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Tobacco under attack
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[Editor's note: This is the complete text of the historic settlement agreement reached between the tobacco industry and and state attorneys general on June 20.]

Proposed tobacco industry settlement

June 20, 1997
PREAMBLE

This legislation would mandate a total reformation and restructuring of
how tobacco products are manufactured, marketed and distributed in this
country. The nation can thereby see real and swift progress in
preventing underage use of tobacco, addressing the adverse health
effects of tobacco use and changing the corporate culture of the tobacco
industry.

The Food and Drug Administration ("FDA") and other public health
authorities view the use of tobacco products by our nation's children as
a "pediatric disease" of epic and worsening proportions that results in
new generations of tobacco dependent children and adults. There is also
a consensus within the scientific and medical communities that tobacco
products are inherently dangerous and cause cancer, heart disease and
other serious adverse health effects.

The FDA and other health authorities have concluded that virtually all
new users of tobacco products are under legal age. President Clinton,
the FDA, the Federal Trade Commission ("FTC"), state Attorneys General
and public health authorities all believe that tobacco advertising and
marketing contribute significantly to the use of nicotine-containing
tobacco products by adolescents. These officials have concluded that
because past efforts to restrict advertising and marketing have failed
to curb adolescent tobacco use, sweeping new restrictions on the sale,
promotion and distribution of such products are needed.

Until now, federal and state governments have lacked many of the legal
means and resources they need to address the societal problems caused by
the use of tobacco products. These officials have been armed only with
crude regulatory tools which they view as inadequate to achieve the
public health objectives with which they are charged.

This legislation greatly strengthens both the federal and state
governments' regulatory arsenal and furnishes them with additional
resources needed to address a public health problem that affects
millions of Americans, including most importantly underage tobacco use.
Further, it is contemplated that certain of the obligations of the
tobacco companies will be implemented by a binding, enforceable
contractual protocol.

The legislation reaffirms individuals' right of access to the courts, to
civil trial by jury and to full compensatory damages. Resolution through
the Act of potential punitive damages liability of the tobacco industry
for past conduct is only made in the context of the comprehensive
settlement proposed by the legislation. It is not intended to have
precedential effect, nor does it express any position adverse to the
imposition of punitive damages in general or as applied to any other
specific industry, case, controversy or product and does not provide any
authority whatsoever regarding the propriety of punitive damages.

Among other things, the new regime would:

Confirm FDA's authority to regulate tobacco products under the Food,
Drug and Cosmetic Act, making FDA not only the preeminent regulatory
agency with respect to the manufacture, marketing and distribution of
tobacco products but also requiring the tobacco industry to fund FDA's
oversight out of ongoing payments by the manufacturers pursuant to the
new regime ("Industry Payments").

Go beyond FDA's current regulations to ban all outdoor tobacco
advertising and to eliminate cartoon characters and human figures, such
as Joe Camel and the Marlboro Man, two tobacco icons which the public
health community has long assailed as advertising appealing to our
nation's youth.

Impose and provide funding out of the Industry Payments for an
aggressive federal enforcement program, including a State-administered
retail licensing system, to stop minors from obtaining tobacco products,
while in no way preventing the States from enacting additional measures.

Ensure that the FDA and the States have the regulatory flexibility to
address issues of particular concern to public health officials, such as
youth tobacco usage and tobacco dependence.

Subject the tobacco industry to severe financial surcharges in the event
underage tobacco use does not decline radically over the next decade.

Empower the federal government to set national standards controlling the
manufacturing of tobacco products and the ingredients used in such
products.

Provide new and flexible regulatory enforcement powers to ensure that
the tobacco industry works to develop and introduce "less-hazardous
tobacco products," including, among other things, vesting FDA with the
power to regulate the levels of nicotine in tobacco products.

Require the manufacturers of tobacco products to disclose all previously
non-public internal laboratory research and all new internal laboratory
research generated in the future relating to the health effects or
safety of their products.

Establish a minimum federal standard with tough restrictions on smoking
in public places with enforcement funding from the Industry Payments,
while preserving the authority of state and local governments to enact
even more severe standards.

Authorize and fund from Industry Payments a $500 million annual,
national education-oriented counter-advertising and tobacco control
campaign seeking to discourage the initiation of tobacco use by children
and adolescents and to encourage current tobacco product users to quit
use of the products.

Authorize and fund from Industry Payments the annual payment to all
States of significant, ongoing financial compensation to fund health
benefits program expenditures and to establish and fund a tobacco
products liability judgments and settlement fund.

Authorize and fund from Industry Payments a nationwide program,
administered through State governments and the private sector, of
smoking cessation.

The sale of tobacco products to adults would remain legal but subject to
restrictive measures to ensure that they are not sold to underage
purchasers. These measures respond directly to concerns voiced by
federal and state public health officials, the public health community
and the public at large that the tobacco industry should be subject to
the strictest scrutiny and regulatory oversight. This statute imposes
regulatory controls, including civil and criminal penalties, equal to,
and in many respects exceeding, those imposed on other regulated
industries. Further, it imposes on tobacco manufacturers the obligation
to provide funding from Industry Payments for an array of public health
initiatives.

The sale, distribution, marketing, advertising and use of tobacco
products are activities substantially affecting interstate commerce.
Such products are sold, marketed, advertised and distributed in
interstate commerce on a nationwide basis, and have a substantial effect
on the nation's economy. The sale, distribution, marketing, advertising
and use of such products are also activities substantially affecting
interstate commerce by virtue of the health care and other costs that
federal and State governmental authorities have attributed to usage of
tobacco products.

Various civil actions are pending in state and federal courts arising
from the use, marketing or sale of tobacco products. Among these actions
are cases brought by some 40 state Attorneys General, cases brought by
certain cities and counties, the Commonwealth of Puerto Rico, and other
third-party payor cases seeking to recover monies spent treating
tobacco-related diseases and for the protection of minors and consumers.
Also pending in courts throughout the United States are various private
putative class action lawsuits brought on behalf of individuals claiming
to be dependent upon and injured by tobacco products. Additionally, a
multitude of individual suits have been filed against the tobacco
products manufacturers and/or their distributors, trade associations,
law firms and consultants.

All of these civil actions are complex, slow-moving, expensive and
burdensome, not only for the litigants but also for the nation's state
and federal judiciaries. Moreover, none of those litigation's has to
date resulted in the collection of any monies to compensate smokers or
third-party payors. Only national legislation offers the prospect of a
swift, fair, equitable and consistent result that would serve the public
interest by (1) ensuring that a portion of the costs of treatment for
diseases and adverse health effects linked to the use of tobacco
products is borne by the manufacturers of these products, and (2)
restricting nationwide the sale, distribution, marketing and advertising
of tobacco products to persons of legal age. The unique position
occupied by tobacco in the nation's history and economy, the magnitude
of actual and potential tobacco-related litigation, the need to avoid
the cost, expense, uncertainty and inconsistency associated with such
protracted litigation, the need to limit the sale, distribution,
marketing and advertising of tobacco products to persons of legal age,
and the need to educate the public, especially young people, of the
health effects of using tobacco products all dictate that it would be in
the public interest to enact this legislation to facilitate a resolution
of the matters described.

Public health authorities believe that the societal benefits of this
legislation, in human and economic terms, would be vast. In particular,
FDA has found that reducing underage tobacco use by 50% "would prevent
well over 60,000 early deaths." FDA has estimated that the monetary
value of its present regulations will be worth up to $43 billion per
year in reduced medical costs, improved productivity and the benefit of
avoiding the premature death of loved ones. This statute, which extends
far beyond anything FDA has previously proposed or attempted, can be
expected to produce human and economic benefits many times greater than
such existing regulations.

As part of this settlement, the tobacco companies recognize the historic
changes that will be occurring to their business. They will fully comply
with increased federal regulation, focus intense efforts on dramatic
reductions in youth access and youth tobacco usage, recognize that the
regulatory scheme encourages the development of products with reduced
risk and acknowledge the predominant public health positions associated
with the use of tobacco products.

[Source/precedent: FDA Rule]

TITLE I: Reformation Of The Tobacco Industry

Title I of the legislation would incorporate and expand upon FDA's
recent regulation of nicotine-containing tobacco products. The following
rules would apply to all tobacco products sold in the U.S. (including
all its territories and possessions, as well as duty-free shops within
U.S. borders). The new regime would be allowed to operate as described
below for five years. FDA would have authority to make revisions even
within this period under extraordinary circumstances. Thereafter, the
FDA would be authorized to review and revise the rules under applicable
Agency procedures.

A.	Restrictions on Marketing and Advertising

The advertising and marketing of tobacco products would be drastically
curtailed, including in ways that exceed the FDA rule as originally
promulgated and in ways that have previously been challenged on First
Amendment grounds. As in the FDA rule the new regime would:

Prohibit the use of non-tobacco brand names as brand names of tobacco
products except for tobacco products in existence as of January 1,1995
(897.16(a)) (The citations in this and in the next section are to Part
897 of the FDA's tobacco regulations, 61 Fed. Reg. 44396 (August 28,
1996).

Restrict tobacco product advertising to FDA specified media (897.30(a)(1
)-(2))

Restrict permissible tobacco product advertising to black text on a
white background except for advertising in adult-only facilities and in
adult publications (897.32(a)-(b))

Require cigarette and smokeless tobacco product advertisements to carry
the FDA-mandated statement of intended use ("Nicotine Delivery Device")
(897.32(c))

Ban all non-tobacco merchandise, including caps, jackets or bags bearing
the name, logo or selling message of a tobacco brand (897.34(a)).

Ban offers of non-tobacco items or gifts based on proof of purchase of
tobacco products (897.34(b))

Ban sponsorships, including concerts and sporting events, in the name,
logo or selling message of a tobacco brand (897.34(c))

Further, building on and going beyond the FDA rule, the new regime
would:

Ban the use of human images and cartoon characters - thereby eliminating
Joe Camel and the Marlboro Man - in all tobacco advertising and on
tobacco product packages

Ban all outdoor tobacco product advertising, including in enclosed
stadia as well as brand advertising directed outside from a retail
establishment (modifies 897.30(a)(1) and extends 897.30(b))

Prohibit tobacco product advertising on the Internet unless designed to
be inaccessible in or from the United States

Establish nationwide restrictions in non adult-only facilities on point
of sale advertising with a view toward minimizing the impact of such
advertising on minors. These provisions, which are detailed in Appendix
VII, restrict point of sale advertising that was otherwise permitted in
retail establishments by the FDA rule.

Ban direct and indirect payments for tobacco product placement in
movies, television programs and video games

Prohibit direct and indirect payments to "glamorize" tobacco use in
media appealing to minors, including recorded and live performances of
music -- Without limiting the FDA's normal rulemaking authority in this
area, require that the use, in both existing and future brand styles, of
words currently employed as product descriptors (e.g., "light" or "low
tar") be accompanied by a mandatory disclaimer in advertisements (e.g.,
"Brand X not shown to be less hazardous than other cigarettes");
exemplars of all new advertising and tobacco products labeling shall be
submitted to FDA concurrently with their introduction into the
marketplace for FDA's ongoing review.

[Source/precedent: FDA Rule; 21 C.F.R. 101.70]

B.	Warnings, Labeling and Packaging

The federally-mandated warning labels on cigarettes were last changed in
1984. Since then a number of countries, including Canada and members of
the European Union, have imposed new warning labels. Further, the
Federal Trade Commission's methodology to measure the "tar" and nicotine
yields of cigarettes has been criticized as producing misleading
information.

1.	The legislation, through amendments to the Federal Cigarette
Labeling and Advertising Act and the Comprehensive Smokeless Tobacco
Health Education Act, would mandate new rotating warnings, to be
introduced concurrently into the distribution chain on all tobacco
product packages and cartons, and to be rotated quarterly in all
advertisements. For cigarettes, the warnings would be:

"WARNING: Cigarettes are addictive"

"WARNING: Tobacco smoke can harm your children"

"WARNING: Cigarettes cause fatal lung disease"

"WARNING: Cigarettes cause cancer"

"WARNING: Cigarettes cause strokes and heart disease"

"WARNING: Smoking during pregnancy can harm your baby"

"WARNING: Smoking can kill you"

"WARNING: Tobacco smoke causes fatal lung disease in non-smokers"

"WARNING: Quitting smoking now greatly reduces serious risks to your
health" For smokeless tobacco products, the warnings would be:

"WARNING: This product can cause mouth cancer"

"WARNING: This product can cause gum disease and tooth loss"

"WARNING: This product is not a safe alternative to cigarettes"

"WARNING: Smokeless tobacco is addictive"

For cigarettes, the warnings would occupy 25% of the front panel of the
package (including packs and cartons) and would appear on the upper
portion thereof. The legislation would contain a grandfather provision
for existing brands with flip-top boxes comprising less than 25% of the
front panel. For smokeless tobacco products, the warnings would appear
on the principal display panel (e.g., a band around the can for moist
smokeless tobacco products) and would occupy 25% of the display panel.
The warnings would be printed in line with current Canadian standards
(e.g., 17 point type with appropriate adjustments depending on length of
required text) and in an alternating black on white and white on black
format. The size and placement of warnings in advertisements would
follow the requirements set forth in the existing United Kingdom
standards. As described in Appendix I, the warning text and, where
relevant, "tar" and nicotine (or other constituent) yield information
would occupy 20% of press advertisements.

Cigarette and smokeless tobacco product packages would also carry the
FDA mandated statement of intended use ("Nicotine Delivery Device") on
the side of pack.

2.	The FDA would be required to promulgate a rule governing the
testing, reporting and disclosure of tobacco smoke constituents that the
Agency determines the public should be informed of to protect public
health, including, but not limited to "tar," nicotine and carbon
monoxide. This authority would be transferred from the FTC and would
include the authority to require label and advertising disclosures
relating to "tar" and nicotine, as well as disclosures by other means
relating to other constituents.

[Source/precedent: Canadian warning regulations; FDA Rule; FDCA, 21
U.S.C. Sec. 360h, with conforming amendment in light of FCLAA]

C.	Restrictions on Access to Tobacco Products

Preventing youth access to tobacco products is a major objective of this
legislation and the FDA Rule. Without preventing state and local
governments from imposing stricter measures, the legislation would
incorporate every access restriction of the FDA Rule, and more. As in
the FDA Rule, the legislation would:

Set a minimum age of 18 to purchase tobacco products (897.14(a))

Require retailers to check photo identification of anyone under 27
(897.1 4(b)( 1 )-(2))

Establish the basic requirement of face-to-face transactions for all
sales of tobacco products (897.14(c))

Ban the sale of tobacco products from opened packages (897.14(d))

Establish a minimum package size of 20 cigarettes (897.16(b))

Impose retailer compliance obligations to ensure that all self-service
displays, advertising, labeling and other items conform with all
applicable requirements (897.14(e))

Ban the sampling of tobacco products (897.16(d))

Ban the distribution of tobacco products through the mail, including
redemption of coupons, except for sales subject to proof of age, with a
review after 2 years by FDA to determine if minors are obtaining tobacco
products through the mail (goes beyond 897.16(c)(2)(i))

Building on and going beyond the FDA Rule, the legislation would:

Ban all sales of tobacco products through vending machines (goes beyond
897.16(c)(2)(ii))

Ban self-service displays of tobacco products except in adult-only
facilities. In all other retail outlets, tobacco products must be placed
out of reach of consumers (i.e., behind the counter or under
lock-and-key) or, if on the counter, not visible or accessible to
consumers (goes beyond (897.1 6(c)(2)(ii))

[Source/precedent: FDA Rule]

D.	Licensing of Retail Tobacco Product Sellers

The legislation would mandate minimum federal standards for a retail
licensing program that the federal government and state and local
authorities would enforce through funding provided by the Industry
Payments. Any entity that sells directly to consumers - whether a
manufacturer, wholesaler, importer, distributor or retailer -would
require a license.

Elements of the licensing program would include:

Mandating compliance with the Act as a condition to obtain and hold a
license

Penalties for violations (See Appendix II)

Suspension or revocation of licenses (on a site-by-site basis) for
certain violations (see Appendix II)

A requirement that distribution of tobacco products for resale to
consumers be made only to licensed entities

Licensing fees to cover the administrative costs of issuing state
licenses (all other costs covered as noted above)

Comparable federal licensing programs (with federal enforcement) for
military facilities, U.S. government installations abroad, and other
U.S. territories and possessions not otherwise under the jurisdiction of
the States (including duty-free shops within U.S. borders)

Comparable licensing programs to govern tobacco product sales on Indian
lands (see Appendix III)

[Source/precedent: Various state laws governing sales of tobacco
products and alcoholic beverages]

E.	Regulation of Tobacco Product Development and Manufacturing

This legislation, for the first time, would impose a regulatory regime
to govern the development and manufacturing of cigarettes and smokeless
tobacco products, including FDA approval of the ingredients used in such
products and imposition of standards for reducing the level of certain
constituents, including nicotine.

Elements of the regulatory regime would include: 1.	Tobacco products
shall have the same definition as contained in the FDA Rule.
Jurisdiction shall also cover Roll Your Own, Little Cigars, Fine Cut,
etc.

2.	Tobacco will continue to be categorized as a "drug" and a "device"
under the Food, Drug and Cosmetic Act ("FDCA"). The Agency's authority
to regulate the products as restricted medical devices" will be
explicitly recognized and tobacco products will be classified as a new
subcategory of a Class II device pursuant to 21 U.S.C. section 360c.
FDCA shall apply to these products as provided by the Act and the
amendments to FDCA contained herein. 3.	The Class II classification
shall permit FDA to require product modification of tobacco products,
including the regulation of nicotine content, and shall provide that the
sale of tobacco products to adults in the form that conforms to
Performance Standards established for tobacco products pursuant to
Section 514 ("Section 514") of the FDCA (21 U.S.C. Section 360d) shall
be permitted notwithstanding 21 U.S.C. Sections 360f, 352(j) and 360h(e)
4.	Reduced Risks Products

Products sold that an objective, reasonable consumer would believe pose
less of a health risk:

Tobacco product manufacturers will be barred from making claims that
could reasonably be interpreted to state or imply a reduced health risk
unless the manufacturer demonstrates to FDA that the product
scientifically does in fact "significantly reduce the risk to health"
from ordinary tobacco products. Currently employed product descriptors
such as "light" and "low tar" will be regulated as described in 1(A)
above.

FDA would have to approve all health claims (direct or implied), as well
as the content and placement of any such claims in advertisements, to
prevent the public from being misled and to prevent the advertisement
from being used to expand, or prevent the contraction of, the
marketplace.

For "less hazardous tobacco products," FDA will be authorized to permit
scientifically-based specific health claims and to permit exceptions to
the advertising restrictions that apply to other products if FDA
determines that such advertising would reduce harm and promote the
public health. The FDA will promulgate a rule to govern how these
determinations will be made.

The manufacturers will be required to notify FDA of any technology that
they develop or acquire and that reduces the risk from tobacco products
and, for a commercially reasonable fee, to cross license all such
technology, but only to those companies also covered by the same
obligations. Procedural protections will be built in to resolve license
fee disputes, if the private parties cannot agree among themselves
first. If the technology reported to the FDA is in the early development
stages, the manufacturer will be provided confidentiality protection
during the development process.

The Agency shall also have the authority to mandate the introduction of
"less hazardous tobacco products" that are technologically feasible,
after a formal rule making subject to the Administrative Procedures Act
("APA"), with the right of judicial review. In doing so, the Agency
shall have the authority to mandate that a manufacturer subject to this
Act who owns such technology (at such manufacturer's election) either
introduce such products, or, at a commercially reasonable market rate,
license such technology to a manufacturer who agrees to bring the
technology to market in a reasonable time frame. In the event that no
manufacturer or licensee introduces such "less hazardous tobacco
products," within a reasonable time frame set by FDA, then the U.S.
Public Health Service may produce either itself, or through a licensing
arrangement, any such product.

The goal of any rule mandating the introduction into the marketplace of
"less hazardous tobacco products" for which the technology exists is to
guarantee that a mechanism exists to ensure that products which appear
to hold out the hope of reducing risk are actually tested and made
available in the marketplace and not held back.

5.	Performance Standards

To further the public health, to promote the production of "reduced
risk" tobacco products, and to minimize the harm to consumers of tobacco
products by insuring that the best available, feasible safety technology
becomes the industry standard, FDA will have the authority to promulgate
Performance Standards pursuant to Section 514 that require the
modification of tobacco products to reduce the harm caused by those
products (including the components that produce drug dependence),
provided that the standard shall not require the prohibition on the sale
to adults of traditional tobacco products in the basic form as described
in the August 28, 1996 FDA Rule at 61 Fed. Reg. at 44616 (to be codified
at 21 C.F.R. Section 897.3).

Specifically:

A.	For a period of no fewer than twelve years following the effective
date of the Act, the product Performance Standards will be governed by
the following: The Agency shall be permitted to adopt performance
standards that require the modification of existing tobacco products,
including the gradual reduction, but not the elimination, of nicotine
yields, and the possible elimination of other constituents or other
harmful components of the tobacco product, based upon a finding that the
modification: (a) will result in a significant reduction of the health
risks associated with such products to consumers thereof, (b) is
technologically feasible, and (c) will not result in the creation of a
significant demand for contraband or other tobacco products that do not
meet the product safety standard. In determining the risk of the demand
for a market in contraband products, the FDA shall take into account the
number of dependent tobacco product users and the availability, or lack
thereof, of alternative products then on the market and such other
factors as the Agency may deem relevant.

The authority to require such product modification can be exercised upon
a showing of "substantial evidence," based upon an administrative record
developed through a formal rule making subject to the Administrative
Procedures Act, with the right of judicial review, and any such
modification shall be subject to the current procedures of the
Regulatory Reform Act of 1996 to provide time and a process for Congress
to intervene should it so choose. In the event a party subsequently
files a petition seeking an administrative review of whether a
modification has, in fact, resulted in the creation of a significant
demand for contraband or other tobacco products that do not meet the
safety standard and FDA denies the petition, the petitioner shall have
the right to seek judicial review of the denial of the petition.
Additionally:

Within one year of the effective date of this Act, the FDA shall
establish a Scientific Advisory Committee to examine and determine the
effects of the alteration of nicotine yield levels and to examine and
determine whether there is a threshold level below which nicotine yields
do not produce drug dependence and, if so, to determine that level, and
also review any other safety, dependence or health issue so designated
by FDA.

Separate from and without detracting from the Agency's authority under
the requirements of the Section 514 Performance Standard noted above,
effective three years from the date of enactment of this Act, no
cigarette shall be sold in the United States which exceeds a 12 mg "tar"
yield, using the testing methodology now being used by the Federal Trade
Commission. B.	After the initial twelve year period, the Agency
will be permitted to set product safety standards that go beyond the
standards it is authorized to set pursuant to the above noted provisions
and, if it does so, any such product Performance Standards shall be
governed by the following: The Agency will be permitted to require the
alteration of tobacco products then being marketed, including the
elimination of nicotine and the elimination of other constituents or
other demonstrated harmful components of the tobacco product, (the
elimination of nicotine or other harmful constituent shall not be deemed
to violate the prohibition on the sale of traditional tobacco products
to adults, even if it results in a reduction of the number of the
consumers who use the tobacco products then remaining on the market),
based upon a finding that: (a) the safety standard will result in a
significant overall reduction of the health risks to tobacco consumers
as a group, (this includes the reduction in harm which will result from
decreased drug dependence from the reduction and/or elimination of
nicotine from (a) those who continue to use tobacco products, but less
often, and (b) those who stop using tobacco products), (b) the
modification is technologically feasible, and (c) the modification will
not result in the creation of a significant demand for contraband or
other tobacco products that do not meet the safety standard. In
determining the overall health benefit of a change, the Agency shall
consider the number of dependent tobacco users then in existence, the
availability and demonstrated market acceptance of alternate products
then on the market, and the effectiveness of smoking cessation
techniques and devices then on the market and such other factors as the
Agency may deem relevant.

Given the significance of such an action, the Agency will be permitted
to require the elimination of nicotine or take such other action that
would have an effect comparable to the elimination of nicotine based
upon a "preponderance of the evidence" pursuant to, at a manufacturer's
election, a Part 12 hearing, or notice and comment rule making, with a
right of judicial review. Any such action shall be phased in, and no
such phase-in shall begin in less than two years, to permit time for a
meaningful Congressional review pursuant to the current procedures of
the Regulatory Reform Act of 1996. In the event a party subsequently
files a petition seeking an administrative review of whether a
modification has, in fact, resulted in the creation of a significant
demand for contraband or other tobacco products that do not meet the
safety standard and the FDA denies the petition, the petitioner shall
have the right to seek judicial review of the denial of the petition. In
any judicial review, the deference accorded to the Agency's findings
shall depend upon the extent to which the matter at issue is then within
the Agency's field of expertise.

6.	Manufacturing Oversight

The legislation would subject tobacco product manufacturers to good
manufacturing practice standards ("GMPs") comparable to those applicable
to medical device manufacturers, food companies and other FDA regulated
industries, but tailored specifically to tobacco products. In this
regard there would be:

Implementation of a quality control system (e.g., to prevent
contamination) Inspection of tobacco product materials (e.g., to ensure
compliance with quality standards) Requirements for proper handling of
finished product

Tolerances for pesticide chemical residues in or on commodities in the
possession of the manufacturer; existing EPA authority and oversight is
retained

Inspection authority comparable to FDA's authority over other FDA
regulated products, including the ability to enter manufacturing plants
and demand certain records

Record keeping and reporting requirements Tobacco farmers will face no
greater regulatory burden than the producers of other raw products
regulated by the federal government.

[Source/precedent: FDA Rule; FDCA, 21 U.S.C. Sections 346a; 360]

7.	Access to Company Information

The Act would ensure that previously non-public or confidential the
files of the tobacco industry - including internal documents - are
disclosed to FDA, private litigants The details of the arrangement are
set forth in documents from health research and the public. Appendix VI
II.

Any subpoena authority FDA has with respect to manufacturers of medical
devices generally would also apply to tobacco product manufacturers.

F. Non-tobacco Ingredients

Currently, at the federal level, tobacco manufacturers are required only
to submit aggregated ingredient information (not by brand or company) to
HHS for monitoring and review. Nor do tobacco products manufacturers
currently disclose to consumers ingredients information for each of the
tobacco products they sell.

The legislation would supersede the current often-criticized federal
ingredient law and confirm FDA's authority to evaluate all additives in
tobacco products. No non-tobacco ingredient could be used in
manufacturing tobacco products unless the manufacturer can demonstrate
that such ingredient is not harmful under the intended conditions of
use. Further, the legislation would require the manufacturers to
disclose to FDA the ingredients and the amounts thereof in each brand.
In addition, it would require manufacturers to disclose ingredient
information to the public under regulations comparable to what current
federal law requires for food products, reflecting the intended
conditions of use. Under this proposed legislation:

Manufacturers would be required to provide FDA on a confidential basis a
list of all ingredients, substances and compounds (other than tobacco,
water or reconstituted tobacco sheet made wholly from tobacco) which are
added by the manufacturer to the tobacco, paper or filter of the tobacco
product by brand and by quantity in each brand. For each such item, the
manufacturer would identify whether or not it believes that the item
would be exempt from public disclosure under the legislation.

Manufacturers would be required to submit, within 5 years of the
enactment of the Act, for each ingredient currently added to the tobacco
product, a safety assessment, based on the best available evidence, that
there is a reasonable certainty in the minds of competent scientists
that the ingredient (up to a specified amount) is not harmful under the
intended conditions of use. FDA shall promulgate applicable regulations
within 12 months.

Within a statutory time assessment(s) in accordance within 90 days, FDA
shall period FDA must review with the applicable standard; approve or
disapprove an ingredient's safety, and if FDA takes no action, the
ingredient is deemed approved. FDA may also challenge any manufacturer's
assertion that an ingredient would be exempt from disclosure to
consumers under applicable regulations comparable to what current
federal law requires for food products.

New ingredients or use of current ingredients beyond the specified
maximum amount are subject to a comparable process prior to use.

FDA would be required to protect as strictly confidential ingredient
information not otherwise subject to public disclosure. If not subject
to such disclosure, this information will be treated as trade secrets
under federal law, exempt from FOIA requests and protected by procedures
which shall include the designation of an agent who will store it in a
locked cabinet, maintain a record of any person who has access to the
information and require a written confidentiality commitment from any
such person.

Manufacturers would be required to disclose to the public ingredients
information pursuant to regulations comparable to what current federal
law requires for food products. During an initial 5 year period, each
ingredient that would be exempt from disclosure under the food regime
would be presumed not to be subject to disclosure unless FDA disproves
its safety. However, manufacturers would be required to disclose all
ingredients which they have been compelled to publicly disclose with
respect to a particular brand in order to comply with a statute or
regulation (e.g., MA Ch 94 307B).

Manufacturers would be required to have procedures for the selection,
testing, purchase, storage and use of ingredients. The Act would:

Provide for record keeping regarding ingredients

Allow FDA access to such records, with protection of proprietary
information

[Source/precedent: MA Chapter 94, 307B; 21 C.F.R. 101.4, 101.105, and
101.170; 18 U.S.C. 1905; 5 U.S.C. 552(b)(4); MA proposed reg. 105
C.M.R. 660.200(G)]

G.	Compliance and Corporate Culture.

A key element in achieving the Act's goals will be forcing a fundamental
change in the way the tobacco industry does business. Accordingly, the
Act will provide for means to ensure that the industry will not only
comply with the letter of the law but will also have powerful incentives
to prevent underage usage of tobacco products and to strive to develop
and market less hazardous tobacco products.

First, manufacturers would be required to create plans, with an annual
review and update, to:

Ensure compliance with all applicable laws and regulations

Identify ways to achieve the goals of reduced youth access to and
incidence of underage consumption of tobacco products and provide
internal incentives for doing so

Provide internal incentives to develop products with reduced risk

Second, with a special emphasis on laws and regulations that make it
unlawful to sell tobacco products to underage persons and other laws
directed at the issue of underage tobacco use, the manufacturers must
implement compliance programs that include, at a minimum, the following
elements:

Compliance standards and procedures to be followed by employees and
agents that are reasonably capable of reducing the prospect of
violations

Assignment to specific individual(s) within high-level personnel of the
organization of overall responsibility to oversee compliance with the
relevant standards and procedures, especially in regard to preventing
underage tobacco use

Use of due care not to delegate substantial discretionary authority to
individuals who the organization knows, or should have known through the
exercise of due diligence, had a propensity to disregard corporate
policy

Steps to communicate relevant standards and procedures to all employees
and other agents (including lobbyists), e.g., by requiring participation
in training programs or by disseminating publications that explain in a
practical manner what is required

Internal audits, hotlines and other measures to promote compliance

Appropriate disciplinary mechanisms and measures (e.g., discipline of
employees who violate marketing restrictions)

Reasonable steps to respond appropriately to a violation and to prevent
further similar violations

Furthermore, the Act would provide "whistleblowers" in the tobacco
industry with the maximum protection available under current federal
statutes.

Beyond compliance with the letter of the law, manufacturers would be
required to take affirmative steps in furtherance of the spirit of the
new regime, including:

Promulgating corporate principles that express and explain the company's
commitment to compliance, reductions of underage tobacco use, and
development of reduced risk tobacco products

Designating a specific individual within high-level personnel of the
organization with appropriate responsibility and authority to promote
efforts to attain these new standards

Providing reports to shareholders on compliance as well as progress
toward meeting these new standards

Manufacturers would also be required to work with retail organizations
on compliance, including retailer compliance checks and financial
incentives for compliance.

Third, each tobacco manufacturer would require all contract lobbyists
(and any other third-parties who may engage in lobbying activities on
behalf of a manufacturer) to agree that they will not support or oppose
any state or federal legislation, or seek or oppose any governmental
action on any matter, without the manufacturer's express authorization.
Manufacturers would also require anyone lobbying on their behalf to
agree in writing that a) they are aware of and will fully comply with
all applicable laws and regulations; b) they have reviewed and will
fully comply with the Act as it applies to them; c) they have reviewed
and will fully comply with the Consent Decree as it applies to them; and
d) they have reviewed and will fully abide by the manufacturer's
business conduct policies and any other policies and commitments as they
apply, especially those related to prevention of youth tobacco usage.

Fourth, within ninety days after the Act's effective date, the Tobacco
Institute and the Council for Tobacco Research, U.S.A. would be
dissolved and disbanded. Tobacco product manufacturers would be
permitted to form new trade associations only in accordance with strict
procedures and federal oversight designed to ensure compliance with
antitrust and other applicable laws. (See Appendix IV)

Finally, companies would be subject to fines and penalties (including
"Scarlet Letter" advertising) for breaching their obligations vis--vis
the development, implementation and enforcement of compliance plans and
corporate principles. These penalties shall follow the scheme set forth
in the Clean Air Act, up to $25,000 per day per violation with a total
not to exceed $200,000. In addition, each manufacturer's employees shall
be directed to report to that manufacturer's compliance officer any
known or alleged violations of this Act by retailers or distributors. In
accordance with procedures established by FDA, the compliance officer
shall be required to furnish all such reports to FDA for reference to
appropriate federal or state enforcement authorities. The manufacturer
shall be subject to fines or penalties in the event its compliance
officer fails to furnish any such reports to FDA.

[Source/precedent: Federal Organizational Sentencing Guidelines; various
federal consent decrees; various corporate environmental programs]

H.	Effective Dates

Many of the foregoing requirements relating to the reformation of the
tobacco industry will become effective shortly after the Act is signed
by the President; including the following categories of new rules, which
will be implemented on the dates indicated:

Category / Effective Dates on Final Passage

Retail Product Displays / 9 months

Retail signage / 5 months

Advertising / 9 months

Package Labeling / 1/3 in 90 days

1/3 in 120 days

1/3 in 180 days

Sponsorships / 12/31/98

Vending machines / 12 months

Sampling / 3 months

GMPs / 24 months in accordance with rulemaking, whichever is later

Corporate compliance / 12 month

Face-to-face transactions / 3 months

Ban on sales of open packs / 3 months

20 cigarettes per pack minimum / 3 months

Puerto Rico pack size / 12 months

TITLE II: "Look Back" Provisions/State Enforcement incentives

A central aim of this legislation is to achieve dramatic and immediate
reductions in the number of underage consumers of tobacco products. The
legislation accordingly contains a "look-back" provision giving tobacco
product manufacturers significant economic incentives to take every
possible step to ensure that the advertising, marketing and distribution
requirements of this Act are met, and imposing substantial surcharges on
the manufacturers in the event that underage tobacco-use reduction
targets are not achieved.

The "look-back" provision sets targets for the dramatic reduction of
current levels of underage tobacco use (as measured by the University of
Michigan's National High School Drug Use Survey "Monitoring the
Future"). Underage use of cigarette products must decline by at least
30% from estimated levels over the last decade by the fifth year after
the legislation takes effect, by at least 50% from estimated levels over
the last decade by the seventh year after the legislation takes effect,
by at least 60% from estimated levels over the last decade by the tenth
year after the legislation takes effect, and remain at such reduced
levels or below thereafter. (These required reductions amount to even
steeper declines from current levels of underage smoking.) Underage use
of smokeless tobacco products must decline by at least 25% from current
levels by the fifth year after the legislation takes effect, by at least
35% from current levels by the seventh year after the legislation takes
effect, by at least 45% from current levels by the tenth year after the
legislation takes effect, and remain at such reduced levels or below
thereafter. FDA will annually assess the prevalence of underage tobacco
use (based on the methodology employed by the University of Michigan
survey) to determine whether these targets have been met.

If a target has not been met, FDA will impose a mandatory surcharge on
the relevant industry (cigarette or smokeless tobacco) based upon an
approximation of the present value of the profit the industry would earn
over the lives of all underage users in excess of the target (subject to
an annual cap of $2 billion for the cigarette industry (adjusted each
year for inflation) and a comparably derived cap for the smokeless
tobacco industry). Tobacco product manufacturers could receive a partial
abatement of this surcharge (up to 75%) only if they could thereafter
prove to FDA that they had fully complied with the Act, had taken all
reasonably available measures to reduce youth tobacco use and had not
taken any action to undermine the achievement of the required
reductions.

A fuller description is provided in Appendix V.

In addition, the proposed Act goes well beyond the provisions of the
Synar Amendment's "no tobacco sales to minors" law and related
regulations, 42 U.S.C.  300X-26, and the Final Rule promulgated
thereunder, which became effective February 20,1996 (61 Fed. Reg., June
19, 1996). The proposed Act requires the several States to undertake
significant enforcement steps designed to dramatically reduce the
incidence of youth smoking, and youth access to tobacco products. These
enforcement obligations are funded by Industry Payments. Each state must
maintain specific levels of enforcement effort, or the state risks the
loss of a significant portion of the health care program funds otherwise
payable to the state under the Act. Amounts withheld from states not
doing an adequate enforcement job will be reallocated to states with a
superior "no sales to minors" enforcement record. No state will be held
responsible for sales to underage consumers outside that state's
jurisdiction.

The details of these state enforcement incentives are set forth in
Appendix VI. TITLE III: Penalties and Enforcement; Consent Decrees;
Non-Participating Companies

A. Penalties and Enforcement

This legislation will be enforceable both by the federal government,
including FDA and civil and criminal divisions of the Department of
Justice, and by the several States. FDA will also have the authority to
contract directly with state agencies to assist with enforcement. If
conduct is subject to a particular State's consumer protection law or
similar statute, such state may proceed under that law.

State enforcement actions - whether brought under the Act or a State's
consumer protection law - could not impose obligations or requirements
beyond those imposed by the legislation (except where the legislation
does not specifically preempt additional state-law obligations), and
would be limited to the civil and criminal penalties established by the
legislation and by the prohibition on duplicative penalties. State
enforcement proceedings under the Act (or predicated on conduct
violating the Act), except those exclusively local in nature, would be
removable to federal court. Nothing in the Act precludes a State from
enforcing its laws in the ordinary fashion as to matters not covered by
the Act or Protocol.

Civil and criminal penalties for violations of the legislation based on
those governing other drugs or devices regulated under the Food, Drug
and Cosmetic Act and, where applicable, under Title 18 of the U.S. Code.

In addition, the industry faces civil penalties of up to $10 million per
violation for any violations of the obligations to disclose to the FDA
research about tobacco-product health effects and information regarding
the toxicity of non-tobacco ingredients and constituents used in their
products. This penalty is ten times the largest penalty faced by other
drug or device manufacturers for similar violations.

To reflect the fact that not all States have filed lawsuits against the
tobacco industry, but that the intent of the negotiators is to provide
the benefits of the settlement to all States, the industry also will
enter into a binding and enforceable national tobacco control

Protocol embodying certain terms of the proposed resolution. As an
enforceable contract, which would not be subject to facial
constitutional challenge, this Protocol will provide benefits and
enforcement rights to the federal government and all states.

B. Consent Decrees

Certain terms of the agreement will also be reiterated in consent
decrees between the tobacco industry and the states that will not take
effect until after enactment of the Act. These consent decrees will be
identical to, and will reiterate, the terms of the agreement with
respect to: (1) restrictions on advertising, marketing and youth access
to tobacco products; (2) trade associations; (3) restrictions on
lobbying; (4) disclosure of tobacco smoke constituents; (5) disclosure
of non-tobacco ingredients; (6) disclosure of existing and future
industry documents relating to health, toxicity and addiction; (7)
compliance and corporate culture; (8) obligations to make monetary
payments to the States reflecting their reasonable share of the total
provided by the Act; (9) obligations of the industry to deal only with
distributors and retailers that operate in compliance with applicable
provisions of law respecting the distribution, sale and marketing of
tobacco products; (10) warnings, labeling and packaging (to the extent
noted below); and (11) dismissal of other pending litigation specified
by the parties.

The consent decrees will not contain provisions as to: (1) product
design, performance or modification; (2) manufacturing standards and
good manufacturing practices; (3) testing and regulation with respect to
toxicity and ingredients approval; and (4) the national FDA "look back"
provisions.

The consent decrees will provide that their terms are to be construed in
conformity with the Act and the Protocol and with each other. State
proceedings to enforce the provisions of the consent decrees may be
brought in state court, subject to an acceptable procedure to ensure
consistent rulings with respect to conduct that is not exclusively local
in character. State proceedings to enforce the consent decrees may seek
injunctive relief only, and may not seek criminal or monetary sanctions.
A State shall not be limited from seeking criminal or other sanctions
for a company's subsequent violation of an injunction entered by the
court in an action brought to enforce the consent decree.

The provisions of the consent decrees will remain enforceable regardless
of whether subsequent changes in the Act or in any other provision of
law diminish the obligations of the companies in the areas covered by
the consent decrees, except: (1) where such changes create federal
requirements that produce obligations in conflict with those contained
in the consent decrees; (2) with respect to the allocation of funds; and
(3) with respect to warnings, labeling and packaging. With respect to
warnings, labeling and packaging, if the requirements of the Act are
later modified, or if Congress subsequently prohibits warnings on
tobacco products, the consent decrees will be modified to conform to
such requirements. However, if Congress later eliminates altogether the
warning requirement in the Act, the warnings originally set forth in the
Act (the so-called Canadian warnings) shall be mandated and enforceable
under the consent decrees.

In addition, the parties recognize that certain provisions of the
consent decrees and the agreement may require them to act (or refrain
from acting) in a manner that they might otherwise claim would violate
the federal or state constitutions. They will therefore in the consent
decrees expressly waive any claim that the provisions of the consent
decrees or the agreement violate the federal or state constitutions. The
consent decrees will also state that if a provision of the Act covered
by the decrees is subsequently declared unconstitutional, the provision
remains an enforceable term of the consent decrees.

C.	Non-participating companies

The regime envisioned by the resolution would be substantially undercut
if certain companies were free to ignore the limitations it imposes, and
were instead able to sell tobacco products at lower prices (because they
were not making the payments described above) and through less
restricted advertising and marketing activities. The resolution
accordingly anticipates the possibility that some manufacturers of
tobacco products may not consent to the institution of this regime.
Rather than seeking to impose on such manufacturers the advertising
restrictions, full required payments and corporate culture changes set
forth above, the resolution avoids constitutional questions that might
otherwise be raised by establishing a separate regime for
non-participating manufacturers.

Non-participating manufacturers would be subject to the access
restrictions and regulatory oversight set forth above. They would
receive none of the civil liability protections described in Title VIII.
Their product would be subject to a user fee equal to the portion of the
payments by participating manufacturers allocated to fund public health
programs and federal and state enforcement of the access restrictions.

The resolution further recognizes that - unlike the participating
manufacturers - non-participating manufacturers will not have made
consensual payments to settle governmental actions for health care
costs, to settle class actions and in to provide consideration for the
partial settlement of individual tort actions (including punitive
damages claims). Because such actions would remain wholly unsatisfied,
it is vital that the claimants be ensured that funds will be available
to satisfy any judgments that may be obtained. Accordingly, the
resolution requires that each nonparticipating manufacturer place into
an escrowed reserve fund each year an amount equal to 150% of its share
of the annual payment required of participating manufacturers (other
than the portion allocated to public health programs and federal and
state enforcement). These escrowed funds would be earmarked for
potential liability payments, and the manufacturer would reclaim them
with interest 35 years later to the extent they had not been paid out in
liability.

Moreover, the resolution also recognizes that - because nonparticipating
manufacturers are not subject to the corporate culture commitments
requiring manufacturers to monitor distributor and retailer compliance
with the underage access restrictions -distribution and retail sales of
those manufacturers' products present a particularly great obstacle to
the achievement and enforcement of the access restrictions. Accordingly,
the resolution provides that the exemption from civil liability
applicable to distributors and retailers of the products of
participating manufacturers will not apply to distributors and retailers
who handle tobacco products of non-participating manufacturers.

Title IV: Nationwide Standards To Minimize Involuntary Exposure To
Environmental Tobacco Smoke

Until now, there has been no minimum or other federal standard governing
smoking in public places or at work. The legislation would:

Restrict indoor smoking in "public facilities" (i.e., any building
regularly entered by 10 or more individuals at least one day per week)
to ventilated areas with systems that:

Exhaust the air directly to the outside;

Maintain the smoking area at "negative pressure" compared with adjoining
areas; and

Do not recirculate the air inside the public facility.

Ensure that no employee shall be required to enter a designated smoking
area while smoking is occurring. Cleaning and maintenance work in a
designated smoking area shall be conducted while no smoking is
occurring.

Exempt restaurants (but not "fast food" restaurants) ("Fast food"
restaurant means any restaurant or chain of restaurants which primarily
distributes
food
via customer pick-up (either at a counter or drive-through window). In
addition, OSHA would be authorized to issue regulations clarifying this
definition to the extent necessary to ensure that the intended inclusion
of establishments catering largely to minors is achieved. Any such
regulation may consider such factors as whether a restaurant either has
attached playgrounds or play areas for children, uses ad campaigns that
feature or prominently include cartoon characters and/or toy giveaways
or advertises "happy meal" or other comparable kids-combination
platters, and other factors OSHA deems relevant.) and bars (including
those in hotels), private clubs, hotel guest rooms, casinos, bingo
parlors, tobacco merchants and prisons.

Direct OSHA to issue, not later than one year after the effective date
of the legislation, regulations implementing and enforcing the preceding
standards, with enforcement costs paid out of the Industry Payments. The
smoking restrictions outlined in this Title would take effect on the
first anniversary of the enactment of the legislation irrespective of
whether the implementing regulations have been promulgated.

The legislation would not preempt or otherwise affect any other state or
local law or regulation that restricts smoking in public facilities in
an equal or stricter manner. Nor would the legislation preempt or
otherwise affect any federal rules that restrict smoking in federal
facilities.

[Source/precedent: H.R. 3434, as reported out of committee; WISHA
workplace smoking rule; state law exemptions for the "hospitality
sector"]

TITLE V: Scope and Effect

A.	Scope of FDA Authority

All product sold in U.S. commerce

Covers new entrants; imports; U.S. duty free, etc.

BATF to retain fiscal authority over tobacco products

FTC to retain existing authority, except for "tar", nicotine, and carbon
monoxide testing

Grower Limitation: FDA jurisdiction does not extend to the growing,
cultivation or curing of raw tobacco (USDA has exclusive authority).

B.	State Authority

1.	Preservation of State and Local Government Laws and Legal
Authority

While setting a federal "floor" for tobacco control measures in many
substantive areas, this legislation preserves, to the maximum extent,
state and local government authority to take additional tobacco control
measures that further restrict or eliminate the product's use by and
accessibility to minors.

This legislation also permits state and local governments to enact
measures that further restrict or eliminate employee and general public
exposure to smoking in workplaces and in other public and private places
and facilities.

The legal authority of a state or local government to further regulate,
restrict or eliminate the sale or distribution of tobacco products, and
to impose state or local taxes on such products, also remains unchanged.

The legislation retains similar flexibility for Indian tribes, military
facilities and other federal agencies.

2.	Uniformity of Warning Labels, Packaging, Labeling and Other
Advertising Requirements; Manufacturing Requirements

Current federal law providing for national uniformity of warning labels,
packaging and labeling requirements, and advertising and promotion
requirements related to tobacco and health, is preserved, except that
this legislation gives FDA express authority to require changes in the
language of the warnings, subject to the standard requirement that it
provide public notice and a hearing opportunity prior to making such
changes.

Similarly, the provisions of FDCA designed to provide uniformity in
product manufacturing and design requirements relating to medical
devices will apply to tobacco products, except that any application by a
State or locality for an exemption permitting it to adopt additional or
different requirements relating to performance standards or good
manufacturing practices may only be granted if the requirement would not
unduly burden interstate commerce. Further, to ensure that FDA has an
adequate opportunity to evaluate non-tobacco ingredients as described in
Title 1(F), no exemption relating to ingredients may be applied for
until the fifth anniversary of the effective date of the Act.

TITLE VI: Programs/Funding

TOTAL 25 YEAR PACKAGE FACE VALUE - $368.5 Billion

A.	Up Front Commitment - Lump Sum Cash Payment - $10 Billion

1.	Payable on Statute Signing Date.

B.	Base Annual Payments - 25 Year Total Face Value is $358.5 Billion
(Figures Subject to Inflation Protection and Volume Adjustments)

1.	Duration - annual payments in perpetuity

2.	Commencement - 12/31 of first full year after statute signing

3.	Face Amounts (includes payments from all industry sources):

Payment Year       1         2           3       4        5      6-8    
  9     after

Total Payments $8.5B $9.5B $11.5B $14B $15B $15B $15B $15B

Base Amount:  $6B     $7B    $8B    $10B $10B $12.5B $15B $15B

Public Health Trust    $2.5B   $2.5B $3.5B  $4B   $5B    $2.5B

4.	Inflation Protection for Annual Payments

Greater of 3% or CPI applied each year on previous year, beginning with
first annual payment.

5.	Adjustment for Volume Decrease (Adult Volume Only) or Total Volume
Increase

Beginning in year 1; payment made equal to scheduled annual payment
times the ratio of actual relevant domestic tobacco product unit sales
volume to relevant base volume. In the event of a decline in volume,
relevant actual volume and relevant base volume are adult volume
figures; in the event of an increase in volume, relevant actual volume
and relevant base volume are total volume figures. Base volume is 1996
volume.

Any reduction in an annual payment will be reduced by 25% of any
increase above the industry's base year net operating profits (after
application of inflator discussed above) from domestic sales of tobacco
products.

6.	Payment Protection

Provide for payment priority/continuation during bankruptcy/
reorganization proceedings. Protocol cannot be rejected in bankruptcy.
Obligation for annual payments responsibility only of entities selling
into domestic market

7.	Pass-Through

In order to promote maximum reduction in youth smoking, the statute
would provide for the Annual Payments to be reflected in the prices
manufacturers charge for tobacco products.

C.	Applicability

1.	Applicable to All Sellers of Tobacco Products

Through protocol and statute to protocol signatories.

Through alternative statutory provisions to non-signatories.

D.	Tax Treatment

All payments pursuant to this Agreement (including those pursuant to
Title II) shall be deemed ordinary and necessary business expenses for
the year of payment, and no part thereof is either in settlement of an
actual or potential liability for a fine or penalty (civil or criminal)
or the cost of a tangible or intangible asset.

TITLE VII:Public Health Funds From Tobacco Settlement As Recommended By
The Attorneys General For Consideration By The President And The
Congress

BASED ON THE PREMISE OF $1 BILLION FOR THE FIRST YEAR AND GRADUALLY
INCREASING TO $1.5 BILLION THEREAFTER, ADJUSTED FOR INFLATION AFTER THE
FIRST YEAR.

BASED ON THE PREMISE OF $1 BILLION FOR SMOKING CESSATION FOR THE FIRST 4
YEARS AND $1.5 BILLION THEREAFTER, ADJUSTED FOR INFLATION.

(A)	ALLOCATION OF GRANT MONIES AMONG PROGRAMS - The use of moneys
under this Section shall be limited to programs established under this
Section, shall be adjusted for inflation annually from the effective
date, and shall be allocated among such programs as follows:

(1)	$125,000,000 for the first three years and $225,000,000 annually
thereafter to the Secretary of HHS to accomplish the purposes described
in Paragraph (B) of this Section (Reduction in Tobacco Usage);

(2)	$300,000,000 annually for the FDA to carry out its obligations
under and to enforce the terms of this Act, including for grants to the
states to assist in the enforcement of the provisions of the Act;

(3)	$75,000,000 for the first two years, $100,000,000 in the
third year, and $125,000,000 annually thereafter to fund state and local
tobacco control community based efforts modeled on the ASSIST program,
designed to encourage community involvement in reducing tobacco use and
the enactment and implementation of policies designed to reduce the use
of tobacco products;

(4)	$100,000,000 annually to fund research and the development of
methods for how to discourage individuals from starting to use tobacco
and how to help individuals to quit using tobacco;

(5)	Beginning in the second year, $75,000,000 annually for a period
of ten (10) years to compensate events, teams or entries in such events,
who lose sponsorship by the tobacco industry as a result of this Act, or
who currently receive tobacco industry funding to sponsor events and
elect to replace that funding, provided that the event, team, or entry
is otherwise unable to replace its tobacco industry sponsorship during
those given years. Funds used for this purpose shall promote a Quit
Tobacco Use theme. After a ten year period, no additional funds shall be
used for this purpose and the funds previously allocated to this purpose
shall be used as follows: 50% to supplement funding of the multimedia
campaigns in paragraph (1) of this subsection; 25% to supplement the
funding of the enforcement provisions of paragraph (2) of this
subsection; and 25% to supplement the funding of community action
programs in paragraph (3) of this subsection.

(B)	ESTABLISHMENT OF PROG-RAMS BY THE SECRETARY - The Secretary
shall establish programs to accomplish the following purposes:

(1)	the reduction of tobacco product usage, both by seeking to
discourage the initiation of tobacco use by persons under the age of 18
and by encouraging current tobacco users to quit through media-based and
non-media based education, prevention and cessation campaigns. The
Secretary may make grants to state health departments to assist in
carrying out the purposes of this provision.

(2)	the research into and development and public dissemination of
technologies and methods to reduce the risk of dependence and injury
from tobacco product usage and exposure;

(3)	the identification, testing and evaluation of the health effects
of both tobacco and non-tobacco constituents of tobacco products;

(4)	the promulgation of such other rules and regulations as are
necessary and proper to carry out the provisions of this Act, as well as
the development of such other programs as the Secretary determines are
consistent with the goals of the Act.

(C)	Public Education Campaign - $500,000,000 shall be spent annually
in such multi-media campaigns designed to discourage and de-glamorize
the use to tobacco products. To carry out such efforts, an independent
non-profit organization with a Board made up of prestigious individuals
and the leaders of the major public health organizations shall be
created which shall contract or make grants to non-profit private
entities who are unaffiliated with tobacco manufacturers or tobacco
importers, who have a demonstrated record of working effectively to
reduce tobacco product use and expertise in multi-media communications
campaigns. The independent body shall be authorized to contract with
state health departments, where appropriate, to run campaigns for their
states and communities. In creating the program the Secretary or
independent body shall also take into account the needs of particular
populations. The goal shall be the reduction of tobacco product usage,
both by seeking to discourage the initiation of tobacco use by persons
under the age of 18 and by encouraging current tobacco users to quit.

(D)	Tobacco Use Cessation - For the first 4 years, $1 billion,
and thereafter, $1.5 billion of the total amount paid by the tobacco
industry shall be paid into a Trust Fund to be used to assist
individuals who want to quit using tobacco to do so.

Within 12 months the Secretary shall promulgate regulations to govern
(1) the establishment of criteria for and a procedure for the approval
of cessation programs and devices for which payment may be made under
the program, (2) the eligibility requirements for individuals seeking to
use moneys from the trust to fund the tobacco cessation efforts, and (3)
the procedures to govern the tobacco cessation program.

The goal of the tobacco cessation program shall to enable the most
tobacco users possible to receive assistance in their effort to quit
using tobacco by providing financial assistance and identifying the
programs, techniques, and devices that have been shown to be safe and
effective. Benefits to individuals should not be limited to a single
effort, but should be tailored to the needs of individual smokers
according to standards established by the Secretary using the best
available scientific guidelines.

(E)	Public Health Trust Fund Presidential Commission - A Presidential
commission will be appointed to include representatives of the public
health community, Attorneys General, Castano attorneys and others to
determine the specific tobacco-related medical research for which the
$25 Billion Public Health Trust Fund will be used.

TITLE VIII: Civil Liability

The following provisions would govern actions for civil liability
related to tobacco and health.

A.	General

1.	Present Attorney General actions (or similar actions brought
by or on behalf of any governmental entity), parens patriae and class
actions are legislatively settled. No future prosecution of such
actions. All "addiction"/dependence claims are settled and all other
personal injury claims are reserved. As to signatory States, pending
Congressional enactment, no stay applications will be made in pending
actions, based upon the fact of this resolution, without mutual consent
of the parties.

2.	Third-party payor (and similar) actions pending as of 6/9/97
are not settled, but governed by provisions regarding past conduct set
forth in Section B below.

B.	Provisions as to Civil Liability for Past Conduct

The following provisions apply to suits for relief arising from past
conduct - i.e., suits by persons claiming injury or damage caused by
conduct taking place prior to the effective date of the Act.

1.	All punitive damages claims resolved as part of overall
settlement. No punitive damages in individual tort actions.

2.	Individual trials only: i.e., no class actions, joinder,
aggregations, consolidations, extrapolations or other devices to resolve
cases other than on the basis of individual trials, without defendant's
consent. Action removable by defendant to federal court upon receipt of
application to, or order of, state court providing for trial or other
procedure in violation of this provision.

3.	Except as expressly provided in the Act, FCLAA and applicable
case law unchanged by the Act.

4.	Provided that the five negotiating companies enter into the
Protocol: Protocol manufacturers to enter into joint sharing agreement
for civil liability. Protocol manufacturers not jointly and severally
liable for liability of non-Protocol manufacturers. Trials involving
both protocol and non-Protocol manufacturers to be severed.

5.	Permissible parties:

Plaintiffs -

a.	Claims of individuals, or claims derivative of such claims,
must be brought either by person claiming injury or heirs.

b.	Third-party payor (and similar) claims not based on subrogation
that were pending as of 6/9/97.

c.	Third-party payor (and similar) claims based on subrogation of
individual claims; no extrapolations, etc.

Defendants

a.	maintained only against companies, their assigns, any future
fraudulent transferee, and/or entity for suit designated to survive
defunct manufacturer. Actions may be manufacturing successors and

b.	Manufacturers of agents agencies and liable vicariously for
acts (including advertising attorneys).

6.	No removal except under paragraph 2 above.

7.	The development of "reduced risk" tobacco products after the
effective date of the Act is neither admissible nor discoverable.

8.	Statute of limitations: for all actions, individual state laws
governing time periods from injury, discovery, notice or
contamination/violation.

9.	Annual aggregate cap for judgments/settlements: 33% of annual
industry base payment (including any reductions for volume decline). If
aggregate judgments/settlements for a year exceed annual aggregate cap,
excess does not have to be paid that year and rolls over.

Any judgments/settlements run against defendant but give rise to
80-cent-on-the-dollar credit against annual payment in year paid.
Suitable provision for settlement consultation and permission.
Manufacturers control insurance claims, and any insurance recovery
obtained by manufacturers (net of cost) on account of judgment and/or
settlement covered by above sharing arrangement allocated 80% to annual
payments. Manufacturers retain any insurance proceeds on account of
defense costs.

Provision with respect to individual judgments above $1 million: amount
in excess of $1 million not paid that year unless every other
judgment/settlement can be satisfied within the annual aggregate cap.
Excess rolls forward without interest and is paid at the rate of $1
million per year, until the first year that the annual aggregate cap is
not exceeded (at which time the remainder is paid in full). For purposes
of this provision, a third-party payor (or similar) action not based on
subrogation is treated as having been brought by a single plaintiff and
is subject to the $1 million rollover on that basis.

10.	In the event that the annual aggregate cap is not reached in
any year, a Commission appointed by the President will determine the
appropriate allocation of the amount representing the unused amount of
the credit. The Commission will be entitled to consider, among public
health, governmental entities, and other uses of the funds, applications
for compensation from persons, including nonsubrogation claims of third
party payors, not otherwise entitled to compensation under the Act.

11.	Defense costs paid by manufacturers.

C.	Provisions as to Civil Liability for Future Conduct

The following provisions apply to suits for relief arising from future
conduct - i.e., suits claiming injury or damage caused by conduct taking
place after the effective date of the Act.

1.	Paragraphs 2, 3, 5, 6, 7, 8, 9,10 and 11 in Section B apply.

2.	No third-party payor (or similar) claims not based on
subrogation.

TITLE IX: Board Approval

The terms of this resolution are subject to approval by the Boards of
Directors of the participating tobacco companies.

APPENDICES

Appendix I - Warnings in Advertisements

The space in press and poster advertisements for tobacco products that
is to be devoted to the warning and, where relevant, the "tar," nicotine
and any other constituent yield statements will be 20% of the area of
the advertisement. The size of the printing of the warning and the yield
statements shall be pro rata to the following examples:

a)	Whole page broadsheet newspaper - 45 point type

b)	Half page broadsheet newspaper - 39 point type

c)	Whole page tabloid newspaper - 39 point type

d)	Half page tabloid newspaper - 27 point type

e)	DPS magazine - 31.5 point type

f)	Whole page magazine - 31.5 point type

g)	28 cm X 3 columns - 22.5 point type

h)	20 cm X 2 columns - 15 point type

FDA may revise the required type sizes within the 20% requirement.

Appendix II - Retail Tobacco Product Seller Penalties

1.	The sale of tobacco products to consumers by an unlicensed seller
shall be a criminal violation, and be subject to minimum penalty of
$1,000, or imprisonment, for 6 months, or both, if an individual, or in
the case of a corporation, by a maximum penalty of $50,000. Any State or
local jurisdiction may provide by statute or code more severe penalties.

2.	In addition to any criminal penalties which may be imposed
under any applicable state or local law, a tobacco product licensee may
be subjected to civil sanctions, including penalties, or license
suspension or revocation (on a site-by-site basis), or a combination
thereof, for any violation of the provisions of the State licensing laws
regarding sales to minors. Such sanction shall not exceed the following:

(a)	For the first offense within any two year period, $500 or a 3
day license suspension or both.

(b)	For the second offense within any two year period, $1,000 or
a 7 day license suspension or both.

(c)	For the third offense within any two year period, $2,000 or a
30 day license suspension or both.

(d)	For the fourth offense within any two year period, $5,000 or
a 6 month license suspension or both.

(e)	For the fifth offense within any two year period, $10,000 or
1 year license suspension or both.

(f)	For the sixth and any subsequent offenses within any two year
period, $25,000 or a revocation of license with no possibility of
reinstatement for a period of three years.

(g)	Permanent license revocation is mandatory for the tenth offense
within any two year period.

Each state must enact a statutory or regulatory enforcement scheme that
provides substantially similar penalties to the minimum federal
standards for a retail licensing program.

[Source/Precedent: Washington State Alcohol Licensing Act]

Appendix III - Application to Indian Tribes

A.	Application Of Act

1.	The provisions of the FDCA, the regulations of the FDA, and
the Act relating to the manufacture, distribution and sale of tobacco
products shall apply on Indian lands as defined in 18 U.S.C 1151 and on
any other trust lands subject to the jurisdiction of an Indian tribe. To
the extent that an Indian tribe engages in the manufacture, distribution
or sale of tobacco products, the provisions of this Act shall apply to
such tribe.

2.	Any federal tax or fee imposed on the manufacture, distribution or
sale of tobacco products shall be paid by any Indian tribe engaged in
such activities, or by persons engaged in such activities on such Indian
lands, to the same extent such tax or fee applies to other persons under
the law.

B.	Tribal Programs And Authority

1.	For the purposes of the provisions of this Act, FDA is authorized
to treat any federally-recognized Indian tribe as a state, and is
authorized to provide any such tribe grant and contract assistance to
carry out the licensing and enforcement functions provided by this
section.

2.	Such treatment shall be authorized only if:

(a)	the Indian tribe has a governing body carrying out substantial
governmental powers and duties;

(b)	the functions to be exercised by the Indian tribe under this
section pertain to activities on trust lands within the jurisdiction of
the tribe; and

(c)	the Indian tribe is reasonably expected to be capable of carrying
out the functions required under this Act.

[Source/precedent: Clean Air Act, 42 U.S.C. 7601(d)]

3.	FDA regulations which establish a retail licensing program
shall apply on Indian trust lands, and each tribe's program shall be no
less strict than the program of the State in which the tribe is located.

4.	If FDA determines that an Indian tribe does not qualify for
treatment as a state, FDA will directly administer the retailer
licensing program, or may delegate such authority to the state.

C.	Tobacco Compensation And Public Health Grants

1.	A portion of the settlement funds to which a state is otherwise
entitled shall be paid to HHS for distribution to the Indian tribes
which have been certified by FDA for treatment as states. The funds to
be paid for such purposes on behalf of Indian tribes shall be determined
by the proportion of registered tribal members resident on the
reservation to the total population of the state in which the tribe is
located. The funds to be distributed to Indian tribes shall be used for
the same purposes as those funds are to be used by the states and be
subject to the same compliance requirements for retail sales to minors
as are the states under the Act.

2.	The Department of Health and Human Services will annually pay
to the governing body of each Indian tribe its share of the funds for
use under an FDA-approved plan after annual certification by FDA, under
the same standards that apply to the States, that the Indian tribe is in
compliance with the requirements of the Act and any applicable
regulations.

3.	If HHS does not distribute all, or a portion, of an Indian tribe's
share of the funds in any given year because the tribe has not qualified
under the terms of this section or has not met the compliance
requirements for retail sales to minors, those funds will be distributed
to other qualified tribes in the same state for the same purposes and on
the same proportional basis, less the non-qualified tribe's population,
as other settlement funds are to be distributed to the tribes.

D.	Obligations of Tobacco Manufacturers

1.	Tobacco manufacturers shall not engage in any activity on Indian
lands subject to this Act which activity the manufacturers may not
otherwise do within a State.

2.	Tobacco manufacturers also agree not to sell tobacco products
for manufacture, distribution, or sale to an Indian tribe, or to a
manufacturer, distributor, or retail seller subject to the jurisdiction
of an Indian tribe, except under the same terms and conditions as the
tobacco manufacturers impose under other manufacturers, distributors and
retail sellers under the Act, or any applicable regulations.

Appendix IV - Industry Associations

Within 90 days of the effective date of the Act, the tobacco product
manufacturers shall disband and dissolve the Council for Tobacco
Research, U.S.A. and the Tobacco Institute. In addition, with respect to
any new trade associations:

A.	Tobacco product manufacturers may form or participate in any
new tobacco industry trade association. Any such new trade association
shall have an independent board of directors, in accordance with the
following requirements. For at least 10 years after the formation of the
new association, a minimum of 20 percent of the directors, but at least
one director, shall be other than a current or former director, officer
or employee of any association member or affiliated company. No other
director of a new trade association may be, at the same time, a director
of any association member or affiliated company. The officers shall be
appointed by the board and shall be employees of the association, and
during their term shall not be employed by any association member or
affiliated company. Legal counsel for any such association shall be
independent and not serve as legal counsel to any association member or
affiliated company while counsel to the association.

B.	Any new tobacco product manufacturers' trade association shall
adopt by-laws governing the association's procedures and the activities
of its members, board, employees, agents and other representatives. The
by-laws shall include, among other things, provisions that:

(1)	members who are competitors in the tobacco industry shall not
meet on the association's business except under sponsorship of the
association;

(2)	every board of directors meeting, board sub-committee meeting,
general association or committee meeting, and any other association
sponsored meeting, shall proceed under and strictly adhere to an agenda,
approved by legal counsel and circulated in advance; and

(3)	minutes describing the substance of the meetings shall be
prepared for all such meetings, and shall be maintained by the
association for a period of 5 years. C.	Moreover, under the new
regime:

1.	The structure, by-laws, and activities of tobacco industry
trade associations shall be subject to continuing oversight by the U.S.
Department of Justice and by state antitrust authorities. For a period
of 10 years from the creation of a new trade association, such
authorities may, without limitation on whatever other rights to access
they may be permitted, upon reasonable prior notice:

(a)	have access during regular office hours to inspect and copy
all books, records, meeting agenda and minutes, and other association
documents; and

(b)	interview the association's directors, officers and employees,
who may have counsel present.

The inspection and discovery rights provided in (a) and (b) above shall
be exercised through a multi-state States' Attor-neys General oversight
committee. Any docu-ments and information provided to any state pursuant
to (a) and (b) above shall be kept confidential by and among the states
and shall be utilized only for governmental purposes of enforcing the
Act and ancillary documents.

2.	In order to achieve the goals of this Agreement and the Act
relating to tobacco use by children and adolescents, the tobacco product
manufacturers may, notwithstanding the provisions of the Sherman Act,
the Clayton Act, or any other federal or state antitrust law, act
unilaterally, or may jointly confer, coordinate or act in concert, for
this limited purpose. Manufacturers must obtain prior approval from the
Department of Justice of any plan or process for taking action pursuant
to this section; however, no approval shall be required of specific
actions taken in accordance with an approved plan. Approval or
non-approval of a plan shall not be grounds for abatement of any
surcharge to a manufacturer for failure to meet the reductions in
underage tobacco use contemplated in this resolution and the Act.

Appendix V - "Look Back"

A summary of the "look-back" provision is as follows:

A.	The Reduction Requirements.

1.	The required reductions in underage tobacco use are measured
against a base percentage. For underage use of cigarettes, the base
percentage is the average weighted by relative population of such age
groups in 1995 as determined by the U.S. Census Bureau, of (a) the
average of the percentages of 12th graders (ages 16 and 17) from 1986 to
1996 who used cigarette products on a daily basis; (b) the average of
the percentages of 10th graders (ages 14 and 15) from 1991 to 1996 who
used cigarette products on a daily basis; and (c) the average of the
percentages of 8th graders (age 13) from 1991 to 1996 who used cigarette
products on a daily basis. The percentages are those measured by the
University of Michigan's National High School Drug Use Survey
"Monitoring the Future" or by such comparable index using identical
methodology as is chosen by FDA after notice and hearing. For underage
use of smokeless tobacco products, the base percentage is the average,
weighted by relative population of such age groups in 1995 as determined
by the U.S. Census Bureau, of (a) the percentage of 12th graders (ages
16 and 17) in 1996 who used smokeless tobacco products on a daily basis;
(b) the percentage of 10th graders (ages 14 and 15) in 1996 who used
smokeless products on a daily basis; and (c) the percentage of 8th
graders (age 13) in 1996 who used smokeless tobacco products on a daily
basis. These percentages are to be derived from the same source as are
the percentages with respect to use of cigarette products.

2.	After the fifth year after enactment of the Act and annually
thereafter, the FDA will calculate the incidence of daily use of tobacco
products by those under 18 years of age as follows:

For cigarette product use, the FDA will calculate the average, weighted
by relative population of such age groups in 1995 as determined by the
U.S. Bureau of Census, of the percentages of 12th graders (ages 16 and
17), 10th graders (ages 14 and 15) and 8th graders (age 13) who used
cigarette products on a daily basis during the preceding year. The
percentages used in this calculation are to be those measured (a) by the
University of Michigan Survey; or (b) by such comparable index using
identical methodology as is chosen by the FDA after notice and hearing.
If the methodology of the University of Michigan Survey is hereafter
changed in a material manner from that employed in 1986-96 (including by
changing the states or regions on which that Survey is based), the FDA
shall use the percentages measured by an index chosen by it after notice
and hearing having a methodology identical to that employed by the
University of Michigan Survey in 1986-96.

For smokeless tobacco product use, the FDA will calculate the average,
weighted by relative population of such age groups in 1995 as determined
by the U.S. Bureau of Census, of the percentages of 8th (age 13), 10th
(ages 14 and 15) and 12th graders (ages 16 and 17) who used smokeless
tobacco products on a daily basis during the preceding year. This
calculation is to be made using the same methodology as with respect to
cigarette product use.

Any data underlying the University of Michigan Survey shall be available
by request from FDA. 3.	The reduction requirements (expressed as
reduction from the base percentage) for cigarette products are as
follows:

Year After Enactment Reduction Requirement years 5-6: 	30%
reduction

years 7-9: 	50% reduction

year 10 and after: 60% reduction

The reduction requirements (expressed as reduction from the base
percentage) for smokeless tobacco products are as follows:

Year After Enactment Reduction Requirement years 5-6: 	25%
reduction

years 7-9: 	35% reduction

year 10 and after: 45% reduction

B.	The Surcharge

Where the FDA's calculation (per the procedure set forth above) shows
that the reduction requirements with respect to underage use of
cigarette products were not met in the preceding year, the FDA will
impose a surcharge on the manufacturers of cigarette products. Where the
FDA's assessment shows that the Reduction Requirements with respect to
underage use of smokeless tobacco products were not met in the preceding
year, the FDA will impose a surcharge on the manufacturers of smokeless
tobacco products.

1.	The surcharge with respect to the cigarette industry will be
calculated as follows:

(a)	The FDA will the determine the percentage point difference
between:

(i)	the required percentage reduction applicable to a given year,
and

(ii)	the percentage by which the percent incidence of underage use of
cigarette products for that year is less than the base incidence
percentage. (In the event that the FDA's calculation of the percent
incidence of underage use of cigarette products for that year is greater
than the base incidence percentage, the number of percentage points used
will be (i) the required percentage reduction for that year plus (ii)
the percentage by which the actual percent incidence for that year is
greater than the base incidence percentage.)

(b)	The surcharge will be $80 million for each percentage point
derived per the above procedure. This amount reflects an approximation
of the present value of the profit the cigarette industry would earn
over the life of underage smokers in excess of the required reduction
(at current levels of population and profit). This calculation will be
subject to the following:

(1)	the $80 million will be adjusted proportionately for percentage
increases or decreases compared with 1995 in the population of persons
resident in the United States aged 13-17, inclusive.

(2) the $60 million will be adjusted proportionately for percentage
increases or decreases compared with 1996 in the average profit per unit
(measured in cents and weighted by annual sales) earned by the cigarette
industry. (The average profit: per unit in 1996 will be derived from the
industry's operating profit as reported to the SEC; and the average
profit per unit for the year in which the surcharge is being determined
will be calculated and certified to the FDA by a major, nationally
recognized accounting firm having no existing connection to the tobacco
industry using the same methodology as employed in deriving the average
profit per unit for 1996.)

(3)	the surcharge will be reduced to prevent double counting of
persons whose smoking had already resulted in the imposition of a
surcharge in previous years (to the extent that there were not underage
smokers of comparable age in those previous years on whom a surcharge
was not paid because of the cap set forth in paragraph (d) below).

(4)	the surcharge may not exceed $2 billion in any year (as adjusted
for inflation).

2.	The surcharge with respect to the smokeless tobacco industry
will be derived through a comparable procedure based upon a base
per-percentage point amount and a cap specific to that industry.

3.	The surcharge payable by cigarette manufacturers will be the
joint and several obligation of those manufacturers, allocated by actual
market share. The surcharge payable by smokeless tobacco product
manufacturers will be the joint and several obligation of those
manufacturers, as allocated in the same manner. Within each such
respective product market, the FDA will make such allocations according
to each manufacturer's relative market volume in the United States
domestic cigarette or smokeless tobacco markets in the year for which
the surcharge is being assessed, based on actual federal excise tax
payments.

4.	The surcharge for a given year, if any, will be assessed by
the FDA by May I of the subsequent calendar year. Surcharge payments
will be paid on or before July 1 of the year in which they are assessed
by the FDA. The FDA may establish, by regulation, interest at a rate up
(sentence incomplete)

5.	After payment of its share of the surcharge, a tobacco product
manufacturer may seek return of up to 75% of that payment through the
abatement procedures described below.

C.	Use of the Surcharge

The Surcharge funds would be used in an manner designed to speed the
reduction of the levels of underage tobacco use. Upon final completion
and review of any abatement petition, the FDA would transfer as grants
to state and local government public health agencies, without further
appropriation, 90% of all monies paid as Surcharge amounts. As a
condition of such transfers, the recipients of the transferred funds
would be required to spend them on additional efforts by state and local
government agencies, or by contract between such agencies and private
entities, to further reduce the use of tobacco products by children and
adolescents. The FDA may retain up to 10 percent of such Surcharge
amounts for Administrative Costs - the administration of the Surcharge
provisions of the Act and related proceedings, and for other
administrative requirements imposed on the FDA by the Act. If 10 percent
of the Surcharge amounts exceeds the Administrative Costs, the FDA may
(1) transfer any portion of the excess to other federal agencies, or to
state and local government agencies, to meet the objective of reduction
of youth tobacco usage, or (2) may expend such amounts directly to speed
the reduction of underage tobacco use.

D.	Abatement Procedures

Upon payment of its allocable share of any Surcharge, a tobacco product
manufacturer may petition the FDA for an abatement of the surcharge, and
shall give timely written notice of such petition to the attorneys
general of the several states.

1.	The FDA shall conduct a hearing on an abatement petition pursuant
to the procedures set forth in sections 554, 556 and 557 of Title 5 of
the United States Code.

2.	The attorneys general of the several states shall be entitled
to be heard and to participate in such a hearing.

3.	The burden shall be on the manufacturer to prove, by a
preponderance of the evidence, that the manufacturer should be granted
an abatement.

4.	The FDA's decision on whether to grant an abatement, and the
amount thereof, if any, shall be based on whether:

(a)	The manufacturer has acted in good faith and in full compliance
with the Act, and any FDA rules or regulations promulgated thereunder,
and all applicable federal, state or local laws, rules or regulations;

(b)	In addition to full compliance as set forth in (a) above, the
manufacturer has pursued all reasonably available measures to attain the
required reductions;

(c)	There is evidence of any action, direct or indirect, taken by
the manufacturer to undermine the achievement of the required reductions
or other terms and objectives of the Act; and

(d)	Any other relevant evidence. 5.	Upon a finding by the
FDA that the manufacturer meets the grounds for an abatement under the
standards set forth above, it shall order an abatement of up to 75% of
the Surcharge with interest at the average United States 52-Week
Treasury Bill rate for the period between payment and abatement of the
surcharge. The FDA may consider all relevant evidence in determining
what percentage to order abated.

6.	Any manufacturer or state attorney general aggrieved by an
abatement petition decision of the FDA may seek judicial review thereof
within 30 days in the United States Court of Appeals for the District of
Columbia Circuit. Unless otherwise specified in this Act, judicial
review under this section shall be governed by sections 701-706 of Title
5 of the United States Code.

7.	Notwithstanding the foregoing, a tobacco product manufacturer
may neither file an abatement petition or seek judicial review of a
decision denying an abatement if it has failed to pay the surcharge in a
timely fashion.

8.	No stay or other injunctive relief enjoining imposition and
collection of the surcharge amounts pending appeal or otherwise may be
granted by the FDA or any court.

[Source/precedent: 5 U.S.C. Sections 554, 556-57, 701-06] Appendix VI:
State Enforcement Incentives The details of the state enforcement
incentives are as follows:

In addition to FDA and other federal agency, state attorney general and
other existing state and local law enforcement authority under current
law, the proposed Act requires the following:

A.	States must have in effect a "no sales to minors" law providing
that it is unlawful for any manufacturer, retailer or distributor of
tobacco products to sell or distribute any such products to any persons
under the age of 18. (42 U.S.C. 300X-26(a)(1); 45 C.F.R. 96.130(b)).
This state statutory requirement remains in addition to the federal
regulatory prohibitions on retail sales of tobacco products to children
and adolescents (also defined as persons under the age of 18) adopted by
the FDA in its August 28, 1996 Final Rule (to be codified at 21 C.F.R.
897.14 et seq.);

B.	States must conduct random, unannounced inspections at least
monthly, and in communities geographically and statistically
representative of the entire state and its youth population to ensure
compliance with the "no sales to minors" law, and implement "any other
action which the state believes are necessary to enforce the law." (goes
further than 45 C.F.R. 96.130(c), 96.1 30(d)(1),(d)(2);

C.	States must conduct at least 250 random, unannounced inspections
of retailer compliance with the "no sales to minors" law per year for
each 1 million of resident population, as determined by the most recent
decennial census. In the case of tribes, tribes must conduct no fewer
than 25 such inspections per location of point of sale to consumers per
year, conducted throughout the year.

Annual State Reporting Requirements

As a condition to receiving any moneys due and payable pursuant to the
Act, States must annually submit a report to the FDA and the States must
make their reports public (except as provided in (C) below) within the
state. Such state reports must include at least the following:

A.	A detailed description of enforcement activities undertaken by
the state and its political subdivisions during the preceding federal
fiscal year;

B.	A detailed description of the state's progress in reducing the
availability of tobacco products to individuals under the age of 18,
including the detailed statistical results of the mandated compliance
checks;

C.	A detailed description of the methods used in the compliance
checks, and in identifying outlets which were tested, with the FDA
providing the state appropriate confidentiality safeguards for
information provided to the agency regarding the timing and
investigative techniques of state compliance checks that depend for
their continued efficacy upon such confidentiality;

D.	A detailed description of strategies the state intends to utilize
in the current and succeeding years to make further progress on reducing
the availability of tobacco products to children and adolescents; and

E.	The identity of the "single state agency" responsible for
fulfilling the Synar Amendment and the Act's requirements, including the
coordination and report of state efforts to reduce youth access to
tobacco products sold or offered for sale in the state. (strengthens and
extends beyond 45 C.F.R. 96.130(e) by adding greater detail to the
requirements and transferring reporting obligation of states to FDA from
HHS)

Required Attainment Goals for State Enforcement

The FDA is required to make an annual determination, prior to allocating
any moneys allocated to the states under the proposed Act for the
purposes of defraying public health care program expenditures (but not
including or conditioning moneys made available under the Act for the
payment of private claims), as to whether each state has "pursued all
reasonably available measures to enforce" the prohibition on sales of
tobacco products to children and adolescents.

In addition to the criteria set forth in 45 C.F.R. 96.130, the proposed
Act will require the FDA to find presumptively that the state has not
"pursued all reasonably available measures to enforce" the "no sales to
minors law" unless the state has achieved, in the following years, the
following compliance rate results for the retail compliance checks
required by the Act:

Federal Fiscal YearRetail Compliance CheckUnder ReviewPerformance
Target5th Year after year of 75%enactment of Act7th Year
after year of85%enactment of Act10th Year after year of
90%enactment of Act and annually thereafter These compliance
percentages are expressed as the percentage of the random, unannounced
compliance checks conducted pursuant to the Act for which the retailer
refused sale of tobacco products to the potential underage purchaser.
(note: these performance targets are far more stringent on the states
than those in the Synar Amendment, which sets as a "final goal" a target
of no less than 80% (i.e., an inspection failure rate of no more than
20%) within "several years. See 45 C.F.R. 96.130. In addition, the
proposed Act's targets are mandatory, uniform national minimum
performance requirements, while the Synar Amendment calls for HHS simply
to "negotiate" an "interim performance target" beginning in 1998).

Reduction of Money Allocated to State Not Meeting Performance Targets

If a state does not meet the Act's "no sales to minors" performance
targets for retail compliance checks, then the FDA may refuse to pay to
that noncomplying state certain moneys otherwise payable to that state
under the proposed Act. No state shall be held responsible for sales to
underage consumers outside that state's jurisdiction. Specifically, the
FDA may withhold from such state an amount equal to 1% of moneys
otherwise payable to that state under the Act to defray health care
expenditures of public programs of medical assistance for each
percentage point by which the state's performance on its mandatory
compliance checks fails to meet the required performance targets for
that year. In no event may the FDA withhold more than 20% of the money
otherwise allocable to such state under the Act for such purposes.

The FDA shall reallot any Withhold Amounts, once final, to states that
exceed the Act's Performance Targets, in amounts and by an allocation
formula determined by the agency to reward those states with the best
record of reducing youth access to tobacco products.

Appeal Following Withhold

Upon notice from the FDA of a withhold of moneys (the "Withhold Amount")
allocable to the state under the Act, a state subject to such notice of
withhold may petition the agency for a release and disbursement of the
Withhold Amount, and shall give timely written notice of such petition
to the attorney general for that state and to all tobacco product
manufacturers. The agency shall hold, and invest in interest bearing
securities of the United States government or its agencies, any Withhold
Amounts subject to a pending petition for release and disbursement or
related appeal until final disposition of such petition and appeal.

In the case of petition by a state for a release and disbursement of a
Withhold Amount, the agency's decision on whether to grant such a
petition, and the amount thereby released and disbursed, if any, shall
be based on whether:

(1)	the state has acted in good faith and in full compliance with
the Act, and any agency rules or regulations promulgated thereunder;

(2)	the state has pursued all reasonably available measures to attain
the Retail Compliance Check Performance Targets and Youth Smoking
Reduction Goals of the Act;

(3)	there is evidence of any action, direct or indirect, taken by
the state to undermine the achievement of the Retail Compliance Check
Performance Targets and Youth Smoking Reduction Goals or other terms and
objectives of the Act; and

(4)	any other relevant evidence.

The burden shall be on the state to prove, by a preponderance of the
evidence, that the state should be granted a release and disbursement of
the Withhold Amount or any portion thereof. Prior to decision, the
agency shall hold a hearing on the petition, with notice and opportunity
to be heard given to the attorney general of that state and to all
domestic tobacco product manufacturers.

Upon a finding by the agency that the state meets the grounds, as set
forth above, and the burden of proof for a release and disbursement of a
Withhold Amount, then it shall order a release and disbursement of up to
75% of the Withhold Amount appealed, and it shall so release and
disburse to the state that amount, with interest at the average United
States 52-Week Treasury Bill rate for the period between notice and
release of such Withhold Amount. The agency may consider all relevant
evidence in determining that percentage of the Withhold Amount to order
released and disbursed.

Any manufacturer or state attorney general aggrieved by a Withhold
Amount decision of the agency may seek judicial review thereof within 30
days in the United States Court of Appeals for the District of Columbia
Circuit. Unless otherwise specified in this Act, judicial review under
this Section shall be governed by Sections 701-706 of Title 5 of the
United States Code.

No stay or other injunctive relief enjoining imposition of the withhold
pending appeal or otherwise may be granted by the FDA or any court.

No appeal may be taken from an agency decision denying a petition to
release and disburse a Withhold Amount unless filed within 30 days
following notice of such decision. No stay or other injunctive relief,
enjoining imposition of the withhold pending appeal or otherwise, may be
granted, by any court or administrative agency. Appeals filed hereunder
shall be made to the District of Columbia Circuit Court of Appeals and,
on appeal, shall be governed by the procedural and evidentiary
provisions of the Administrative Procedures Act, unless otherwise
specified in this Act. The judgment of the District of Columbia Court of
Appeals on appeal shall be final.

Appendix VII - Restrictions on Point of Sale Advertising

The details with respect to point of sale advertising restrictions are
as follows:

1.	There shall be no Point of Sale Advertising of tobacco products,
excluding adults-only stores and tobacco outlets, except as provided
herein:

A.	Each manufacturer of tobacco products may have not more than
two separate point of sale advertisements in or at each location at
which tobacco products are offered for sale, except any manufacturer
with 25 percent of market share may have one additional point of sale
advertisement. A retailer may have one sign for its own or its
wholesaler's contracted house retailer or private label brand. No
supplier of tobacco products may enter into any arrangement with a
retailer that limits the retailer's ability to display any form of
advertising or promotional material originating with another supplier
and permitted by law to be displayed at retail.

B.	Point of Sale advertisements permitted herein each shall be of
a display area not larger than 576 square inches (either individually or
in the aggregate) and shall consist of black letters on white background
or recognized typographical marks.

Point of Sale advertisements shall not be attached to nor located within
two feet of any fixture on which candy is displayed for sale. Display
fixtures are permitted signs consisting of brand name and price, not
larger than 2 inches in height.

2.	Except as provided herein, Point of Sale Advertising shall
mean all printed or graphical materials bearing the brand name (alone or
in conjunction with any other word), logo, symbol, motto, selling
message, or any other indicia of product identification identical or
similar to, or identifiable with, those used for any brand of cigarettes
or smokeless tobacco, which, when used for its intended purpose, can
reasonably be anticipated to be seen by customers at a location at which
tobacco products are offered for sale.

3.	Audio and video formats otherwise permitted under the FDA Rule
may be distributed to adult consumers at point of sale but may not be
played or shown at point of sale (i.e., no "static video displays").

Appendix VIII - Public Disclosure of Past and Future Tobacco Industry
Documents and Health Research

The legislation would ensure that previously non-public or confidential
documents from the files of the tobacco industry -- including the
results of internal health research -- are disclosed to the federal
government, the States, public and private litigants, health officials
and the public. The legislation also would provide for binding,
streamlined and accelerated judicial determinations with nationwide
effect in the event that disputes remain over the legitimacy of claims
of privileges or protections, including attorney-client privilege, and
work product and trade secret protections.

1.	Under the Act, the manufacturers and CTR and TI would establish a
national tobacco document depository that is open to the public and
located in the Washington, DC area. This depository would serve as a
resource for litigants, public health groups, and anyone else with an
interest in the tobacco industry's corporate records on the subjects of
smoking and health, addiction or nicotine dependency, safer or less
hazardous cigarettes and underage tobacco use and marketing.
Specifically:

The depository would include all of the documents produced to the other
side by the manufacturers, CTR and TI in the Attorneys General actions
(including all documents selected by plaintiffs from the Guilford, U.K.
repository), Philip Morris Companies Inc.'s defamation action against
Capital Citis/ABC News, the FTC's investigation concerning Joe Camel and
underage marketing, the Haines and Cipollone actions and the Butler
action in Mississippi.

In the event there are additional existing documents discussing or
referring to health research, addiction or dependency, safer/less
hazardous cigarettes, studies of the smoking habits of minors and the
relationship between advertising or promotion and youth smoking that the
manufacturers or trade associations have not yet completed producing as
agreed or required in the above actions, such additional documents shall
be placed in the depository commencing within 90 days of the effective
date of the Act, and concluding as soon as practicable thereafter.

Except for privileged and trade secret materials (which shall be exempt
from disclosure into the depository), all documents placed in the
depository shall be produced without any confidentiality designations of
any kind.

Along with these document collections, the manufacturers and trade
associations shall place into the depository all indices (as defined by
the court's order in the Minnesota Attorney General action) of documents
relating to smoking and health, including all indices identified by the
manufacturers in the Washington, Texas and Minnesota Attorney General
actions. Any computerized indices shall be produced in both a
computerized and hard-copy form. (If reductions of any such indices are
required in order to protect any privileged or trade secret information,
such reductions shall be subject to the procedures set forth below for
adjudicating any disputes over claims of privilege and trade secrecy.)

All documents placed into the depository shall be deemed produced for
purposes of any litigation in the United States. The court in each
underlying action shall retain the discretion to determine the
admissibility on a case-by-case basis of any such produced document.

The tobacco industry shall bear the expense of maintaining the
depository.

2.	Immediately upon finalizing a resolution of these litigations
with the Attorneys General, without waiting for Congress to embody these
requirement in the proposed legislation, the manufacturers, CTR and TI
shall:

Commence to conduct a good-faith, de novo, document-by-document review
of all documents previously withheld from production in tobacco
litigation on grounds of privilege. The purpose of this review shall be
to identify documents which the reviewer concludes are not privileged.
All documents so identified shall be placed in the depository as soon as
practicable.

Prepare and place in the national depository as soon as practicable a
comprehensive new privilege log of all documents that the manufacturers,
CTR and TI, based on their de novo review, continue to deem to be
legitimately privileged against disclosure.

Itemize on this new privilege log all of the descriptive detail that the
court has required defendants to furnish document-by-document on their
privilege logs in the Minnesota Attorney General action, thereby
ensuring that there will be sufficient detail on the privilege logs to
enable any interested person to determine whether he or she wishes to
challenge claims of privilege or trade secrecy on any particular
documents.

3.	The Act also would establish a panel of three federal Article
Ill judges, appointed by the Judicial Conference, to hear and decide all
disputes over claims of privilege or trade secrets, except for those
disputes that already have been determined by other federal or state
courts at the time the Act is enacted or are pending in cases prior to
the time the Court has had an opportunity to begin to review privilege
claims.

The three-judge panel shall decide all privilege or trade secrecy
challenges asserted by the federal government, the States, public and
private litigants, health officials and the public with respect to
tobacco industry documents.

The Act would vest exclusive federal jurisdiction for the three-judge
panel to decide any such disputes in accordance with the ABA/ALl Model
Rules and/or principles of federal law with respect to privilege and the
Uniform Trade Secrets Act with respect to trade secrecy. Any such
adjudication shall be reviewable only in the manner prescribed by 28
U.S.C. [Sec. 1 25-certiorari].

The panel's adjudications shall be binding upon all federal and state
courts in all litigation in the United States.

The panel shall be authorized to appoint Special Masters pursuant to
Fed. R. Civ. P.53, with the cost to be borne by the tobacco industry.

Once the Act becomes effective and the three-judge panel is appointed,
all disputes that may arise concerning privilege claims by the
manufacturers or trade associations relating to smoking and health
subjects must be resolved through this process, except for disputes in
pending cases that can be resolved prior to the time the Court has had
an opportunity to begin to renew privilege claims.

If a claim of privilege is not upheld, the three-judge panel shall
consider whether the claimant had a good faith factual and legal basis
for an assertion of privilege and, if the claimant did not, shall assess
against the claimant costs and attorneys' fees and may assess such
additional costs or sanctions as the panel may deem appropriate.

4.	In order to expedite the process of judicial review and to ensure
that the federal government, the States, public and private litigants,
health officials and the public no longer need to be concerned that
claims of privilege and trade secrecy are being asserted improperly or
without legal basis, the legislation would create an accelerated process
by which any public or private person or entity, subject to a right of
intervention by any other interested person or entity, may challenge any
claims of privilege or trade secrecy before the three- judge panel.
Under the Act, a person or entity filing such an action to challenge to
privilege or trade secrecy will not need to make any prima facie showing
of any kind as a prerequisite to in camera review of the document or
documents at issue.

5.	The manufacturers would also be subject to certain continuing
disclosure obligations over and above the aforementioned provisions and
whatever further judicial discovery may be required in pending or future
civil actions. Specifically, for the first time ever, the manufacturers
would be required to disclose all original laboratory research relating
to the health or safety of tobacco products, including, without
limitation, all laboratory research relating to ways to make tobacco
products less hazardous to consumers.

Whenever such research is performed in the future, the manufacturers
shall disclose its results to the FDA.

In addition, all such research (except for legitimate trade secrets)
shall be produced to the national document depository described above.
In addition, the manufacturers and trade associations shall produce into
the depository on an ongoing basis any future studies of the smoking
habits of minors or documents discussing or referring to the
relationship, if any, between advertising and promotion and underage
smoking.

No original laboratory research relating to the health or safety of
tobacco products shall be withheld from either the FDA or the depository
on grounds of attorney/client privilege or work product protection.

6.	The tobacco manufacturers' and CTR's and TI's compliance with
any of the provisions of this Act shall not be deemed a waiver of any
applicable privilege or protection.

7.	The Act will also incorporate reasonable and appropriate
provisions to protect against the destruction of documents bearing on
matters of public health or safety.


Copyright  1997 by TPLR, Inc.



  
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