44-7101

44-7101. Tobacco product manufacturers escrow
accounts; model statute

This state enacts the model statute described in the master settlement agreement
entered into on November 23, 1998 between this state and certain United States tobacco
product manufacturers as exhibit T as follows:

Section 1. Findings and Purpose.

(a) Cigarette smoking presents serious public health concerns to the state and to
the citizens of the state. The surgeon general has determined that smoking causes lung
cancer, heart disease and other serious diseases, and that there are hundreds of
thousands of tobacco-related deaths in the United States each year. These diseases most
often do not appear until many years after the person in question begins smoking.

(b) Cigarette smoking also presents serious financial concerns for the state.
Under certain health-care programs, the state may have a legal obligation to provide
medical assistance to eligible persons for health conditions associated with cigarette
smoking, and those persons may have a legal entitlement to receive such medical
assistance.

(c) Under these programs, the state pays millions of dollars each year to provide
medical assistance for these persons for health conditions associated with cigarette
smoking.

(d) It is the policy of the state that financial burdens imposed on the state by
cigarette smoking be borne by tobacco product manufacturers rather than by the state to
the extent that such manufacturers either determine to enter into a settlement with the
state or are found culpable by the courts.

(e) On November 23, 1998, leading United States tobacco product manufacturers
entered into a settlement agreement, entitled the "master settlement agreement," with the
state. The master settlement agreement obligates these manufacturers, in return for a
release of past, present and certain future claims against them as described therein, to
pay substantial sums to the state (tied in part to their volume of sales); to fund a
national foundation devoted to the interests of public health; and to make substantial
changes in their advertising and marketing practices and corporate culture, with the
intention of reducing underage smoking.

(f) It would be contrary to the policy of the state if tobacco product
manufacturers who determine not to enter into such a settlement could use a resulting
cost advantage to derive large, short-term profits in the years before liability may
arise without ensuring that the state will have an eventual source of recovery from them
if they are proven to have acted culpably. It is thus in the interest of the state to
require that such manufacturers establish a reserve fund to guarantee a source of
compensation and to prevent such manufacturers from deriving large, short-term profits
and then becoming judgment-proof before liability may arise.

Section 2. Definitions.

(a) "Adjusted for inflation" means increased in accordance with the formula for
inflation adjustment set forth in exhibit C to the master settlement agreement.

(b) "Affiliate" means a person who directly or indirectly owns or controls, is
owned or controlled by, or is under common ownership or control with, another person.
Solely for purposes of this definition, the terms "owns," "is owned" and "ownership" mean
ownership of an equity interest, or the equivalent thereof, of ten percent or more, and
the term "person" means an individual, partnership, committee, association, corporation
or any other organization or group of persons.

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

(e) "Master settlement agreement" means the settlement agreement (and related
documents) entered into on November 23, 1998 by the state and leading United States
tobacco product manufacturers.

(f) "Qualified escrow fund" means an escrow arrangement with a federally or state
chartered financial institution having no affiliation with any tobacco product
manufacturer and having assets of at least $1,000,000,000 where such arrangement requires
that such financial institution hold the escrowed funds' principal for the benefit of
releasing parties and prohibits the tobacco product manufacturer placing the funds into
escrow from using, accessing or directing the use of the funds' principal except as
consistent with section 3(B)(2) of this act.

(g) "Released claims" means released claims as that term is defined in the master
settlement agreement.

(h) "Releasing parties" means releasing parties as that term is defined in the
master settlement agreement.

(i) "Tobacco product manufacturer" means an entity that after the date of enactment
of this act directly (and not exclusively through any affiliate):

(1) Manufactures cigarettes anywhere that such manufacturer intends to be sold in
the United States, including cigarettes intended to be sold in the United States through
an importer (except where such importer is an original participating manufacturer (as
that term is defined in the master settlement agreement) that will be responsible for the
payments under the master settlement agreement with respect to such cigarettes as a
result of the provisions of subsection II(MM) of the master settlement agreement and that
pays the taxes specified in subsection II(Z) of the master settlement agreement, and
provided that the manufacturer of such cigarettes does not market or advertise such
cigarettes in the United States);

(2) Is the first purchaser anywhere for resale in the United States of cigarettes
manufactured anywhere that the manufacturer does not intend to be sold in the United
States; or

(3) Becomes a successor of an entity described in paragraph (1) or (2).

The term "tobacco product manufacturer" shall not include an affiliate of a tobacco
product manufacturer unless such affiliate itself falls within any of (1)-(3) above.

(j) "Units sold" means the number of individual cigarettes sold in the state by the
applicable tobacco product manufacturer (whether directly or through a distributor,
retailer or similar intermediary or intermediaries) during the year in question, as
measured by excise taxes collected by the state on packs (or "roll-your-own" tobacco
containers) bearing the excise tax stamp of the state. The department of revenue shall
promulgate such regulations as are necessary to ascertain the amount of state excise tax
paid on the cigarettes of such tobacco product manufacturer for each year.

Section 3. Requirements.

Any tobacco product manufacturer selling cigarettes to consumers within the state
(whether directly or through a distributor, retailer or similar intermediary or
intermediaries) after the date of enactment of this act shall do one of the following:

(a) Become a participating manufacturer (as that term is defined in section II(jj)
of the master settlement agreement) and generally perform its financial obligations under
the master settlement agreement; or

(b) (1) 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):

2000: $.0104712 per unit sold after the date of enactment of this act;

For each of 2001 and 2002: $.0136125 per unit sold;

For each of 2003 through 2006: $.0167539 per unit sold;

For each of 2007 and each year thereafter: $.0188482 per unit sold.

(2) A tobacco product manufacturer that places funds into escrow pursuant to
paragraph (1) shall receive the interest or other appreciation on such funds as earned.
Such funds themselves shall be released from escrow only under the following
circumstances:

(a) To pay a judgment or settlement on any released claim brought against such
tobacco product manufacturer by the state or any releasing party located or residing in
the state. Funds shall be released from escrow under this subparagraph (i) in the order
in which they were placed into escrow and (ii) only to the extent and at the time
necessary to make payments required under such 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
particular year was greater than the master settlement agreement payments, as determined
pursuant to section IX(i) of that agreement including after final determination of all
adjustments, that such manufacturer would have been required to make on account of such
units sold had it been a participating manufacturer, the excess shall be released from
escrow and revert back to such tobacco product manufacturer; or

(c) To the extent not released from escrow under subparagraphs (a) or (b), funds
shall be released from escrow and revert back to such tobacco product manufacturer
twenty-five years after the date on which they were placed into escrow.

(3) Each tobacco product manufacturer that elects to place funds into escrow
pursuant to this subsection shall annually certify to the attorney general that it is in
compliance with this subsection. The attorney general may bring a civil action on behalf
of the state against any tobacco product manufacturer that fails to place into escrow the
funds required under this section. Any tobacco product manufacturer that fails in any
year to place into escrow the funds required under this section shall:

(a) Be required within 15 days to place such funds into escrow as shall bring it
into compliance with this section. The court, upon a finding of a violation of this
subsection, may impose a civil penalty to be paid to the general fund of the state in an
amount not to exceed 5 percent of the amount improperly withheld from escrow per day of
the violation and in a total amount not to exceed 100 percent of the original amount
improperly withheld from escrow;

(b) In the case of a knowing violation, be required within 15 days to place such
funds into escrow as shall bring it into compliance with this section. The court, upon a
finding of a knowing violation of this subsection, may impose a civil penalty to be paid
to the general fund in an amount not to exceed 15 percent of the amount improperly
withheld from escrow per day of the violation and in a total amount not to exceed 300
percent of the original amount improperly withheld from escrow; and

(c) In the case of a second knowing violation, be prohibited from selling
cigarettes to consumers within the state (whether directly or through a distributor,
retailer or similar intermediary) for a period not to exceed 2 years.

Each failure to make an annual deposit required under this section shall constitute
a separate violation and the violator shall pay to the attorney general the costs and
attorney fees incurred during a successful prosecution under paragraph (3).

Section 4. Effect of judicial action.

If section 3, subparagraph (b), paragraph 2, subdivision (b) is held by a court of
competent jurisdiction to be unconstitutional, the following provisions apply in its
place:

To the extent that a tobacco product manufacturer establishes that the amount
it was required to place into escrow in a particular year was greater than the
state's allocable share of the total payments that such manufacturer would
have been required to make in that year under the master settlement agreement
(as determined pursuant to section IX(i)(2) of the master settlement
agreement, and before any of the adjustments or offsets described in section
IX(i)(3) of that agreement other than the inflation adjustment) had it been a
participating manufacturer, the excess shall be released from escrow and
revert back to such tobacco product manufacturer; or

Any holding of unconstitutionality or the repeal of section 3, subparagraph (b),
paragraph 2, subdivision (b) of this statute does not impair or invalidate any other
portion of this statute or the application of this statute to any other person or
circumstance and the remaining portions of this statute continue in full force and
effect.