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                                                                   Exhibit 10.35

                              SETTLEMENT AGREEMENT

         This Settlement Agreement is entered into this 12th day of March, 1998
by and among the States listed in Appendix A hereto (collectively, "Plaintiffs"
or "Settling States") 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 Plaintiffs, by and through their respective Attorneys General,
(the "Attorneys General") have brought or are contemplating bringing civil
actions in various jurisdictions across the nation ("Actions") against, among
others, The American Tobacco Company, Inc., B.A.T. Industries, P.L.C.,
British-American Tobacco Company Ltd., R.J. Reynolds Tobacco Company, Brown &
Williamson Tobacco Corporation, Philip Morris, Inc., Liggett & Myers, Inc.,
Lorillard Tobacco Company, and United States Tobacco Company and their various
parent and related companies ("Defendants"), asserting claims for, among other
things, expenses allegedly arising from tobacco-related matters and injunctive
relief concerning sales of cigarettes to minors.

         B. Because of the importance of this Settlement Agreement and the
undertakings by Liggett and Brooke Group herein to the goals of the Attorneys
General, including the prosecution of the Actions against Non-Settling
Defendants, the Settling States have agreed to extend financial settlement terms
to Liggett and Brooke Group, which will not be offered to any other Defendants,
all as set forth in this Settlement Agreement.

         C. The Attorneys General acknowledge and agree that this Settlement
Agreement, including the cooperation provisions 


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thereof, are important to the prosecution of their Actions against the
Non-Settling Defendants.

         D. The Attorneys General and Liggett and Brooke Group recognize and
support the public interest in preventing smoking by, or promotion of smoking
to, children and adolescents.

         E. 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. F. The Settling States and the Attorneys General recognize and
acknowledge that the cooperation being provided by Liggett and Brooke Group is
valuable to the continued prosecution of the claims against the tobacco industry
and Non-Settling Defendants. Further, the Settling States and the Attorneys
General acknowledge that the change in warning labels provided for in this
Settlement Agreement is a step toward properly informing consumers more fully of
the truth about cigarettes and the consequences of smoking, as is the statement
by Liggett also provided for herein.

         G. Members of the tobacco industry have for many years acted in concert
to seek to deny, refute or dilute warnings concerning smoking issued by the
United States Surgeon General, the Environmental Protection Agency and other
respected health authorities. Liggett and Brooke Group have determined, in
entering into agreements settling smoking-related litigation, that they will not
be party to this industry activity.

         Now, therefore, in consideration of the foregoing and of the promises
and covenants set forth in this Agreement, the undersigned Attorneys General, on
their own behalf and on behalf of their respective States, and Liggett and
Brooke Group hereby stipulate and agree that the Settling States' Attorney
General Actions shall be settled as against Liggett and Brooke Group, on the
terms contained herein, as follows:



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                             SECTION 1: DEFINITIONS.

         As used in and solely for the purposes of this Agreement, in addition
to terms defined elsewhere in the Agreement, the following terms shall have the
following respective meanings:

         1.1. "AFFILIATE" means a Present Affiliate or a Future Affiliate, as
described below.

         1.2. "AGREEMENT" means this Settlement Agreement.

         1.3. "ATTORNEYS GENERAL" means those State Attorneys General who have
brought (or are contemplating bringing) civil actions against the Defendants.

         1.4. "ATTORNEY GENERAL ACTIONS" OR "ACTIONS" means those tobacco
related civil actions filed by the States/Territories listed in Appendix A
hereto.

         1.5. "ATTORNEY GENERAL SETTLEMENT FUND BOARD" or "ATTORNEY GENERAL
BOARD" means the entity established pursuant to Section 6 of this Settlement
Agreement.

         1.6. "BROOKE GROUP" means Brooke Group Ltd. and its Present Affiliates,
other than Liggett.

         1.7. "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 described in subparagraph (1).




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         1.8. "CIGARETTE PACK" means a unit of twenty Cigarettes or one ounce of
Tobacco Snuff or any other similar method of delivery to consumers.

         1.9. "COST PER CIGARETTE PACK" means, with respect to a Tobacco
Company, the aggregate costs incurred by such Tobacco Company under a Global
Settlement during a specified year, divided by the number of Cigarette Packs
manufactured by such Tobacco Company during such year, as determined by The
Maxwell Consumer Report published by Wheat First Butcher Singer or a similar or
successor report.

         1.10. "DEFENDANTS" means The American Tobacco Company, Inc., B.A.T.
Industries, P.L.C., British-American Tobacco Company, LTD., R.J. Reynolds
Tobacco Company, Brown & Williamson Tobacco Corporation, Philip Morris, Inc.,
Liggett & Myers, Inc., Lorillard Tobacco Company, and United States Tobacco
Company and their various parent and related companies.

         1.11. "DOMESTIC TOBACCO OPERATIONS" means the manufacture or sale of
cigarettes and any other tobacco products in the United States, its territories,
its possessions and the Commonwealth of Puerto Rico.

         1.12. "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.

         1.13. "FDA" means the Food and Drug Administration.

         1.14. "FDA RULE" means the regulations promulgated by the FDA on August
28, 1996 concerning the sale and distribution of cigarettes and other products
at 60 Fed. Reg. 44396, to be codified at 21 C.F.R. Parts 801, 803, 804 807, 820
and 897.




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         1.15. "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 March 20, 2001: (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 are directly or indirectly
acquired by Liggett or Brooke Group; or (iv) directly or indirectly merges with
Liggett or Brooke Group or otherwise combines on any basis with Liggett or
Brooke Group.

         1.16. "FUTURE AFFILIATE TRANSACTION" means a transaction, or series of
transactions, by which an entity becomes a Future Affiliate.

         1.17. "GLOBAL SETTLEMENT" means any national disposition, settlement,
agreement or other arrangement, by way of legislation, executive order,
regulation, taxation, levy, fine, Class Action settlement, court order or
otherwise of smoking-related litigation, in direct or indirect connection with
which one or more Tobacco Companies receives the benefit of a limitation of, or
total or partial immunity from, liability to plaintiffs for the types of claims
released under the terms of this Agreement.

         1.18. "INITIAL SETTLEMENT" means the settlement agreement entered into
by the Initial Settling States and the Settling Defendants on March 15, 1996.

         1.19. "INITIAL SETTLING STATES" means the States of Mississippi, West
Virginia, Florida, and Louisiana, the Commonwealth of Massachusetts and the
respective Attorneys General thereof.




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         1.20. "LIGGETT" means Liggett Group, Inc. and Liggett & Myers, Inc.,
and their affiliates and subsidiaries.

         1.21. "MARCH 1997 AGREEMENT" means the settlement agreement entered
into by the Settling Defendants and seventeen States on March 20, 1997, and
several subsequent States thereafter.

         1.22. "MARKET SHARE" means, with respect to a Defendant and a specified
year, the Domestic Tobacco Operations market share in that year of all of such
Defendant's cigarettes and other tobacco products, as determined by The Maxwell
Consumer Report published by Wheat First Butcher Singer or a similar or
successor report.

         1.24. "NATIONAL" means actually covering or potentially covering
(whether by block grants to states, localities or other governmental entities or
otherwise) the United States or the United States and one or more of its
territories, possessions and the Commonwealth of Puerto Rico.

         1.25. "NON-RELEASING GOVERNMENTAL ENTITY" means any department, agency,
and other political subdivision or unit of any Settling State which, under the
applicable law of such Settling State, is not considered to be part of such
State and/or which is not legally represented by the Attorney General for such
State in this matter. Depending upon the laws of each such Settling State, this
may include cities, counties, municipalities, parishes, townships, boroughs,
taxing districts, special districts or other local units of government.

         1.26. "NON-SETTLING TOBACCO COMPANIES" AND "NON-SETTLING DEFENDANTS"
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 Co.

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         1.27. "OTHER SETTLEMENT" means settlement of an action which is not a
Global Settlement.

         1.28. "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.

         1.29. "PARTIES" means the Attorneys General and Brooke Group and
Liggett.

         1.30. "POPULATION" means, with respect to a geographic area, the
population of that area as reported in the most recent census conducted by the
United States Bureau of the Census.

         1.31. "PRESENT AFFILIATE" means, with respect to a specified
corporation or entity, another corporation, partnership or other entity which as
of the date of this Agreement, 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.

         1.32. "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.

         1.33. "PRETAX INCOME" means with respect to Liggett, 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 reported in filings 





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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.

         1.34. "PROTECTIVE ORDER" or "STIPULATION REGARDING LIGGETT DOCUMENTS"
means, with respect to privileged documents produced by a Settling Defendant in
an Attorney General Action, an order in that Action: (a) protecting the
confidentiality of such documents; (b) providing that such documents may be used
only in that Attorney General Action and, to the extent permitted by law, only
under seal; and, (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
Attorney General to whom the documents are produced subject to the order. The
provisions of the order shall not apply to documents claimed to be privileged
but which are determined by the court in any Action not to be privileged for
reasons other than waiver due to production pursuant to this Agreement.

         1.35. "SETTLEMENT FUND" means the fund established in accordance with
the terms of Section 6 of this Agreement, which shall be established in a
reputable bank or other financial institution, to provide a secure and
interest-bearing fund, and which shall be solely controlled by the Attorney
General Settlement Fund Board.





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         1.36. "SETTLING DEFENDANTS" means Brooke Group and/or Liggett.

         1.37. "SETTLING DEFENDANTS' COUNSEL" means the law firm of Kasowitz,
Benson, Torres & Friedman L.L.P.

         1.38. "SETTLING STATES" OR "STATES" means the States and Territories
listed in Appendix A hereto and Subsequent Settling States and Territories, if
any.

         1.39. "STATE'S ALLOCATION" means the allocation percentage noted for
each entity as identified and listed on Appendix B attached to this Settlement
Agreement and incorporated by reference.

         1.40. "SUBSEQUENT SETTLING STATES" means States and Territories, other
than those listed in Appendix A hereto, which separately execute this Agreement
with the Settling Defendants.

         1.41. "TOBACCO COMPANIES" means the Defendants.

         1.42. "TOBACCO OPERATIONS" means the manufacture and/or sale of
cigarettes or any other tobacco products.

         1.43. "TOBACCO PRODUCTS" includes, without limitation, cigarettes,
cigars, and smokeless tobacco, including snuff, and spit, loose and chewing
tobaccos.

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

                      SECTION 2: SETTLEMENT PURPOSES ONLY.

         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 




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alleged or which could have been alleged by Plaintiffs as to their standing or
as to any jurisdictional, constitutional or any other legal or factual issue in
any Attorney General 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 any Attorney General Action or in any other action or proceeding of any kind,
or as an admission by any of the Plaintiffs of the validity of any fact or
defense asserted against them in any Attorney General Action or in any other
action or proceeding of any kind.

                               SECTION 3: PARTIES.

         3.1. This Agreement shall be binding, in accordance with the terms
hereof, upon Brooke Group, Liggett and the Settling States; provided that,
notwithstanding anything else contained in this Agreement, the payment
obligations of this Agreement shall be binding only upon Liggett.

         3.2. No Settling Defendant shall sell, use, dispose or transfer
substantially all of its cigarette brands or businesses without first causing
the acquirer, on behalf of itself and its successors, to be bound by all of the
obligations of a Settling Defendant pursuant to Sections 4.2 and 4.4 through 4.9
hereunder as to such transferred brands or businesses; provided that this
Section 3.2 shall not apply to the extent such sale, disposition or transfer is
required by the Federal Trade Commission, Department of Justice, State Attorney
General or court order.



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                    SECTION 4: PUBLIC STATEMENT; COOPERATION;
                             ADVERTISING LIMITATION.

         4.1. Upon execution of this Settlement Agreement, Liggett shall, by and
through its Director, Bennett S. LeBow, issue 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 many 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 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:

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

                  2. 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. 




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         Accordingly, Liggett has agreed to comply with many of these
         regulations even before they apply to the tobacco industry generally.

                  3. 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 attention of the Attorneys General.

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

         4.2. As promptly as reasonably practicable, but no later than six
months after execution of this Settlement Agreement, Settling Defendants
shall cause to be printed boldly, on all of their Cigarette packages and in all
of their Cigarette advertising, in addition to the warnings mandated under the
Federal Cigarette Labeling and Advertising Act, as amended 15 U.S.C. section
1331 ET SEQ., the statement that cigarette smoking is addictive. To the extent
any Settling Defendant manufactures and 



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sells other Tobacco Products, a similar warning shall be placed on such
products.

         4.3. With respect to each Settling State, upon execution of this
Agreement, each Settling Defendant shall:

         (1) cooperate with such Attorney General, and the attorneys
         representing such Attorney General, in that such Settling Defendant
         will take no steps to impede or frustrate these counsels' civil
         investigations into, or civil prosecutions of, any of the Non-Settling
         Tobacco Companies in those actions, so as to secure the just, 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 such Attorney General Action;

         (3) actively assist the attorneys representing the Attorneys General 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 Attorneys General; and
         shall actively assist counsel 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


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         claims of the plaintiffs against such parties, companies, agents or
         co-defendants, or which have the effect of suppressing evidence
         relevant to smoking claims, disclose such information to the
         appropriate judicial and regulatory agencies.

         4.3.1. With respect to each Settling State, subject to, and promptly
after, the entry of a "Protective Order" or a "Stipulation Regarding Liggett
Documents" by the court in which the respective Attorney General Action is
pending, each Settling Defendant shall:

         (1) promptly provide all documents and information that are relevant to
         the subject matter of the Actions or which are likely to lead to
         admissible evidence in connection with the claims asserted in any of
         the Actions, subject to the provisions of Section 4.3.1(2) hereof; 

         (2) waive any and all applicable attorney-client privileges and work
         product doctrine 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 Actions or not
         likely to lead to admissible evidence in connection with claims
         asserted in any of the Actions 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
         4.3.1(1) and 4.3.1(5) hereof may be



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         subject to a joint defense or other privilege (or a claim of such
         privilege or confidentiality) of one or more of the Non-Settling
         Tobacco Companies, such documents shall be deposited under seal for IN
         CAMERA inspection by the court in which a Settling State's Attorney
         General Action is pending, 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. 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) through 4.3.1(5) above,
         which should be provided to the Settling States as provided under this
         paragraph. 4.3.2. Nothing in this Agreement shall waive or alter the
         rights of the Attorneys General to obtain discovery of Liggett as
         required by a court order or case management order in any Attorneys
         General Action, provided that no order is sought that is inconsistent
         with this Agreement.




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         4.4. Each Settling Defendant, promptly after becoming bound by this
Agreement, shall consent to jurisdiction by the FDA for the sole purpose of
promulgating the FDA Rule with respect to all Tobacco Companies. Further, each
Settling Defendant, promptly after execution of this Agreement, shall endorse,
support and assist in attempts by the FDA to have the FDA Rule become
enforceable. Such efforts shall include, if and as reasonably requested by the
Attorneys General, filing appropriate amicus briefs and other court papers in
litigation relating to the FDA Rule.

         4.5. Each Settling Defendant shall follow and abide by the provisions
of the FDA Rule, insofar as they pertain solely to such Settling Defendant's
Domestic Tobacco Operations, as set forth in, and modified by, paragraphs 4.5.1
through 4.5.6 herein.

         4.5.1. FDA Rule section 897.16(b), as stated.

         4.5.2. FDA Rule section 897.16(d), as stated.

         4.5.3. FDA Rule section 897.30, as stated, and further extended such 
that no Settling Defendant shall locate, disseminate or cause to be
disseminated advertising of any Tobacco Products in the out-of-doors,
including, but not limited to, advertising on billboards.

         4.5.4. FDA Rule section 897.34(A), as stated.

         4.5.5. FDA Rule section 897.34(B), as stated.

         4.5.6. FDA Rule section 897.34(C), as stated.

         4.6 Each Settling Defendant shall follow and abide by the provisions
set forth in paragraphs 4.6.1 through 4.6.7 herein.




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         4.6.1. No Settling Defendant shall encourage placement of point of sale
advertisements within two feet of any fixture on which gum, candy or confection
food is displayed for sale.

         4.6.2. No Settling Defendant shall make, or cause to be made, direct or
indirect payments for Tobacco Product placement in movies (screen, video, or
made for television), television programs or video games.

         4.6.3. No Settling Defendant shall make, or cause to be made, direct or
indirect payments to glamorize or otherwise encourage or promote tobacco use in
any media outlets appealing to minors, including, but not limited to, recorded
and live performances of music.

         4.6.4. No Settling Defendant shall locate, post, disseminate or cause
to be disseminated, any form of Tobacco Product advertising on the Internet or
any other electronic information distribution system, unless such advertising is
designed to be inaccessible in or from the United States of America.

         4.6.5. Audio and video format advertising otherwise permitted under the
FDA Rule may be distributed to adult consumers at point of sale (i.e., no
"static video displays").

         4.6.6. Subject to the provisions of Section 4.7, the Settling
Defendants agree that in the event of any future Settlement Agreements and/or
Consent Decrees between any Settling State and the Non-Settling Defendants
related to restrictions on advertising and marketing, or requirements for
labeling and packaging of Tobacco Products, in connection with a national or
legislative settlement, the terms of this Settlement Agreement will be revised
such that Liggett and Brooke Group will be required to abide by any additional
restrictions or more restrictive requirements which may be adopted by such
Settlement Agreement or Consent Decree.



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         4.7. Notwithstanding anything to the contrary in the FDA Rule or in
this Agreement, Liggett will commence compliance with Sections 4.5 and 4.6 of
this Agreement as soon as reasonably practicable, provided that if, in any year
during the term hereof, Liggett's Market Share is less than 3%, Liggett may
limit its compliance to the extent, if any, necessary to ensure that the net
annual out-of-pocket cost to Liggett of such compliance, during such year, not
exceed $1 million; and provided further that Liggett shall not be obligated
pursuant hereto to breach pre-existing legal obligations, if any, it may have
with respect to the matters covered by Sections 4.5 and 4.6 (and shall use its
reasonable best efforts to minimize the degree to which any such obligations
would impede its full compliance therewith). For purposes of this paragraph, the
phrase "net annual out-of-pocket costs" means the excess of (a) the additional
out-of-pocket expenditures incurred during a particular year by Liggett in
complying with the matters specified in Sections 4.5 and 4.6, over (b) savings,
if any, in out-of-pocket expenditures realized during such year by Liggett
directly from the implementation of the matters covered by Sections 4.5 and 4.6.

         4.8. If, when and to the extent that the FDA Rule, in whole or in part,
becomes an enforceable legal obligation binding upon all of the Defendants, each
Settling Defendant will comply therewith, without consideration of any limits or
exceptions herein. If the FDA Rule does not become such a legal obligation,
Liggett shall, during the duration of this Agreement, continue to comply with
Sections 4.5 and 4.6.

         4.9. Each Settling Defendant shall not use any cartoon characters, such
as "Joe Camel," in any of its advertising and promotional materials and
activities with respect to any Tobacco Products. No Settling Defendant shall
enter into any new contract for advertising and promotion with respect to
Tobacco Products 






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using any such cartoon characters after the date the Settling Defendants become
bound by this Agreement.

         4.10. Each Settling Defendant may, after becoming bound by this
Settlement Agreement, continue in the manufacture, advertising and/or sale of
Tobacco Products. This Settlement Agreement does not in any way abrogate or
restrict the authority or ability of the Attorneys General to enforce future
compliance with the laws of their respective States.

                          SECTION 5: GLOBAL SETTLEMENT.

         5.1. It is the intent of the parties that the financial terms,
financial obligations or financial conditions of any Global Settlement are no
more onerous on, or less favorable to, Brooke Group and Liggett than the
financial terms, financial obligations or financial conditions of this
Settlement Agreement. In furtherance of this intent, the Attorneys General will
upon the execution hereof send letters, substantially in the form and substance
of Appendix C hereto, to the President of the United States, the Congressional
leadership, and the Chairpersons of Congressional committees or subcommittees
that have jurisdiction over a Global Settlement, requesting that any Global
Settlement contain financial terms, financial obligations or financial
conditions that are no more onerous on, or less favorable to, Brooke Group and
Liggett than the financial terms, financial obligations or financial conditions
of this Settlement Agreement.

         5.2. In the event there is a Global Settlement at any time which
contains financial terms, financial obligations or financial conditions as to
Brooke Group and Liggett which are more onerous on, or less favorable to, Brooke
Group and Liggett than those of this Settlement Agreement, then, in addition to,
and not in derogation of any other rights or remedies Brooke Group and






                                       19
<PAGE>   20

Liggett may have, Brooke Group and Liggett shall have the right, at their
option, to withdraw from further performance of the payment obligations of
Section 6 of this Agreement.

               SECTION 6. ATTORNEY GENERAL SETTLEMENT FUND BOARD.

         6.1. Except as may otherwise be provided herein, all amounts due and
owing by each Settling Defendant under this Agreement shall be paid when due
into the Attorney General Settlement Fund to be allocated and distributed to the
Settling States by the Attorney General Settlement Fund Board in its sole
discretion. The Attorneys General of the Settling States shall establish
operational procedures and appoint representatives to the Settlement Fund Board
for the sole purpose of distributing monies received from the Settling
Defendants pursuant to this Agreement. The Settlement Fund Board may modify the
percentages listed in Appendix B regarding States' Allocations as long as such
modification does not increase the total amount to be paid by the Settling
Defendants pursuant to this Settlement Agreement.

         6.2. Settling Defendants shall have no interest in or responsibility
for allocations or distributions from the Settlement Fund and do not guarantee
any earnings or insure against any losses from any portion of the Settlement
Fund assets that may be maintained or administered as provided in Section 6.1
above.

         6.3. Subject to the terms of this Agreement, Liggett shall make the
following payments:

         6.3.1 Liggett shall pay into the Attorneys' General Settlement Fund an
initial payment of $25 million due 120 days from the date of a Future Affiliate
Transaction. The amount payable under this Section 6.3.1 represents the same
amount, and not in addition to the amount, payable under Section 6.3.1 of the
March 1997 Agreement; and





                                       20
<PAGE>   21

         6.3.2. Liggett shall directly pay each Settling State and each
Subsequent Settling State:

                  (a)      One Hundred Thousand Dollars ($100,000), of which
                           $50,000 is payable sixty (60) days from the date of
                           this Agreement, and $50,000 is payable on November
                           30, 1998; and

                  (b)      Nine Hundred Thousand Dollars ($900,000) in equal
                           annual installments, indexed and adjusted for
                           inflation, payable on December 31, 1999 and the
                           following seven anniversaries of such date (except
                           that any then remaining unpaid amount under this
                           Section shall be due and payable within sixty (60)
                           days of the date Liggett defaults on any of its
                           payment obligations under this Agreement). These
                           payments shall constitute reimbursement for the
                           Settling States' cost of investigation, litigation,
                           and attorney fees and, along with the payment under
                           subparagraph (a) above, shall be made to each
                           Settling States' designated payee. Each Settling
                           State's share of the amounts identified in Section
                           6.3.2 and 6.3.3. shall be used by such state as
                           determined by the Attorney General of each such state
                           at his or her exclusive option, and as otherwise
                           consistent with such state's law.

         6.3.3. For the duration of this Agreement pursuant to Section 9.1, and
subject to the provisions of Sections 6.6 through 6.9, Liggett shall pay into
the Settlement Fund, on a per Settling 






                                       21
<PAGE>   22

State basis, annual payments each equivalent to the product of such Settling
State's Allocation and 27.5% of Liggett's Pretax Income; provided that for each
State above ten (10) that becomes a signatory to this Agreement, such percentage
of Liggett's Pretax Income will increase on a pro rata basis from 27.5% to 30%
by one-fourteenth of the difference per state over the initial ten (10) states
that enter into this Agreement. Payments under this section 6.3.3 shall be due
one hundred and twenty (120) days after the end of each fiscal year of Liggett.
The first payment under this section 6.3.3 shall be due one hundred and twenty
(120) days after the end of fiscal year 1998.

         6.3.4. The annual payments of $112,500 to each Settling State pursuant
to Section 6.3.2(b) shall act as a reduction of that Settling State's allocated
percentage payment under Section 6.3.3. such that for each of the eight years
referred to in Section 6.3.2(b) each Settling State will receive additional
monies under Section 6.3.3. only to the extent that said Settling States'
percentage allocation payment in that given year, is greater than $112,500.

         6.4. Liggett shall pay the reasonable and necessary expenses of the
administration, allocation, and distribution of the Settlement Fund provided
that Liggett shall not be obligated to pay more than One Million Dollars
($1,000,000.00) in any year for such expenses.

         6.5. Since the Settling Defendants are providing historic and valuable
cooperation and other considerations under this Agreement, the amounts payable
hereunder to the Settlement Fund shall represent the maximum amounts payable to
the Settlement Fund under this Agreement.

         6.6. With respect to each Settling State, in the event of the entry of
any final non-appealable monetary judgment in such Settling State's Attorney
General Action (other than by way of 




                                       22
<PAGE>   23

settlement) against any one or more of the Non-Settling Tobacco Companies, then
the Settling Defendants shall have the right to reduce the payments they are
obligated to make pursuant to this Agreement to the extent necessary to make (i)
the then Present Value of all amounts theretofore paid and thereafter payable to
that Settling State pursuant to this Agreement by the Settling Defendants (such
amounts being calculated for purpose of this Section 6.6 by multiplying (a) the
total amount of the Settlement Fund allocated to all of the Settling States in
that year by (b) such Settling State's Allocation per percentage point of the
then Market Share of such Settling Defendant no more than seventy-five percent
(75%) of (ii) the then Present Value of the dollar amount of such judgment per
percentage point of the then Market Share of each such Non-Settling Tobacco
Company; [Example: For purposes of this example of Section 6.6, assume: Liggett
has a 2% Market Share (I.E., 2 points). A Non-Settling Tobacco Company has an 8%
Market Share (i.e., 8 points), and in 1998 has a final judgment entered against
it in an Attorney General Action that requires payments by such Non-Settling
Tobacco Company with a then Present Value of $20 million. The Present Value of
the amount allocable by Liggett to the Settling State in 1998 is $5 million.
Result: In 1998, Liggett would be permitted to reduce its future payments to the
extent necessary to make the Present Value of its past and future payments $3.75
million -- I.E., no more than 75% of the Present Value of the judgment, all as
adjusted for relative Market Share.


         The calculation would be as follows: Present Value of Liggett payment/2
points = .75 x judgment/8 points Present Value of Liggett payments = .75 x $20
million/4 = $3,750,000. Thus, the larger the judgment, the less the reduction.
Under this example, if the judgment is $26,670,000 or more, there would be no
reduction.] provided that such Settling Defendant give written notice of such
reduction and the method of calculating such 




                                       23
<PAGE>   24
reduction to the Settling State's Attorney General as soon as practicable after
the entry of judgment.

         6.7. In each year beginning with the second year after execution of
this Agreement, the annual payment amount due under Section 6.3.3. of this
Agreement from a Settling Defendant shall be decreased in proportion to any
decrease and (only if there shall have been a prior such decrease) increased in
proportion to any increase, in such Settling Defendant's Market Share from the
prior year; provided, however, that (a) such annual payment amount shall not be
so decreased to the extent, if any, that such annual payment amount in such year
is decreased as a result of a decrease in such Settling Defendant's Pretax
Income and (b) such annual payment amount shall never be increased such that the
aggregate amount of any such increases exceeds the aggregate amount of any such
decreases. [Example: For purposes of this example of Section 6.7, assume: There
are 10 states as signatories to this Agreement, Liggett is obligated to pay
27.5% of Pretax Income, and Liggett's Pretax Income is $11 million each year,
thus making Liggett's obligation under Section 6.3.3 of the settlement
$3,025,000 per year during the term of this Agreement (27.5% of 11,000,000).
Liggett's Market Share drops from 2% in 1997 and 1998 to 1.75% in 1999, but
recovers to 1.9% in 2000, and then back to 2.0% in 2001. 


         Reduction: In 1999, Liggett's amount due will be reduced by $378,125 to
$2,646,875. Since Liggett's Market Share fell by .25 points or 12.5%, its
payments would be reduced by 12.5% or 378,125 ($3,025,000 x .125). Recapture of
Market Share: In 2000, Liggett's payments to climb commensurate to its increase
of .15 in Market Share (1.75 to 1.9% to $2,873,750 (($2,646,875 + ($2,646,875 +
 .15/1.75)). In 2001, Liggett's payment would again increase commensurate to its
increase of .1 in Market Share to $3,025,000 (($2,873,750 + $2,873,750 x
 .1/1.90)). Liggett would not be entitled to a "double reduction" for a decrease
in both 




                                       24
<PAGE>   25

Pretax Income and Market Share. Thus, if Liggett's .25 point drop in Market
Share in 1998 were accompanied by a drop in Pretax Income between 1997 and 1998
from $11 million to $8 million, there would be no Market Share reduction, as
Liggett's payment obligations (27.5% of Pretax Income) would have already fallen
from $3,025,000 to $2,200,000.]

         6.8. In the event of a Global Settlement, the Settling Defendants shall
have the right to reduce the aggregate payments due from Liggett in each year
pursuant to Section 6.3.3 of this Agreement so that the aggregate payments due
under that provision and all prior agreements with other States shall be no more
that the lesser of (A) on a Cost Per Cigarette Pack basis, one-third of the
lowest Cost Per Cigarette pack due in such year from the Non-Settling Tobacco
Companies under such Global Settlement and (B) on a percentage of Pretax Income
basis, one third of the lowest percentage of Pretax Income due in such year from
the Non-Settling Tobacco Companies under such Global Settlement (such percentage
to be computed as if the payments due from such companies were included in
revenues and earnings).

         6.9. Liggett shall receive as a credit against the amounts due under
Section 6.3.3., any and all amounts it is required to pay under a Global
Settlement.

         6.10. Settling Defendants agree not to take any action the primary
purpose of which is to reduce Liggett's payment obligations under this
Agreement.

                               SECTION 7. RELEASE.

         7.1. Upon the date each Settling State becomes bound by this Settlement
Agreement, for good and sufficient consideration as described herein, each
Settling State and each Attorney General thereof shall, for the duration or term
of this Agreement 



                                       25
<PAGE>   26

(whichever is shorter), be deemed to and hereby does release,
dismiss and discharge each and every civil claim, right and cause of action
(including, without limitation, all claims for damages, restitution, medical
monitoring, or any other legal or equitable relief), known or unknown, asserted
or unasserted, direct or indirect, which they had, now have or may hereafter
have in their sovereign capacity 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 Defendants, but only
to the extent that such Downstream Distribution Entities would have cross-claims
against Settling Defendants) which was based solely on the Settling Defendants'
past conduct and which:

         (i) was asserted in that State's Attorney General Action, and/or

         (ii) was not asserted in said Action but which could have been asserted
         in said action and which arises out of, or is in furtherance of, or is
         related to the conduct, concerns, acts, facts, transactions,
         occurrences, representations, or omissions alleged therein. 

         This Section 7.1 is not intended, in any fashion, to release or
discharge any of the Non-Settling Tobacco Companies or any other Defendants in
any Attorney General Action. Moreover nothing contained herein is intended in
any fashion to release any claim other than claims that have been asserted by
the settling states in their Attorney General Actions against the Settling
Defendants by individuals, private entities, or Non-Releasing Governmental
Entities.

         7.2. Upon the date each Settling State becomes bound by this Settlement
Agreement, for good and sufficient consideration as described herein, each
Settling Defendant shall for the duration or term of this Agreement (whichever
is shorter) be deemed to and 





                                       26
<PAGE>   27

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, direct or indirect, which they had,
now have or may hereafter have against each Settling State, and its public
officials, employees, and agents which:

         1) was asserted in that State's Attorney General Action, and/or

         2) was not asserted in said action, but which could have been asserted
         in such action and which otherwise arises out of, or is in furtherance
         of, or is related to the conduct, concerns, acts, facts, transactions,
         occurrences, representations, or omissions alleged therein. 

         7.3. Provided, however, as follows:

         1) If this Agreement expires upon completion of its full term, the
         releases set forth in Sections 7.1 and 7.2 herein shall continue and
         apply in full force and effect with respect to all released claims 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, 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 the Agreement against all claims
         covered by the release for the full amount paid by such Settling
         Defendants hereunder.

         2) Except as specifically provided herein, the releases set forth in
         Sections 7.1 and 7.2 herein do 





                                       27
<PAGE>   28

         not pertain or apply to any other existing or potential party in any
         present or future Attorney General Action.

         3) The releases set forth in Sections 7.1 and 7.2 herein do not in any
         way release claims which may be asserted by a releaser involving
         conduct unrelated to the manufacture and/or sale of Tobacco Products.

         4) The releases set forth in Section 7.1 and 7.2 herein do not in any
         way abrogate or restrict the authority or ability of the Attorneys
         General to enforce future compliance with the laws of their respective
         States, including the full range of remedies available to them for
         future violation of state law and/or this Agreement. 

         5) Nothing in this Agreement is intended to prohibit the manufacture or
         sale of Tobacco Products in compliance with the provisions of this
         Agreement and all applicable Federal, State and local laws.

         6) With respect to the claims of any county, municipality or political
         subdivision within a Settling State 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 States encompassing such county, municipality or political
         subdivision, the releases set forth in Sections 7.1 and 7.2 herein do
         not release the claims of such county, municipality or political
         subdivision, except for the exclusively State share of the Medicaid
         funds claimed in any such action.

         7.4. Except as specifically provided herein, nothing in this Agreement
shall prejudice or in any way interfere with the rights of Settling States or
Settling Defendants to pursue any or all of their rights and remedies against
Non-Settling Tobacco Companies or other parties not released hereunder.



                                       28
<PAGE>   29

           SECTION 8: CONSENT DECREE; REMEDIES; JURISDICTION OF COURT.

         8.1. The parties agree that this Settlement Agreement may be filed as a
Consent Decree in those Settling States where Attorney General Actions are
pending. Settling Defendants agree to fully cooperate with the Settling States
to effectuate this provision by jointly requesting the court in any Attorney
General Action, via motion or other appropriate pleading, that the court approve
this Settlement Agreement in its entirety for filing as a Consent Decree.

         8.2. Nothing set forth in this Agreement shall be construed as waiving
or limiting the rights and remedies (including any action for contempt of Court)
of any of the Settling States to seek enforcement of this Agreement and the
Consent Decree (in each such Settling State's Attorney General Action) in the
event that one or more of the Settling Defendants defaults or otherwise violates
any term of this Agreement or the Consent Decree. Each Settling State which has
not filed an Attorney General Action against the Settling Defendants shall
prosecute any violations of this Agreement through the filing of a separate
Action to enforce the terms of this Agreement.

         8.3. This Agreement and the corresponding Consent Decree are intended
to resolve all claims of the Settling States and the Settling Defendants: (1) in
the Attorney General Actions and (2) in any other litigation in which claims
released herein are asserted.

         8.4. The court in each Attorney General Action shall retain
jurisdiction over this matter for the limited purpose of enforcing compliance
with the Consent Decree and this Agreement.

 




                                       29
<PAGE>   30

                                SECTION 9: TERM.

         9.1. Unless earlier terminated in accordance with the provisions of
this Agreement, the duration of this Agreement shall be twenty-five (25) years
from March 20, 1997, provided that in the event of a Global Settlement, the
duration of this Agreement shall be equal to the duration of the Global
Settlement.

         9.2. In the event of a termination of this Agreement with respect to
any Settling State, such Settling Defendant shall be entitled to offset any
payments made to such Settling State prior thereto against any judgments
thereafter obtained by such Settling State against such Settling Defendant in an
Attorney General Action.

         9.3. If any Settling Defendant subsequently withdraws from this
Agreement, or this Agreement, for whatever reason, is terminated other than by
reason of expiration of its term, then the applicable statute of limitations or
any similar time requirement for a Settling State or a terminating Settling
Defendant to file a claim that would otherwise be released hereunder against, or
by any Settling Defendant shall be tolled from the date such Settling State
became bound by this Agreement until the later of the time permitted by
applicable law or for one year from the date of such termination with the effect
that the parties shall be in the same position as they were at the time the
Settling State filed its original Attorney General Action with respect to the
statute of limitations.

         9.4. 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





                                       30
<PAGE>   31

affect any prior cooperation or require the return of any documents produced to
a Settling State pursuant to this Agreement.

                     SECTION 10: CONTINUING ENFORCEABILITY.

         Unless earlier terminated, as to the Settling States, this Agreement,
and each provision of or obligation arising from this Agreement, shall continue
and remain fully executory and enforceable if a Settling Defendant institutes or
is subject to the institution against it of any proceeding or voluntary case
under Title 11, 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"). The Settling
States agree that Brooke Group has the right, but not the obligation, to perform
any and all monetary obligations of Liggett under this Agreement, including the
cure of any default under Section 13.1 of this Agreement, notwithstanding the
occurrence and continuation of any Bankruptcy Proceeding with respect to
Liggett. The Settling States agree that they shall have no right to terminate or
to call a default under Section 13.1 of this Agreement during any period of time
in which Brooke Group is performing Liggett's monetary obligations herein.


                                       31
<PAGE>   32


                            SECTION 11: CONTRIBUTION
                              AND INDEMNITY CLAIMS.

         It is the intent of the parties that the payments to be made by Liggett
with respect to the Attorneys General Actions settled hereby be limited to those
payments set forth in this 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 of such Attorneys General Actions. It is the further intent of the Parties
that any protection that the Settling Defendants may enjoy from claims of
contribution or indemnity shall be governed by the laws of the various States
where such Attorneys General Actions are pending.

                   SECTION 12: TAX STATUS OF SETTLEMENT FUND.

         12.1. The Settlement Fund created under this Agreement will be
established and maintained as a Qualified Settlement Fund ("QSF") in accordance
with Section 468B of the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder. Any Settling Defendant shall be permitted,
in its discretion, and at its own cost, to seek a private letter ruling from the
Internal Revenue Service ("IRS") regarding the tax status of the Settlement
Fund. The parties agree to negotiate in good faith any changes to the Agreement
which may be necessary to obtain IRS approval of the Settlement Fund as a QSF.

         12.2. Representatives of the Settling States will be appointed to act
as administrator of the Settlement Fund. As administrator, such representatives
will undertake the following actions in accordance with the regulations under
IRC section 468B: (a) apply for the tax identification number required for the
Settlement Fund; (b) file, or cause to be filed, all tax returns the Settlement
Fund is required to file under federal or state 





                                       32
<PAGE>   33

laws; (c) pay from the Settlement Fund all taxes that are imposed upon the
Settlement Fund by federal or state laws; and (d) file, or cause to be filed,
tax elections available to the Settlement Fund, including a request for a prompt
assessment under IRC sec. 6501(d), if and when the administrator deems it
appropriate to do so.

         12.3. The Settling Defendants, as transferors of the Settlement Fund
shall prepare and file the information statements concerning their settlement
payments to the Settlement Fund as required to be provided to the IRS pursuant
to the regulations under IRC section 468B.

             SECTION 13: EFFECT OF A DEFAULT OF SETTLING DEFENDANT.

         13.1. In the event a Settling Defendant fails to make a payment due and
owing under the terms of this Agreement, the Settling Defendant shall have sixty
(60) calendar days to cure the default subject to the additional payment of
interest on the unpaid overdue amount at an interest rate of prime plus three
(3) percent. If the defaulting Settling Defendant does not cure the default in
the time period provided in this Section 13.1, a Settling State shall have the
right to terminate this Agreement as to their State or may apply to the court in
which its respective Attorney General Action is pending for relief, in addition
to any other remedies it may have hereunder.

         13.2. If after a reasonable notification period a Settling Defendant is
in default of a non-remunerative provision of this Agreement, except for
Sections 4.5 through 4.9, the Settling Defendant shall have thirty (30) calendar
days to cure the default, unless the time period is shortened pursuant to court
order as is reasonably necessary under the circumstances. If the defaulting
Settling Defendant does not cure the default in the 





                                       33
<PAGE>   34

time period provided in this Section 13.2, a Settling State may apply for
relief, including termination of this Agreement, to the court in which its
respective Attorney General Action is pending, in addition to any other remedies
it may have hereunder.

         13.3. In the event that a Settling Defendant is in default of any
provision contained in Sections 4.5 through 4.9 of this Agreement, a Settling
State shall have the right to immediately apply for relief, including
termination of this agreement, to the court in which the Attorney General Action
is pending.

                   SECTION 14: REPRESENTATIONS AND WARRANTIES.

         14.1. Each Settling Defendant represents and warrants that it (i) 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; (iii) the Agreement has been duly and validly executed and delivered
by such Settling Defendant and constitutes its legal, valid and binding
obligation; and (iv) this Agreement does not violate the charter of bylaws of
such Settling Defendants or any Agreement to which the Settling Defendant is a
party.

         14.2. Each Settling State represents and warrants that pursuant to its
statutory and/or common law authority (i) it has all requisite 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 State of this Agreement and the consummation by it of the
actions contemplated herein have been duly authorized by all necessary action on
the part of such Settling State; and (iii) the Agreement has been duly executed
and authorized by such Settling State and constitutes its legal, valid and
binding obligation.




                                       34
<PAGE>   35

                            SECTION 15: ARBITRATION.

         In the event that the Parties are unable to agree, after good faith
efforts, to the determination or calculation for any applicable year of Market
Share or Pretax Income hereunder, such determination or calculation shall be
submitted to binding arbitration in accordance with the rules of the American
Arbitration Association.

                        SECTION 16. MOST FAVORED NATION.

         16.1. It is the intent of the Parties hereto that the Settling
Defendants enjoy a preferred position with respect to Non-Settling Tobacco
Companies, in recognition of the Settling Defendants' willingness to enter into
this Agreement. Accordingly, it is generally contemplated that settlements which
involve all Settling States and a Non-Settling Tobacco Company (a "Group Other
Settlement") or involving one Settling State and a Non-Settling Tobacco Company
(a "Single State Other Settlement") shall meet certain minimum requirements in
terms of the initial, periodic or lump sum payments to be made by the
Non-Settling Tobacco Company (each a "Benchmark Figure"). The recital of these
Benchmark Figures herein is solely for the purposes of insuring that the
Settling Defendants enjoy a preferred position with respect to Non-Settling
Tobacco Companies and is not intended in any way to reflect the value of the
Settling States' claims against Non-Settling Tobacco Companies. For purposes of
this 





                                       35
<PAGE>   36

Section 16, a settlement involving a Non-Settling Tobacco Company and some,
but not all, Settling States shall be deemed a Single Other Settlement, and the
preferred position of the Settling Defendant shall be governed by Subsections
16.1.3 and 16.1.4 hereof, and determined on a state-by-state basis.

         16.1.1. In the case of a Group Other Settlement which includes an
initial payment such as that provided for in Section 6.3.1 hereof, the Benchmark
Figure shall be that figure which represents three times the Present Value of
the initial payment made hereunder, adjusted for Market Share at the time of
such payment. Thus, if at the time of the initial payment hereunder, the
Settling Defendant had a market share of 2 percent and made a payment the
Present Value of which is $15 million, and the Settling States subsequently
enter into a Group other Settlement with a Non-Settling Tobacco Company which
has a market share of ten percent (10%) the Benchmark Figure for the initial
payment shall be $225 million. To the extent that the initial payment actually
provided for in such Group Other Settlement is less than the Benchmark Figure,
the Settling Defendant shall receive a credit in like amount, up to the amount
of the present value of the initial payment made hereunder, against all future
payment obligations hereunder.

         16.1.2. In the case of a (i) Group Other Settlement which included only
a lump sum or periodic payments, and (ii) with respect to the periodic payments
included in a Group Other Settlement which also includes an initial payment, the
Benchmark Figure shall be that amount which constitutes three times the Present
Value of all amounts paid or payable by the Settling Defendant hereunder
(excluding, if the Group Other Settlement contains an initial payment, the
initial payment hereunder), assuming, in the case of future payments, no
increase or decrease in Market Share but assuming inflation in revenues, all
adjusted 





                                       36
<PAGE>   37

for Market Share. Thus, if the Present Value of a Settling Defendant's
payments made or to be made hereunder is $60 million and such Settling Defendant
enjoys a Market Share of 2%, the Benchmark Figure for a Non-Settling Defendant
which at the time of a Group Other Settlement enjoys a Market Share of 15% would
be $1,350 million. Similarly, the Benchmark Figure for a Non-Settling Defendant
which at the time of a Group Other Settlement enjoys a Market Share of 5% would
be $450 million. To the extent that the Present Value of the lump sum or
periodic payments to be made under a Group Other Settlement is less than the
Benchmark Figure, the Settling Defendant shall receive a credit in like amount,
up to the amount of any remaining payment obligations hereunder.

         16.1.3. In the case of a Single State Other Settlement which includes
an initial payment such as that provided for in Section 6.3.2 hereof, the
Benchmark Figure shall be that figure which represents three times the Present
Value of the initial payment made hereunder to such Settling State, adjusted for
Market Share at the time of such payment, computed in accordance with Section
16.1.1. To the extent that the initial payment actually provided for in such
Single State Other Settlement is less than the Benchmark Figure, the Settling
Defendant shall receive a credit in like amount, up to the amount of the present
value of the initial payment made to the Settling State hereunder, against all
future payment obligations to the Settling State hereunder.

         16.1.4. In the case of a Single Other Settlement which includes only a
lump sum or periodic payments, and with respect to the periodic payments
included in a Single State Other Settlement which also includes an initial
payment, the Benchmark Figure shall be that amount which constitutes three times
the Present Value of all amounts paid or payable by the Settling Defendant to
the Settling State hereunder (excluding, if the Single State Other 




                                       37
<PAGE>   38

Settlement contains an initial payment, the Initial Payment hereunder),
assuming, in the case of future payments, no increase or decrease in Market
Share but assuming inflation in revenues, all adjusted for Market Share,
computed as set forth in Section 16.1.2. To the extent that the Present Value of
the lump sum or periodic payments to be made under a Single State Other
Settlement is less than the Benchmark Figure receive a credit in like amount, up
to the amount of any remaining payment obligations to the Settling State
hereunder.

         16.1.5. Solely for the purposes of Section 16.1, the payments due to
each of the Settling States in a year shall be deemed to be equivalent to the
product of (a) 10% of the Settling Defendant's Pretax Income and (b) that
State's Allocation.

         16.1.6. The Benchmark Figure set for in Sections 16.1.1 through 16.1.4
does not reflect in any fashion the Settling States' view as to an appropriate
settlement or resolution with any Non-Settling Tobacco Company.

         16.2. Except as provided in Section 16.1 hereof, in the event that,
subsequent to the date of this Agreement, any settlement of any Settling State's
Attorney General Action is reached with any Non-Settling Defendant, which is not
a Party hereto and such settlement is on any terms more favorable to such
Non-Settling Defendant than are the terms of this Agreement to a Settling
Defendant, such Settling Defendant shall each have the right to replace or
modify any or all of the terms of this Agreement with, or add to this Agreement,
any or all such more favorable terms.

         16.3. In the event that, subsequent to the date of this Agreement, any
of the Settling Defendants enters into a settlement agreement with any State
other than a Settling State on terms (relating to the then Present Value of
amounts payable under such settlement agreement, compliance with the FDA Rule or
cooperation) 





                                       38
<PAGE>   39

that are more favorable to the State than those contained herein (as adjusted
for relative State's Allocation), the Settling States shall have the right with
respect to such Settling Defendant to replace or modify any or all of the terms
of this Agreement with, or add to this Agreement, any or all such more favorable
terms (adjusted for relative State's Allocation).

                          SECTION 17: FUTURE AFFILIATE.

         17.1. 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 17.

         17.2. In the event of a Future Affiliate Transaction, the Settling
States 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 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 an
Attorneys General Action (and thereby release such Spinoff Affiliate pursuant
to, MUTATIS MUTANDIS, Section 7.1 hereof). The Settling States reserve the right
to take the actions described in this Section 17.2 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.

         17.3. With respect to subsection 17.2, nothing in this provision, or
elsewhere in this Agreement, limits the authority of the Attorneys General to
challenge any transaction which they 




                                       39
<PAGE>   40

reasonably believe is in violation of federal or state antitrust law.

         17.4. In the event of a Future Affiliate Transaction after which
Liggett remains as a separate entity such that Liggett's Pretax Income is
readily calculable, Section 6.3.3 hereof shall remain in effect with respect to
Pretax Income solely attributable to such separate entity. In the event of a
Future Affiliate Transaction by which Liggett's Pretax Income is not readily
calculable, Settling Defendants and the Attorneys General and their respective
counsel, each agree to exercise best efforts to negotiate in good faith a
payment schedule to replace that set forth in Section 6.3.3. Nothing in this
Section 17.4 affects in any way Liggett's payment obligations under Sections
6.3.1 or 6.3.2 hereof.

         17.5. Promptly after a Future Affiliate Transaction, a Future Affiliate
shall abide by Sections 4.4 through 4.8 of the March 1997 Agreement.

         17.6. Promptly after a Future Affiliate Transaction, Settling
Defendants and the Attorneys General and their respective counsel, each agree to
exercise best efforts to negotiate in good faith a settlement of all Attorneys
General Actions against a Future Affiliate's Domestic Tobacco Operations.

         17.7. 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, Settling States reserve all of their rights to prevent
the Future Affiliate from diminishing or impairing the Future Affiliate's
Tobacco assets, other than in the 





                                       40
<PAGE>   41

established and/or ordinary course of business of such Future Affiliate.

                           SECTION 18: MISCELLANEOUS.

         18.1. All terms of this Agreement and/or obligations created thereby
shall be deemed to include a covenant of good faith and fair dealing on behalf
of all parties.

         18.2. Brooke Group shall provide to all Settling States at the time of
execution of this Agreement, an opinion in form satisfactory to the Settling
States from legal counsel for Brooke Group as to the due execution of the
Settlement Agreement by Brooke Group and Liggett and its enforceability against
Brooke Group and Liggett and such other matters contemplated by Section 14.1
(other than the "agreements" referenced in clause (iv)).

         18.3. In the event that a termination occurs pursuant to any section of
this Agreement, neither the Attorney General Settlement Fund Board, nor any
Settling State shall be required to return any payment received pursuant to this
Agreement.

         18.4. Subject to the provisions of Section 18 herein, this Agreement,
including all Appendices attached hereto, if any, shall constitute the entire
Agreement among the parties with regard to the subject of this Agreement and
shall supersede any previous agreement and understandings between the Parties
with respect to the subject matter of this Agreement. This Agreement may be
changed, modified, or amended only in writing signed by all Parties or by Court
Order.

         18.5. With respect to each Settling State, this Agreement shall be
construed under and governed by the laws of such State applied without regard to
its law applicable to choice of law.

         18.6. This Agreement may be executed by the Parties in one or more
counterparts, each of which shall be deemed an original 





                                       41
<PAGE>   42

but all of which together shall constitute one and the same instrument.

         18.7. Any judgment by a court that any provision of this Agreement, as
applied to any party or to any circumstance, is invalid or unenforceable shall
in no way affect any other provision of this Agreement or the application
thereof in any other circumstances, and such provision so adjudged invalid or
unenforceable shall be enforced to the maximum extent permitted by law.

         18.8. This Agreement shall be binding upon and inure to the benefit of
the Settling States, the Settling Defendants, and their representatives, heirs,
successors, and assigns.

         18.9. Nothing in this Agreement shall be construed to subject any
Settling Defendant's parent or affiliated company to the financial obligations
or liabilities of that Settling Defendant.

         18.10. 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.

         18.11. Any notice, request, instruction, 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 Settling Defendants' Counsel, if to a Settling
State to the attention of that State's Attorney General.


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

         18.13. The Settling Defendants shall not represent directly or
indirectly that the court or the Settling States or any Attorney General's




                                       42
<PAGE>   43

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

         18.13. The Settling Defendants shall not represent directly or
indirectly that the court or the Settling States or any Attorney General's


<PAGE>   44

Office has sanctioned, condoned, or approved any part or aspect of their
business operation or practices.

         18.14. In the event that any Settling State's Attorney General must
initiate legal action or incur any costs to compel the Settling Defendants to
abide with the terms of this Agreement, the Settling Defendants shall be liable
for any such costs, including but not limited to a reasonable sum for attorneys'
fees.

         18.15. The Settling Defendants shall pay their own attorney's fees and
costs related in any way to this Settlement Agreement including any fees or
costs incurred in connection with any investigation, compliance action, or
Attorney General Action by the Settling States or any Subsequent Settling
States.

                       SECTION 19: CONTINUING JURISDICTION

         For those Settling States which have Attorney General Actions pending,
this Agreement is intended to be filed in the courts in which such Actions are
pending along with an appropriate motion or other pleading seeking to have this
Agreement entered as a Final Judgment and Consent Decree or other comparable
Order of the court. In each such Action, such Motion or other pleading shall be
filed jointly by the Settling State and the Settling Defendants. Such Motion or
other pleading shall include language requesting that jurisdiction be retained
by the Court for the purpose of enabling any party to that Consent Decree to
apply to the Court for further orders, to ensure compliance, seek relief, and/or
request sanctions.

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


BROOKE GROUP LTD.

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

DATE:
     -------------------





                                       43
<PAGE>   45


LIGGETT GROUP, INC.




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

DATE:
     -------------------



LIGGETT & MYERS INC.



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

DATE:
     -------------------



KASOWITZ, BENSON, TORRES & FRIEDMAN

/s/ MARC E. KASOWITZ
------------------------
By Marc E. Kasowitz

DATE:
     -------------------



Attorneys for BROOKE GROUP LTD.,
LIGGETT GROUP, INC. AND
LIGGETT & MYERS INC.


                                       44
<PAGE>   46

                                   APPENDIX A
                                   ----------

OHIO

PENNSYLVANIA

COLORADO

NEW MEXICO

WYOMING

IDAHO

NEW HAMPSHIRE

MONTANA

NEBRASKA

RHODE ISLAND

ARKANSAS

MISSOURI

NORTH DAKOTA

MAINE

WASHINGTON, D.C.

U.S. VIRGIN ISLANDS

NORTH MARIANA ISLANDS

TERRITORY OF GUAM


                                       45
<PAGE>   47



                                   APPENDIX B

ALABAMA                                                       1.4686090%

ALASKA                                                        0.2109795%

ARIZONA                                                       1.3393470%

ARKANSAS                                                      0.7524795%

CALIFORNIA                                                   10.1783580%

COLORADO                                                      1.2457280%

CONNECTICUT                                                   1.6870710%

DELAWARE                                                      0.2600965%

D.C.                                                          0.5517000%

FLORIDA                                                       4.9931995%

GEORGIA                                                       2.2304125%

HAWAII                                                        0.4476520%

IDAHO                                                         0.2308300%

ILLINOIS                                                      4.2294035%

INDIANA                                                       1.7995035%

IOWA                                                          0.7902830%

KANSAS                                                        0.7575730%

KENTUCKY                                                      1.6003985%

LOUISIANA                                                     2.0167520%

MAINE                                                         0.6991235%

MARYLAND                                                      2.0541205%



                                       46

<PAGE>   48


MASSACHUSETTS                                                 3.6702975%

MICHIGAN                                                      3.9546980%

MINNESOTA                                                     2.0636765%

MISSISSIPPI                                                   0.7856500%

MISSOURI                                                      2.0669735%

MONTANA                                                       0.2867125%

NEBRASKA                                                      0.4413985%

NEVADA                                                        0.4549855%

NEW HAMPSHIRE                                                 0.6051470%

NEW JERSEY                                                    3.3842275%

NEW MEXICO                                                    0.4426765%

NEW YORK                                                     11.3673610%

NORTH CAROLINA                                                2.1193920%

NORTH DAKOTA                                                  0.2333295%

OHIO                                                          4.5660970%

OKLAHOMA                                                      0.9415575%

OREGON                                                        1.0428990%

PENNSYLVANIA                                                  5.2222805%

RHODE ISLAND                                                  0.6532830%

SOUTH CAROLINA                                                1.0689735%

SOUTH DAKOTA                                                  0.2178195%

TENNESSEE                                                     2.2180875%

TEXAS                                                         5.0998475%

UTAH                                                          0.3050030%

VERMONT                                                       0.2743775%



                                       47
<PAGE>   49

VIRGINIA                                                      1.8580990%

WASHINGTON                                                    1.8658350%

WEST VIRGINIA                                                 0.8055435%

WISCONSIN                                                     1.8829015%

WYOMING                                                       0.1264015%

AMERICAN SAMOA                                                0.0078600%

N. MARIANA ISLAND                                             0.0012700%

GUAM                                                          0.0057040%

U.S. VIRGIN ISLANDS                                           0.0044130%

PUERTO RICO                                                   0.4116015%





TOTAL                                                       100.0000000%




                                       48
<PAGE>   50



                                   APPENDIX C

                                                                       Date

         Re:          Comprehensive Tobacco Control Legislation

Dear____________________:

         The undersigned Attorneys General have reached a settlement with Brooke
Group, Ltd., Liggett & Myers, Inc. and the Liggett Group, Inc. (collectively
referred to as "Liggett"). Because of the Liggett's willingness to turn state's
evidence in our litigation against the tobacco industry, we believe that Liggett
deserves special consideration with respect to the FINANCIAL terms of any
comprehensive tobacco control legislation enacted by Congress.

         Specifically, in the event that such legislation mirrors the resolution
reached between the Attorneys General and the tobacco industry in June 1997, we
suggest that Liggett's financial obligations be as follows:

                  Liggett shall have no obligation with respect to the $10
                  billion up front payment.

                  Liggett shall be excused from any of the required per year
                  payments to the extent that its market share is not more than
                  3%.

                  To the extent that Liggett's share ever exceeds 3%, it shall
                  be required to pay its share of the annual payments required
                  by any legislation on the amount over 3%.

                                            Sincerely,

                                            [Insert AG Name]
                                            [Insert Position]



                                       49
<PAGE>   51
                                       STATE OF OHIO



                                       /s/ BETTY D. MONTGOMERY
                                       ----------------------------------------
                                       BETTY D. MONTGOMERY
                                       Attorney General

                                       30 East Broad Street, 17th Floor
                                       Columbus, Ohio  43215-3428
                                       Telephone: (614) 466-3376
                                       FAX: (614) 466-5087






LIGGETT III SETTLEMENT AGREEMENT
<PAGE>   52




                                       STATE OF COLORADO



                                       /s/ GALE A. NORTON
                                       ----------------------------------------
                                       Gale A. Norton
                                       Attorney General

                                       1525 Sherman Street, 5th Floor
                                       Denver, Colorado  80203
                                       Telephone: (303) 866-3052
                                       FAX: (303) 866-3955






LIGGETT III SETTLEMENT AGREEMENT
<PAGE>   53



                                       STATE OF WYOMING



                                       /s/ WILLIAM U. HILL
                                       ----------------------------------------
                                       William U. Hill
                                       Attorney General

                                       123 Capital Building
                                       Cheyenne, WY  82002
                                       Telephone: (307) 777-7841
                                       FAX: (307) 777-6869






LIGGETT III SETTLEMENT AGREEMENT
<PAGE>   54



                                       STATE OF IDAHO




                                       /s/ ALAN G. LANCE
                                       ----------------------------------------
                                       Alan G. Lance
                                       Attorney General

                                       Office of the Attorney General
                                       Consumer Protection Unit
                                       Len B. Jordan Building
                                       650 W. State St., Lower Level
                                       P.O. Box 83720
                                       Boise, Idaho  83720-0010
                                       Telephone: (208) 334-2424
                                       FAX: (208) 334-2830






LIGGETT III SETTLEMENT AGREEMENT
<PAGE>   55



                                       STATE OF NEW HAMPSHIRE

                                       Philip T. McLaughlin
                                       Attorney General



                                       /s/ WALTER L. MARONEY
                                       ----------------------------------------
                                       Walter L. Maroney
                                       Senior Assistant Attorney General
                                       (Bar No. 8206)
                                       33 Capitol Street
                                       Concord, New Hampshire  03301
                                       Telephone: (603) 271-3643
                                       FAX: (603) 271-2110





LIGGETT III SETTLEMENT AGREEMENT
<PAGE>   56



                                       STATE OF MONTANA



                                       /s/ CHRIS D. TWEETEN
                                       ----------------------------------------
                                       Chris D. Tweeten
                                       Chief Counsel

                                       Joseph P. Mazurek
                                       Attorney General of Montana
                                       Justice Building
                                       215 North Sanders
                                       P.O. Box 201401
                                       Helena, MT  59620-1401






LIGGETT III SETTLEMENT AGREEMENT
<PAGE>   57



                                       STATE OF NEBRASKA

                                       /s/ DON STENBERG
                                       ----------------------------------------
                                       Don Stenberg
                                       Attorney General

                                       2115 State Capitol
                                       Lincoln, NE  68509
                                       Telephone: (402) 471-2682
                                       FAX: (402) 471-3297






LIGGETT III SETTLEMENT AGREEMENT
<PAGE>   58



                                       Respectfully submitted,
                                       STATE OF RHODE ISLAND
                                       By Its Attorney,



                                       /s/ JEFFREY B. PINE
                                       ----------------------------------------
                                       Jeffrey B. Pine
                                       Attorney General
                                       Attorney Bar #2278
                                       Maureen G. Glynn
                                       Assistant Attorney General
                                       Attorney Bar #3800
                                       150 South Main Street
                                       Providence, Rhode Island  02903
                                       Telephone: (401) 274-4400, Ext. 2301
                                       FAX: (401) 274-3050






LIGGETT III SETTLEMENT AGREEMENT
<PAGE>   59



                                       STATE OF ARKANSAS

                                       /s/ WINSTON BRYANT
                                       ----------------------------------------
                                       Winston Bryant
                                       Attorney General

                                       Shirley Guntharp
                                       Deputy Attorney General

                                       Timothy Gauger
                                       Assistant Attorney General

                                       323 Center Street, Suite 200
                                       Little Rock, Arkansas 72201
                                       Telephone: (501) 682-2007






LIGGETT III SETTLEMENT AGREEMENT
<PAGE>   60



                                       DISTRICT OF COLUMBIA

                                       John M. Ferren
                                       Corporation Counsel

                                       Robert R. Rigsby
                                       Deputy Corporation Counsel
                                       Enforcement Division

                                       Louis E. Rumbaut
                                       Director
                                       Civil Branch

                                       /s/ STUART CAMERON
                                       ----------------------------------------
                                       Stuart Cameron
                                       Assistant Corporation Counsel
                                       Enforcement Division, Rm 6N72
                                       441 4th Street, N.W.
                                       Washington, D.C.  20001
                                       Telephone: (202) 727-6240




LIGGETT III SETTLEMENT AGREEMENT


<PAGE>   61



                                       STATE OF MISSOURI

                                       /s/ JEREMIAH W. NIXON
                                       ----------------------------------------
                                       Jeremiah W. (Jay) Nixon
                                       Attorney General

                                       P.O. Box 899
                                       Jefferson City, Missouri 65102
                                       Telephone: (573) 751-5227
                                       FAX: (573) 751-0774






LIGGETT III SETTLEMENT AGREEMENT
<PAGE>   62



                                       TERRITORY OF THE UNITED STATES
                                       VIRGIN ISLANDS

                                       /s/ JULIO A. BRADY
                                       ----------------------------------------
                                       Julio A. Brady
                                       Attorney General

                                       VI Department of Justice
                                       48B-50C Kronprindsens Gade
                                       GERS Building, Second Floor
                                       St. Thomas, U.S.V.I.  00802
                                       Telephone: (340) 774-5666
                                       FAX: (340) 774-9710






LIGGETT III SETTLEMENT AGREEMENT
<PAGE>   63



                                       STATE OF MAINE



                                       /s/ ANDREW KETTERER
                                       ----------------------------------------
                                       Andrew Ketterer
                                       Attorney General

                                       Dept. of the Attorney General
                                       Six State House Station
                                       Augusta, ME  04333
                                       Telephone: (207) 626-8800
                                       FAX: (207) 287-3145




LIGGETT III SETTLEMENT AGREEMENT