street

Richmond, VA 23211

 

Gilmore, The Honorable James S., III

Office of the Governor

State Capitol

Richmond, VA 23219

 

WEST VIRGINIA

 

Douglass, The Honorable Gus R.

Agriculture Department

State Capitol Complex

Building 1, Room M-28

1900 Kanawha Boulevard, East

Charleston, West Virginia 25305-0170

 

McGraw, The Honorable Darrell V., Jr.

Office of the Attorney General

State Capitol Bldg., Rm. E-26

1900 Kanawha Boulevard, East

Charleston, West Virginia 253 05-0220

 


Underwood, The Honorable Cecil H.

Office of the Governor

State Capitol Building

1900 Kanawha Boulevard, East

Charleston, West Virginia 25305

 

 

 

 

 


SETTLORS:

 

Philip Morris Incorporated

Barrington, Martin

Senior Vice President and General Counsel

Philip Morris Incorporated

120 Park Avenue

New York, NY 10017-5592

 

Lorillard Tobacco Company

Milstein, Ronald S.

Vice President, General Counsel

Lorillard Tobacco Company

714 Green Valley Road

Greensboro, NC 27408

 

 

 

R.J. Reynolds Tobacco Co.

Blixt, Charles A.  Esq.

Executive Vice President &

General Counsel

R.J. Reynolds Tobacco Company

401 N.  Main Street

Winston Salem, NC 27102

 

Brown & Williamson Tobacco Corporation

Burke, F. Anthony

Vice President and General Counsel

Brown & Williamson Tobacco Corporation

401 South 4th Street

Suite 200

Louisville, KY 40202


 

 

 

TRUSTEE:

The Chase Manhattan Bank

Capital Markets Fiduciary Services - Product Management

450 W. 33rd Street, 10th Floor

ATTN:  Tobacco Trust Product Manager

New York, New York 10001

Phone:  (212) 946-7676

Fax:  (212) 946-8552

 

All payments to the Trust under this Agreement shall be delivered to the Trustee in accordance with the following wire instructions, which instructions may be reasonably amended by the Trustee through written notice to all parties to the Trust Agreement:


 

Bank:

ABA:

Account No.:

Account Name:

Reference:

Attention:

The Chase Manhattan Bank

021-000-021

967-0-06242

National Trust Account

Tobacco Settlement

Sal Lunetta, V.P.

Escrow Exigency Account

 

4.12.        DISCLOSURE OF RECORDS.  Except for the addresses and tax identification numbers of individuals and except as prohibited by law, the Trustee shall make all books and records of this Trust (including without limitation the expenses of any Certification Entity paid out of funds from the Trust and disclosed to the Trustee) available for public inspection during regular business hours at the offices of the Trustee.  For purposes of this Section 4.12, the books and records of the Independent Accountant shall not be considered books and records of the Trust and shall not be subject to public disclosure without the prior written permission of the Independent Accountant and the Settlors.

4.13.        COUNTERPARTS OF AGREEMENT.  This Agreement has been executed for the convenience of the parties hereto in nineteen (19) counterparts, any one of which for all purposes shall be deemed to have the status of an executed original.

4.14.        GOVERNING JURISDICTION.  The original situs of this Trust is the state of North Carolina; the Trustee may, however, at any time and from time to time transfer the situs of this Trust to any other jurisdiction in a Grower State that the Trustee shall deem appropriate, provided that before making such change the Trustee shall consider whether the change will cause this Trust to incur additional tax.  Except as provided above, North Carolina law shall at all times govern the administration of this Trust and the interpretation of this Trust Agreement.

4.15.        DISPUTE RESOLUTION.  In the event of any dispute relating to the contributions to this Trust referenced on Schedule A hereof, or any other matter relating to the operation of this Trust, the parties to the dispute shall endeavor in good faith to resolve the dispute promptly and


amicably.  Except as provided below, if after at least ninety (90) days such efforts do not achieve an amicable resolution, the complaining party may seek relief in the Court of Jurisdiction.  The Settlors, Trustee and the Grower States (including without limitation the Certification Entities), by their execution hereof, agree that the Court of Jurisdiction shall have exclusive jurisdiction over any suit, action or proceeding seeking to interpret or enforce any provision of, or based on any right arising out of, this Trust Agreement.  No person or entity who is not a signatory to this Trust Agreement (the Certification Entities being deemed signatories by virtue of the signatures of their Grower States) shall have any right to bring any claim or complaint based on this Trust against the Trust, the Trustee, the Settlors, the Grower States, or the Certification Entities.

Any disagreement concerning the calculations of the amounts due by each Settlor in a given year pursuant to Schedule A or payment of any such amounts shall be submitted to binding arbitration pursuant to the then-current Rules for Commercial Arbitration of the American Arbitration Association.  Unless otherwise agreed by all parties to the dispute, the site of any such arbitration and any hearings related thereto shall be Washington, D.C.  Notwithstanding any other provision of the Trust, the Trustee, not at the Trustee’s own expense, and the Settlors shall have the sole and exclusive right to initiate or prosecute any challenge concerning the calculation or payment of payments due from a Settlor to the Trust.  The Trustee may require satisfactory assurance and indemnity before undertaking any such action hereunder.  If, as a result of the resolution of a dispute under this Section 4.15, it is determined that an overpayment has been made by any Settlor, such overpayment shall be credited against such Settlor’s next succeeding payment obligation(s) under this Trust Agreement.  No refund shall be made to any Settlor.

4.16.        BANKRUPTCY OF A SETTLOR.  “Bankruptcy of a Settlor” shall mean the event that a Settlor enters into a case or other proceeding (whether voluntary or involuntary) seeking any of (i) liquidation, reorganization, rehabilitation, receivership, conservatorship, or other relief with respect to such entity or its debts under any bankruptcy, insolvency or similar law now or hereafter in effect; (ii) the appointment of


a trustee, receiver, liquidator, custodian or similar official of such Settlor or any substantial part of such Settlor’s business or property; (iii) the consent of such Settlor to any of the relief described in (i) above or to the appointment of any official described in (ii) above in any such case or proceeding involuntarily commenced against such Settlor; or (iv) the entry of an order for relief as to such entity under the federal bankruptcy laws as now or hereafter in effect.  Provided, however, that an involuntary case or proceeding otherwise within the foregoing definition shall not be a “Bankruptcy of a Settlor” if it is or was dismissed within 60 days of its commencement.

In the event of a Bankruptcy of a Settlor and if such Settlor does not perform its obligations under Schedule A of this Trust Agreement for a period of at least one year following the date of such Bankruptcy and if Certification Entities representing Grower States accounting for at least 75 percent of the allocation percentages in Section 1.03 deem (by written notice to the Trustee and each Settlor) that the financial obligations of this Trust Agreement have been terminated and rendered null and void as to such bankrupt Settlor (except as provided in this paragraph) due to a material breach by such bankrupt Settlor, the release executed by each Grower State in Schedule D shall be null and void with respect to such Settlor (but shall remain in full force and effect with respect to all other Settlors and persons and entities, including without limitation the Affiliates, officers, directors, employees and agents of the non-bankrupt Settlors and any persons or entities who, but for this sentence, would be covered by such releases by virtue of their relationship to the bankrupt Settlor) for so long as such bankrupt Settlor fails to perform its obligations hereunder.  Provided, however, that each Grower State agrees and acknowledges that in such an event the affected Settlor may offset the full amount paid, previously or in the future, to the Trust (plus interest on the amount so paid at the T-Bill Rate from the date of payment to the Trust to the date such offset is taken) against any recovery against such Settlor related to any claim that would have been within the scope of the release described in Schedule D.  In the event of a Bankruptcy of a Settlor, the Trustee shall be entitled to file a proof of claim against such Settlor in the Bankruptcy proceeding.  Also in the


event of a Bankruptcy of a Settlor and regardless of whether the Grower States exercise the option set forth above in this paragraph, the bankrupt Settlor shall continue to be counted as a Settlor for purposes of payment calculations (including without limitation calculation of Cigarette shipments and Relative Market Share) under Schedule A.

4.17.        DEFINITIONS.  “Business Day” shall mean a day during the term of the Agreement which shall not occur on a weekend or holiday recognized by the federal government or the state of the principal headquarters of the Trustee.  Except as provided in the next sentence, if any action under this Agreement is intended to occur on a particular day and that day happens to be on a weekend or holiday, as described in this definition, then such.  action shall take place on the Business Day preceding such date.  Notwithstanding anything in this Trust Agreement to the contrary, the Distributable Amount for each Grower State shall be distributed to Tobacco Growers or Tobacco Quota Owners, or placed in a reserve account for that Grower State, on or before December 31.  of each year, as provided in Section 1.02.

4.18.        EFFECTIVE DATE.  This Trust Agreement shall become effective when (i) it has been signed by all of the Settlors, the Grower States and the Trustee, (ii) all of the Grower States referenced on Schedule B have signed and delivered to the Settlors the letter set forth in Schedule D, and (iii) the Court of Jurisdiction has issued an order in which it approves this Trust and the payments hereunder as satisfying the Grower State Obligation under the MSA and retains continuing jurisdiction over this Trust Agreement and the Trust created hereby.

IN WITNESS WHEREOF, the said Philip Morris Incorporated, Brown & Williamson Tobacco Corporation, Lorillard.  Tobacco Company and R.J. Reynolds Tobacco Company, as Settlors, the said The Chase Manhattan Bank as Trustee, and Alabama, Florida, Georgia, Indiana, Kentucky, Maryland, Missouri, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia, and West Virginia, as Grower States, have as of the day and year first above written, set their hands to this


Agreement, consisting of a Title Page; a Table of Contents; an Introduction; Article FIRST, Dispositive Provisions, consisting of [twelve (12)] pages; Article SECOND, General Provisions Relating to Trustee, consisting of [ten (10)] pages; Article THIRD, Trustee’s Powers, consisting of [six (6)] pages; Article FOURTH, Definitions and Miscellaneous Provisions consisting of [sixteen (16)] pages including the execution pages; Schedules A, B, C and ID annexed hereto; and Acknowledgments.

Philip Morris Incorporated, Settlor

 

 

By           

 

 

Brown & Williamson Tobacco Corporation,

Settlor

 

 

By           

 

 

Lorillard Tobacco Company,

Settlor

 

 

By           

 

 

R.J. Reynolds Tobacco Company, Settlor

 

 

By           


The Chase Manhattan Bank,

Trustee

 

 

By           

 


 

 

 

 

 

 

                        STATE OF ALABAMA

 

 

 

 

 

 

 

 

By:           

Don Siegelman

Governor

 

 

 

 

 

 

 

By:           

Bill Pryor

Attorney General

 

 

 

 

 

 

 

By:           

Charles Bishop

Commissioner of Agriculture

           and Industries


 

 

 

 

 

 

 

                        STATE OF FLORIDA

 

 

 

 

 

By:           

Jeb Bush

Governor

 

 

 

 

 

 

 

By:           

Robert A. Butterworth

Attorney General

 

 

 

 

 

 

 

By:           

Bob Crawford

Commissioner of Agriculture

 

 


 

                        STATE OF GEORGIA

 

 

 

 

 

 

 

By:           

Roy E. Barnes

Governor

 

 

 

 

 

 

 

By:           

Tommy Irvin

Commissioner of Agriculture

 

 

 

 

 

 

 

By:           

Thurbert E. Baker

Attorney General

 


 

 

 

 

                        STATE OF INDIANA

 

 

 

 

 

 

 

By:           

Frank O’ Bannon

Governor

 

 

 

 

 

 

 

By:           

Jeffrey A. Modisett

Attorney General

 

 


 

 

 

                        COMMONWEALTH OF KENTUCKY

 

 

 

 

 

 

 

 

By:           

Paul E. Patton

Governor

 

 

 

 

 

 

 

By:           

Albert B. Chandler, III

Attorney General

 

 

 

 

 

 

 

By:           

Billy Ray Smith

Commissioner of Agriculture

 


 

 

                        STATE OF MARYLAND

 

 

 

 

 

 

 

By:           

J. Joseph Curran, Jr.

Attorney General

 

 


 

 

 

 

                        STATE OF MISSOURI

 

 

 

 

 

 

 

By:           

Jeremiah W. (Jay) Nixon

Attorney General

 

 


 

 

                        THE STATE OF NORTH CAROLINA

 

 

 

 

 

 

 

By:           

James B. Hunt, Jr.

Governor

 

 

 

 

 

 

 

By:           

Michael F. Easley

Attorney General

 

 

 

 

 

 

 

By:           

James A. Graham

Commissioner of Agriculture

 

 


 

 

                        STATE OF OHIO

 

 

 

 

 

 

 

 

By:           

Bob Taft

Governor

 

 

 

 

 

 

 

By:           

Betty D. Montgomery

Attorney General

 

 

 

 

 

 

 

By:           

Fred L. Dailey

Director, Ohio

           Department of Agriculture

 

 


 

                        COMMONWEALTH OF PENNSYLVANIA

 

 

 

 

 

 

 

 

By:           

Mike Fisher

Attorney General

 

 

 

 

 

 

 

By:           

Samuel E. Hayes

Secretary, Department of Agriculture

 

 

 

 

 

 

 

By:           

Roger E. Grimaldi

Deputy General Counsel

           Office of General Counsel

 

 


 

                        STATE OF SOUTH CAROLINA

 

 

 

 

 

 

 

 

By:           

Jim Hodges

Governor

 

 

 

 

 

 

 

By:           

Charles M. Condon

Attorney General

 

 

 

 

 

 

 

By:           

D. Leslie Tindal

Commissioner of Agriculture

 

 

 


 

 

                        STATE OF TENNESSEE

 

 

 

 

 

 

 

By:           

Don Sunquist

Governor

 

 

 

 

 

 

 

By:           

Paul G. Summers

Attorney General and

           Reporter of Tennessee

 

 

 

 

 

 

 

By:           

Dan Wheeler

Commissioner of Agriculture

 

 

 


 

SIGNATURE PAGE

 

 

                        COMMONWEALTH OF VIRGINIA

 

 

 

 

 

 

 

By:           

James S. Gilmore, III

Governor

 

 

 

 

 

 

 

By:           

Mark L. Earley

Attorney General

 

 

 

 

 

 

 

By:           

J. Carlton Courter, III

Commissioner of Agriculture

 

 

 


 

 

 

 

                        STATE OF WEST VIRGINIA

 

 

 

 

 

 

 

 

By:           

Cecil H. Underwood

Governor

           Chairman State Tobacco

           Growers’ Settlement Board

 

 

 

 

 

 

By:           

Darrell V. McGraw, Jr.

Attorney General

           Secretary, State Tobacco

           Growers’ Settlement Board

 

 

 

 

 

 

By:           

Gus R. Douglas

Commissioner of Agriculture

           Vice Chair, State Tobacco

           Growers’ Settlement Board

 


 

SCHEDULE A

PAYMENT SCHEDULE

General.  The Settlors agree that they shall make annual payments to the Trust pursuant to the schedule and adjustments and limitations set forth in this Schedule A.  The total annual payments required to be made to the Trust by the Settlors (the “Annual Payments”) shall be calculated by taking as the starting point the amounts set forth below (the “Base Payments”) except for the years 2009 and 2010, which shall first be adjusted in the manner described below, and then in the following order: (a) for the years 2000 and thereafter, increasing the Base Payments by the Inflation Adjustment in the manner described below; (b) increasing or decreasing the result by the Volume Adjustment in the manner described below; and (c) making any other non-Settlor-specific adjustments provided in this Trust Agreement.  The Annual Payment so calculated for each year shall then be allocated among the Settlors by: (w) for the years 1999 and thereafter, calculating the portion of the Annual Payment owed by each Settlor; (x) for the years 1999 and thereafter, decreasing the amounts otherwise owed by the amount(s) of any Tax Offset Adjustment and then by any MSA Finality Adjustment as described below; (y) making any applicable adjustments as specified for payments due in the years 2000, 2001, 2009 and 2010; and (z) applying any other individual adjustment for each Settlor as provided in this Trust Agreement.  An Inflation Adjustment or Volume Adjustment shall be allocated evenly to each of the four quarterly payments being made during the year in which the Adjustment is being applied.  A Tax Offset Adjustment and an MSA Finality Adjustment may be allocated in full to the first payment due after the Adjustment is applied (and to subsequent payments as necessary to ensure full credit).


 

The Base Payments shall be:

1999

$380,000,000

2000

$280,000,000

2001

$400,000,000

2002

$500,000,000

2003

$500,000,000

2004

$500,000,000

2005

$500,000,000

2006

$500,000,000

2007

$500,000,000

2008

$500,000,000

2009

$295,000,000

2010

$295,000,000

 

SCHEDULE OF PAYMENTS

Each Settlor’s respective share of the Annual Payments shall be paid to the Trust as follows: (i) for Annual Payments due in 1999, in three (3) installments with 50% due within ten (10) business days of the effective date of this Trust Agreement, 25% due on or before October 1, 1999, and 25% due on or before December 15, 1999, and (ii) for Annual Payments due during the years 2000-2 010, in four (4) equal installments at the end-of each of the first three quarters and on December 15 (i.e., 25% due on or before March 31, 25% due on or before June 30, 25% due on or before September 30, and 25% due on or before December 15).

CALCULATION AND ALLOCATION OF ANNUAL PAYMENTS

Payments Due in 1999.  For the Annual Payments due in 1999, the payment obligations of each Settlor shall be calculated by assigning to such Settlor, for calculation purposes, the portion of the Base Payment for 1999 set forth below opposite its name:

 

Philip Morris Incorporated:

$300,000,000

R.J. Reynolds Tobacco Company:

$40,000,000

Brown & Williamson Tobacco Corporation:

$24,000,000

Lorillard Tobacco Company:

$16,000,000

 


The payments due in 1999 shall not be subject to the Inflation Adjustment or Volume Adjustment set forth below, but shall be subject to the Tax Offset Adjustment and the MSA Finality Adjustment.

Payments Due in 2000-2008.  Except for payments due in 1999, 2009, and 2010 and as otherwise provided below (including without limitation the annual payment limitations in 2000 and 2001 and Tax Offset Adjustments that may apply to each Settlor in varying proportions), the percentage of each Annual Payment, as adjusted below, that shall be paid by each of the Settlors shall be that which reflects its Relative Market Share (as defined below).

“Applicable Year” means the calendar year immediately preceding the year in which the Annual Payment at issue is due, regardless of when such payment is made.

“Cigarette” means any product that contains nicotine, is intended to be burned or heated under ordinary conditions of use, and consists of or contains (1) any roll of tobacco wrapped in paper or in any substance not containing tobacco; or (2) tobacco, in any form, that is functional in the product, which, because of its appearance, the type of tobacco used in the filler, or its packaging and labeling, is likely to be offered to, or purchased by, consumers as a Cigarette; or (3) any roll of tobacco wrapped in any substance containing tobacco which, because of its appearance, the type of tobacco used in the filler, or its packaging and labeling, is likely to be offered to, or purchased by, consumers as a Cigarette described in clause (1) of this definition.  The term “Cigarette” includes “roll-your-own” (i.e., any tobacco which, because of its appearance, type, packaging, or labeling is suitable for use and likely to be offered to, or purchased by, consumers as tobacco for making Cigarettes).  For purposes of this definition, 0.09 ounces of “roll-your-own” tobacco shall constitute one individual “Cigarette.

“Relative Market Share” means a Settlor’s respective share (expressed as a percentage) of the total number of individual Cigarettes shipped in or to the fifty


United States, the District of Columbia and Puerto Rico by all the Settlors during the Applicable Year, as measured by the Settlors’ reports of shipments of Cigarettes to Management Science Associates, Inc.  (or a successor entity acceptable to both the Settlors and a majority of Governors of the Grower States at the time in question).  A Cigarette shipped by more than one Settlor shall be deemed to have been shipped solely by the first Settlor to do so.

Inflation Adjustment.  Beginning with the Annual Payments due in the year 2000, there shall be added to the Base Payment an inflation adjustment (the “Inflation Adjustment”) (the result being the “Inflation Adjusted Payment”).

The Inflation Adjustment shall be calculated by multiplying the Base Payment by the Inflation Adjustment Percentage applicable in that year.

The Inflation Adjustment Percentage applicable to payments due in the year 2000 shall be equal to the greater of 3% or the actual total percent change in the Consumer Price Index (as defined below) during the calendar year immediately preceding the year in which the payment in question is due (the “CPI%”).  For example, if the Consumer Price Index for December 1999 (as released in January 2000) is 2% higher than the Consumer Price Index for December 1998 (as released in January 1999), then the CPI% with respect to a payment due in 2000 would be 2%.  The Inflation Adjustment Percentage for payments due in the year 2000 would thus be 3%.

The Inflation Adjustment Percentage applicable to payments due in any year after 2000 shall be calculated by increasing the Inflation Adjustment Percentage applicable to payments due in the prior year by the greater of 3% or the CPI% for the current year and then adding the result to the greater of 3% or the CPI% applicable to the current year.  Continuing the example in the immediately preceding paragraph, if the CPI% applicable to a payment due in 2001 is 6%, then the Inflation Adjustment Percentage for 2001 would be 9.1800000% (the 3% Inflation Adjustment Percentage applicable in 2000 increased by 6% and then added to 6%), and


if the CPI% with respect to a payment due in 2002 is 4%, then the Inflation Adjustment Percentage applicable in 2002 would be 13.5472000% (the 9.1800000% Inflation Adjustment Percentage applicable in 2001 increased by 4% and then added to 4%).

“Consumer Price Index” means the Consumer Price Index for All Urban Consumers as published by the Bureau of Labor Statistics of the U.S.  Department of Labor (or other similar measures agreed to by the Trustee and all the Settlors).

Volume Adjustment.  Beginning with the payments due in the year 2000, each Annual Payment shall be calculated by also applying a volume adjustment in the following manner:

In the event that the aggregate number of Cigarettes (as defined above) shipped in or to the fifty United States, the District of Columbia and Puerto Rico by the Settlors in the Applicable Year (as defined and measured above) (the “Actual Volume”) is equal to or greater than 475,656,000,000 Cigarettes (the “Base Volume”), the Inflation Adjusted Payment shall be multiplied by the ratio of the Actual Volume to the Base Volume.

In the event that the Actual Volume in the Applicable Year is less than the Base Volume, the Inflation Adjusted Payment due for the year in question shall be reduced by subtracting from the Inflation Adjusted Payment the amount equal to such Inflation Adjusted Payment multiplied both by 0.98 and by the result of (a) one (1) minus (b) the ratio of the Actual Volume in the Applicable Year to the Base Volume (the result being referred to as the “Volume Adjusted Payment”).

Tax Offset Adjustment.  Except as expressly provided below, the amounts to be paid by the Settlors in each of the years 1999 through and including 2010 shall also be reduced upon the occurrence of any change in a law or regulation or other governmental provision that leads to a new, or an increase in an existing, federal or state excise tax on Cigarettes, or any other tax, fee, assessment, or financial obligation of any kind (including without


limitation a change that alters the methodology for calculating marketing assessments on the purchase of tobacco and leads to an increase in such marketing assessments) imposed by any governmental authority (“Governmental Obligation”) that is based on the purchase of tobacco or tobacco products or on production of Cigarettes or use of tobacco in the manufacture of Cigarettes at any stage of production or distribution or that is imposed on the Settlors, to the extent that all or any portion of such Governmental Obligation is used to provide:

(i)                  direct payments to Tobacco Growers or Tobacco Quota Owners;

(ii)                direct or indirect payments, grants or loans under any program designed in whole or in part for the benefit of Tobacco Growers, Tobacco Quota Owners or organizations representing Tobacco Growers or Tobacco Quota Owners (including without limitation the stabilization cooperatives, the Farm Bureau or the Commodity Credit Corporation);

(iii)               payments, grants or loans to Grower States to administer programs designed in whole or in part to benefit Tobacco Growers, Tobacco Quota Owners or organizations representing Tobacco Growers or Tobacco Quota Owners (including without limitation the stabilization cooperatives, the Farm.  Bureau or the Commodity Credit Corporation); or

(iv)              payments, grants or loans to any individual, organization, or Grower State for use in activities which are designed in whole or in part to obtain commitments from, or provide compensation to, Tobacco Growers or Tobacco Quota Owners to eliminate tobacco production.

The amount of the Governmental Obligation used for any of the purposes set forth above shall be the “Grower Governmental Obligation.”


In the event of such a Governmental Obligation, the amount otherwise required to be paid by each Settlor each year (after taking account of all adjustments or reductions hereunder) shall be reduced by an amount equal to the product of the amount of such Governmental Obligation paid in connection with Cigarettes manufactured by the Settlor (or tobacco or tobacco products used by the Settlor to manufacture Cigarettes) for the same year multiplied by the ratio of the Grower Governmental Obligation divided by the amount of the Governmental Obligation, which reduction amount may be carried forward to subsequent years as necessary to ensure full credit to the Settlor.  If the Governmental Obligation results from a law or regulation or other governmental provision adopted by a Grower State, or by a political subdivision within such Grower State, the amount that a Settlor may reduce its payment to the Trust in any one year shall not exceed the product of the amount the Settlor otherwise would have paid to the Trust in that year in the absence of the Tax Offset Adjustment multiplied by the allocation percentage for the pertinent Grower State set forth in Section 1.03.  The Settlor may reduce its annual payment by a reasonable estimate of any such reduction and adjust its payment after the actual amount is finally determined.  If the reduction based on the estimate is greater than the reduction based on the actual amount, the Settlor shall pay to the Trust the amount of the underpayment plus interest at the 90-day Treasury Bill rate, as published in The Wall Street Journal on the latest publication date on or before the payment was originally due (the “T-Bill Rate”) from the date of the estimated payment to the date of the adjustment payment.  If the reduction based on the estimate is less than the reduction based on the actual amount, the Settlor shall be entitled to a credit against future payment obligations to the Trust in the amount of the overpayment plus interest at the T-Bill Rate from the date of the estimated payment to the date of the payment in which the credit is taken.  Except as provided in this paragraph, the Trustee shall allocate the reduction in payments among the Grower States according to the percentages set forth in Section 1.03 of this Trust.  If such a Governmental Obligation is imposed by a Grower State referenced on Schedule B hereto, or by a political subdivision within such


Grower State, the Trustee shall reduce the annual allocation of monies to that Grower State (excluding any funds in the Grower State’s reserve account) by the full amount of the Grower Governmental Obligation portion of any such Governmental Obligation (as reported to the Trustee by the Independent Accountant), provided that the Distributable Amount allocated to a Grower State in a given year shall never be less than zero (0).

The foregoing Tax Offset Adjustment provision shall not be triggered by the use of any monies received by a Grower State pursuant to the MSA.

If any governmental entity adopts a law, regulation or other governmental provision that requires a Settlor to purchase or use (or imposes a tax, fee, assessment, any other financial obligation, or any penalty, for failure to purchase or use) a minimum quantity or percentage of domestically grown tobacco for Cigarettes (i.e., Tobacco grown in the United States, the District of Columbia or Puerto Rico), the additional cost to the Settlor incurred in complying with the requirement or in paying any tax, fee, assessment or any other financial obligation, or any penalty, as compared to the Settlor’s reasonably expected costs in the absence of such a provision also shall be deemed a Grower Governmental Obligation.  Each Settlor shall be entitled to reduce its annual payment by the amount of such a Grower Governmental Obligation incurred by the Settlor, which reduction.  amount may be carried forward to subsequent years as necessary to ensure full credit to the Settlor.  Further, each Settlor may reduce its annual payment by a reasonable estimate of any such Grower Governmental Obligation reduction and adjust its payment after the actual amount is finally determined as provided above.  If such a purchase or use provision results from a law or regulation or other governmental provision adopted by a Grower State, or by a political subdivision within such Grower State, the amount that a Settlor may reduce its payment to the Trust in any one year shall not exceed the product of the amount the Settlor otherwise would have paid to the Trust in that year in the absence of the Tax Offset Adjustment multiplied by the allocation percentage for the pertinent Grower State set forth in Section 1.03.  Further, if such a purchase or use provision is imposed by a


Grower State, or by a political subdivision within such Grower State, the Trustee shall reduce the annual allocation of monies to that Grower State (excluding any funds in the Grower State’s reserve account) by the full amount of the Grower Governmental Obligation portion of any such Governmental Obligation (as reported to the Trustee by the Independent Accountant), provided that the Distributable Amount allocated to a Grower State in a given.  year shall never be less than zero (0).

In addition, if any question is raised as to the ability of any Settlor to deduct for tax purposes all or any portion of its payments hereunder on a current basis at the time such payments are made into the Trust, whether such question is the result of any change in law, regulation, legal interpretation or ruling or for any other reason (including, without limitation, questions raised on audits or in an opinion of qualified legal counsel for a Settlor) (a “Non-deductibility Event”), then in that event, each of the Settlors (a) shall be entitled to take, as promptly as possible, a credit against the future payments otherwise required from it hereunder, such credit to be in an amount equal to (i) the aggregate payments such Settlor made into the Trust prior to the Non-deductibility Event (to the extent such payments may be subject to non-deductibility on a current basis) multiplied by the Income-Tax Factor or Modified Income Tax Factor (as defined below), as appropriate, plus (ii) interest on the amount under (i) at the T-Bill Rate from the date(s) the payments subject to such non-deductibility were made into the Trust to the date(s) when the credit under this clause (a) is used by the Settlor, and (b) in addition shall be entitled to reduce each of its future payment obligations hereunder (prior to the application of the credit under (a)) by an amount equal to the portion of such future payments that may be subject to non-deductibility on a current basis multiplied by the Income Tax Factor or Modified Income Tax Factor as appropriate.  For these purposes, the Income Tax Factor shall be a factor of forty percent (40%), increased or decreased to reflect any increases or decreases after 1999 in the highest marginal federal corporate income tax rate and the average of the highest marginal income tax rates applicable to corporations in the fifty states, the District of Columbia or Puerto Rico


(such average state, District of Columbia and Puerto Rico rates to be adjusted to take account of the deduction of state income taxes for federal income tax purposes); provided, that if the Settlor determines in its sole discretion that the Non-deductibility Event relates solely to its ability to deduct the payments hereunder on a current basis for purposes of the tax laws of one or more states and does not call into question the deductibility of the payments in other jurisdictions, the Income Tax Factor shall be modified (the “Modified Income Tax Factor”) to reflect only the highest marginal income tax rate(s) applicable to corporations in such state(s) and, in computing the reduction in payments hereunder, such Modified Income Tax Factor shall be applied only to the portion(s) of the payments hereunder that the Settlor would otherwise allocate to and claim as deductions in such state(s).  If the question as to full current deductibility that gave rise to a Non-deductibility Event is subject to a final determination, binding on the applicable tax authority, prior to the termination date of this Trust, that resolves such question (in whole or in part) in favor of deductibility, then in that event each Settlor that took a credit against or made an adjustment in its payment obligations hereunder, shall pay into the Trust a Make-up Payment.  The Make-up Payment shall be equal to the additional payment that is necessary so that the after-tax cost to the Settlor of its cumulative payments made through the date of the Make-up Payment (taking into account the tax consequences of the Make-up Payment) shall equal on an after-tax basis (i.e.  after taking into account allowable income tax deductions for such payments including the Make-up Payment) the amount determined by multiplying (i) the cumulative payments the Settlor otherwise would have been required to make to the Trust through the date of the Make-Up Payment under this Schedule A, taking into account all of the adjustments and limitations of this Schedule A including tax offsets other than the income tax offset under this paragraph, by (ii) a decimal that is one minus the Income Tax Factor (not the Modified Income Tax Factor) [l - Income Tax Factor].  In addition, each Settlor shall pay interest on the Make-up Payment at the T-Bill rate to reflect the periods of time between the dates when such Settler realized the tax benefits giving rise to the Make-up Payment and the date of the Make-up Payment.  The Settlors state that it is their


intent to deduct the payments hereunder on a current basis as ordinary and necessary business expenses, subject to the occurrence of a Non-deductibility Event.

If (i) any federal, State, local or foreign income, franchise or other tax (including any interest or penalties thereon) is imposed on any Settlor, its shareholders or affiliates, or their respective successors and assigns (collectively, the “Indemnified Parties”) in respect of the income or assets of the Trust Estate or (ii) any costs or expenses (including reasonable attorney fees) are incurred by any such Indemnified Party in connection with such taxes, then such Indemnified Party shall promptly notify the Trustee in writing of such tax or cost and its amount, computed in reasonable detail.  Such tax or cost, plus interest at the T-Bill Rate on the latest publication date on or before the date of such notice, shall be credited against future payments due from such Indemnified Party (or the corresponding Settlor if the Indemnified Party is not a Settlor) hereunder.

MSA Finality Adjustment: In the event that a Grower State that is a Settling State under the MSA does not achieve State-Specific Finality on or before December 31, 2001 (or such later date as extended pursuant to Section XVIII (u) (1) of the MSA), or if there is an earlier final, non-appealable judicial determination that has the effect of precluding a Grower State from participating in the MBA (each event a “Non-Finality Event”), each Settlor shall be entitled to reduce its annual payment to the Trust after all other adjustments have been made for the year in which such a Non-Finality Event occurs, and in each subsequent year, by the same percentage as the pertinent Grower State’s percentage allocation in Section 1.03.  In addition, each Settler shall be entitled to reduce its annual payment for the year in which such a Non-Finality Event occurs (and, if necessary to obtain full credit, in subsequent years) by the amount of the Settlor’s prior payments to the Trust allocated in the manner prescribed in Section 1.03 to the pertinent Grower State plus interest at the T-Bill Rate from the date the amount was paid to the Trust by the Settlor to the date the Settlor takes the credit for the amount.  This offset may be waived by the Settlors for any year in which the pertinent


Grower State has entered into another settlement agreement with all of the Settlors, and for each subsequent year, and (i) such settlement agreement becomes final and is approved by and is subject to the continuing jurisdiction of the Court of Jurisdiction; (ii) such settlement agreement provides that the Grower State is entitled to participate in this Trust as a Grower State; and (iii) the participation in this Trust by the Grower State will not have an adverse economic impact on the Trust or the other Grower States or an adverse effect on the tax treatment of payments to the Trust by the Settlors.

Payments in Years 2000 and 2001.  Notwithstanding the foregoing provisions of this Schedule A, the following provisions shall apply to the payments by each of the Settlors during the years 2000 and 2001:

(i)                  If, based on application of the foregoing Trust provisions, a Settlor’s annual payment to the Trust exceeds the amount set forth below with respect to such Settlor, the payment by such Settler in 2000 or 2001 shall be limited to the amount set forth below, and the amount in excess of such amount in each year (the “Excess Amount”) shall be paid by such Settler to the Trust in the years 2009 and 2010, with one-half of said Excess Amount to be paid to the Trust in 2009, and one-half of said Excess Amount paid to the Trust in 2010.  The Excess Amount to be paid by the Settlor in each of 2009 and 2010 shall be in addition to said Settler’s share of each Annual Payment for each such year.  The Excess Amount shall be increased for inflation, using the Inflation Adjustment methodology set forth above for the time period from December 31 of the year in which the Excess Amount would have been due, but for this provision, to December 31 of the year preceding the year in which


the Excess Amount is due under this provision.

 

 

Year 2000

Year 2001

Phillip Morris Incorporated

$140,000,000

$200,000,000

R.J. Reynolds Tobacco Company

$ 70,000,000

$100,000,000

Brown & Williamson Tobacco

  Corporation

$ 42,000,000

$ 60,000,000

Lorillard Tobacco Company

$ 28,000,000

$ 40,000,000

 

Payments Due in 2009 and 2010.  The amounts required to be paid to the Trust by each Settlor in 2009 and 2010 shall be calculated each year as follows:

(i)                  the Base Payment shall be increased by $110,000,000 from $295,000,000 to $405,000,000;

(ii)                the $405,000,000 adjusted Base Payment shall be subject to the Inflation Adjustment and Volume Adjustment set forth above, the results being the “Adjusted Payment”;

(iii)               the Adjusted Payment shall be allocated to each Settlor according to its Relative Market Share (the “Settlor’s Share”);

(iv)              each Settlor’s Share shall have added to it 50% of any Excess Amount not paid by that Settlor in 2000 and/or 2001 (such portion of the Excess Amount increased pursuant to the Inflation Adjustment methodology as provided above) (the “Adjusted Settlor’s Share”);


 

(v)                the Adjusted Settlor’s Share for Philip Morris shall be reduced by $110,000,000 (such $110,000,000 increased pursuant to the Inflation Adjustment methodology set forth above for the time period from December 31, 1999 to December 31 of the year preceding the year in which the payment is due).  If the amount of such reduction in 2009 exceeds the Adjusted Settlor’s Share for Philip Morris in 2009, the remaining portion of the reduction shall be carried forward and further reduce the Adjusted Settlor’s Share for Philip Morris in 2010.

(vi)              each Adjusted Settlor’s Share shall be subject to the Tax Offset Adjustment and MBA Finality Adjustment.

Calculations.  The calculation of the adjustments set forth in this Schedule A shall be made in the first instance by the Independent Accountant (as selected pursuant to this paragraph).  Each Settlor shall make available to the Independent Accountant such information as may be needed to enable it to make such calculations.  The Independent Accountant shall be entitled to rely on any equivalent calculation, such as the CPI% for a given year, performed by the Independent Auditor (as defined in the MBA).  At least thirty days prior (but not more than thirty-five days prior) to each of the first three quarterly payment due dates for each year, the Independent Accountant shall deliver to the Trustee and each Settlor a written statement setting forth the amounts due and payable from each Settlor on such quarterly payment due date (including an explanation of the calculation by the Independent Accountant of such amounts) as well as estimates of payments to be due on each quarterly payment date remaining for the year.  Such statement shall


include, without limitation, the amount of any Grower Governmental Obligation to be reduced from monies allocated to a particular Grower State as well as the amount of any other Tax Offset Adjustment or of any MBA Finality Adjustment.  The Independent Accountant shall deliver to the Trustee and each Settlor a written statement for the fourth and final quarterly payment on or before November 1 (but not earlier than October 25) of each year.  Unless the Settlor provides written notice to the Independent Accountant and the Trustee within seven Business Days after delivery of the Independent Accountant’s statement that it disputes some or all of such Settlor’s quarterly payment obligation, as set forth in the Independent Accountant’s statement for the next quarterly payment due date, the Settlor shall pay the stated amount (without waiver of its right subsequently to dispute the calculation) on or before such quarterly payment due date.  If a Settlor provides written notice within seven Business Days that it disputes some portion of its payment obligation set forth by the Independent Accountant, such Settlor shall nonetheless pay to the Trust on the payment due date any undisputed amount.  Notwithstanding the foregoing, a Settlor may dispute any amount calculated by the Independent Accountant related to any payment obligation of such Settlor at any time before or after the payment due date.

If the Trustee or a Settlor disagrees with the calculations of the Independent Accountant, it shall follow the dispute resolution provisions, including the provision for binding arbitration, in Section 4.15 of this Trust Agreement.  If a Settlor is ultimately determined to have underpaid any amount, such Settlor shall promptly pay to the Trust the amount of the underpayment plus interest at the T-Bill Rate from the date the underpayment was originally due to the date on which the underpayment is paid to the Trust.  If the Settlor is ultimately determined to have overpaid any amount, such Settlor shall be entitled to reduce its future payments to the Trust by the amount of the overpayment plus interest at the T-Bill Rate from the date of the overpayment to the date on which the credit is taken by the Settlor.

The Settlors shall select the Independent Accountant annually by majority vote (with each Settlor entitled to one vote), provided that the Independent


Accountant must be a nationally recognized firm of certified public accountants.  The Independent Accountant shall be entitled to reasonable compensation and such compensation shall be an administrative expense payable by the Trustee out of the Trust in accordance with Section 3.01.

Notice.  In the event a Settlor wishes to claim a Tax Offset Adjustment (including without limitation an adjustment based on a Grower Governmental Obligation) and/or an MSA Finality Adjustment, it shall give notice to the Independent Accountant of such proposed adjustment(s), and the basis therefore, within a reasonable period of time prior to the payment due date of any payment to be so adjusted, and the Independent Accountant shall incorporate such adjustment(s) in its calculations.

Transfer of Tobacco Brands.  No Settlor may sell or otherwise transfer or permit the sale or transfer of any of the Settlor’s current Cigarette brands, Brand Names, Cigarette product formulas or Cigarette businesses (other than a sale or transfer of Cigarette brands or Brand Names to be sold, product formulas to be used, or Cigarette businesses-to be conducted, by the acquiror or transferee exclusively outside of the United States, the District of Columbia and Puerto Rico) to any person or entity unless such person or entity is a Settlor (provided that such acquiring Settlor is currently performing all payment obligations of a Settlor under this Trust Agreement) or prior to the sale or acquisition agrees to assume the obligation of a Settlor with respect to such Cigarette brands, Brand Names, Cigarette product formulas or Cigarette businesses.  Shipments of Cigarettes attributable to such Cigarette brands, Brand Names, Cigarette product formulas or Cigarette businesses sold or transferred by a Settlor shall continue after such sale or transfer to be counted as Cigarettes shipped by a Settlor in calculating Relative Market Share and the Volume Adjustment under this Schedule A.  In the event of any such sale or transfer of a Cigarette brand, Brand Name, Cigarette product formula or Cigarette business by a Settlor to a person or entity other than another Settlor, the Settlor shall certify to the Certification Entities that it has determined that such person or entity has the capability to perform the obligations under this Trust Agreement.  Such


certification shall not survive beyond one year following the date of any such sale or transfer.  Nothing in this Trust Agreement is intended to create any right for a Grower State to obtain any Cigarette product formula that it would not otherwise have under applicable law.

“Brand Name” means a brand name (alone or in conjunction with any other word), trademark, logo, symbol, motto, selling message, recognizable pattern of colors, or any other indicia of product identification identical or similar to, or identifiable with, those used for any domestic brand of Cigarettes.  Provided, however, that the term “Brand Name” shall not include the corporate name of any Settlor or Affiliate thereof that does not, after the effective date of this Trust, sell a brand of Cigarettes in the United States, the District of Columbia or Puerto Rico that includes such corporate name.

General Provisions.  Each Settlor shall make the payments required hereunder in the form of check or wire transfer as determined in the sole discretion of the paying Settlor.

The payment obligations of the Settlors shall be several and not joint and no Settlor shall be responsible under any circumstances for any portion of any payment above and beyond its proportionate share as calculated above, and specifically, without limiting the foregoing, shall not be liable for any payments due from any other Settlor.  The payment obligations of a Settlor shall not be the obligation or responsibility of any Affiliate (as defined below) of such Settlor or the employees, officers, or directors of such Settlor, or of any other person or entity, provided, however, that no provision of this Trust Agreement shall waive or excuse liability under any state or federal fraudulent conveyance or fraudulent transfer law.

“Affiliate” means a person who directly or indirectly owns or controls, is owned or controlled by, or is under coon ownership or control with, another person.  Solely for purposes of this definition, the terms “owns,” “is owned” and “ownership” mean ownership of an equity interest, or the equivalent thereof, of 10 percent or more, and the


term “person” means an individual, partnership, committee, association, corporation or any other organization or group of persons.


First: DISPOSITIVE PROVISIONS........... 1-1

1.01............ NAME........... 1-1

1.02............ PAYMENTS OF INCOME AND PRINCIPAL........... 1-1

1.03............ DISTRIBUTABLE AMOUNTS........... 1-7

1.04............ CERTIFICATION ENTITIES OF CLASS A STATES........... 1-8

1.05............ ADMINISTRATIVE EXPENSES........... 1-9

1.06............ PROHIBITION ON LOBBYING AND POLITICS........... 1-9

1.07............ TERM........... 1-9

1.08............ DISPOSITION UPON TERMINATION........... 1-10

1.09............ SPENDTHRIFT PROVISION........... 1-11

1.10............ ADDITIONS TO TRUST ESTATE........... 1-11

1.11............ IRREVOCABILITY AND PROHIBITION ON REVERSION........... 1-11

Second: TRUSTEE........... 2-1

2.01............ DESIGNATION AND QUALIFICATION OF TRUSTEE AND SUCCESSOR TRUSTEE........... 2-1

2.02............ EXONERATION FROM BOND........... 2-3

2.03............ RESIGNATION........... 2-3

2.04............ COMPENSATION........... 2-4

2.05............ WITHDRAWAL AND DEPOSIT OF FUNDS........... 2-4

2.06............ ACTS OF TRUSTEE........... 2-5

2.07............ TRUSTEE DEALING WITH SELF........... 2-5

2.08............ TRANSACTIONS WITH THIRD PARTIES........... 2-5


 

2.09............ ACCOUNTS........... 2-5

2.10............ AUDITS........... 2-7

2.11............ LIABILITY........... 2-7

2.12............ INDEMNIFICATION........... 2-8

2.13............ DUTIES AND RESPONSIBILITIES OF THE TRUSTEE........... 2-8

2.14............ RIGHTS OF THE TRUSTEE........... 2-8

Third: TRUSTEE’S POWERS........... 3-1

3.01............ PAYMENT OF EXPENSES OF ADMINISTRATION........... 3-1

3.02............ PAYMENT OF TAXES........... 3-2

3.03............ RETENTION OF PROPERTY........... 3-2

3.04............ INVESTMENT OF TRUST ESTATE........... 3-2

3.05............ MANAGEMENT OF TRUST ESTATE........... 3-3

3.06............ ALLOCATION OF RECEIPTS AND EXPENDITURES........... 3-3

3.07............ AUTHORIZATION TO BORROW MONEY........... 3-4

3.08............ EXTENSION OF OBLIGATIONS AND NEGOTIATION OF CLAIMS........... 3-4

3.09............ REGISTRATION OF SECURITIES........... 3-4

3.10............ LOCATION OF ASSETS........... 3-4

3.11............ RETENTION OF PROFESSIONAL AND ADMINISTRATIVE SERVICES........... 3-4

3.12............ DELEGATION OF POWERS........... 3-5

3.13............ DISTRIBUTIONS IN CASH OR KIND........... 3-5

3.14............ TAXES........... 3-5


 

3.15............ INSURANCE........... 3-6

3.16............ POWERS OF TRUSTEE TO CONTINUE UNTIL FINAL DISTRIBUTION........... 3-6

3.17............ DISCRETION IN EXERCISE OF POWERS........... 3-6

Fourth: DEFINITIONS AND MISCELLANEOUS........... 4-1

4.01............ TOBACCO GROWER AND TOBACCO QUOTA OWNER........... 4-1

4.02............ INITIAL AGENTS........... 4-3

4.03............ NO DETERMINATION OR ADMISSION........... 4-3

4.04............ NON-ADMISSIBILITY........... 4-3

4.05............ PAYMENTS IN SETTLEMENT........... 4-4

4.06............ QUALIFIED SETTLEMENT FUND; TAX FILINGS........... 4-4

4.07............ TAXABLE YEAR AND ACCOUNTING METHOD........... 4-5

4.08............ HEADINGS........... 4-5

4.09............ PARTICULAR WORDS........... 4-5

4.10............ SEVERABILITY OF PROVISIONS........... 4-5

4.11............ NOTICES UNDER AGREEMENT........... 4-6

4.12............ DISCLOSURE OF RECORDS........... 4-12

4.13............ COUNTERPARTS OF AGREEMENT........... 4-12

4.14............ GOVERNING JURISDICTION........... 4-12

4.15............ DISPUTE RESOLUTION........... 4-12

4.16............ BANKRUPTCY OF A SETTLOR........... 4-13

4.17............ DEFINITIONS........... 4-15

4.18............ EFFECTIVE DATE........... 4-15


 

SCHEDULE A PAYMENT SCHEDULE........... A-1