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                                                                   Exhibit 10.44


                    STATE OF CALIFORNIA SETTLEMENT AGREEMENT
                    ----------------------------------------

         This SETTLEMENT AGREEMENT is entered into this 14th day of April, 1997
by and among the State of California and Brooke Group Ltd., a Delaware
corporation ("Brooke Group"), Liggett & Myers Inc., a Delaware corporation
("Myers"), and Liggett Group, Inc., a Delaware corporation (which, with Myers,
is hereinafter referred to as "Liggett").

                                    RECITALS
                                    --------

         WHEREAS,

         A. The State of California, by and through its Attorney General (the
"Attorney General"), contemplates bringing a civil action (a "Contemplated
Action", as defined in Section 1 hereof) against, among others, the American
Tobacco Company, Inc., BAT Industries, Plc, British American Tobacco Company,
R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco Corporation, Philip
Morris, Inc., Liggett & Myers, Inc., Lorillard Tobacco Company, Inc., and United
States Tobacco Company and their various parent and related companies
("Defendants"), asserting claims for, among other things, expenses allegedly
arising from 




<PAGE>   2


tobacco-related matters and injunctive relief concerning sales of cigarettes to
minors.

         B. Because of the importance of the agreements and undertakings by
Liggett and Brooke Group herein to the goals of the State of California,
including the prosecution of the Contemplated Action against other Defendants,
the State of California has agreed to extend financial settlement terms to
Liggett and Brooke Group which will not be offered to any other Defendant, all
as set forth in this Settlement Agreement. 

         C. On March 20, 1997, seventeen States, by and through their Attorneys
General, and Liggett and Brooke Group entered into a settlement (the "Attorneys
General Settlement") of the actions brought by such States, pursuant to which
Liggett agreed to make certain payments, comply with certain proposed
regulations restricting the marketing and sale of cigarettes to minors and to
offer certain significant cooperation in connection with the prosecution of
their respective actions against the other Defendants; all in accordance with
the terms of the Attorneys General Settlement, a copy of which is annexed hereto
as Appendix A. 

         D. The State of California and Liggett and Brooke Group wish to provide
in this Settlement Agreement for the State of California to become a Subsequent
Settling State under the 


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Attorneys General Settlement, all in accordance with the terms of this
Settlement Agreement.

         E. The State of California acknowledges and agrees that this Settlement
Agreement, including the cooperation provisions thereof, are important to the
prosecution of its Contemplated Action against non-settling Defendants. 

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

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

         H. The State of California recognizes and acknowledges that the
cooperation being provided for in this Settlement Agreement would be valuable to
the prosecution of claims against the tobacco industry. Further, the State of
California acknowledges that the change in warning labels provided for in this
Settlement Agreement is a step towards properly informing consumers more fully
of the truth about


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cigarettes and the consequences of smoking, as is the statement by Liggett also
provided for herein.

         NOW, THEREFORE, in consideration of the foregoing and of the promises
and covenants set forth in this Agreement, the undersigned Attorney General, on
behalf of the State of California, and Liggett and Brooke Group hereby stipulate
and agree that any and all smoking-related claims, including any Contemplated
Action, of the State of California shall be settled as against Liggett and
Brooke Group all on the terms contained herein, as follows:





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I.  DEFINITIONS.

         Capitalized terms used herein shall have the meanings assigned to them
in Section 1 of the Attorneys General Settlement, except as set forth below or
defined elsewhere in this Agreement:

         "Agreement" means this Settlement Agreement.

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

         "Attorney General Actions" means those actions settled pursuant to the
Attorneys General Settlement or any similar action commenced by or on behalf of
a State against the Defendants, including Contemplated Actions.

         "Attorneys General Settlement" means the settlement agreement entered
into on March 20, 1997 by seventeen Settling States and Settling Defendants, a
copy of which is annexed hereto as Exhibit A.

         "Contemplated Action" means an action which may be commenced by or on
behalf of the State of California against Non-settling Tobacco Companies and/or
other defendants seeking relief similar to that sought in those actions listed
in Appendix A to 


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the Attorneys General Settlement, and shall be deemed to be an
Attorney General Action under the Attorneys General Settlement.

         "Potential Defendants" means Defendants, as defined in the Attorneys
General Settlement.

         "Parties" means the State of California and Brooke Group and Liggett.

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


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privileged for reasons other than waiver due to production pursuant to this
Agreement.

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

         "Settling States" means the States listed in Appendix A to the
Attorneys General Settlement and Subsequent Settling States.


II.  SETTLEMENT PURPOSES ONLY.


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

III.  PARTIES.

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         Section 3 of the Attorneys General Settlement is incorporated herein by
reference, with the addition of Section 3.3. below.

         3.1. Section 3.1 of the Attorneys General Settlement is incorporated
herein by reference.

         3.2. Section 3.2 of the Attorneys General Settlement is incorporated
herein by reference.

         3.3. The Parties agree that, even though the State of California has
not as of the date of this Settlement Agreement filed a Contemplated Action, the
State of California is a Subsequent Settling State under the Attorneys General
Settlement, the terms and conditions of which are incorporated herein, except as
specifically modified by this Settlement Agreement because of unique
circumstances relating to the State of California.

IV.  PUBLIC STATEMENT; COOPERATION; ADVERTISING LIMITATIONS.

         Section 4 of the Attorneys General Settlement is incorporated herein by
reference, except as modified below.

               A. Promptly after execution of this Settlement Agreement, Liggett
shall, by and through its Director, Bennett S. 



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LeBow, issue in the State of California a public statement substantially in the
following form and substance:

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

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


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

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

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

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



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         attention of the Attorney General of the State of California.

                  5. In accordance with our settlement agreements, Liggett
         agrees to fully cooperate with the State of California in connection
         with contemplated lawsuits against the other tobacco companies. To that
         end, Liggett will make available to the State of California all
         relevant documents and information, including documents subject to
         Liggett's own attorney-client privileges and work product protections,
         and will assist the State of California in obtaining prompt court
         adjudication of the rest of the industry's joint privilege claims.

         B. Section 4.2 of the Attorneys General Settlement is incorporated 
herein by reference. 

            C.1. Upon execution of this Agreement, each Settling Defendant 
shall:

                           (1) cooperate with the Attorney General of the State
                  of California in that such Settling Defendant will take no
                  steps to impede or frustrate civil investigations into, or
                  civil prosecutions of, any of the Potential Defendants, so as
                  to secure the just, 


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                  speedy and inexpensive determination of all such
                  smoking-related claims against said non-settling persons and
                  entities;

                           (2) cooperate in and facilitate reasonable non-party
                  discovery from Settling Defendants in connection with a
                  Contemplated Action;

                           (3) actively assist the Attorney General of the State
                  of California in identifying and locating any and all persons
                  known to such Settling Defendant to have documents or
                  information that is discoverable in such proceedings, to
                  actively assist said counsel in interviewing and obtaining
                  documents and information from all such persons, and to
                  encourage such person to cooperate with the Attorney General;
                  and shall actively assist the Attorney General in interpreting
                  documents relating to Attorney General Actions against
                  Potential Defendants; and

                           (4) insofar as such Settling Defendant has or obtains
                  any material information concerning any fraudulent or illegal
                  conduct on the part of any parties, including Non-settling
                  Tobacco Companies, 


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                  their agents, or their co-defendants designed to frustrate or
                  defeat the claims of the State of California against such
                  parties, companies, agents or co-defendants, or which have the
                  effect of unlawfully suppressing evidence relevant to smoking
                  claims, disclose such information to the appropriate judicial
                  and regulatory agencies.


               4.3.2. Subject to, and promptly after, the entry of a Protective 
Order or a Stipulation Regarding Liggett Documents by a California court of
competent jurisdiction, each Settling Defendant shall:

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

                           (2) waive any and all applicable attorney-client
                  privileges and work product protections with respect to such
                  documents and information. Such waiver shall not extend to (a)
                  documents and information not relevant to 




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<PAGE>   15

                  the subject matter of a Contemplated Action or not likely to
                  lead to admissible evidence in connection with such an action
                  or (b) documents subject to a joint defense or other privilege
                  or protection which Settling Defendants cannot legally waive
                  unilaterally, except that the waiver by the Settling Defendant
                  shall apply, to the extent permitted by law, to its own joint
                  defenses or other privileges. To the extent that a Settling
                  Defendant has a good faith belief, or one or more Non-settling
                  Tobacco Companies claims, that documents to be provided
                  pursuant to Section 4.3.2(1) hereof may be subject to a joint
                  defense or other privilege (or a claim of such privilege) of
                  one or more of the Non-settling Tobacco Companies, such
                  documents shall be deposited under seal for IN CAMERA
                  inspection by a California court of competent jurisdiction,
                  together with a statement to such court that such Settling
                  Defendant has concerns as to whether some or all of such
                  documents should be protected from discovery, and the Parties
                  agree to request that such court shall retain jurisdiction to
                  resolve that issue.



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                  Liggett will participate in proceedings, including by way of
                  court appearances or declarations, concerning issues of
                  whether such documents are discoverable;

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

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



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               4.3.3. Section 4.3.3 of the Attorneys General Settlement is
incorporated herein by reference.

               4.3.4. Section 4.3.4 of the Attorneys General Settlement is
incorporated herein by reference.

         4.4. Section 4.4 of the Attorneys General Settlement is incorporated
herein by reference.

         4.5. Section 4.5 of the Attorneys General Settlement and subparts
4.5.1, 4.5.2, 4.5.3, and 4.5.4 thereof are incorporated herein by reference.

         4.6. Section 4.6 of the Attorneys General Settlement is incorporated
herein by reference.

         4.7. Section 4.7 of the Attorneys General Settlement is incorporated
herein by reference.

         4.8. Section 4.8 of the Attorneys General Settlement is incorporated
herein by reference.

         4.9. Section 4.9 of the Attorneys General Settlement is incorporated
herein by reference. 


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V.  GLOBAL SETTLEMENT. 


         5.1. Section 5.1 of the Attorneys General Settlement is incorporated
herein by reference.

         5.2. Section 5.2 of the Attorneys General Settlement is incorporated
herein by reference.


VI. SETTLEMENT FUND.

         6.1. Section 6.1 of the Attorneys General Settlement is incorporated
herein by reference.

         6.2. Section 6.2 of the Attorneys General Settlement is incorporated
herein by reference.

         6.3. Section 6.3 of the Attorneys General Settlement and subparts 6.3.1
and 6.3.2 thereof are incorporated herein by reference.

         6.4. Section 6.4 of the Attorneys General Settlement is incorporated
herein by reference.

         6.5. Section 6.5 of the Attorneys General Settlement is incorporated
herein by reference.

         6.6. Section 6.6 of the Attorneys General Settlement is incorporated
herein by reference.


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         6.7. Section 6.7 of the Attorneys General Settlement is incorporated
herein by reference.

         6.8. Section 6.8 of the Attorneys General Settlement is incorporated
herein by reference.

         6.9. Section 6.9 of the Attorneys General Settlement is incorporated
herein by reference.

         6.10. Section 6.10 of the Attorneys General Settlement is incorporated
herein by reference.

         6.11. Section 6.11 of the Attorneys General Settlement is incorporated
herein by reference.

         6.12. Section 6.12 of the Attorneys General Settlement is incorporated
herein by reference.

         6.13. Section 6.13 of the Attorneys General Settlement is incorporated
herein by reference.

VII.  RELEASE.

1

         B. Upon the date of the execution of this Agreement, for good and
sufficient consideration as described herein, the State of California shall for
the duration or term of this Agreement (whichever is shorter) be deemed to and
hereby does 


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release, dismiss and discharge each and every civil claim, right, and cause of
action (including, without limitation, all claims for damages, restitution,
medical monitoring, claims arising under California Business and Professions
Code ss.ss. 17200 et seq., or any other claim for legal or equitable relief),
known or unknown, asserted or unasserted, direct or indirect, which it had, now
has or may hereafter have against each Settling Defendant (including its past
and present parents, subsidiaries, present affiliates, employees, directors and
shareholders, but only in such capacities, vis-a-vis, each such Settling
Defendant, and downstream distribution entities of Settling Defendant, but only
to the extent that such downstream distribution entities would have cross-claims
against Settling Defendant), which is smoking-related or otherwise arises out
of, or concerns, the acts, facts, transactions, occurrences, representations, or
omissions that would be set forth, alleged, referred to or otherwise embraced in
the complaint of the Contemplated Action, but does not in any fashion release
any Non-settling Tobacco Companies or other Potential Defendants except as
provided for in Seet seq., or any other claim for legal or equitable relief),
known or unknown, asserted or unasserted, direct or indirect, which it had, now
has or may hereafter have against each Settling Defendant (including its past
and present parents, subsidiaries, present affiliates, employees, directors and
shareholders, but only in such capacities, vis-a-vis, each such Settling
Defendant, and downstream distribution entities of Settling Defendant, but only
to the extent that such downstream distribution entities would have cross-claims
against Settling Defendant), which is smoking-related or otherwise arises out
of, or concerns, the acts, facts, transactions, occurrences, representations, or
omissions that would be set forth, alleged, referred to or otherwise embraced in
the complaint of the Contemplated Action, but does not in any fashion release
any Non-settling Tobacco Companies or other Potential Defendants except as
provided for in Section 17 of the Attorneys General Settlement. 




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

         Provided, however, as follows:

         1) If this Agreement expires upon completion of its full term, these
releases set forth in this Section 7.1 shall continue and apply in full force
and effect with respect to all released claims which accrued or shall accrue
prior to, through and including the date of such expiration, such that such
claims shall be forever released, but only as to such claims through and



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including such date; if this Agreement terminates for any reason prior to its
full term, these releases shall be of no further force and effect and Settling
Defendants shall be entitled to a credit to the extent otherwise provided in
this Agreement against all claims covered by the release for the full amount
paid by such Settling Defendants hereunder. 

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

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

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


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county, municipality or subdivision except for the exclusively State share of
the Medicaid funds claimed in any such action.

         7.2. Section 7.2 of the Attorneys General Settlement is incorporated
herein by reference.

         7.3. Section 7.3 of the Attorneys General Settlement is incorporated
herein by reference.

         7.4. Section 7.4 of the Attorneys General Settlement is incorporated
herein by reference.

         7.5. Notwithstanding section 1542 of the California Civil Code, which
provides that:

         [a] general release does not extend to claims which the creditor does
         not know or suspect to exist in his favor at the time of executing the
         release, which if known by him must have materially affected his
         settlement with the debtor,

these releases set forth in this Section 7 release all claims to releasee
whether known or unknown, foreseen or unforeseen, that releasor may have against
releasee, and releasor understands and acknowledges the significance and
consequences of waiver of California Civil Code ss. 1542 and hereby assumes full
responsibility for any injuries, damages or losses releasor may incur.

VIII.  EXCLUSIVE REMEDY; DISMISSAL OF ACTION;

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         JURISDICTION OF COURT.

         Section 8 of the Attorneys General Settlement is incorporated herein by
reference, except as modified below. 8.1. Section 8.1 of the Attorneys General
Settlement is incorporated herein by reference.

         8.2. If the State of California brings a Contemplated Action, the State
of California shall not name the Settling Defendants as defendants therein,
except only as may be necessary to effectuate Section 11.2 hereof.

         8.3. Section 8.3 of the Attorneys General Settlement is incorporated
herein by reference.

IX.  TERM.

         Section 9 of the Attorneys General Settlement is incorporated herein by
reference, except as modified below.


         9.1. Section 9.1 of the Attorneys General Settlement is incorporated
herein by reference.

         9.2. Section 9.2 of the Attorneys General Settlement is incorporated
herein by reference.

         9.3. Section 9.3 of the Attorneys General Settlement is incorporated
herein by reference.


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<PAGE>   25

         9.4. Section 9.4 of the Attorneys General Settlement is incorporated
herein by reference.

         9.5. Section 9.5 of the Attorneys General Settlement is incorporated
herein by reference.

         9.6. Section 9.6 of the Attorneys General Settlement is incorporated
herein by reference.

         9.7. The duration of this Agreement shall be co-extensive with the
duration of the Attorneys General Settlement. The exercise of any right under
the Attorneys General Settlement to terminate the Attorneys General Settlement
with respect to the State of California shall also be a termination of this
Agreement.

X.  CONTINUING ENFORCEABILITY.

         Section 10 of the Attorneys General Settlement is incorporated herein
by reference.

XI.  ENTRY OF GOOD FAITH BAR ORDER ON CONTRIBUTION AND INDEMNITY

         CLAIMS.


         Section 11 of the Attorneys General Settlement is replaced with the
following provisions.



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<PAGE>   26

         A. It is the intent of the parties that the payments to be made by
Liggett with respect to the claims and causes of action settled hereby, be
limited to those payments set forth in this Settlement Agreement, and that
Settling Defendants not be responsible for any payments relating to any
contribution or indemnity claim asserted, or to be asserted, by any non-settling
defendant that may arise from any Contemplated Action by the State of
California. In order to effectuate this intent of the parties, and only in order
to effectuate such intent, the parties agree as follows in this Section 11.


         B. As promptly as reasonably practicable after a Contemplated Action
is brought by the State of California, the Parties shall request that the court
in which a Contemplated Action is brought by the State of California enter an
order proclaiming this Settlement Agreement as a good faith settlement under
California Civil Code ss. 877.6, and the State of California shall cooperate
with the Settling Defendants in seeking such an order.

XII.  TAX STATUS OF SETTLEMENT FUND.


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<PAGE>   27


         12.1. Section 12.1 of the Attorneys General Settlement is incorporated
herein by reference.

         12.2. Section 12.2 of the Attorneys General Settlement is incorporated
herein by reference.

         12.3. Section 12.3 of the Attorneys General Settlement is incorporated
herein by reference.

XIII.  EFFECT OF DEFAULT OF SETTLING DEFENDANT.

         Section 13 of the Attorneys General Settlement is replaced with the
following.





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<PAGE>   28

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


XIV.  REPRESENTATIONS AND WARRANTIES.

         14.1. Section 14.1 of the Attorneys General Settlement is incorporated
herein by reference.

         14.2. Section 14.2 of the Attorneys General Settlement is incorporated
herein by reference.

XV.  ARBITRATION.

         Section 15 of the Attorneys General Settlement is incorporated herein
by reference.

XVI.  MOST FAVORED NATION.


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<PAGE>   29


         16.1. Section 16.1 of the Attorneys General Settlement is incorporated
herein by reference.

               16.1.1. Section 16.1.1 of the Attorneys General Settlement is
incorporated herein by reference.

               16.1.2. Section 16.1.2 of the Attorneys General Settlement is
incorporated herein by reference.

               16.1.3. Section 16.1.3 of the Attorneys General Settlement is
incorporated herein by reference.

               16.1.4. Section 16.1.4 of the Attorneys General Settlement is
incorporated herein by reference.

               16.1.5. Section 16.1.5 of the Attorneys General Settlement is
incorporated herein by reference.

               16.1.6. Section 16.1.6 of the Attorneys General Settlement is
incorporated herein by reference.

         16.2. Section 16.2 of the Attorneys General Settlement is incorporated
herein by reference.

         16.3. Section 16.3 of the Attorneys General Settlement is incorporated
herein by reference.

XVII.  FUTURE AFFILIATE.



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<PAGE>   30

         17.1. Section 17.1 of the Attorneys General Settlement is incorporated
herein by reference.

         17.2. Section 17.2 of the Attorneys General Settlement and subparts (a)
and (b) thereof are incorporated herein by reference.

         17.3. Section 17.3 of the Attorneys General Settlement is incorporated
herein by reference.

         17.4. Section 17.4 of the Attorneys General Settlement is incorporated
herein by reference.

         17.5. Section 17.5 of the Attorneys General Settlement is incorporated
herein by reference.

         17.6. Section 17.6 of the Attorneys General Settlement is incorporated
herein by reference.

         17.7. Section 17.7 of the Attorneys General Settlement is incorporated
herein by reference.

         17.8. Section 17.8 of the Attorneys General Settlement is incorporated
herein by reference.

         17.9. Section 17.9 of the Attorneys General Settlement is incorporated
herein by reference.

XVIII.  MISCELLANEOUS

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<PAGE>   31


         18.1. Section 18.1 of the Attorneys General Settlement is incorporated
herein by reference.

         18.2. Section 18.2 of the Attorneys General Settlement is incorporated
herein by reference.

         18.3. Section 18.3 of the Attorneys General Settlement is incorporated
herein by reference.

         18.4. Section 18.4 of the Attorneys General Settlement is incorporated
herein by reference.

         18.5. Section 18.5 of the Attorneys General Settlement is incorporated
herein by reference.

         18.6. Section 18.6 of the Attorneys General Settlement is incorporated
herein by reference.

         18.7. Section 18.7 of the Attorneys General Settlement is incorporated
herein by reference.

         18.8. Section 18.8 of the Attorneys General Settlement is incorporated
herein by reference.

         18.9. Section 18.9 of the Attorneys General Settlement is incorporated
herein by reference.

         18.10. Section 18.10 of the Attorneys General Settlement is
incorporated herein by reference.


                                      -31-

<PAGE>   32



         18.11. Section 18.11 of the Attorneys General Settlement is
incorporated herein by reference.

         18.12. Section 18.12 of the Attorneys General Settlement is
incorporated herein by reference.

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

BROOKE GROUP LTD.                           STATE OF CALIFORNIA


By /s/ Bennett S. LeBow                     By /s/ Daniel E. Lungren
   --------------------                        ---------------------
   Bennett S. LeBow                            Daniel E. Lungren
                                               Attorney General

Date: April 14, 1997                        Date: April 14, 1997
      --------------                              --------------


LIGGETT GROUP, INC.


By /s/ Bennett S. LeBow
   --------------------
   Bennett S. LeBow


Date: April 14, 1997
      --------------




                                      -32-