[Editor's note: This is the complete text of the groundbreaking settlement agreement reached between Liggett Group, the nation's fifth-largest cigarette maker, and five states on March 20.]

ATTORNEYS GENERAL SETTLEMENT AGREEMENT

 
This SETTLEMENT AGREEMENT is entered into this 20th day of March, 1997
by and among the States listed in Appendix A hereto (collectively,
"Plaintiffs") and Brooke Group Ltd., a Delaware corporation ("Brooke
Group"), Liggett & Myers Inc., a Delaware corporation ("Myers"), and
Liggett Group, Inc., a Delaware corporation (which, with Myers, is
hereinafter referred to as Liggett).


RECITALS

WHEREAS,

A. The Plaintiffs, by and through their respective Attorneys General
(the "Attorneys General"), have brought [or are contemplating bringing]
civil actions ("Actions") in various jurisdictions across the nation
("Actions") against, among others, the American Tobacco Company, Inc.,
BAT industries, PLC, British American Tobacco Company, R.J. Reynolds
Tobacco Company, Brown & Williamson Tobacco Corporation, Philip Morris,
Inc., Liggett & Myers, Inc., Lorillard Tobacco Company, Inc., and United
States Tobacco Company and their various parent and related companies
("Defendants"), asserting claims for, among other things, expenses
allegedly arising from tobacco-related matters and injunctive relief
concerning sales of cigarettes to minors.

B. Because of the importance of the agreements and undertakings by
Liggett and Brooke Group herein to the goals of the Plaintiffs and the
Attorneys General, including the prosecution of the Actions against
non-settling defendants, Plaintiffs have agreed to extend financial
settlement terms to Liggett and Brooke Group which will not be offered
to any other defendants, all as set forth in this settlement agreement.

C. On March 15, 1996, the Commonwealth of Massachusetts, the State of
Florida, the State of Louisiana, the State of Mississippi and the State
of West Virginia and the Liggett and Brooke Group entered into a
settlement (the Initial Settlement") of the Actions brought by the
foregoing States, pursuant to which Liggett agreed to make certain
payments, comply with certain proposed regulations restricting the
marketing and sale of cigarettes to minors and to offer certain
cooperation in connection with the prosecutions of such Actions against
the other Defendants; all in accordance with the terms of the Initial
Settlement, a copy of which is annexed hereto as Appendix B.

D. The Attorneys General, the Initial Settling States and Liggett and
Brooke Group wish to expand upon the Initial Settlement, through this
Settlement Agreement to cover all of the Actions and to provide for,
among other things, significantly greater cooperation by the Settling
Defendants with the Attorneys General, all in accordance with the terms
of this Settlement Agreement.

E. The Attorneys General acknowledge and agree that this Settlement
Agreement, including the cooperation provisions thereof, are important
to the prosecutions of their Actions against the non-settling
Defendants.

F. The Attorneys General and Liggett and Brooke Group recognize and
support the public interest in preventing smoking by, or promotion of
smoking to, children and adolescents.

G. Liggett and Brooke Group have denied, and continue to deny any
wrongdoing or any legal liability of any kind in all of the
above-mentioned actions.

H. The settling States and the Attorneys General recognize and
acknowledge that the cooperation being provided is valuable to the
continued prosecution of the claims against the tobacco industry.
Further, the Settling States and the Attorneys General acknowledge that
the change in warning labels provided for in this Settlement Agreement
is a step towards properly informing consumers more fully of the truth
about cigarettes and the consequences of smoking, as is the statement by
Liggett also provided for herein.

NOW, THEREFORE, in consideration of the foregoing and of the promises
and covenants set forth in this Agreement, the undersigned Attorneys
General, on their own behalf and on behalf of their respective States,
and the Liggett and Brooke Group hereby stipulate and agree that the
Attorney General Actions shall be settled as against the Liggett and
Brooke Group, and that all claims asserted in the Attorney General
Actions against Liggett and Brooke Group shall be dismissed, all on the
terms contained herein, as follows:

1. Definitions.

As used in and solely for the purposes of this Agreement, in addition to
terms defined elsewhere in the Agreement, the following terms shall have
the following respective meanings:

"Affiliate": means a Present Affiliate or a Future Affiliate.

"Agreement" means this Settlement Agreement.

"Arbitrator" means the person or persons agreed to by the Settling
States and the Settlement Class, and/or their counsel, or appointed by
the Class Action Court of the Multidistrict Litigation Panel, as the
case may be, to make decisions regarding allocations of the Settlement
Fund between the Settling States and the Settlement Class, and to
resolve disputes of the Oversight Committee. With respect to the
Settlement Fund, in the event that the Settling States and the
Settlement Class, and/or their respective counsel, cannot agree on an
allocation of the Settlement Fund between the Settling States and the
Settlement Class, the Settling States and the Settlement Class will
petition the Court for appointment of an arbitrator. In so doing, the
parties do not consent, nor should it be inferred, that the
Multidistrict Litigation Panel has jurisdiction over any of the parties.

"Attorneys General" means those State Attorneys General or other parties
who have brought Attorney General Actions.

"Attorney General Actions" or "Actions" means the actions listed in
Appendix A hereto, including those actions brought on behalf of the
State as taxpayer actions.

"Attorney General Settlement Fund Board" or "Attorney General Board"
means, the entity established pursuant to Section 5 of the Initial
Settlement.

"Brooke Group" means Brooke Group, Ltd. and its Present Affiliates other
than Liggett.

"Cigarette" means any product including components, accessories, or
parts which is intended to be burned under ordinary conditions of use
and consists of: (1) any roll of tobacco wrapped in paper or in any
substance not containing tobacco; or (2) any roll of tobacco wrapped in
any substances 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 described in
subparagraph (1).

"Cigarette Pack" means a unity of twenty Cigarettes or one ounce of
Tobacco Snuff, or any other similar method of delivery to consumers.

"Cost Per Cigarette Pack" means, with respect to a Tobacco Company, the
aggregate costs incurred by such Tobacco Company under a Global
Settlement during the specified year, divided by the number of Cigarette
Packs manufactured by such Tobacco Company during such year, as
determined by The Maxwell Consumer Report published by Wheat First
Butcher Singer of a similar or successor report.

"Defendants" means The American Tobacco Company, Inc., BAT Industries,
PLC., British American Tobacco Company, R.J. Reynolds Tobacco Company,
Brown & Williamson Tobacco Corporation, Philip Morris, Inc., Liggett &
Myers, Inc., Lorillard Tobacco Company, Inc., and United States Tobacco
Company and their various parent and related companies.

"Domestic Tobacco Operations" means the manufacture and/or sale of
cigarettes and any other tobacco products in the United States, its
territories, its possessions and the Commonwealth of Puerto Rico.

"FDA Rule" means the regulations promulgated by the FDA on August 28,
1996 concerning the sale and distribution of cigarettes and other
products at 60 Fed. Reg. 44396, to be codified at 21 C.F.R. Parts 801,
803, 804, 807, 820, and 827.

"Future Affiliate" means any one entity, other than an entity with a
Market Share greater than 30% as of the date of this Agreement, which is
a Non-settling Tobacco Company (including any successor to or assignee
of its assets) if such entity or an Affiliate of such entity with the
prior written approval of Brooke Group, subsequent to the date, and
during the term, of this Agreement but prior to the fourth anniversary
of the date of execution of this Settlement Agreement: (I) directly or
indirectly acquires or is acquired by Liggett of Brooke Group; (ii)
directly or indirectly acquires all or substantially all of the stock or
assets of the Liggett or Brooke Group; (iii) all or substantially all of
whose stock or assets are directly or indirectly acquired by Liggett of
Brooke Group; or ((iv) directly or indirectly merges with Liggett or
Brooke Group.

"Future Affiliate Transaction" means a transaction, or series of
transactions, by which an entity becomes a Future Affiliate.

"Global Settlement" means any national disposition, settlement,
Agreement or other arrangement, such as "Tobacco Claims Legislation", by
way of legislation, executive order, regulation, taxation, levy, fine,
class Action settlement, court order or otherwise, of smoking-related
litigation, in direct or indirect connection with one or more Tobacco
Companies receive the benefit of a limitation of, or total or partial
immunity from, liability to plaintiffs for the types of claims released
under the terms of this Agreement.

"Initial Settlement" means the settlement agreement entered into by the
initial Settling States and the Settling Defendants on March 15, 1996.

"Initial Settling States" means the States of Mississippi, West
Virginia, Florida, and Louisiana, the Commonwealth of Massachusetts, and
the respective Attorneys General thereof.

"Liggett" means Liggett Group, Inc. and Liggett & Myers, Inc.

"Mandatory Class Settlement Agreement" of "Mandatory Class Agreement"
means the Agreement entered into on or about March 20, 1997 between
Brook Group and Liggett and a nationwide class.

"Mandatory Class Final Order and Judgment" or "Mandatory Class Final
Approval" means the order to be entered by the Settlement Court with
respect to Liggett and its Present Affiliates, approving the Mandatory
Settlement Agreement without material alterations, as fair, adequate and
reasonable under Rule 23 of the Federal Rules of Civil Procedure,
confirming the Mandatory Settlement Class certification under Rule 23
thereof, and making such other findings and determinations as the
Settlement Court deems necessary and appropriate to effectuate the terms
of the Mandatory Class Agreement and to exercise its continuing and
exclusive jurisdiction over the enforcement and administration of all
terms of the Mandatory Class Agreement.

"Mandatory Settlement Class" means the Settlement Class defined in the
Mandatory Class Agreement.

"Mandatory Class Settlement Date" means the date on which all of the
following shall have occurred: (a) the entry of the Mandatory Class
Final Order and Judgment without material modification, and (b) the
achievement of the finality for the Mandatory Class Final Order and
Judgment by virtue of that order having become final and non-appealable
through (i) the expiration of all appropriate appeal periods without an
appeal having been filed; (ii) final affirmance of the Mandatory Class
Final Order and Judgment on appeal or final dismissal or denial of all
such appeals, including petitions for review, rehearing or certiorari;
or (iii) final disposition of any proceedings, including any appeals,
resulting from any appeal from the entry of the Mandatory Class Final
Order and Judgment.

"Market Share" means, with respect to a Defendant and a specified year,
the Domestic Tobacco Operations market share in that year of all of such
Defendant's cigarettes and other tobacco products, as determined by The
Maxwell Consumer Report published by Wheat First Butcher Singer or a
similar or successor report.

"Medicaid Population" means, with respect to a Settling State and a
specified data, the Medicaid population of such Settling State as
reported by the most recent United States Census.

"National" means actually covering or potentially covering (whether by
block grants to states, localities or other governmental entities or
otherwise) the United States or the United States and one or more of its
territories, possessions and the Commonwealth of Puerto Rico.

"Non-settling Tobacco Companies" means each of The American Tobacco Co.,
Lorillard Tobacco Co., Philip Morris Inc., R.J. Reynolds Tobacco Co.,
Brown & Williamson Tobacco Corp., and United States Tobacco Co., unless
and until it becomes a Future Affiliate, as herein defined.

"Other Settlement" means settlement of an action which is not a Global
Settlement.

"Oversight Committee" means a committee, made up of no less than nine
(9) individuals, to oversee the cooperation provided by Settling
Defendants under Section 4.3.1 and 4.3.2 hereof. The committee shall
have not less than 75% of its composition from representation of the
Attorneys General.

"Parent," with respect to Liggett means Brooke Group, and with respect
to any other specified corporation or entity, means another corporation,
partnership or other entity which directly or indirectly controls such
specified corporation or entity.

"Parties" means the Plaintiffs and Brooke Group and Liggett.

"Population" means, with respect to a geographic area, the population of
that area as reported in the most recent census conducted by the United
States Bureau of the Census.

"Present Affiliate" means, with respect to a specified corporation or
entity, another corporation, partnership or other entity which as of the
date of this Agreement, directly or indirectly, controls, is controlled
by, or is under common control with, such specified corporation or
entity including any and all Parents, subsidiaries, and/or sister
corporations or entities of such specified corporation or entity.

"Present Value" means, with respect to a specified amount or amounts,
the present value of such amount or amounts as calculated using a
discount rate equal to the yield on 10-year Treasury Notes as reported
in the Wall Street Journal at the time of such calculation; provided
that where such amount or amounts are not otherwise determinable, the
amount or amounts to be present-valued shall be deemed to be the average
for the most recent three years.

"Pretax Income," with respect to Liggett, means for a specified year,
the "Income before Income Taxes" as determined in accordance with
generally accepted accounting principles ("GAAP") of Liggett for its
most recent fiscal year, as reported in filings to the United States
Securities and Exchange Commission or, if there is no such filing, as
reported by Liggett's independent outside auditors. If GAAP changes in
any material respect during the term of this Agreement so that the
benefits anticipated by the parties (in light of GAAP applicable on the
date of this Agreement), an appropriate adjustment shall be made to the
formulas and calculations hereunder to achieve the parties' expectations
as of the date hereof.

"Protective Order" or "Stipulation Regarding Liggett Documents" means,
with respect to privileged documents produced by a Settling Defendant in
an Attorney General Action, an order in that Action: (a) protecting the
confidentiality of such documents; (b) providing that such documents may
be used only in that Attorney General Action and, to the extent
permitted by law, only under seal; (c) providing that, to the extent
such documents are or may be subject to the attorney/client privilege or
the attorney work product doctrine, such production or use of the
documents does not constitute a waiver of such privilege, doctrine or
protection with respect to any party other than the Attorney General to
whom the documents are produced subject to the order. The provisions of
the order shall not apply to documents claimed to be privileged but
which are determined by the court in any Action or by the Settlement
Court not to be privileged for reasons other than waiver due to
production pursuant to this Agreement.

"Settlement Class" means the settlement class provided for in the
Mandatory Class Agreement.

"Settlement Class Counsel" means the firms listed as Settlement Class
Counsel in Section 25.8 of the Mandatory Class Settlement Agreement.

"Settlement Fund" means the fund established in accordance with the
terms of Section 6 of this Agreement, which shall be established in a
reputable bank or other financial institution, to provide a secure and
interest-bearing fund, and which shall be jointly controlled by the
Settling States and the Mandatory Settlement Class.

"Settling Defendants" means Brooke Group and/or Liggett.

"Settling Defendants' Counsel" means the law firm of Kasowitz, Benson,
Torras & Friedman L.L.P.

"Settling States" means the States listed in Appendix A hereto and
Subsequent Settling States, if any.

"Smokers" means all persons who, prior to or during the term of this
Agreement, have smoked Cigarettes or have used other tobacco products
and have suffered or claim to have suffered Injury as a consequence
thereof.

"Subsequent Settling States" means States other than the States listed
in Appendix A hereto which commence an Attorney General Action and which
execute this Agreement within six months from the date of this Agreement
(unless such six-month period is extended or reopened at the option of
the Settling Defendants).

"Tobacco Companies" means Defendants.

"Tobacco Snuff" means any cut, ground, powdered, or leaf tobacco that is
intended to be placed in the oral cavity.

2. Settlement Purposes Only.

This Agreement is for settlement purposes only, and neither the fact of,
or any provision contained in, this Agreement nor any action taken
hereunder shall constitute, be construed as, or be admissible in
evidence against the Settling Defendants as, any admissible of the
validity of any claim, any argument or any fact alleged or which could
have been alleged by Plaintiffs as to their standing or as to any
jurisdictional, constitutional or any other legal or factual issue in
any Attorney General Action or alleged or which could have been alleged
in any other action or proceeding of any kind or of any wrongdoing,
fault, violation of law, or liability or any kind on the part of the
Settling Defendants or any admission by them of any claim or allegation
made or which could have been made in any Attorney General Action or in
any other action or proceeding of any kind, or as an admission by any of
the Plaintiffs of the validity of any fact or defense asserted against
them in any Attorney General Action or in any other action or proceeding
of any kind.

3. Parties.

3.1 This Agreement shall be binding, in accordance with the terms
hereof, upon Brooke Group, Liggett and the Settling States; provided
that, notwithstanding anything else contained in this Agreement, the
payment obligations of this Agreement shall be binding only upon
Liggett.

3.2 No Settling Defendant shall sell, use, dispose or transfer
substantially all of its cigarette brands or businesses without first
causing the acquirer, on behalf of itself and its successors, to be
bound by all of the obligations of a Settling Defendant pursuant to
Sections 4.2 and 4.4 through 4.8 hereunder as to such transferred brands
or businesses; provided that this Section 3.2 shall not apply to the
extent such sale, disposition or transfer is required by the Federal
Trade Commission, Department of Justice, State Attorney General or court
order.

4. Public Statement; Cooperation; Advertising Limitations.

4.1 Upon execution of this Settlement Agreement, Liggett shall, by and
through its Director, Bennett S. LeBow, issue a public statement
substantially in the following form and substance:

I am, and have been for a number of years, a Director of Liggett Group
Inc., a manufacturer of cigarettes. Cigarettes were identified as a
cause of lung cancer and other diseases as early as 1950. I, personally,
am not a scientist. But, like all of you, I am aware of the many reports
concerning the ill-effects of cigarette smoking. We at Liggett know and
acknowledge that, as the Surgeon General and respected medical
researchers have found, cigarette smoking causes health problems,
including lung cancer, heart and vascular disease and emphysema. We at
Liggett also know and acknowledge that, as the Surgeon General, the Food
and Drug Administration and respected medical researchers have found,
nicotine is addictive.

Liggett will continue to engage in the legal activity of selling
cigarettes to adults, but will endeavor to ensure that these adult
smokers are aware of the health risks and addictive nature of smoking.
As part of our efforts, we will do the following:

1. In accordance with a court-approved settlement, Liggett will set up a
fund to compensate equitably those who claim to have been injured by our
products.

2. Liggett will add a prominent warning to each of our packages of
cigarettes and all of our cigarette advertising stating that "Smoking is
Addictive."

3. Liggett supports and will not challenge Food and Drug Administration
regulations concerning the sale and distribution of nicotine-containing
cigarettes and smokeless tobacco products to children and adolescents.
Accordingly, Liggett has agreed to comply with many of these regulations
even before they apply to the tobacco industry generally.

4. Liggett has instructed its advertising and marketing people to
scrupulously avoid any and all advertising or marketing which would
appeal to children or adolescents. Liggett acknowledges that the tobacco
industry markets to "youth," which means those under 18 years of age,
and not just those 18-24 years of age. Liggett condemns this practice
and will not market to children. Liggett agrees that if it sees industry
advertisements which in its view are aimed at children, it will bring
this to the attention of the Attorneys General.

5. In accordance with our settlement agreements, Liggett agrees to fully
cooperate with the Attorneys General and Settlement Class Counsel in
their lawsuits against the other tobacco companies. To that end, Liggett
will make available to the Attorneys General, Settlement Class Counsel
and other parties with whom we have settled all relevant documents and
information, including documents subject to Liggett's own
attorney-client privileges and work product protections, and will assist
those parties in obtaining prompt court adjudication of the rest of the
industry's joint privilege claims.

4.2 As promptly as reasonably practicable, but no later than six months
after execution of this Settlement Agreement, Settling Defendants shall
cause to be printed boldly, on all of the Cigarette packages and in all
of their Cigarette advertising, in addition to the warnings mandated
under the Federal Cigarette Labeling and Advertising Act, as amended 15
U.S.C.  1331 et seq., the statement that cigarette smoking is
addictive. To the extent any Settling Defendant manufactures and sells
other tobacco products, a similar warning shall be placed on such
product.

4.3.1. With respect to each Settling State, upon execution of this
Agreement, each Settling Defendant shall:

(1) cooperate with such Attorney General, and the attorneys representing
such Attorney General, in that such Settling Defendants will take no
steps to impede or frustrate these counsels' civil investigations into,
or civil prosecutions of, any of the Non-settling Tobacco Companies in
these actions, so as to secure the just, speedy and inexpensive
determination of all such smoking-related claims against said
non-settling persons and entities;

(2) cooperate in and facilitate reasonable non-party discovery from
Settling Defendants in connection with such Attorney General Action;

(3) actively assist the attorneys representing the Attorneys General in
identifying and locating any and all persons known to such Settling
Defendant to have documents or information that is discoverable in such
proceedings, to actively assist said counsel in interviewing and
obtaining documents and information from all such persons, and to
encourage such person to cooperate with the Attorneys General; and shall
actively assist counsel in interpreting documents relating to litigation
against Non-settling Tobacco Companies; and

(4) insofar as such Settling Defendant has or obtains any material
information concerning any fraudulent or illegal conduct on the part of
any parties, including Non-settling Tobacco Companies, their agents, or
their co-defendants designed to frustrate or defeat the claims of the
plaintiffs against such parties, companies, agents or co-defendants, or
which have the effect of unlawfully suppressing evidence relevant to
smoking claims, disclose such information to the appropriate judicial
and regulatory agencies.

4.3.2. With respect to each Settling State, subject to, and promptly
after, the entry of a Protective Order or a Stipulation Regarding
Liggett Documents by the court in which the respective Attorney General
Action is pending or the Settlement Court, each Settling Defendant
shall:

(1) promptly provide all documents and information that are relevant to
the subject matter of the Actions or which are likely to lead to
admissible evidence in connection with the claims asserted in any of the
Actions, subject to the provisions of Section 4.3.2(2) hereof;

(2) waive any and all applicable attorney-client privileges and work
product protections with respect to such documents and information. Such
waiver shall not extend to (a) documents and information not relevant to
the subject matter of the Actions or not likely to lead to admissible
evidence in connection with claims asserted in any of the Actions or (b)
documents subject to a joint defense or other privilege or protection
which Settling Defendants cannot legally waive unilaterally, except that
the waiver by the Settling Defendant shall apply, to the extent
permitted by law, to its own joint defenses or other privileges. To the
extent that a Settling Defendant has a good faith belief, or one or more
Non-settling Tobacco Companies claims, that documents to be provided
pursuant to Section 4.3.2(1) hereof may be subject to a joint defense or
other privilege (or a claim of such privilege) of one or more of the
Non-settling Tobacco Companies, such documents shall be deposited under
seal for in camera inspection by the Settlement Court or a court in
which a Settling State's Attorney General Action is pending, together
with a statement to such court that such Settling Defendant has concerns
as to whether some or all of such documents should be protected from
discovery, and the Parties agree to request that such court shall retain
jurisdiction to resolve that issue. Liggett will participate in
proceedings, including by way of court appearances or declarations,
concerning issues of whether such documents are discoverable;

(3) offer their employees, and any and all other individuals over whom
they have control, and help locate former employees, to provide witness
interviews of such employees and to testify, in depositions and at
trial; it being understood and agreed that Liggett will waive and hereby
does waive any and all applicable confidentiality agreements to the
extent such confidentiality agreements would restrict testimony under
this Agreement, if any, to which such witnesses may be subject; and

(4) demand from its past or current national legal counsel all documents
and information obtained by them in the course of representation of any
Settling Defendant which in any way relates to the cooperation required
in paragraphs 4.3.1(1) - 4.3.2(3) above, which should be provided to the
Settling States as provided under this paragraph.

4.3.3. With respect to the cooperation set forth in subsections 4.3.1
and 4.3.2 above, the Attorneys General and Settlement Class Counsel
shall appoint, on a yearly basis, an Oversight Committee, to oversee
such cooperation so that it fairly assist them and minimizes the burden
on a Settling Defendant. All requests for cooperation will be first made
to the Oversight Committee. The Oversight Committee shall coordinate
such requests giving due regard to the legitimate needs of the litigants
requesting cooperation and the burden on the Settling Defendant. Nothing
in this Agreement shall waive or alter the rights of the Attorneys
General to obtain discovery of Liggett as required by a court order or
case management order in any Attorneys General Action, provided that no
order is sought that is inconsistent with this Agreement.

4.3.4. In the event the Oversight Committee cannot agree on the sharing
of cooperation by litigants, any member of the Committee may seek
resolution by an Arbitrator. In the event that the Oversight Committee
cannot agree on the selection of an Arbitrator, the Oversight Committee
will petition the Multidistrict Litigation Panel for appointment of an
Arbitrator. In the event any Settling Defendant, absent good cause, does
not provide requested cooperation as promptly as reasonably practicable,
after receiving written notice from the Committee of such request, (1)
the Committee may seek relief from an Arbitrator, and (2) the Committee,
upon notice to the Settling Defendant, may petition an Arbitrator for
specific performance of such requested cooperation.

4.4 Each Settling Defendant, promptly after becoming bound by this
Agreement, shall consent to jurisdiction by the FDA for the sole purpose
of promulgating the FDA Rule with respect to all Tobacco Companies.
Further, each Settling Defendant, promptly after execution of this
Agreement, shall endorse, support and assist in attempts by the FDA to
have the FDA Rule become enforceable. Such efforts shall include, if and
as reasonably requested by the Attorneys General, filing appropriate
amicus briefs and other court papers in litigation relating to the FDA
Rule.

4.5 Each Settling Defendant shall follow and abide by the provisions of
the FDA Rule, insofar as they pertain solely to such Settling
Defendant's Domestic Tobacco Operations, as set forth in, and modified
by, paragraphs 4.5.1 - 4.5.4 hereof until a final determination is
reached respecting the FDA Rule at which time the Settling Defendant
will be bound by the FDA Rule only insofar as, and to the extent that,
the FDA Rule becomes an enforceable obligation binding upon all of the
Tobacco Companies.

4.5.1. FDA Rule  897.16(b), as proposed.

4.5.2. FDA Rule  897.16(d), as proposed.

4.5.3. FDA Rule  897.30(a), as proposed.

4.5.4. FDA Rule  897.30(b), but only to the extent that such section
applies to billboards within 1,000 feet of a clearly marked public or
private elementary or secondary school or a clearly marked, outdoor,
municipal or other government-operated public playground for children.

4.6 Notwithstanding anything to the contrary in the Proposed Rule or in
this Agreement, Liggett will commence compliance with Section 4.5 of
this Agreement as soon as reasonably practicable, according priority as
to compliance to the States listed in Appendix A hereto and then to
Subsequent Settling States; provided that Liggett may limit its
compliance to the extent, if any, necessary to ensure that the net
annual out-of-pocket cost to Liggett of such compliance not exceed $1
million; and provided further that Liggett shall not be obligated
pursuant hereto to breach pre-existing legal obligations, if any, it may
have with respect to the matters covered by Section 4.5 (and shall use
its reasonable best efforts to minimize the degree to which any such
obligations would impede its full compliance therewith). For purposes of
this paragraph, the phrase "net annual out-of-pocket costs" means the
excess of (a) the additional out-of-pocket expenditures incurred during
a particular year by Liggett in complying with the matters specified in
Section 4.5, over (b) savings, if any, in out-of-pocket expenditures
realized during such year by Liggett directly from the implementation of
the matters covered by Section 4.5.

4.7. If, when and to the extent the FDA Rule, in whole or in part,
becomes an enforceable legal obligation binding upon all of the
Defendants, each Settling Defendant will comply therewith, without
consideration of any limits or exceptions herein. If the FDA Rule does
not so become such a legal obligation, Liggett shall, during the
duration of this Agreement, continue to comply with Section 4.5.

4.8. Each Settling Defendant shall not use cartoon characters, such as
"Joe Camel," in any of its advertising and promotional materials and
activities with respect to tobacco products. No Settling Defendant shall
enter into any new contract for advertising and promotion with respect
to tobacco products using any such cartoon characters after the date the
Settling Defendants become bound by this Agreement.

4.9. Each Settling Defendant may, after becoming bound by this
Settlement Agreement, continue in the lawful manufacture, advertising
and/or sale of tobacco products. This Settlement Agreement does not in
any way abrogate or restrict the authority or ability of the Attorneys
General to enforce future compliance with the laws of their respective
States.

5. Global Settlement.

5.1 Effective upon the execution hereof, the Attorneys General and their
respective counsel, each agree (a) to exercise best efforts to ensure
that the financial terms, financial obligations or financial conditions
of any Global Settlement are no more onerous on, or less favorable to,
Brooke Group and Liggett than the financial terms, financial obligations
or financial conditions of this Settlement Agreement, and (b) to issue a
public statement substantially in the following form and substance:

The historic settlements entered into by Liggett, whereby Liggett has
agreed, among other things, to provide full cooperation to twenty-two
Attorneys General and to consent to FDA regulation of tobacco marketing,
are a major advance in our efforts to prevent smoking by children and
adolescents and to ensure that the tobacco industry markets its products
lawfully. Accordingly, the undersigned Attorneys General will use their
best efforts in Congress and elsewhere to ensure that any such
industry-wide resolution provide for financial terms for Liggett that
reflect appropriate recognition of Liggett's cooperative efforts.

5.2. In the event there is a Global Settlement at any time which
contains financial terms, financial obligations or financial conditions
as to Brooke Group and Liggett which are more onerous on, or less
favorable to, Brooke Group and Liggett than those of this Settlement
Agreement, then, in addition to and not in derogation of any other
rights or remedies Brooke Group and Liggett may have, Brooke Group and
Liggett shall have the right, at their option to withdraw from further
performance of this Agreement.

6. Settlement Fund.

6.1. Except as may otherwise be provided herein, all amounts due and
owing by each Settling Defendant under this Agreement shall be paid when
due into the Settlement Fund to be allocated and distributed to
Settlement Class members and Settling States in accordance with this and
the Mandatory Class Settlement Agreement. In the event that the Settling
States and Settlement Class Counsel cannot agree to an equitable
allocation of the Settlement Fund between the Settling States and the
Settlement Class, the Settling States and Settlement Class Counsel shall
seek to agree on the selection of an Arbitrator to determine such
allocation. In the event that the Settling States and Settlement Class
Counsel cannot agree on the selection of an Arbitrator, the Settling
States and Settlement Class Counsel will petition the Class Action Court
to determine such allocation; it being understood that some portion of
the Settlement Fund will be allocated to counter-market advertising.

6.2. Settling Defendants shall have no interest in or responsibility for
allocations or distributions from the Settlement Fund and do not
guarantee any earnings or insure against any losses from any portion of
the Settlement Fund assets that may be maintained or administered as
provided in Section 6.1 above.

6.3. Subject to the terms of this Agreement, Liggett shall make the
following payments:

6.3.1. An initial payment of $25 million due 120 days from the date of a
Future Affiliate Transaction; and

6.3.2. Subject to the provisions of Sections 6.6 - 6.12, payments, each
equivalent to 25% of Liggett's Pretax Income, due 120 days after the end
of each fiscal year of Liggett. The first payment shall be made with
respect to the first full fiscal year commencing after the date of this
Settlement Agreement.

6.4. Liggett shall pay the reasonable and necessary expenses of the
administration, allocation, and distribution of the Settlement Fund;
provided that Liggett shall not be obligation to pay more than $1
million in any year for such expenses.

6.5. Since the Settling Defendants are providing historic and valuable
cooperation and other considerations under this Agreement and the
Mandatory Class Agreement, the amounts payable hereunder to the
Settlement Fund shall represent the maximum amounts payable to the
Settlement Fund under this Agreement and the Mandatory Class Agreement.

6.6. With respect to each Settling State, in the event of the entry of
any final non-appealable monetary judgment in such Settling State's
Attorney General Action (other than by way of settlement) against any
one or more of the Non-settling Tobacco Companies, then the Settling
Defendants shall have the right to reduce the payments they are
obligated to make pursuant to this Agreement to the extent necessary to
make (i) the then Present Value of all amounts theretofore paid and
thereafter payable to that Settling State pursuant to this Agreement by
the Settling Defendants (such amounts being calculated for purposes of
this Section 6.6 by multiplying (a) the total amount of the Settlement
Fund allocated to all of the Settling States in that year by (b) a
quotient equal to the Medicaid Population of such Settling State in that
year divided by the total Medicaid Population of all Settling States)
per percentage point of the then Market Share of such Settling Defendant
no more than seventy-five percent (75%) of (ii) the then Present Value
of the dollar amount of such judgment per percentage point of the then
Market Share of each such Non-settling Tobacco Company; [ Example : For
purposes of this example of Section 6.6, assume: Liggett has a 2% Market
Share ( i.e. , 2 points). A Non-settling Tobacco Company has an 8%
Market Share ( i.e. , 8 points), and in 1998 has a final judgment
entered against it in an Attorney General Action that requires payments
by such Non-settling Tobacco Company with a then Present Value of $20
million. The Present Value of the amount allocable by Liggett to the
Settling State in 1998 is $5 million. Result: In 1998, Liggett would be
permitted to reduce its future payments to the extent necessary to make
the Present Value of its past and future payments $3.75 million -- i.e.
, no more than 75% of the Present Value of the judgment, all as adjusted
for relative Market Share. The calculation would be as follows: Present
Value of Liggett payment/2 points = .75 x judgment/8 points Present
Value of Liggett payments = .75 x $20 million/4 = $3,750,000 Thus, the
larger the judgment, the less the reduction. Under this example, if the
judgment is $26,670,000 or more, there would be no reduction.] provided
that such Settling Defendant give written notice of such reduction and
the method of calculating such reduction to the Settling State's
Attorney General as soon as practicable after the entry of the judgment.

6.7. In each year beginning with the second year after execution of this
Agreement, the annual payment amount due under Section 6.3.2 of this
Agreement from a Settling Defendant shall be decreased in proportion to
any decrease and (only if there shall have been a prior such decrease)
increase in proportion to any increase, in such Settling Defendant's
Market Share from the prior year; provided, however, that (a) such
annual payment amount shall not be so decreased to the extent, if any,
that such annual payment amount in such year is decreased as a result of
a decrease in such Settling Defendant's Pretax Income and (b) such
annual payment amount shall never be increased such that the aggregate
amount of any such increases exceeds that the aggregate amount of any
such increases exceeds the aggregate amount of any such decreases. [
Example : For purposes of this example of Section 6.7, assume: Liggett's
Pretax Income is $11 million each year, thus making Liggett's obligation
under the settlement $2,750,000 per year. Liggett's Market Share drops
from 2% in 1996 and 1997 to 1.75% in 1998, but recovers to 1.9% in 1999,
and then back to 2.0% in 2000. Reduction: In 1998, Liggett's amount due
will be reduced by $343,750 to $2,406,250. Since Liggett's Market Share
fell by .25 points or 12.5%, its payments would be reduced by 12.5% or
$343,750 [$2,750,000 x .125]. Recapture of Market Share: In 1999,
Liggett's payments will climb commensurate to its increase of .15 in
Market Share (1.75 to 1.9%) to $2,612,500 [$2,406,250 + ($2,406,250 x
.15/1.75)]. In 2000, Liggett's payment would again increase commensurate
to its increase of .1 in Market Share to $2,750,000 [$2,612,500 +
($2,612,500 x .1/1.90)]. Liggett would not be entitled to a "double
reduction" for a decrease in both Pretax Income and Market Share. Thus,
if Liggett's .25 point drop in Market Share in 1998 were accompanied by
a drop in Pretax Income between 1997 and 1998 from $11 million to $8
million, there would be no Market Share reduction, as Liggett's payment
obligations (25% of Pretax Income) would have already fallen from
$2,750,000 to $2,000,000.]

6.8. In the event of a Global Settlement, the Settling Defendants shall
have the right to reduce the aggregate payments due from Liggett in each
year pursuant to this Agreement so that such aggregate payments shall be
no more than the lesser of (A) on a Cost Per Cigarette Pack basis,
one-third of the lowest Cost Per Cigarette Pack due in such year from
the Non-settling Tobacco Companies under such Global Settlement and (B)
on a percentage of Pretax Income basis, one-third of the lowest
percentage of Pretax Income due in such year from the Non-settling
Tobacco Companies under such Global Settlement (such percentage to be
computed as if the payments due from such companies were included in
revenues and earnings).

6.9. Liggett shall receive as a credit against any and all amounts due
hereunder, any and all amounts it is required to pay under a Global
Settlement.

6.10. In the event that one or more States elect to opt out of the
Mandatory Settlement Class and action(s) are brought against any
Settling Defendants on behalf of such State(s), the annual payment
amount due under Sections 6.3.2 of this Agreement from a Settling
Defendant shall be reduced by an amount equal to the product of (i) the
ratio that the Medicaid Population of the States that elect to opt out
of the Mandatory Settlement Class then bears to the total Medicaid
Population and (ii) 20% of Liggett's Pretax Income.

6.11. Insofar as the Mandatory Class Settlement Agreement is not
approved or is otherwise terminated, the Settlement Fund shall be
administered solely thereafter by the Attorney General Board for the
benefit of the Settling States, and the percentage of Liggett's Pretax
Income payable under Section 6.3.2 shall, in the event there is no
Global Settlement, be reduced to an amount equal to the product of (i)
the ratio that the Medicaid Population of the Settling States then bears
to the total Medicaid Population and (ii) 20% of Liggett's Pretax
Income.

6.12. Any allocations set forth in this Section 6 among the Settling
States and the Settlement Class are solely for the purposes of making
the calculations set forth in this Section 6 and are in no way binding
upon or evidence for the allocations of payments from the Settlement
Fund to any recipients thereof.

6.13. Settling Defendants agree not to take any action the primary
purpose of which is to reduce Liggett's payment obligations under this
Agreement.

7. Release.

7.1 Upon the date each Settling State becomes bound by this Agreement,
for good and sufficient consideration as described herein, each Settling
State and each Attorney General thereof shall for the duration or term
of this Agreement (whichever is shorter) be deemed to and hereby does
release, dismiss and discharge each and every civil claim, right, and
cause of action (including, without limitation, all claims for damages,
restitution, medical monitoring, or any other legal or equitable
relief), known or unknown, asserted or unasserted, direct or indirect,
which they had, now have or may hereafter have against each Settling
Defendant (including its past and present parents, subsidiaries, present
affiliates, employees, directors and shareholders, but only in such
capacities, vis--vis, each such Settling Defendant, and downstream
distribution entities of Settling Defendant, but only to the extent that
such downstream distribution entitles would have cross-claims against
Settling Defendant), but does not in any fashion release any
Non-settling Tobacco Companies or other defendants in any Attorney
General Action except as provided for in Section 17 hereof, (i) which
was asserted in that State's Attorney General Action, and/or (ii) which
was not asserted in said Action but which is smoking-related or
otherwise arises out of, or concerns, the acts, facts, transaction,
occurrences, representations, or omissions set forth, alleged, referred
to or otherwise embraced in the complaint of that Settling State's
Attorney General Action.

Upon the date each Settling State becomes bound by this Agreement, for
good and sufficient consideration as described herein, each such
Settling Defendant shall for the duration or term of this Agreement
(whichever is shorter) be deemed to and hereby does release, dismiss and
discharge each and every claim, right, and cause of action (including,
without limitation, all claims for damages, restitution, fees, expenses,
or any other legal or equitable relief), whether known or unknown,
asserted or unasserted, which they had, now have or may hereafter have
as of the effective date of this Agreement against each such Settling
State, its public officials and employees in connection with, arising
out of or related to the acts, facts, transactions, occurrences,
representations, or omissions set forth, alleged or referred to or
otherwise embraced in the complaints of the Settling States' Attorney
General Actions.

Provided, however, as follows:

1) If this Agreement expires upon completion of its full term, these
releases set forth in this Section 7.1 shall continue and apply in full
force and effect with respect to all released claims which accrued or
shall accrue prior to, through and including the date of such
expiration, such that such claims shall be forever released, but only as
to such claims through and including such date; if this Agreement
terminates for any reason prior to its full term, these releases shall
be of no further force and effect and Settling Defendants shall be
entitled to a credit to the extent otherwise provided in this Agreement
against all claims covered by the release for the full amount paid by
such Settling Defendants hereunder.

2) Except as specifically provided herein, these releases set forth in
this Section 7.1 do not pertain or apply to any other existing or
potential party in any present or future Attorney General Action.

3) These releases set forth in this Section 7.1 do not in any way
release from claims which may asserted by a releaser involving conduct
unrelated to the manufacture and/or sale of tobacco products.

4) With respect to the claims of any county, municipality or subdivision
within a Settling State that, as of the date of this agreement, has
brought an action against Settling Defendants separate and apart from
the action brought against Settling Defendants by the Settling State
encompassing such county, municipality or subdivision, these releases
set forth in this Section 7.1 do not release the claims of such county,
municipality or subdivision except for the exclusively State share of
the Medicaid funds claimed in any such action.

5) The provisions of this Section 7.1 apply to all States except the
State of Connecticut. With respect to the State of Connecticut only, the
claims described herein as having been released shall not be released
and shall remain in existence; provided, however, that the State of
Connecticut and the Attorney General of Connecticut shall, upon entering
into this agreement, covenant not to bring or prosecute any suit or
action with respect to such claims against each Settling Defendant, and
the beneficiaries of this covenant shall be the same beneficiaries of
the release provided by all other States pursuant to  7.1. It is
expressly understood that this covenant is not intended to and does not
release or affect any claims that the State of Connecticut has or may
have against any other persons or entities, and in particular is not
intended to and does not release or affect any claims that the State of
Connecticut has asserted or may assert against any Non-settling Tobacco
Companies or any other defendants in its Attorney General Action.

7.2 Except as specifically provided herein, nothing in this Agreement
shall prejudice or in any way interfere with the rights of Settling
States or Settling Defendants to pursue any or all of their rights and
remedies against Non-settling Tobacco Companies or other parties not
released hereunder.

7.3. With respect to the State of Maryland, this Section 7 is deemed to
include the additional statements set forth in Sections 11.5 and 11.6.

8. Exclusive Remedy; Dismissal of Action; Jurisdiction of Court.

8.1. Except as otherwise provided in this Agreement, this Agreement
shall be the sole and exclusive remedy for any and all claims of
Settling States released hereby against the Settling Defendants, and
upon the date a Settling State becomes bound by this Agreement, each
such Settling State shall be barred from initiating, asserting, or
prosecuting any claims released hereby against each such Settling
Defendant.

8.2. Promptly after each Settling State becomes bound by this Agreement,
each such Settling State shall dismiss without prejudice its
corresponding Attorney General Action as against such Settling
Defendant, or if defendants have not yet responded to a complaint, the
Settling State may amend the complaint to delete the Settling Defendant
from the Action.

8.3. Promptly after the date each Settling State becomes bound by this
Agreement, each such Settling Defendant shall withdraw without prejudice
from any action brought against any Settling State with respect to
claims released hereby.

9. Term.

9.1. Unless earlier terminated in accordance with the provisions of this
Agreement, the duration of this Agreement shall be twenty-five (25)
years from the date of this Agreement; provided that in the event of a
Global Settlement, the duration of this Agreement shall be equal to the
duration of the Global Settlement.

9.2. Each Settling Defendant shall have the right to terminate this
Agreement with respect to that Settling Defendant and with respect to
the Settling State in which there is a full and final dismissal on the
merits as to any of the Non-settling Tobacco Companies in that Settling
State's Attorney General Action; provided that in the event of any such
termination, the payments due from such Settling Defendant pursuant to
this Agreement shall be thereafter reduced by an amount equal to the
product of (a) the total amount of the Settlement Fund allocated to all
of the Settling States at the time of such dismissal and (b) a quotient
equal to the Medicaid Population of such Settling State at the time of
such dismissal divided by the total Medicaid Population of all Settling
States at the time of such dismissal); provided further that any and all
payments made pursuant to this
Agreement
prior to any such termination by such Settling Defendant shall be
retained by the Settlement Fund. The Attorneys General shall provide the
Settling Defendant with the information necessary to determine the
amount referred to in subpart (a) hereof. Termination under this section
does not in any fashion reduce Settling Defendants' obligations in any
other Attorney General Actions.

9.3. Each Settling Defendant shall have the right at any time during the
term of this Agreement to terminate this Agreement with respect to such
Settling Defendant in the even that, in its sole and exclusive
discretion, it determines that too many states have opted out of the
Mandatory Settlement Class and have not resolved such cases with respect
to the Settling Defendant by becoming bound by this Agreement in
accordance with the terms hereof; provided that such Settling Defendant
give written notice of such termination to the Attorneys General of the
Settling States and provided further that any and all payments due up to
the date of such termination made pursuant to this Agreement prior to
the giving of such notice by such Settling Defendant must be exercised
no later than sixty days after the date that Settling Defendants
determine how many states have opted out of the Mandatory Settlement
Class.

9.4. In the event of a termination of this Agreement with respect to any
Settling State, such Settling Defendant shall be entitled to offset any
payments made to such Settling State prior thereto against any judgments
thereafter obtained by such Settling State against such Settling
Defendant in an Attorney General Action.

9.5. If any Settling Defendant subsequently withdraws from this
Agreement, or this Agreement, for whatever reason, is terminated other
than by reason of expiration of its term, then the applicable statue of
limitations or any similar time requirement for a Settling State or a
terminating Settling Defendant to file a claim that would otherwise be
released hereunder against, or by any Settling Defendant shall be tolled
from the date such Settling State became bound by this Agreement until
the later of the time permitted by applicable law or for one year from
the date of such termination with the effect that the parties shall be
in the same position as they were at the time the Settling State filed
its original Attorney General action with respect to the statute of
limitations.

9.6. Except as may be otherwise specifically provided in this Agreement,
a termination by a Settling Defendant hereunder shall have the effect of
rendering this Agreement as having no force or effect whatsoever, null
and void ab initio, and not admissible as evidence for any purpose in
any pending or future litigation in any jurisdiction. However, a
termination shall not affect any prior cooperation or require the return
of any document produced to a Settling State pursuant to this Agreement.

10. Continuing Enforceability

Unless earlier terminated, as to the Settling States, this Agreement and
each provision of or obligation arising from this Agreement shall
continue and remain fully executory and enforceable if a Settling
Defendant institutes or is subject to the institution against it of any
proceeding or voluntary case under title 11, United States Code, or
other proceeding seeking to adjudicate it insolvent or seeking
liquidation, winding up, reorganization, arrangement adjustment,
protection, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief or
protection of debtors or other proceeding seeking the entry of an order
for relief or the appointment of a receiver, trustee, custodian or other
similar official for it or for any part of its property (each, a
"Bankruptcy Proceeding"). The Settling States acknowledge and agree that
Brooke Group has the right but not the obligation to cure and to perform
any and all obligations of Liggett under this Agreement notwithstanding
the occurrence and continuation of any Bankruptcy Proceeding with
respect to Liggett; provided, however, that until such time as Liggett
decides whether to reject or assume this Agreement, Brooke Group shall
have the obligation to pay the annual installments as provided in
Section 6.3.2 hereof, and so long as the Brooke Group is paying all
amounts due hereunder and so such payments are voidable, then the
Settling States waive any and all rights they may have not to accept
such cure or performance in any Bankruptcy Proceeding.

11. Entry of Good Faith Bar Order on Contribution and Indemnity Claims

11.1. It is the intent of the parties that the payments to be made by
Liggett with respect to the Attorneys General Actions settled hereby, be
limited to those payments set forth in this Settlement Agreement and
that the Settling Defendants not be responsible for any payments
relating to any contribution or indemnity claim asserted, or to be
asserted, by any non-settling defendant that may arise from any such
Attorneys General Actions. It is further the intent of the parties to
this Agreement that in Minnesota and Wisconsin the release of the
Settling Defendants and any rights of non-settling defendants to
contribution or indemnity shall be construed as a Pierringer release, as
used in Pierringer v. Roger, 21 Wisc. 2d 182, 124 N.W.2d 106 (1963);
Frey v. Snelgrove, 269 N.W.2d 918 (Minn. 1978). In order to effectuate
such intent, the parties agree as follows in this Section 11.

11.2. Subject to, and as promptly as reasonably practicable, under
applicable law, the Parties shall request that the respective courts in
the Attorney General Actions enter orders barring and prohibiting the
commencement and prosecution of any claim or action by any non-settling
defendant against any Settling Defendant, including but not limited to
any contribution, indemnity, and/or subrogation claim seeking
reimbursement for payments made or to be made to any Settling State for
claims settled under this Agreement. Settling Defendants shall be
entitled to dismissal with prejudice of any non-settling defendants
claims against them which violate or are inconsistent with this bar, if
granted.

11.3. The Settling States shall not seek to collect any amount on any
judgment against a son-settling defendant to the extent, and only to the
extent, that such non-settling defendant has a right under applicable
law of contribution or indemnification against the Settling Defendants.
This section will not apply to any agreement or understanding, known or
unknown, written or otherwise, with any non-settling defendant or any
other party that entitles any non-settling defendant to indemnity or
contribution from Brooke Group or Liggett.

11.4. Should a Settling State receive a final monetary judgment against
a non-settling defendant which then results in the non-settling
defendant being legally entitled to require a Settling Defendant to make
payment toward that judgment, the Settling States shall seek Court
approval to reduce the judgment by an amount sufficient to result in the
Settling Defendant having non obligation toward the judgment.

11.5. The provisions of Sections 11.1  11.4 apply to all States except
for the State of Maryland. With respect to the State of Maryland only,
the State of Maryland shall, upon entering into this Agreement, execute
a release of Settling Defendants which shall state, among other things
provide for in this Agreement: "In the event of a verdict against
non-settling defendants in this Action, and in the event that with
respect to such verdict, any settling defendant is adjudicated a joint
tortfeasor in any manner in this Action, there shall be a judgment
reduction from such verdict accounting for the status of Settling
Defendants as a joint tortfeasor in the amount of $ [the Present Value
of Settling Defendants total aggregate payments allocable to the State
of Maryland as calculated pursuant to provisions of the Attorneys
General Settlement Agreement]. It is the intention of the parties that
this Release provide for a pro tanto reduction of any damages
recoverable against all other tortfeasors in this action, and only if
Settling Defendants, or any of them, are adjudicated a joint tortfeasor.
This Release does not provide, and shall not be construed to provide,
for a reduction, to the extent of the pro rate share of Settling
Defendants, or any of them, of the damages recoverable in this action
against all other tortfeasors. If a judgment reduction occurs on a pro
tanto basis as provided in this Release and if a non-settling joint
tortfeasor pays more than its pro rata share of the judgment, that
tortfeasor shall receive that portion of any future payment made
thereafter by Settling Defendants in accordance with the Attorneys
General Settlement Agreement that is (1) beyond the amount of the pro
tanto setoff provided for in this Release, and (2) attributable to that
part of claims against that joint tortfeasor for which Settling
Defendants are jointly and severally liable."

11.6. With respect to State of Maryland only, the Attorney General of
Maryland shall cause a competent appraiser to make a calculation of
Present Value of Settling Defendants total aggregate payments allocable
to the State of Maryland as provided for under this Settlement
Agreement, which valuation is referenced and bracketed in Section 11.4
hereof. Such calculation of Present Value of payment allocable to the
State of Maryland under this Agreement shall be the amount stated in the
bracketed portion of the language quoted in Section 11.4 above.

12. Tax Status of Settlement Fund

12.1. The Settlement Fund created under this Agreement will be
established and maintained as a Qualified Settlement Fund ("QSF") in
accordance with Section 468B of the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder. Any Settling
Defendant shall be permitted, in its discretion, and at its own cost, to
seek a private letter ruling from the Internal Revenue Service ("IRS")
regarding the tax status of the Settlement Fund. The parties agree to
negotiate in good faith any changes to the Agreement which may be
necessary to obtain IRS approval of the Settlement Fund as a QSF.

12.2. Representatives of the Settling States and the Settlement Class
will be appointed to act as administrator of the Settlement Fund. As
administrator, such representatives will undertake the following actions
in accordance with the regulations under IRC section 468B: (a) apply for
the tax identification number required for the Attorney General
Settlement Fund; (b) file, or cause to be filed, all tax returns the
Settlement Fund is required to file under federal of state laws; (c) pay
from the Settlement Fund all taxes that are imposed upon the Settlement
Fund by federal or state laws; and (d) file, or cause to be filed, tax
elections available to the Settlement Fund, including a request for a
prompt assessment under IRC sec. 6501(d), if and when the administrator
deems it appropriate to do so.

12.3. The Settling Defendants, as transferors of the Settlement Fund
shall prepare and file the information statements concerning their
settlement payments to the Settlement Fund as required to be provided to
the IRS pursuant to the regulations under IRC section 468B.

13. Effect of a Default of Settling Defendant

In the event a Settling Defendant fails to make a payment due and owing
under the terms of this Agreement, or is in default of this Agreement in
any other respects, Plaintiffs Counsel shall so notify the defaulting
Settling Defendant, which shall then be given 60 calendar days to "cure"
the default. If the defaulting Settling Defendant does not "cure" the
default in the time provided in this Section 13, Plaintiffs Counsel may
apply to the Court for relief, in addition to any other remedies it may
have hereunder.

14. Representations and Warranties.

14.1. Each Settling Defendant represents and warrants that it (i) has
all requisite corporate power and authority to execute, deliver and
perform this Agreement and to consummate the transactions contemplated
hereby; (ii) the execution, delivery and performance by such Settling
Defendant of this Agreement and the consummation by it of the actions
contemplated herein have been duly authorized by all necessary corporate
action on the part of such Settling Defendant; (iii) the Agreement has
been duly executed and authorized by such Settling State and constitutes
its legal, valid and binding obligation.

15. Arbitration

In the event that the Parties are unable to agree, after good faith
efforts, as to the determination or calculation for any applicable year
of Market Share or Pretax Income hereunder, such determination or
calculation shall be submitted to binding arbitration in accordance with
the rules of the American Arbitration Association.

16. Most Favored Nation

16.1. It is the intent of the parties hereto that the Settling
Defendants enjoy a preferred position with respect to Non-Settling
Tobacco Companies, in recognition of the Settling Defendants
willingness to enter into this agreement. Accordingly, it is generally
contemplated that settlements which involve all Settling States and a
Non-Settling Tobacco Company (a "Group Other Settlement") or involving
one Settling State and a Non-Settling Tobacco Company (a "Single State
Other Settlement") shall meet certain minimum requirements in terms of
the initial, periodic or lump sum payments to be made by the
Non-Settling Tobacco Company (each a "Benchmark Figure"). The recital of
these Benchmark Figures herein is solely for the purposes of insuring
that the Settling Defendants enjoy a preferred position with respect to
Non-Settling Tobacco Companies and is not intended in any way to reflect
the value of the Settling States claims against Non-Settling Tobacco
Companies, and nothing in this Agreement is intended to reflect the
value of those claims. For purposes of this Section 16, a settlement
involving a Non-Settling Tobacco Company and some, but not all, Settling
States shall be deemed a Single Other Settlement, and the preferred
position of the Settling Defendant shall be governed by Subsections
16.1.3 and 16.1.4 hereof, and determined on a state-by-state basis.

16.1.1. In the case of a Group Other Settlement which includes and
initial payment such as that provided for in Section 6.3.1 hereof, the
Benchmark Figure shall be that figure which represents three times the
Present Value of the initial payment made hereunder, adjusted for the
Market Share at the time of such payment. Thus, if at the time of the
initial payment hereunder, the Settling Defendant had a market share of
2 percent and made a payment the Present Value of which has a market
share of 10 percent the Benchmark Figure for the initial payment
actually provided for in such Group Other Settlement is less than the
Benchmark Figure, the Settling defendant shall receive a credit in like
amount, up to the amount of the present value of the initial payment
made hereunder, against all future payment obligations hereunder.

16.1.2. In the case of a (i) Group Other Settlement which included only
a lump sum or periodic payments, and (ii) with respect to the periodic
payments included in a Group Other Settlement which also includes an
initial payment, the Benchmark figure shall be that amount which
constitutes three times the Present Value of all amounts paid or payable
by the Settling Defendant hereunder (excluding, if the Group Other
Settlement contains an initial payment, the initial payment hereunder),
assuming, in the case of future payments, no increase or decrease in
Market Share but assuming Inflation in revenues, all adjusted for Market
Share. Thus, if the Present Value of a Settling Defendant's payments
made or to be made hereunder is $60 million and such Settling Defendant
enjoys a Market Share of 2%, the Benchmark Figure for a non-settling
defendant which at the time of a Group Other Settlement enjoys a Market
Share of 15% would be $1,350 million. Similarly, the Benchmark Figure
for a Non-Settling Defendant which at the time of a Group Other
Settlement enjoys a Market Share of 5% would be $450 million. To the
extent that the Present Value of the lump sum or periodic payments to be
made under a Group Other Settlement is less than the Benchmark Figure,
the Settling Defendant shall receive a credit in like amount, up to the
amount of any remaining payment obligations hereunder.

16.1.3. In the case of a Single State Other Settlement which includes an
initial payment such as that provided for in Section 6.3.2 hereof, the
Benchmark Figure shall be that figure which represents three times the
Present Value of the initial payment made hereunder to such Settling
State, adjusted for Market Share at the time of such payment, computer
in accordance with Section 16.1.1. To the extent that the initial
payment actually provided for in such Single State Other Settlement is
less than the Benchmark Figure, the Settling Defendant shall receive a
credit in like amount, up to the amount of the present value of the
initial payment made to the Settling State hereunder, against all future
payment obligations to the Settling State hereunder.

16.1.4. In the case of a Single Other Settlement which includes only a
lump sum or periodic payments, and with respect to the periodic payments
included in a Single State Other Settlement which also includes an
initial payment, the Benchmark Figure shall be that amount which
constitutes three times the Present Value of all amounts paid or payable
by the Settling Defendant to the Settling State hereunder (excluding, if
the Single State Other Settlement contains an initial payment, the
Initial Payment hereunder), assuming, in the case of future payments, no
increase or decrease in Market Share, computed as set forth in Section
16.1.2. To the extent that the Present Value of the lump sum or periodic
payments to be made under a Single State Other Settlement is less than
the Benchmark Figure, the Settling Defendant shall receive a credit in
like amount, up to the amount of any remaining payment obligations to
the Settling State hereunder.

16.1.5. Solely for the purpose of Section 16.1, the payments due to each
of the Settling States in a year shall be deemed be equivalent to the
product of (a) 10% of the Settling Defendant's Pretax Income and (b) a
quotient equal to the Medicaid Population of the Settling State divided
by the total Medicaid Population of all Settling States.

16.1.6. The Benchmark Figure set forth in Sections 16.1.1 - 16.1.4 does
not reflect in any fashion the Settling States' views as to an
appropriate settlement or resolution with any Non-Settling Tobacco
Company.

16.2. Except as provided in Section 16.1 hereof, in the event that,
subsequent to the date of this Agreement, any settlement of any Settling
State's Attorney General Action is reached with any non-settling
defendant which is not a Party hereto and such settlement is on any
terms more favorable to such non-settling defendant than are the terms
of this Agreement to a Settling Defendant, such Settling Defendant shall
each have the right to replace or modify any or all of the terms of this
Agreement with, or add to this Agreement, any or all such more favorable
terms.

16.3. In the event that, subsequent to the date of this Agreement, any
of the Settling Defendants enters into a settlement agreement with any
State other than a Settling State on terms (relating to the then Present
Value of amounts payable under such settlement agreement, compliance
with the Proposed Rule or cooperation) that are more favorable to the
State than those contained herein (as adjusted for relative Medicaid
Population), the Settling States shall have the right with respect to
such Settling Defendant to replace or modify any or all of the terms of
this Agreement with, or add to this Agreement, any or all such more
favorable terms (adjusted for relative Medicaid Populations).

17. Future Affiliate

17.1 The terms of this Agreement shall not be binding upon or applicable
to a Future Affiliate of the Settling Defendants, except as provided for
in this Section 17.

17.2 (a) In the event of a Future Affiliate Transaction, the Settling
States shall not seek to enjoin or otherwise challenge a spinoff or like
disposition of the stock or assets of any Affiliate of the Future
Affiliate which is not engaged in Domestic Tobacco Operations. The
Settling States reserve the right to seek to enjoin such a spinoff in
the event that such spinoff or like disposition is sought by someone
other than Brooke Group or a Future Affiliate or an Affiliate of a
Future Affiliate.

(b) In the event of and after a Future Affiliate Transaction: (i) the
Settling States each release (pursuant to, mutatis mutandis, Section 7.1
hereof), and covenant not to bring suit for any claim so released
against any Affiliate of the Future Affiliate, other than the Affiliate
engaged in Domestic Tobacco Operations; and (ii) if prior to the Future
Affiliate Transaction, a Settling State shall have obtained a verdict or
judgment in its Attorney General Action, against an Affiliate (including
the Parent) of the Future Affiliate, other than against the Affiliate
engaged in Domestic Tobacco Operations, such Settling State shall not
seek to enforce such verdict or judgment against any such Affiliate
other than the Affiliate engaged in Domestic Tobacco Operations.

17.3. In the event a Settling State obtains a verdict or judgment
against a Non-settling Tobacco Company in an Attorney General Action,
and a Settling Defendant commences a proxy contest or similar action
seeking control of such Non-settling Tobacco Company or an Affiliate
thereof, then such Non-settling Tobacco Company or an Affiliate thereof
will not be required to post a bond in order to stay enforcement of such
verdict or judgment, and such Settling State will not seek to enforce
such verdict or judgment against such Non-settling Tobacco Company or
such Affiliate, for a period of the earlier of (i) one year from the
commencement of such proxy contest or action, and (ii) completion or
resolution of the proxy or merger vote.

17.4. In the even that subsequent to a Future Affiliate Transaction, and
in conformity with  17.2(b) hereof, a Settling State obtains a verdict
or judgment against a Future Affiliate in an Attorney General Action,
such Future Affiliate will not be required to post a bond in order to
stay enforcement of such verdict or judgment, and such Settling State
will not seek to enforce such judgment against such Future Affiliate or
an Affiliate of such Future Affiliate until the verdict or judgment
becomes final and non-appealable.

17.5. Prior to a Future Affiliate Transaction, Settling Defendants shall
not enter into any agreement with any prospective Future Affiliate which
diminishes or impairs the prospective Future Affiliate's assets, other
than in the established and/or ordinary course of business of such
prospective Future Affiliate from diminishing or impairing such assets.
In the event of a Future Affiliate Transaction, Settling States reserve
all of their rights to prevent the Future affiliate from diminishing or
impairing the Future Affiliate's Tobacco assets, other than in the
established and/or ordinary course of business of such Future Affiliate.

17.6. With respect to subsections 17.1 - 17.5 above, nothing in these
provisions, or elsewhere in this Agreement, limits the authority of the
Attorneys General to challenge any transaction which they reasonably
believe is in violation of federal or state antitrust law.

17.7. In the event of a Future Affiliate Transaction after which Liggett
remains as a separate entity such that Liggett's Pretax Income is
readily calculable, Section 6.3.2 hereof shall remain in effect with
respect to Pretax Income solely attributable to such separate entity. In
the event of a Future Affiliate Transaction, Settling Defendants and the
Attorneys General and their respective counsel, each agree to exercise
best efforts to negotiate in good faith a payment schedule to replace
that set forth in Section 6.3.2. Nothing in this Section 17.7 affects in
any way Liggett's payment obligations under Section 6.3.1 hereof.

17.8. Promptly after a Future Affiliate Transaction, a Future Affiliate
shall abide by Sections 4.4 - 4.7 hereof.

17.9. Promptly after a Future Affiliate Transaction, Settling Defendants
and the Attorneys General and their respective counsel, each agree to
exercise best efforts to negotiate in good faith a settlement of all
Attorney General Actions against a Future Affiliate's Domestic Tobacco
Operations.

17.9. As promptly as reasonably practicable after a Future Affiliate
Transaction, a Future Affiliate shall agree to eliminate cartoon
characters such as "Joe Camel," from all of its advertising and
promotional materials and activities with respect to tobacco products.

18. Miscellaneous

18.1 All terms of this Agreement and/or obligations created thereby
shall be deemed to include a covenant of good faith and fair dealing on
behalf of all parties.

18.2. Brooke Group shall provide to the Settling States at the time of
execution of this Agreement, an opinion in form satisfactory to the
Settling States from legal counsel for the Brooke Group as to the due
execution of the Settlement Agreement by the Brooke Group and Liggett
and its enforceability against the Brooke Group and Liggett and such
other matters contemplated by Section 14.1 (other than the "agreements"
referenced in clause (iv)).

18.3. In the event that a termination occurs pursuant to any sections of
this Agreement, no Settling State shall be required to return any
payment.

18.4. Subject to the provisions of Section 18 herein, this Agreement,
including all Appendices attached hereto, if any, shall constitute the
entire Agreement among the parties with regard to the subject of this
Agreement and shall supersede any previous agreement and understandings
between the Parties with respect to the subject matter of this
Agreement. This Agreement may not be changed, modified, or amended
except in writing signed by all Parties.

18.5. With respect to each Settling State, this Agreement shall be
construed under and governed by the laws of such State applied without
regard to its laws applicable to choice of law.

18.6. This Agreement may be executed by the Parties in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.

18.7. Any judgment by a court that any provision of this Agreement, as
applied to any party or to any circumstance, is invalid or unenforceable
shall in no way affect any other provision of this Agreement or the
application thereof in any other circumstance, and such provision so
adjudged invalid or unenforceable shall be enforced to the maximum
extent permitted by law.

18.8. This Agreement shall be binding upon and inure to the benefit of
the Settling States, the Settling Defendants, and their representatives,
heirs, successors, and assigns.

18.9. Nothing in this Agreement shall be construed to subject any
Settling Defendant's parent or affiliated company to the obligations or
liabilities of that Settling Defendant.

18.10. The headings of the Sections of this Agreement are included for
convenience only and shall not be deemed to constitute part of this
Agreement or to affect its construction.

18.11. Any notice, request, instruction, or application for Court orders
sought in connection with this Agreement or other document to be given
by any Party to any other Party shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid, if
to the Settling Defendants to the attention of each Settling Defendant's
respective representative and to Plaintiffs' Counsel on behalf of the
Settling States.

18.12. References to or use of a singular noun or pronoun in this
Agreement shall include the plural, unless the context implies
otherwise.

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
day and date first written above.

BROOKE GROUP LTD

By Bennett S. LeBow

LIGGETT GROUP, INC.

By Bennett S. LeBow

Signed, 3/20/97

KASOWITZ, BENSON, TORRES & FRIEDMAN

Marc E. Kasowitz

Signed, 3/20/97

Attorneys for BROOKE GROUP LTD. and LIGGETT GROUP, INC.

STATE OF ARIZONA

Grant Woods, Attorney General

Signed, 3/20/97

STATE OF CONNECTICUT

Richard Blumenthal, Attorney General

Signed, 3/20/97

STATE OF HAWAII

Margery Bronster, Attorney General

Signed, 3/20/97

STATE OF ILLINOIS

Jim Ryan, Attorney General

Signed, 3/20/97

STATE OF INDIANA

Jeffrey Modisett, Attorney General

Signed, 3/20/97

STATE OF IOWA

Tom Miller, Attorney General

Signed, 3/20/97

STATE OF KANSAS

Carla Stovall, Attorney General

Signed, 3/20/97

STATE OF MARYLAND

J. Joseph Curran, Attorney General

Signed, 3/20/97

STATE OF MICHIGAN

Frank Kelley, Attorney General

Signed, 3/20/97

STATE OF MINNESOTA

Hubert H. Humphrey, III, Attorney General

Signed, 3/20/97

STATE OF NEW JERSEY

Peter Verniero, Attorney General,

Signed, 3/20/97

STATE OF NEW YORK

Dennis Vacco, Attorney General

Signed, 3/20/97

STATE OF OKLAHOMA

Drew Edmondson, Attorney General

Signed, 3/20/97

STATE OF TEXAS

Dan Morales, Attorney General

Signed, 3/20/97

STATE OF UTAH

Jan Graham, Attorney General

Signed, 3/20/97

STATE OF WASHINGTON

Christine Gregoire, Attorney General

Signed, 3/20/97

STATE OF WISCONSIN

Jim Doyle, Attorney General

Signed, 3/20/97 

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