Page 1 of 3 131.602 Tobacco product manufacturer's options to become participating manufacturer or to contribute to qualified escrow fund -- Management of <br>escrow fund -- Penalties for failure to place required funds in escrow -- <br>Assignment of escrow funds to Commonwealth -- Credit of assigned funds <br>against judgment -- Opinion of Attorney General required prior to assignment. (1) Any tobacco product manufacturer selling cigarettes to consumers within this state, whether directly or through a distributor, retailer, or similar intermediary or <br>intermediaries, after June 30, 2000, shall do one (1) of the following: <br>(a) Become a participating manufacturer, as that term is defined in section II(jj) of the master settlement agreement, and generally perform its financial <br>obligations under the master settlement agreement; or (b) Place into a qualified escrow fund by April 15 of the year following the year in question the following amounts, as such amounts are adjusted for inflation: <br>1. For 2000: $0.0104712 per unit sold after June 30, 2000; 2. For each of 2001 and 2002: $0.0136125 per unit sold; 3. For each of 2003 through 2006: $0.0167539 per unit sold; and 4. For 2007 and each year thereafter: $0.0188482 per unit sold. (2) A tobacco product manufacturer that places funds into escrow pursuant to subsection (1)(b) of this section shall receive the interest or other appreciation on <br>such funds as earned. Such funds themselves shall be released from escrow only <br>under the following circumstances: <br>(a) To pay a judgment or settlement on any released claim brought against such tobacco product manufacturer by Kentucky or any releasing party located or <br>residing in Kentucky. Funds shall be released from escrow under this <br>paragraph in the order in which they were placed into escrow and only to the <br>extent and at the time necessary to make payments required under such <br>judgment or settlement; (b) To the extent that a tobacco product manufacturer establishes that the amount it was required to place into escrow on account of units sold in the state in a <br>particular year was greater than the master settlement agreement payments, as <br>determined pursuant to section IX(i) of that agreement, including after final <br>determination of all adjustments, that such manufacturer would have been <br>required to make on account of such units sold had it been a participating <br>manufacturer, the excess shall be released from escrow and revert back to <br>such tobacco product manufacturer; or (c) To the extent not released from escrow under paragraph (a) or (b) of this subsection, funds shall be released from escrow and revert back to such <br>tobacco product manufacturer twenty-five (25) years after the date on which <br>they were placed into escrow. (3) Each tobacco product manufacturer that elects to place funds into escrow pursuant to subsection (1)(b) of this section shall annually certify to the Attorney General that <br>it is in compliance with subsections (1)(b) and (2) of this section. The Attorney <br>General may bring a civil action on behalf of Kentucky against any tobacco product Page 2 of 3 manufacturer that fails to place into escrow the funds required under this section. <br>Any tobacco product manufacturer that fails in any year to place into escrow the <br>funds required under this section shall: <br>(a) Be required within fifteen (15) days to place such funds into escrow as shall bring it into compliance with this section. The court, upon a finding of a <br>violation of subsection (1)(b) or (2) of this section, may impose a civil <br>penalty, to be paid to the general fund of Kentucky, in an amount not to <br>exceed five percent (5%) of the amount improperly withheld from escrow per <br>day of the violation and in a total amount not to exceed one hundred percent <br>(100%) of the original amount improperly withheld from escrow; (b) In the case of a knowing violation, be required within fifteen (15) days to place such funds into escrow as shall bring it into compliance with this <br>section. The court, upon a finding of a knowing violation of subsection (1)(b) <br>or (2) of this section, may impose a civil penalty, to be paid to the general <br>fund of Kentucky, in an amount not to exceed fifteen percent (15%) of the <br>amount improperly withheld from escrow per day of the violation and in a <br>total amount not to exceed three hundred percent (300%) of the original <br>amount improperly withheld from escrow; and (c) In the case of a second knowing violation, be prohibited from selling cigarettes to consumers within Kentucky, whether directly or through a <br>distributor, retailer, or similar intermediary, for a period not to exceed two (2) <br>years. Each failure to make an annual deposit required under this section shall constitute a <br>separate violation. (4) Notwithstanding the provisions of subsection (2) of this section, a tobacco product manufacturer that elects to place funds into escrow pursuant to subsection (1)(b) of <br>this section may make an irrevocable assignment of its interest in the funds to the <br>benefit of the Commonwealth of Kentucky. Such assignment shall be permanent <br>and apply to all funds in the subject escrow account or that may subsequently come <br>into such account, including those deposited into the escrow account prior to the <br>assignment being executed, those deposited into the escrow account after the <br>assignment is executed, and interest or other appreciation on such funds. The <br>tobacco product manufacturer, the Attorney General, and the financial institution <br>where the escrow account is maintained may make such amendments to the <br>qualified escrow account agreement as may be necessary to effectuate an <br>assignment of rights executed pursuant to this subsection or a withdrawal of funds <br>from the escrow account pursuant to subsection (5) of this section. An assignment <br>of rights executed pursuant to this subsection shall be in writing, signed by a duly <br>authorized representative of the tobacco product manufacturer making the <br>assignment, and shall become effective upon delivery of the assignment to the <br>Attorney General and the financial institution where the escrow account is <br>maintained. (5) Notwithstanding the provisions of subsection (2) of this section, any escrow funds assigned to the Commonwealth pursuant to subsection (4) of this section shall be Page 3 of 3 withdrawn by the Commonwealth upon request by the Treasurer of the <br>Commonwealth and approval of the Attorney General. Any funds withdrawn <br>pursuant to this subsection shall be deposited in the general fund and shall be <br>calculated on a dollar-for-dollar basis as a credit against any judgment or settlement <br>described in subsection (2)(a) of this section which may be obtained against the <br>tobacco product manufacturer who has assigned the funds in the subject escrow <br>account. Nothing in this subsection or in subsection (4) of this section shall be <br>construed to relieve a tobacco product manufacturer from any past, current, or <br>future obligations the manufacturer may have pursuant to this chapter. (6) Notwithstanding subsections (4) and (5) of this section, no assignment of escrows created pursuant to subsection (1)(b) of this section shall be made by a tobacco <br>product manufacturer, or shall be accepted by the Treasurer of the Commonwealth, <br>unless and until the Attorney General has provided an opinion to the Treasurer, with <br>a copy of the opinion provided to the Governor and the Legislative Research <br>Commission, that amendments to KRS 131.600 and subsections (4) and (5) of this <br>section will not jeopardize the Commonwealth's payments under the master <br>settlement agreement in the form of a nonparticipating manufacturer adjustment. Effective: April 25, 2006 <br>History: Amended 2006 Ky. Acts ch. 252, Pt. XIX, sec. 1, effective April 25, 2006. -- Amended 2004 Ky. Acts ch. 135, sec. 2, effective July 13, 2004. -- Created 2000 Ky. <br>Acts ch. 342, sec. 2, effective June 30, 2000.
Page 1 of 3 131.602 Tobacco product manufacturer's options to become participating manufacturer or to contribute to qualified escrow fund -- Management of <br>escrow fund -- Penalties for failure to place required funds in escrow -- <br>Assignment of escrow funds to Commonwealth -- Credit of assigned funds <br>against judgment -- Opinion of Attorney General required prior to assignment. (1) Any tobacco product manufacturer selling cigarettes to consumers within this state, whether directly or through a distributor, retailer, or similar intermediary or <br>intermediaries, after June 30, 2000, shall do one (1) of the following: <br>(a) Become a participating manufacturer, as that term is defined in section II(jj) of the master settlement agreement, and generally perform its financial <br>obligations under the master settlement agreement; or (b) Place into a qualified escrow fund by April 15 of the year following the year in question the following amounts, as such amounts are adjusted for inflation: <br>1. For 2000: $0.0104712 per unit sold after June 30, 2000; 2. For each of 2001 and 2002: $0.0136125 per unit sold; 3. For each of 2003 through 2006: $0.0167539 per unit sold; and 4. For 2007 and each year thereafter: $0.0188482 per unit sold. (2) A tobacco product manufacturer that places funds into escrow pursuant to subsection (1)(b) of this section shall receive the interest or other appreciation on <br>such funds as earned. Such funds themselves shall be released from escrow only <br>under the following circumstances: <br>(a) To pay a judgment or settlement on any released claim brought against such tobacco product manufacturer by Kentucky or any releasing party located or <br>residing in Kentucky. Funds shall be released from escrow under this <br>paragraph in the order in which they were placed into escrow and only to the <br>extent and at the time necessary to make payments required under such <br>judgment or settlement; (b) To the extent that a tobacco product manufacturer establishes that the amount it was required to place into escrow on account of units sold in the state in a <br>particular year was greater than the master settlement agreement payments, as <br>determined pursuant to section IX(i) of that agreement, including after final <br>determination of all adjustments, that such manufacturer would have been <br>required to make on account of such units sold had it been a participating <br>manufacturer, the excess shall be released from escrow and revert back to <br>such tobacco product manufacturer; or (c) To the extent not released from escrow under paragraph (a) or (b) of this subsection, funds shall be released from escrow and revert back to such <br>tobacco product manufacturer twenty-five (25) years after the date on which <br>they were placed into escrow. (3) Each tobacco product manufacturer that elects to place funds into escrow pursuant to subsection (1)(b) of this section shall annually certify to the Attorney General that <br>it is in compliance with subsections (1)(b) and (2) of this section. The Attorney <br>General may bring a civil action on behalf of Kentucky against any tobacco product Page 2 of 3 manufacturer that fails to place into escrow the funds required under this section. <br>Any tobacco product manufacturer that fails in any year to place into escrow the <br>funds required under this section shall: <br>(a) Be required within fifteen (15) days to place such funds into escrow as shall bring it into compliance with this section. The court, upon a finding of a <br>violation of subsection (1)(b) or (2) of this section, may impose a civil <br>penalty, to be paid to the general fund of Kentucky, in an amount not to <br>exceed five percent (5%) of the amount improperly withheld from escrow per <br>day of the violation and in a total amount not to exceed one hundred percent <br>(100%) of the original amount improperly withheld from escrow; (b) In the case of a knowing violation, be required within fifteen (15) days to place such funds into escrow as shall bring it into compliance with this <br>section. The court, upon a finding of a knowing violation of subsection (1)(b) <br>or (2) of this section, may impose a civil penalty, to be paid to the general <br>fund of Kentucky, in an amount not to exceed fifteen percent (15%) of the <br>amount improperly withheld from escrow per day of the violation and in a <br>total amount not to exceed three hundred percent (300%) of the original <br>amount improperly withheld from escrow; and (c) In the case of a second knowing violation, be prohibited from selling cigarettes to consumers within Kentucky, whether directly or through a <br>distributor, retailer, or similar intermediary, for a period not to exceed two (2) <br>years. Each failure to make an annual deposit required under this section shall constitute a <br>separate violation. (4) Notwithstanding the provisions of subsection (2) of this section, a tobacco product manufacturer that elects to place funds into escrow pursuant to subsection (1)(b) of <br>this section may make an irrevocable assignment of its interest in the funds to the <br>benefit of the Commonwealth of Kentucky. Such assignment shall be permanent <br>and apply to all funds in the subject escrow account or that may subsequently come <br>into such account, including those deposited into the escrow account prior to the <br>assignment being executed, those deposited into the escrow account after the <br>assignment is executed, and interest or other appreciation on such funds. The <br>tobacco product manufacturer, the Attorney General, and the financial institution <br>where the escrow account is maintained may make such amendments to the <br>qualified escrow account agreement as may be necessary to effectuate an <br>assignment of rights executed pursuant to this subsection or a withdrawal of funds <br>from the escrow account pursuant to subsection (5) of this section. An assignment <br>of rights executed pursuant to this subsection shall be in writing, signed by a duly <br>authorized representative of the tobacco product manufacturer making the <br>assignment, and shall become effective upon delivery of the assignment to the <br>Attorney General and the financial institution where the escrow account is <br>maintained. (5) Notwithstanding the provisions of subsection (2) of this section, any escrow funds assigned to the Commonwealth pursuant to subsection (4) of this section shall be Page 3 of 3 withdrawn by the Commonwealth upon request by the Treasurer of the <br>Commonwealth and approval of the Attorney General. Any funds withdrawn <br>pursuant to this subsection shall be deposited in the general fund and shall be <br>calculated on a dollar-for-dollar basis as a credit against any judgment or settlement <br>described in subsection (2)(a) of this section which may be obtained against the <br>tobacco product manufacturer who has assigned the funds in the subject escrow <br>account. Nothing in this subsection or in subsection (4) of this section shall be <br>construed to relieve a tobacco product manufacturer from any past, current, or <br>future obligations the manufacturer may have pursuant to this chapter. (6) Notwithstanding subsections (4) and (5) of this section, no assignment of escrows created pursuant to subsection (1)(b) of this section shall be made by a tobacco <br>product manufacturer, or shall be accepted by the Treasurer of the Commonwealth, <br>unless and until the Attorney General has provided an opinion to the Treasurer, with <br>a copy of the opinion provided to the Governor and the Legislative Research <br>Commission, that amendments to KRS 131.600 and subsections (4) and (5) of this <br>section will not jeopardize the Commonwealth's payments under the master <br>settlement agreement in the form of a nonparticipating manufacturer adjustment. Effective: April 25, 2006 <br>History: Amended 2006 Ky. Acts ch. 252, Pt. XIX, sec. 1, effective April 25, 2006. -- Amended 2004 Ky. Acts ch. 135, sec. 2, effective July 13, 2004. -- Created 2000 Ky. <br>Acts ch. 342, sec. 2, effective June 30, 2000.
Page 1 of 3 131.602 Tobacco product manufacturer's options to become participating manufacturer or to contribute to qualified escrow fund -- Management of <br>escrow fund -- Penalties for failure to place required funds in escrow -- <br>Assignment of escrow funds to Commonwealth -- Credit of assigned funds <br>against judgment -- Opinion of Attorney General required prior to assignment. (1) Any tobacco product manufacturer selling cigarettes to consumers within this state, whether directly or through a distributor, retailer, or similar intermediary or <br>intermediaries, after June 30, 2000, shall do one (1) of the following: <br>(a) Become a participating manufacturer, as that term is defined in section II(jj) of the master settlement agreement, and generally perform its financial <br>obligations under the master settlement agreement; or (b) Place into a qualified escrow fund by April 15 of the year following the year in question the following amounts, as such amounts are adjusted for inflation: <br>1. For 2000: $0.0104712 per unit sold after June 30, 2000; 2. For each of 2001 and 2002: $0.0136125 per unit sold; 3. For each of 2003 through 2006: $0.0167539 per unit sold; and 4. For 2007 and each year thereafter: $0.0188482 per unit sold. (2) A tobacco product manufacturer that places funds into escrow pursuant to subsection (1)(b) of this section shall receive the interest or other appreciation on <br>such funds as earned. Such funds themselves shall be released from escrow only <br>under the following circumstances: <br>(a) To pay a judgment or settlement on any released claim brought against such tobacco product manufacturer by Kentucky or any releasing party located or <br>residing in Kentucky. Funds shall be released from escrow under this <br>paragraph in the order in which they were placed into escrow and only to the <br>extent and at the time necessary to make payments required under such <br>judgment or settlement; (b) To the extent that a tobacco product manufacturer establishes that the amount it was required to place into escrow on account of units sold in the state in a <br>particular year was greater than the master settlement agreement payments, as <br>determined pursuant to section IX(i) of that agreement, including after final <br>determination of all adjustments, that such manufacturer would have been <br>required to make on account of such units sold had it been a participating <br>manufacturer, the excess shall be released from escrow and revert back to <br>such tobacco product manufacturer; or (c) To the extent not released from escrow under paragraph (a) or (b) of this subsection, funds shall be released from escrow and revert back to such <br>tobacco product manufacturer twenty-five (25) years after the date on which <br>they were placed into escrow. (3) Each tobacco product manufacturer that elects to place funds into escrow pursuant to subsection (1)(b) of this section shall annually certify to the Attorney General that <br>it is in compliance with subsections (1)(b) and (2) of this section. The Attorney <br>General may bring a civil action on behalf of Kentucky against any tobacco product Page 2 of 3 manufacturer that fails to place into escrow the funds required under this section. <br>Any tobacco product manufacturer that fails in any year to place into escrow the <br>funds required under this section shall: <br>(a) Be required within fifteen (15) days to place such funds into escrow as shall bring it into compliance with this section. The court, upon a finding of a <br>violation of subsection (1)(b) or (2) of this section, may impose a civil <br>penalty, to be paid to the general fund of Kentucky, in an amount not to <br>exceed five percent (5%) of the amount improperly withheld from escrow per <br>day of the violation and in a total amount not to exceed one hundred percent <br>(100%) of the original amount improperly withheld from escrow; (b) In the case of a knowing violation, be required within fifteen (15) days to place such funds into escrow as shall bring it into compliance with this <br>section. The court, upon a finding of a knowing violation of subsection (1)(b) <br>or (2) of this section, may impose a civil penalty, to be paid to the general <br>fund of Kentucky, in an amount not to exceed fifteen percent (15%) of the <br>amount improperly withheld from escrow per day of the violation and in a <br>total amount not to exceed three hundred percent (300%) of the original <br>amount improperly withheld from escrow; and (c) In the case of a second knowing violation, be prohibited from selling cigarettes to consumers within Kentucky, whether directly or through a <br>distributor, retailer, or similar intermediary, for a period not to exceed two (2) <br>years. Each failure to make an annual deposit required under this section shall constitute a <br>separate violation. (4) Notwithstanding the provisions of subsection (2) of this section, a tobacco product manufacturer that elects to place funds into escrow pursuant to subsection (1)(b) of <br>this section may make an irrevocable assignment of its interest in the funds to the <br>benefit of the Commonwealth of Kentucky. Such assignment shall be permanent <br>and apply to all funds in the subject escrow account or that may subsequently come <br>into such account, including those deposited into the escrow account prior to the <br>assignment being executed, those deposited into the escrow account after the <br>assignment is executed, and interest or other appreciation on such funds. The <br>tobacco product manufacturer, the Attorney General, and the financial institution <br>where the escrow account is maintained may make such amendments to the <br>qualified escrow account agreement as may be necessary to effectuate an <br>assignment of rights executed pursuant to this subsection or a withdrawal of funds <br>from the escrow account pursuant to subsection (5) of this section. An assignment <br>of rights executed pursuant to this subsection shall be in writing, signed by a duly <br>authorized representative of the tobacco product manufacturer making the <br>assignment, and shall become effective upon delivery of the assignment to the <br>Attorney General and the financial institution where the escrow account is <br>maintained. (5) Notwithstanding the provisions of subsection (2) of this section, any escrow funds assigned to the Commonwealth pursuant to subsection (4) of this section shall be Page 3 of 3 withdrawn by the Commonwealth upon request by the Treasurer of the <br>Commonwealth and approval of the Attorney General. Any funds withdrawn <br>pursuant to this subsection shall be deposited in the general fund and shall be <br>calculated on a dollar-for-dollar basis as a credit against any judgment or settlement <br>described in subsection (2)(a) of this section which may be obtained against the <br>tobacco product manufacturer who has assigned the funds in the subject escrow <br>account. Nothing in this subsection or in subsection (4) of this section shall be <br>construed to relieve a tobacco product manufacturer from any past, current, or <br>future obligations the manufacturer may have pursuant to this chapter. (6) Notwithstanding subsections (4) and (5) of this section, no assignment of escrows created pursuant to subsection (1)(b) of this section shall be made by a tobacco <br>product manufacturer, or shall be accepted by the Treasurer of the Commonwealth, <br>unless and until the Attorney General has provided an opinion to the Treasurer, with <br>a copy of the opinion provided to the Governor and the Legislative Research <br>Commission, that amendments to KRS 131.600 and subsections (4) and (5) of this <br>section will not jeopardize the Commonwealth's payments under the master <br>settlement agreement in the form of a nonparticipating manufacturer adjustment. Effective: April 25, 2006 <br>History: Amended 2006 Ky. Acts ch. 252, Pt. XIX, sec. 1, effective April 25, 2006. -- Amended 2004 Ky. Acts ch. 135, sec. 2, effective July 13, 2004. -- Created 2000 Ky. <br>Acts ch. 342, sec. 2, effective June 30, 2000.
