<PAGE>   1
                                                                  EXHIBIT 10.35


                       IN THE UNITED STATES DISTRICT COURT
                        FOR THE NORTHERN DISTRICT OF OHIO
                                EASTERN DIVISION

IRON WORKERS LOCAL UNION                             )
NO. 17 INSURANCE FUND AND                            )
ITS TRUSTEES, et al.,                                )
                                                     )    CASE NO. 1:97-CV-1422
                                                     )
                                                     )  
                  Plaintiffs,                        )    
                                                     )
                                                     )  
         v.                                          )    Judge James S. Gwin
                                                     )
PHILIP MORRIS INCORPORATED,                          )
et al.,                                              )    CLASS ACTION
                                                     )  
                                                     )
                  Defendants.                        )






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                           CLASS SETTLEMENT AGREEMENT

                  This CLASS SETTLEMENT AGREEMENT is entered into this 14th day
of January 1999 by and between the named and representative plaintiffs Iron
Workers Local Union No. 17 Insurance Fund, IBEW Local No. 38 Health & Welfare
Fund, Ohio Laborers' District Council-Ohio Contractors' Association Insurance
Fund, Dealers-Unions Insurance Fund, and Local 47 Welfare Fund No. 1, Toledo
Electrical Welfare Fund, through their trustees (collectively, "Plaintiff
Funds") in IRON WORKERS LOCAL UNION NO. 17 INSURANCE FUND, ET AL. V. PHILIP
MORRIS INC., ET AL., Case No. 1:97-CV-1422, United States District Court,
Norther District of Ohio, Eastern Division (the "Action"), for themselves and on
behalf of the class as hereinafter defined ("Class"), 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").





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                                    RECITALS

WHEREAS,

         A. On May 20, 1997, Plaintiff Funds commenced the Action against
various tobacco-related entities, including, among others, Philip Morris, Inc.,
R.J. Reynolds Tobacco Co., Brown & Williamson Tobacco Corp., Lorillard Tobacco
Co., American Tobacco Co., Liggett Group Inc., United States Tobacco Company and
British American Tobacco Co. Ltd. and their various parent and related companies
("Defendants"), asserting claims on behalf of a putative class of health and
welfare trusts, for, among other things, expenses allegedly incurred in
providing medical treatment for tobacco-related illnesses. On October 20, 1998,
the Court, in an order to be published at 182 F.R.D. 523, granted the Plaintiff
Funds' motion to certify their cause as a class action.

         B. Plaintiff Funds allege that Liggett has acted improperly on grounds
generally applicable to the Class.

         C. Liggett and Brooke Group have denied, and continue to deny any legal
liability of any kind in all smoking-related litigation.




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         D. Liggett and Brooke Group have made available relevant information,
and Plaintiff Funds, through counsel, have investigated these entities and other
relevant information, and have concluded that it would be in the best interests
of the Class to enter into this Agreement, and further, that Plaintiff Funds and
counsel consider the settlement set forth herein to be fair, reasonable and
adequate and in the best interests of the Class.

         E. Liggett and Brooke Group recognize and acknowledge that this
Agreement is in their best interests as defending the Action, through trial and
appeals, would require considerable resources and expense and would entail
uncertainty and risk.

                  NOW, THEREFORE, in consideration of the foregoing and of the
promises and covenants set forth in this Class Settlement Agreement, Plaintiff
Funds, on their own behalf and on behalf of the Class, and Liggett and Brooke
Group hereby stipulate and agree that, conditional upon the approval of the
Court as required by Rule 23 of the Federal Rules of Civil Procedure and as
provided herein, the Action shall be settled as against Liggett and Brooke Group
and that all claims asserted by or on behalf of the Class in the Action against
the Liggett and Brooke Group shall be dismissed with prejudice, all on the terms
and conditions contained herein, as follows:

1.       DEFINITIONS.

                  As used in and solely for the purposes of this Settlement
Agreement, the following terms shall have the following respective meanings:




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                  "Action" means the action captioned IRON WORKERS LOCAL UNION
NO. 17 INSURANCE FUND, ET AL. V. PHILIP MORRIS INC., ET AL., Case No.
1:97-CV-1422, United States District Court, Norther District of Ohio, Eastern
Division.

                  "Affiliate" means a Present Affiliate or a Future Affiliate.

                  "Agreement" means this Class Settlement Agreement.

                  "Brooke Group" means Brooke Group Ltd. and/or its Present
Affiliates other than Liggett.

                  "Cigarette" means any product including components,
accessories, or parts which is intended to be burned under ordinary conditions
of use and consists of: (1) any roll of tobacco wrapped in paper or in any
substance not containing tobacco; or (2) any roll of tobacco wrapped in any
substances 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 subparagraph
(1).

                  "Class" means all members of the class certified by the Court
in the Action, which class is defined as all jointly-administered,
multi-employer health and welfare trusts in Ohio, through their respective
trustees.

                  "Class Counsel" means those law firms listed in Section 19.9
hereof.

                  "Class Fairness Hearing" means the hearing to be conducted by
the Court in connection with the determination of the fairness, adequacy and
reasonableness of this Agreement under Rule 23 of the Federal Rules of Civil
Procedure.




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                  "Class Final Order and Judgment" or "Class Final Approval"
means the order to be entered by the Court approving this Agreement without
material alterations, as fair, adequate and reasonable under Rule 23 of the
Federal Rules of Civil Procedure, and making such other findings and
determinations as the Court deems necessary and appropriate to effectuate the
terms of this Agreement and to exercise its continuing and exclusive
jurisdiction over the enforcement and administration of all terms of this
Agreement.

                  "Class Settlement Date" or "Settlement Date" means the date on
which all of the following shall have occurred: (a) the entry of the Class Final
Order and Judgment without material modification, and (b) the achievement of
finality for the Class Final Order and Judgment by virtue of that order having
become final and non-appealable through (i) the expiration of all appropriate
appeal periods without an appeal having been filed; (ii) final affirmance of the
Class Final Order and Judgment on appeal or final dismissal or denial of all
such appeals, including petitions for review, rehearing or certiorari; or (iii)
final disposition of any proceedings, including any appeals, resulting from any
appeal from the entry of the Class Final Order and Judgment.

                  "Court" means the United States District Court, Northern
District of Ohio, Eastern Division.

                  "Domestic Tobacco Operations" means the manufacture and/or
sale of Cigarettes and any other tobacco products in the United States, its
territories, its possessions and the Commonwealth of Puerto Rico.





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                  "Downstream Distribution Entity" means any person or entity
that furthers the distribution of tobacco products at any point from the
original place of manufacture to individuals for personal consumption,
including, without limitation, wholesalers, retailers, private label purchasers
and control label purchasers. Such term shall not include common carriers.

                  "Future Affiliate" means any one entity, other than an entity
with a Market Share greater than 30% as of the date of this Agreement, which is
a Non-settling Tobacco Company (including any successor to or assignee of its
assets) if such entity or an Affiliate of such entity with the prior written
approval of Brooke Group, subsequent to the date, and during the term, of this
Agreement but prior to the fourth anniversary of the date of execution of this
Agreement: (i) directly or indirectly acquires or is acquired by Liggett or
Brooke Group; (ii) directly or indirectly acquires all or substantially all of
the stock or assets of Liggett or Brooke Group; (iii) all or substantially all
of whose stock or assets engaged in Domestic Tobacco Operations are directly or
indirectly acquired by Liggett or Brooke Group or any Subsidiary of either of
them; or (iv) directly or indirectly merges with Liggett or Brooke Group or
otherwise combines on any basis with Liggett or Brooke Group.

                  "Future Affiliate Transaction" means a transaction, or series
of transactions, by which an entity becomes a Future Affiliate.

                  "Health and Welfare Trust" means a non-profit, union-sponsored
tax-exempt trust organized under the Employee Retirement Income Security Act, 29
U.S.C. section 1001 et seq. to provide health-related benefits to workers and
their families.





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                  "Liggett" means Liggett Group Inc. and Liggett & Myers, Inc.

                  "Market Share" means, with respect to a specified Tobacco
Company and a specified year, the Domestic Tobacco Operations market share in
that year of all of such company's cigarettes and other tobacco products (as the
case may be), as determined by The Maxwell Consumer Report published by Wheat
First Butcher Singer or a similar or successor report.

                  "Membership Population" means, with respect to a specified
Health and Welfare Trust, including Class members, the number of participants in
and beneficiaries to such Health and Welfare Trust.

                  "Non-Settling Tobacco Companies" means each of The American
Tobacco Co., Lorillard Tobacco Co., Philip Morris Inc., R.J. Reynolds Tobacco
Co., Brown & Williamson Tobacco Corp., and United States Tobacco Company.

                  "Notice" means the written notice document to be provided to
Class members as defined in Section 8.1 of this Agreement.

                  "Notice Date" means the first date upon which Notice is given
to the Class pursuant to Section 8.1 of this Agreement.

                  "Parent", with respect to Liggett means Brooke Group, and with
respect to any other specified corporation or entity, means another corporation,
partnership or other entity which directly or indirectly controls such specified
corporation or entity.

                  "Parties" means the Plaintiffs and Brooke Group and Liggett.




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                  "Plaintiff Funds" means each of Iron Workers Local Union No.
17 Insurance Fund, IBEW Local No. 38 Health & Welfare Fund, Ohio Laborers'
District Council-Ohio Contractors' Association Insurance Fund, Dealers-Unions
Insurance Fund, and Local 47 Welfare Fund No. 1, Toledo Electrical Welfare Fund,
through their trustees.

                  "Preliminary Approval" means the Court's preliminary approval
of this Agreement, approval of the form of Notice to the Class pursuant to Rule
23 of the Federal Rules of Civil Procedure, or the setting of a date for the
approval or submission for approval of the form of such notice.

                  "Present Affiliate" means with respect to a specified
corporation, another corporation, partnership or other entity which directly or
indirectly, controls, is controlled by, or is under common control with, such
specified corporation or entity including any and all Parents, subsidiaries,
and/or sister corporations or entities of such specified corporation or entity.

                  "Present Value" means, with respect to a specified amount or
amounts, the present value of such amount or amounts as calculated using a
discount rate equal to the yield on 10-year Treasury Notes as reported in the
WALL STREET JOURNAL at the time of such calculation; provided that where such
amount or amounts are not otherwise determinable, the amount or amounts to be
present-valued shall be deemed to be the average for the most recent three
years.




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                  "Pretax Income", with respect to Liggett, means for a
specified year, the "Income before Income Taxes" as determined in accordance
with generally accepted accounting principles ("GAAP") of Liggett for its most
recent fiscal year, as report in filings to the United States Securities and
Exchange Commission or, if there is no such filing, as reported by Liggett's
independent outside auditors. If GAAP changes in any material respect during the
term of this Agreement so that the benefits anticipated by the parties (in light
of GAAP applicable on the date of this Agreement), an appropriate adjustment
shall be made to the formulas and calculations hereunder to achieve the parties'
expectations as of the date hereof.

                  "Protective Order" or "Stipulation Regarding Liggett
Documents" means, with respect to privileged documents produced by a Settling
Defendant pursuant to Section 5.2, an order of the Court: (a) protecting the
confidentiality of such documents; (b) providing that such documents may be used
only in actions against Non-Settling Tobacco Companies 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 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 parties to whom the documents are produced subject to
the order. The provisions of the Protective Order shall not apply to documents
claimed to be privileged but which are determined by the Court or by any other
court not to be privileged for reasons other than waiver due to production
pursuant to this Agreement.

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

                  "Settling Defendants' Counsel" means the law firm of Kasowitz,
Benson, Torres & Friedman L.L.P.




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                  "Subsidiary" means with respect to a specified corporation,
another corporation, partnership or other entity of which securities or other
interests having the power to elect a majority of that corporation?s,
partnership?s or other entity?s board of directors or similar governing body, or
otherwise having the power to direct the management and policies of that
corporation, partnership or other entity, are owned, directly or indirectly, by
such specified corporation and/or one or more of its Subsidiaries.

                  "Tobacco Companies" means The American Tobacco Co., Lorillard
Tobacco Co., Philip Morris Inc., R.J. Reynolds Tobacco Co., Brown & Williamson
Tobacco Corp., Liggett and United States Tobacco Co. and/or their respective
Affiliates.

                  "Tobacco Snuff" means any cut, ground, powdered, or leaf
tobacco that is intended to be placed in the oral cavity.

2.       SETTLEMENT PURPOSES ONLY.

                  This Agreement is for settlement purposes only, and neither
the fact of, nor 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 have been alleged by Plaintiff
Funds in the Action 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 the
Action or in any other action or proceeding of any kind, or as an admission by
any of the Plaintiff Funds or members of the Class of the validity of any fact
or defense asserted or which could have been asserted against them in the Action
or in any other action or proceeding of any kind.



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3. SUBMISSION TO THE COURT.

                  Promptly after execution of this Agreement, the Parties shall,
through their respective attorneys, jointly submit this Agreement to the Court
and seek an order granting Preliminary Approval of this Agreement and approving
dissemination of Notice. 


4. PARTIES.

                  4.1. This Agreement shall be binding, in accordance with the
terms hereof, upon the Plaintiff Funds, the Class, Brooke Group and Liggett;
provided that, notwithstanding anything else contained in this Agreement, the
payment obligations of this Agreement, if any, shall be binding only upon
Liggett.

                  4.2. The Parties acknowledge and agree that the willingness of
Brooke Group and Liggett to enter into this Agreement, and in particular their
willingness to agree to provide cooperation as set forth in Section 5 hereof, is
important to the interests of the Settlement Class. 

5. COOPERATION.

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


                           (1) cooperate with the Plaintiff Funds, the Class and
                  counsel, in that such Settling Defendant will take no steps to
                  impede or frustrate their investigations into, or prosecutions
                  of, any of the Non-settling Tobacco Companies in the Action,
                  so as to secure the just, speedy and inexpensive determination
                  of the Action against said non-settling persons and entities;




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

                           (3) actively assist the Plaintiff Funds, the Class
                  and counsel in identifying and locating any and all persons
                  known to such Settling Defendant to have documents or
                  information that is discoverable in such proceedings, and to
                  actively assist in interviewing and obtaining documents and
                  information from all such persons, and to encourage such
                  person to cooperate with the Settlement Class; and shall
                  actively assist in interpreting documents relating to
                  litigation against Non-settling Tobacco Companies; 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, their agents, or their co-defendants
                  designed to frustrate or defeat the claims of the Plaintiff
                  Funds or the Class 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. 

                  5.2. Subject to, and promptly after the entry of a Protective
Order by the Court, each Settling Defendant shall:

                           (1) promptly provide all documents and information
                  that are relevant to the subject matter of the Action or which
                  are likely to lead to admissible evidence in connection with
                  the claims asserted in the Action, subject to the provisions
                  of Section 5.2(2) hereof;





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                            (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 the subject matter
                  of the Action or not reasonably likely to lead to admissible
                  evidence in connection with claims asserted in the 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 5.2(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 the Court together with a statement to the 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 the Court shall retain
                  jurisdiction to resolve that issue. Liggett will participate
                  in proceedings, including by way of court appearances or
                  declarations, concerning issues of whether such documents are
                  discoverable;





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                           (3) offer their employees, and any and all other
                  individuals over whom they have control, to provide witness
                  interviews of such employees and to testify truthfully, 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;

                           (4) demand from its past or current national legal
                  counsel all documents and information obtained in the course
                  of representation of any Settling Defendant which in any way
                  relates to the cooperation required in paragraphs 5.1(1) -
                  5.2(3) above, which shall be provided to the Plaintiff Funds,
                  the Class and counsel as provided under this paragraph.

6. MONETARY COMPENSATION.

                  6.1. It is the intent of the Parties hereto that the Settling
Defendants enjoy a preferred position with respect to the Non-Settling Tobacco
Companies, in recognition of the Settling Defendants? willingness to enter into
this Agreement and provide cooperation in the Action. For this reason, the
Settling Defendants will not be obligated to pay money to the Plaintiff Funds or
to the Class unless such Settling Defendants enter into monetary settlements
with other Health and Welfare Trusts, as set forth in Section 6.2.





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                  6.2. In the event that, subsequent to the date of this
Agreement, any of the Settling Defendants enters into a settlement agreement
("Other Settlement") with any Health and Welfare Trust other than a Plaintiff
Fund or a Class member on financial terms that are more favorable to the Health
and Welfare Trust than those contained herein (as adjusted for relative
Membership Population), the Plaintiff Funds and the Class shall have the right
with respect to such Settling Defendant to replace or modify any or all of the
financial terms of this Agreement with, or add to this Agreement, any or all
such more favorable terms (adjusted for relative Membership Population) from the
Other Settlement; provided that any reduction, credit, most favored nation,
termination or other provision contained in such Other Settlement, the
application of which provision would result in an adjustment of Settling
Defendants' payment obligations, shall also be added to this Agreement.

                  6.3. Any and all payments made by a Settling Defendant
pursuant to Section 5 hereof relating to preparation of witnesses to testify in
the Action, including but not limited to payment of counsel fees for such
witnesses, shall be credited against any and all amounts that may become payable
by such Settling Defendant pursuant to Section 6.2 hereof.

                  6.4. Insofar as a final non-appealable judgment has not been
entered in the Action within three years of the date of this Agreement with
respect to the Non-Settling Tobacco Companies and there is no pending
plaintiffs' verdict or scheduled trial date in the Action, the Settling
Defendants and the Plaintiff Funds shall have the right to terminate this
Agreement; provided that the Settling Defendants and Plaintiff Funds provide
written notice of such termination to the respective parties and provided
further that any and all payments due up to the date of such termination made to
the Plaintiff Funds and/or the Class pursuant to this Agreement, if any, by the
Settling Defendants shall be retained by the Plaintiff Funds and/or the Class.




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7. NOTICE TO THE SETTLEMENT CLASS.

                  7.1. Upon Preliminary Approval, and as the Court may direct,
the Parties shall cause notice of the settlement embodied herein (the "Notice")
to be mailed to the members of the Class.

                  7.2. The Notice, in a form to be approved by the Court, shall
be disseminated over the course of a period not to exceed thirty (30) days from
the Notice Date, subject to approval by the Court. Class members shall have
until the end of this period to file, in the manner specified in the Notice, any
objection or other response to the Proposed Settlement. A hearing with respect
to final approval of this Settlement shall be set by the Court (and specified in
the Notice to the Class). 

8. FUTURE AFFILIATE.

                  8.1. The terms of this Agreement shall not be binding upon or
applicable to a Future Affiliate of the Settling Defendants, except as provided
for in this Section 8.

                  8.2. In the event of a Future Affiliate Transaction, the
Plaintiff Funds, the Class, or any of its members, shall not (a) seek to enjoin
or otherwise challenge a spinoff or like disposition of the stock or assets of
any Affiliate of the Future Affiliate which is not as of the date of the
execution of this Agreement a Parent of a company engaged in Domestic Tobacco
Operations or itself engaged in Domestic Tobacco Operations ("Spinoff
Affiliate"), (b) bring suit or otherwise take action against the Parent of the
Future Affiliate with respect to 



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such spinoff or like disposition of stock or assets, or (c) bring suit or
otherwise take action against a Spinoff Affiliate for claims asserted in or
related to the Action (and thereby release such Spinoff Affiliate pursuant to,
MUTATIS MUTANDIS, Section 9.1 hereof). The Plaintiff Funds and the Class reserve
the right to take the actions described in this Section 8.2 in the event that
such spinoff or like disposition is sought by someone other than Brooke Group or
a Future Affiliate or an Affiliate of a Future Affiliate. For purposes of this
Section 8.2, the Affiliates of such Future Affiliate shall be deemed to be those
entities that were Affiliates of the Future Affiliate immediately prior to the
Future Affiliate Transaction.

                  8.3. With respect to subsection 8.2, nothing in this
provision, or elsewhere in this Agreement, limits the authority of the Class to
challenge any transaction which they reasonably believe is in violation of
federal or state antitrust law.

                  8.4. Promptly after a Future Affiliate Transaction, Settling
Defendants and the Settlement Class and Settlement Class Counsel, each agree to
exercise best efforts to negotiate in good faith a settlement of the Action
against a Future Affiliate's Domestic Tobacco Operations.

                  8.5. Prior to a Future Affiliate Transaction, Settling
Defendants shall not enter into any agreement with any prospective Future
Affiliate which diminishes or impairs the prospective Future Affiliate's assets,
other than in the established and/or ordinary course of business of such
prospective Future Affiliate and shall use best efforts to prevent such
prospective Future Affiliate from diminishing or impairing such assets. In the
event of a Future Affiliate Transaction, the Class reserves all of their rights
to prevent the Future Affiliate from diminishing or impairing the Future
Affiliate's Tobacco assets, other than in the established and/or ordinary course
of business of such Future Affiliate. 





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9. RELEASE.

                  9.1. Upon the Class Settlement Date, with respect to each
Settling Defendant, for good and sufficient consideration as described herein,
the Plaintiff Funds and all members of the Class, collectively and individually,
on behalf of themselves, their heirs, executors, administrators, trustees,
agents, attorneys, successors, assigns, affiliates, officers, directors,
employees, members and shareholders shall be deemed to and do hereby release,
dismiss and discharge each and every claim, right, and cause of action
(including, without limitation, all claims for damages, medical expenses,
restitution, medical monitoring, or any similar legal or equitable relief, under
federal, state or common law), known or unknown, asserted or unasserted, direct
or indirect, which they had, now have, or may hereafter have against each
Settling Defendant (including its past, present and future parents,
subsidiaries, affiliates and their past, present and future agents, servants,
attorneys, employees, officers, directors, shareholders, and beneficial owners)
(and Downstream Distribution Entities of Liggett, but only to the extent that
such downstream distribution entities would have cross-claims against Liggett)
which is based on any and all harm, injury or damages claimed by members of the
Class to be caused by smoking, addiction to, or dependence upon, cigarettes or
which is asserted in the Action in connection with, or arising out of the
conduct, acts, facts, transactions, occurrences, representations or omissions
set forth, alleged, referred to or otherwise embraced in the Action complaint or
any other smoking-related actions.




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                  Provided, however, as follows:

                  1) If this Agreement expires upon completion of its full term,
this release 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 including such date; if this
Agreement terminates for any reason prior to its full term, this release 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, this release does
not pertain or apply to any other existing or potential defendant in any present
or future action.

                  3) This release does not release Settling Defendants from
claims which may be asserted by the Class against a Settling Defendant involving
conduct unrelated to the manufacture and/or sale of tobacco products.

                  9.2 In addition to the provisions of Section 9.1, each member
of the Class hereby expressly waives and releases, upon this Agreement becoming
final, any and all provisions, rights and benefits conferred by Section 1542 of
the California Civil Code, which reads:

                  Section 1542. Certain Claims not Affected by General Release.
                  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;




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 or by any law of any state or territory of the United States, or principle of
common law, which is similar, comparable or equivalent to paragraph 1542 of the
California Civil Code. Each member of the Class may hereafter discover facts
other than or different from those which he, she or it knows or believes to be
true with respect to the claims which are the subject matter of the provisions
of Section 9.1 hereof, but each member of the Class hereby expressly waives and
fully, finally, and forever settles and releases, upon this Settlement Agreement
becoming final, any known or unknown, suspected or unsuspected, contingent or
non-contingent claim with respect to the subject matter of the provisions of
Section 9.1, whether or not concealed or hidden, without regard to the
subsequent discovery or existence of such different or additional facts.

                  9.3. Except as specifically provided herein, nothing in this
Agreement shall prejudice or in any way interfere with the rights of the
Plaintiff Funds, the Class and the Settling Defendants to pursue all of their
rights and remedies against Non-settling Tobacco Companies or other defendants.

10. EXCLUSIVE REMEDY; DISMISSAL OF ACTION; JURISDICTION OF COURT.

                  10.1. Except as otherwise provided in this Agreement, this
Agreement shall be the sole and exclusive remedy for any and all released claims
of Class members against the Settling Defendants, and upon the entry of the
Class Final Order and Judgment by the Court, each Class member shall be barred
from initiating, asserting, or prosecuting any released claims against Brooke
Group or Liggett.





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<PAGE>   22

                  10.2. On the Class Settlement Date, the Action shall be
dismissed as against each Settling Defendant, subject to the continuing and
exclusive jurisdiction of the Court over the enforcement and administration of
the Agreement. Class members may not commence or prosecute actions against
Brooke Group or Liggett on claims released pursuant to this Agreement once the
Class Final Order and Judgment is entered. Class Counsel agree to provide
reasonable cooperation to stay or dismiss, as appropriate, any action of any
Class member for such released claims pending in state or federal court against
the Settling Defendants.

                  10.3. The Court shall retain exclusive and continuing
jurisdiction over the Action, the Settling Defendants, the Plaintiffs Funds and
the Class to interpret and enforce the terms, conditions, and obligations of
this Agreement. Nothing in this Agreement shall be construed to divest or limit
the jurisdiction of the Court with respect to claims which may be alleged by the
Class against Non-settling Tobacco Companies or other defendants. 

11. TERM.

                  11.1. Unless earlier terminated in accordance with the
provisions of this Agreement, the duration of this Agreement shall be
twenty-five (25) years from the Class Settlement Date.





                                      -21-
<PAGE>   23

                  11.2. The performance of this Agreement by Liggett and Brooke
Group is expressly contingent upon the Court's issuance of the Class Final Order
and Judgment. If the Court fails to hold the Class Fairness Hearing within six
(6) months of the date hereof or to issue a Class Final Order and Judgment
within sixty (60) days following conclusion of the Class Fairness Hearing,
Liggett and Brooke Group and the Plaintiff Funds may elect to terminate this
Agreement by written notice to the Court and the respective parties within
twenty (20) business days following the end of either such period.

                  11.3. Except as may be otherwise specifically provided in this
Agreement, a termination by a Settling Defendant hereunder shall have the effect
of rendering this Agreement as having no force or effect whatsoever, null and
void AB INITIO, and not admissible as evidence for any purpose in any pending or
future litigation in any jurisdiction. However, a termination shall not affect
any prior cooperation or require the return of any documents produced to the
Plaintiff Funds or the Class pursuant to this Agreement.

12. CONTINUING ENFORCEABILITY.

                  12.1. The parties acknowledge and agree that a primary purpose
of this Agreement is to provide the Class with certain equitable and other
relief made available by Settling Defendants and their current Boards of
Directors, while ensuring that Liggett may perform its obligations and make its
payments hereunder, if any, without unduly risking insolvency, bankruptcy or
liquidation; this Agreement is intended to be a mutually beneficial and
equitable alternative to the prospect of bankruptcy.




                                      -22-
<PAGE>   24

                  12.2. Unless earlier terminated, this Agreement and each
provision of or obligation arising from this Agreement shall continue and remain
fully enforceable if a Settling Defendant institutes or is subject to the
institution against it of any proceeding or voluntary case under title 11 of the
United States Code, or other proceeding seeking to adjudicate it insolvent or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief or protection of debtors or
other proceeding seeking the entry of an order for relief or the appointment of
a receiver, trustee, custodian or other similar official for it or for any part
of its property (each, a "Bankruptcy Proceeding"). Brooke Group has the right
but not the obligation to cure and to perform any of Liggett's monetary
obligations, if any, under this Agreement (calculated as if Liggett were meeting
such monetary obligations) notwithstanding the occurrence and continuation of
any Bankruptcy Proceeding with respect to Liggett. The Class agrees that it has
no right to terminate this Agreement, to call a default under this Agreement, or
to compel Liggett to take or not to take any action with respect to this
Agreement during any period in which Brooke Group is performing Liggett's
post-bankruptcy proceeding monetary obligations hereunder. 

13. ENTRY OF GOOD FAITH BAR ORDER ON CONTRIBUTION AND INDEMNITY CLAIMS;
    INDEMNIFICATION.

                  13.1. The Parties shall request that the Court enter an order
barring and prohibiting the commencement and prosecution of any claim or action
by any non-settling party against Settling Defendants, including but not limited
to any contribution, indemnity and/or subrogation claim seeking reimbursement
for payments made or to be made to any Class member for claims settled under
this Agreement. Settling Defendants shall be entitled to dismissal with
prejudice of any such non-settling party's claims against them which violate or
are inconsistent with this bar.




                                      -23-

<PAGE>   25

                  13.2. No Class member shall make a claim against a
non-settling person for what would be a claim settled under this Agreement if
asserted against a Settling Defendant.

                  13.3. Claims by or on behalf of any Class members against any
non-settling parties are not released and shall not be barred, precluded,
limited, or reduced as a consequence of this Agreement or the subsequent award
and distribution of funds to such Class members, except if and to the extent
required under federal or state law applicable under choice-of-law doctrines in
the forum in which any such claims may be instituted or pursued. 

14. EXPENSES AND FEES.

                  14.1. The costs of Notice shall be paid by the Settling
Defendants.

                  14.2 The reasonable fees and expenses of Class Counsel, if and
as approved by the Court, shall be paid by the Settling Defendants after the
Settlement Date.

15. COURT'S SETTLEMENT APPROVAL ORDER.

                  Except as specifically provided herein, this Agreement is
subject to and conditioned upon the issuance by the Court, following the Class
Fairness Hearing, of a Class Final Order and Judgment.




                                      -24-
<PAGE>   26


16. EFFECT OF DEFAULT OF ANY SETTLING DEFENDANT.

                  In the event any 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 Class Counsel shall so notify the Court. The
defaulting Settling Defendant shall then be given up to sixty (60) calendar days
to "cure" the default. If the defaulting Settling Defendant does not "cure" the
default in the time provided in this Section 16, and if no other Settling
Defendant elects to cure such default, the Class Counsel may apply to the Court
for relief, including withdrawal from the Agreement. 

17. REPRESENTATIONS AND WARRANTIES; COVENANTS.

                  Each Settling Defendant represents and warrants that (i) it
has all requisite corporate power and authority to execute, deliver and perform
this Agreement and to consummate the transactions contemplated hereby; (ii) the
execution, delivery and performance by such Settling Defendant of this Agreement
and the consummation by it of the actions contemplated herein have been duly
authorized by all necessary corporate action on the part of such Settling
Defendant; and (iii) this Agreement has been duly and validly executed and
delivered by such Settling Defendant and constitutes its legal, valid and
binding obligation.




                                      -25-
<PAGE>   27


18. FURTHER ACTIONS.

                  Each of the Parties and their respective counsel shall take
such actions and execute such additional documents as may be reasonably
necessary or appropriate to consummate or implement the settlement contemplated
by this Agreement.


19. MISCELLANEOUS.

                  19.1. This Agreement, including all Exhibits attached hereto,
shall constitute the entire agreement among the Parties with regard to the
subject matter of this Agreement and shall supersede any previous agreements and
understandings between the Parties with respect to the subject matter of this
Agreement. This Agreement may not be changed, modified, or amended except in
writing signed by all parties, subject to Court approval.

                  19.2. This Agreement shall be construed under and governed by
the laws of the State of Ohio.

                  19.3. This Agreement may be executed by the Parties in one or
more counterparts each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. 




                                      -26-
<PAGE>   28

                  19.4. This Agreement shall be binding upon and inure to the
benefit of the Plaintiff Funds, the Class, the Settling Defendants, and their
representatives, heirs, successors, and assigns; provided, however, that, upon
any assignment of this Agreement by or on behalf of Liggett, or succession to
this Agreement through any combination with Liggett, other than with the prior
written consent of Brooke Group (which can be withheld for any or no reason),
the obligations of this Agreement shall be binding upon such assignee or
successor and each of its affiliates as if they each were Settling Defendants on
the date of execution hereof.

                  19.5. Other than as provided in Section 19.4, nothing in this
Agreement shall be construed to subject any Settling Defendant's parent or
affiliated company to the obligations or liabilities of that Settling Defendant.

                  19.6. There shall be no third party beneficiaries of this
Agreement other than non-party releasees hereunder. No person other than the
Parties hereto, the Class members and the releasees hereunder shall have any
right or claim under or in respect of this Agreement.

                  19.7. The headings of the Sections of this Agreement are
included for convenience only and shall not be deemed to constitute part of this
Agreement or to affect its construction.

                  19.8. Any notice, request, instruction, application for Court
approval or application for Court orders sought in connection with this
Agreement or other document to be given by any Party to any other Party shall be
in writing and delivered personally or sent by registered or certified mail,
postage prepaid, if to the Settling Defendants to the attention of each Settling
Defendant's respective representative and to the Class Counsel on behalf of
Settlement Class members, or to other recipients as the Court may specify. As of
the date of this Agreement, the respective representatives are as follows:




                                      -27-
<PAGE>   29



Plaintiff Funds:

         MILBERG WEISS BERSHAD HYNES & LERACH
         600 W. Broadway, Suite 1800
         San Diego, California 92101-3356
         Attn:    Patrick J. Coughlin
                  Frank J. Janecek, Jr.

         SCHWARZBALD & ROCK
         616 Bond Court Building
         1300 East Ninth Street
         Cleveland, Ohio 44114-1503
         Attn:    Eben McNair

Settling Defendants:

         KASOWITZ, BENSON, TORRES & FRIEDMAN LLP
         1301 Avenue of the Americas
         New York, New York 10019
         Attn:    Marc E. Kasowitz
                  Daniel R. Benson
                  Aaron H. Marks

                  The above designated representatives may be changed from time
to time by any Party upon giving notice to all other Parties in conformance with
this Section 19.8.

                  19.9. References to or use of a singular noun or pronoun in
this Agreement shall include the plural, unless the context implies otherwise.




                                      -28-
<PAGE>   30


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



                                    CLASS COUNSEL



                                    /s/ Patrick J. Coughlin    
                                    -------------------------------------------



                                    /s/ Frank J. Janecek, Jr. 
                                    -------------------------------------------



                                    /s/ Eben McNair           
                                    -------------------------------------------



                                    /s/ Marc E. Kasowitz               
                                    -------------------------------------------



                                    /s/ Daniel R. Benson               
                                    -------------------------------------------



                                    /s/ Aaron H. Marks                 
                                    -------------------------------------------



                                    BROOKE GROUP LTD.



                                    By: /s/ Marc N. Bell                
                                        ---------------------------------------
                                        Marc N. Bell


                                    Date:  January 14, 1999



                                    LIGGETT GROUP INC.



                                    By: /s/ Marc N. Bell               
                                        ---------------------------------------
                                        Marc N. Bell

                                    Date:  January 14, 1999



                                    LIGGETT & MYERS, INC.

                                    By: /s/ Marc N. Bell               
                                        ---------------------------------------
                                        Marc N. Bell


                                    Date:  January 14, 1999 




                                      -29-