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Attorney General Baker Refutes Claims Made By Carolina Tobacco Over House of Prince Riga Cigarette Settlement

PRESS ADVISORY

Attorney General Baker Refutes Claims Made By Carolina Tobacco Over House of Prince Riga Cigarette Settlement

February 2, 2007

On January 29, 2007, Carolina Tobacco Company issued a series of press releases stating that it had reached a $31 million settlement with various States and that the settlement resolved issues related to its status as a cigarette manufacturer under Georgia’s state law for the period from 1999 through mid-2003. That press release is neither a complete nor accurate description of the settlement.

First, Carolina Tobacco’s assertion that the settlement included an agreement that “Carolina Tobacco will be recognized as the manufacturer of ROGER® brand cigarettes during the disputed period” is simply untrue. The settlement expressly does not decide that issue, stating that it is a “compromise of disputed claims,” and that the Parties “have not and do not admit liability to any other Party,” such as would arise from a determination that Carolina Tobacco was the manufacturer of the “Roger” brand of cigarettes.

Second, the statement that the settlement will result in Carolina being allowed to sell cigarettes in the State of Georgia is also untrue. Attorney General Baker has determined that Carolina Tobacco Co.’s “Roger” brand of cigarettes cannot legally be sold in Georgia, and that decision is currently under review in the Georgia courts.

Further, the release understates the amount received by the State from this settlement – the true amount is actually $1,317,164.81, rather than the $760,000.00 that Carolina Tobacco claimed Georgia received. The amount is inaccurate because Carolina Tobacco’s press release ignores a fundamental fact: the settlement primarily resolved litigation brought by California in 2003 on behalf of Georgia and other states against House of Prince and its subsidiary, House of Prince Riga (“Riga”), to enforce compliance with the tobacco Master Settlement Agreement (“MSA”). The MSA was the landmark 1998 agreement that resolved the litigation brought by the States against the major tobacco companies over public health costs associated with smoking. Current and future payments to the states are based on the number of cigarettes manufactured by a particular tobacco company.

In this litigation against Carolina Tobacco, House of Prince, and Riga, the states alleged that House of Prince and Riga manufactured cigarettes for Carolina Tobacco but had failed to pay the states for those cigarettes in violation of House of Prince’s obligations as a signatory to the MSA. In 2005, the States agreed with House of Prince to settle that litigation for more than $51 million plus interest for those cigarettes. Approximately $3 million of the settlement was based on a similar settlement entered into with an entity unrelated to Carolina Tobacco for which Riga also made cigarettes.

Carolina Tobacco, for its part, was involved in litigation with the States to try to force them to recognize Carolina Tobacco as the manufacturer of the Riga cigarettes, as well as to force the States to accept Carolina Tobacco’s escrow deposits for the Riga Cigarettes that Georgia law required of companies like Carolina Tobacco that were not party to the Master Settlement Agreement. Carolina Tobacco obtained several preliminary injunctions forcing the States to accept the escrow deposits pending state court decisions on whether Carolina Tobacco was the manufacturer of the Riga cigarettes. By 2003, it had deposited $31 million into escrow for the Riga cigarettes. It had promised House of Prince, though, that it would reimburse House of Prince if House of Prince were required to make MSA payments for the Riga cigarettes and gave House of Prince a lien on its rights in the escrow deposits. When the States agreed to the settlement with House of Prince, they also agreed that Carolina Tobacco could withdraw the $31 million from escrow (since House of Prince was making MSA payments for those same cigarettes), and Carolina Tobacco provided those funds to House of Prince pursuant to their agreement. House of Prince was required to pay another $17 million to complete its settlement with the States.

Accordingly, nothing in the House of Prince settlement agreement or in the resolution of the foregoing litigation supports Carolina Tobacco’s contention that the settlement resulted in an agreement by the States that Carolina Tobacco was the manufacturer for the Riga cigarettes. Similarly, because the payments from House of Prince fully resolved the financial issues for these cigarettes, the States agreed they would not take action against Carolina Tobacco based on any issues relating to those cigarettes. However, nothing in that agreement changes Carolina Tobacco’s current status in any State or determines that any State will automatically place Carolina Tobacco on its directory or allow it to sell in the State. Carolina Tobacco remains a non-signatory to the MSA and, to the extent that it is now a manufacturer, Carolina Tobacco would be obligated to comply with the Georgia’s escrow deposit laws.