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                                                                 Exhibit 10.41


                           CLASS SETTLEMENT AGREEMENT

     This CLASS SETTLEMENT AGREEMENT is entered into this 20th day of March
1997 by and between the named and representative plaintiffs (collectively,
"Plaintiffs") in CAROL FLETCHER, ET AL. V. LIGGETT GROUP INC., ET AL., Civil
No. _____, In the Circuit Court of Mobile, Alabama (the "FLETCHER Action"), for
themselves and on behalf of the plaintiff settlement class as hereinafter
defined ("Settlement Class"); and Brooke Group Ltd., a Delaware corporation
("Brooke Group"), Liggett & Myers Inc., a Delaware corporation ("Myers"), and
Liggett Group Inc., a Delaware corporation (which, with Myers, is hereinafter
referred to as "Liggett").
                                    RECITALS
WHEREAS,

     On March 19, 1997 Plaintiffs filed a complaint to commence the FLETCHER
Action against Liggett and Brooke Group asserting claims on behalf of a
putative nationwide class of all persons and entities which have incurred or
are alleged to have incurred costs or other damages arising from cigarette
smoking, seeking, among other things, equitable/injunctive relief, a
declaratory judgment, and compensatory and/or punitive damages, according to
proof, as set forth in the complaint.

     The primary purpose of this Class Settlement Agreement is to provide
certain injunctive relief sought by Plaintiffs and other settlement class
members, including the cooperation of Liggett and Brooke Group, and to create
a fund for the equitable settlement of the claims of the settlement class



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members, free of the risks and costs of prolonged litigation.  The mechanism
for accomplishing this purpose is the creation of a settlement fund board, to
which the claims of all settlement class members against Liggett and Brooke
Group shall be directed.

     The injunctive relief, cooperation, and monetary settlement are components
of an integrated settlement set forth in this Class Settlement Agreement.
Liggett and Brooke Group agree to provide cooperation and to submit to the
injunctive relief set forth herein in the context of a mandatory class
settlement.

     Apart from the FLETCHER Action, hundreds of individual actions and
putative class actions, as well as numerous actions brought on behalf of states
and other governmental bodies and other entities, have been filed against
Liggett and Brooke Group and other tobacco defendants seeking, among other
things, equitable relief and damages allegedly arising from cigarette smoking.
In addition to the hundreds of smoking-related claims that have already been
filed against these defendants in jurisdictions throughout the United States,
many more are expected to be filed in the future.  Smoking-related litigation
has resulted in extensive discovery concerning the potential liability of
Liggett and Brooke Group as well as extensive consideration of the legal and
factual bases of smoking-related litigation.

     The plaintiffs and the defendant tobacco companies have spent, and
continue to spend, enormous resources litigating these smoking-related
claims.  Litigating smoking-related lawsuits is depleting and will continue to



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deplete the defendant tobacco companies' resources otherwise available to
compensate claimants.  Absent an alternative method of resolution, Liggett
would not be able to satisfy the smoking-related claims pending against it, let
alone claims which may be asserted in the future.

     In light of the uncertainties associated with the pending litigation and
Liggett's financial condition, there are substantial risks that adjudications
with respect to smoking-related claims by certain settlement class members
will, as a practical matter, be dispositive of the claims and interests of
certain other settlement class members not yet adjudicated or will
substantially impair or impede the ability of such other settlement class
members to protect their interests.

     Plaintiffs allege that Liggett and Brooke Group have acted or refused to
act on grounds generally applicable to the settlement class, thereby making
final injunctive relief appropriate with respect to the class as a whole in
accordance with Rule 23 of the Alabama Rules of Civil Procedure in the context
of this settlement.

     Counsel for the Plaintiffs have substantial experience in the litigation
of smoking-related cases and class actions, including the litigation and trial
of individual smokers' cases.

     Liggett has made available relevant information, and Plaintiffs, through
counsel, have investigated such information and other relevant information and
conducted discovery, as to the nature, extent and availability of Liggett's
financial resources, and have concluded that the criteria of Alabama



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Rule of Civil Procedure 23(b)(1) apply to Liggett and its affiliates in the
context of this settlement.

     Plaintiffs and Liggett and Brooke Group recognize and support the public
interest in preventing smoking by, or the promotion of smoking to, children and
adolescents and further recognize that it is of extreme importance to halt any
marketing efforts directed to children and adolescents and to provide for full
disclosures of material facts relating to tobacco products.

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

     Liggett and Brooke Group recognize and acknowledge that defending the
continued prosecution of the FLETCHER Action (and other similar putative class
actions and individual suits) against them, through trial and appeals, would
require considerable resources and expense, would entail uncertainty and risk,
and constitute circumstances under which the available assets of Liggett and
Brooke Group may be properly characterized as a "limited fund" in comparison to
the aggregate potential claims of all settlement class members.  Liggett and
Brooke Group have determined that the settlement, in accordance with this Class
Settlement Agreement, of the claims asserted in the FLETCHER Action against
them will be beneficial to them by enabling Liggett to continue the legal
business of selling cigarettes, under terms of candor and full disclosure to
the public, while avoiding bankruptcy or other insolvency that could
otherwise result from the transaction costs and potential exposure of ongoing
litigation.



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     Plaintiffs recognize and acknowledge that the continued prosecution of the
FLETCHER Action and other smoking-related litigation against Liggett and Brooke
Group through trial and appeals would require considerable time and expense and
would entail uncertainty, risk and delay, including the risk of bankruptcy or
other insolvency of Liggett and Brooke Group.  Plaintiffs and Liggett and
Brooke Group recognize that this settlement with Liggett provides uniquely
favorable terms to Liggett in recognition of its unique situation, including
its willingness to be the first tobacco industry defendant to settle with any
of the public or private plaintiffs, its agreement to provide documents and
cooperation expected to be of material benefit to the litigation against the
other, much larger tobacco defendants, Liggett's small market share, and its
precarious financial situation.  Plaintiffs have determined that the
settlement, in accordance with this Class Settlement Agreement, of the claims
asserted in the FLETCHER Action against Liggett and Brooke Group will be
beneficial to the settlement class by providing all settlement class members
with substantial and critical non-monetary equitable relief, as well as the
opportunity to share equitably in the common fund created by this Class
Settlement Agreement.

     NOW, THEREFORE, in consideration of the foregoing and of the promises and
covenants set forth in this Class Settlement Agreement, Plaintiffs, on their
own behalf and on behalf of the Settlement Class (as defined below), and
Liggett and Brooke Group hereby stipulate and agree that, conditional upon
the approval of the Court as required by Rule 23 of the Alabama Rules of Civil
Procedure and as provided herein, the Action shall be settled as against
Liggett


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and Brooke Group and that all claims asserted by or on behalf of the
putative class members in the FLETCHER Action against the Settling Defendants
shall be dismissed with prejudice, all on the terms and conditions contained
herein, as follows:

     DEFINITIONS.
     ------------

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

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

     "Agreement" means this Settlement Agreement.

     "Arbitrator" means the person or persons agreed to by the Settling States
and the Settlement Class, and/or their counsel, or appointed by the Court or
the Multidistrict Litigation Panel, as the case may be, to make decisions
regarding allocations of the Settlement Fund between the Settling States and
the Settlement Class, and to resolve disputes of the Oversight Committee.

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

     "Attorney General Actions" means actions by or on behalf of States seeking
injunctive relief and/or damages in connection with smoking and/or Medicaid or
other expenses allegedly resulting therefrom.

     "Attorneys General Settlement Agreement" means that agreement entered into
on or about March 20, 1997 between Brooke Group and Liggett and
the Attorneys General of certain states, a copy of which is annexed hereto as
Exhibit A.




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

     "Cigarette" means any product including components, accessories, or parts
which is intended to be burned under ordinary conditions of use and consists
of: (1) any roll of tobacco wrapped in paper or in any substance not containing
tobacco; or (2) any roll of tobacco wrapped in any substances containing
tobacco which, because of its appearance, the type of tobacco used in the
filler, or its packaging and labeling, is likely to be offered to, or purchased
by, consumers as a cigarette described in subparagraph (1).

     "Cigarette Pack" means a unit of twenty Cigarettes or one ounce of Tobacco
Snuff.

     "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.

     "Court" means the Circuit Court of Mobile County, Alabama.

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

     "FDA Rule" means the regulations promulgated by the FDA concerning the
sale and distribution of cigarettes and other products on August


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28, 1996 at 60 Fed. Reg. 44396, to be codified at 21 C.F.R. Parts 801, 803, 804,
807, 820 and 897.

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

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

     "Global Settlement" means any National disposition, settlement, agreement
or other arrangement, such as "Tobacco Claims Legislation", 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 the
members of the Settlement Class for the types of claims released under this
Agreement.



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     "Initial Notice" means the written notice document to be provided by
Liggett and its Present Affiliates to Settlement Class members as defined in
Section 8.1 of this Agreement.

     "Initial Notice Date" means the first date upon which Initial Notice is
given by Liggett and its Present Affiliates to the Settlement Class pursuant to
Section 8.1 of this Agreement.

     "Injury" means any physical, mental or emotional injury, including, by way
of example and not limitation, cancer, heart disease, emphysema, addiction and
phobia.

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

     "Mandatory Class Fairness Hearing" means the hearing to be conducted by
the Court in connection with the determination of the fairness, adequacy and
reasonableness of this Agreement under Rule 23 of the Alabama Rules of Civil
Procedure, insofar as the Agreement applies to Liggett and its Present
Affiliates.

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

     "Mandatory Class Settlement Date" or "Settlement Date" means the date on
which all of the following shall have occurred:  (a) the entry of the


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

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

     "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.

     "Non-Settling Tobacco Companies" means each of The American Tobacco Co.,
Lorillard Tobacco Co., Philip Morris Inc., R.J. Reynolds Tobacco Co., Brown &
Williamson Tobacco Corp., and United States Tobacco Co., unless and until it
becomes a Future Affiliate, as herein defined.

     "Other Settlement" means a settlement of a Tobacco Action which is not a
Global Settlement.

     "Oversight Committee" means a committee, made up of no less than nine (9)
individuals, to oversee the cooperation provided by Settling


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Defendants under Section 5.3.1 and 5.3.2 hereof.  The committee shall have not
less than 75% of its composition from representation of the Attorneys General.

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

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

     "Personal Injury Subclass" means a settlement subclass composed of:

     (a) all Smokers who reside in the United States, its territories,
possessions and the Commonwealth of Puerto Rico; and

     (b) the estates, representatives, and administrators of these Smokers; and

     (c) the spouses, children, relatives and "significant others" of these
Smokers as their heirs or survivors; and

     (d) all persons who, prior to or during the term of this Agreement, have
been exposed to environmental or second-hand tobacco smoke and have suffered or
claim to have suffered Injury as a consequence thereof;

     provided that excluded from such settlement subclass are (i) officers and
directors of any of the Settling Defendants and (ii) any person or entity which
has entered into any prior or contemporaneous settlement with Liggett of a
Tobacco Action.

     "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.



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     "Population Quotient" means, with respect to an Other Settlement or
judgment, a quotient whose numerator is the Population of the United States and
whose denominator is the total Population of the state(s), jurisdictions, or
other grouping of persons covered by such Other Settlement or judgment.

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

     "Present Affiliate" means with respect to a specified corporation, another
corporation, partnership or other entity which 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.

     "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.

     "Pretax Income", with respect to Liggett, means for a specified year, the
"Income before Income Taxes" as determined in accordance with generally
accepted accounting principles ("GAAP") of Liggett for its most recent fiscal
year, as report in filings to the United States Securities and Exchange




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Commission or, if there is no such filing, as reported by Liggett's independent
outside auditors.  If GAAP changes in any material respect during the term of
this Agreement so that the benefits anticipated by the parties (in light of
GAAP applicable on the date of this Agreement), an appropriate adjustment shall
be made to the formulas and calculations hereunder to achieve the parties'
expectations as of the date hereof.

     "Protective Order" or "Stipulation Regarding Liggett Documents" means, with
respect to privileged documents produced by a Settling Defendant pursuant to
Paragraph 5.3 on order of the Court:  (a) protecting the confidentiality of such
documents; (b) providing that such documents may be used only in actions against
Non-Settling Tobacco Companies and, to the extent permitted by law, only under
seal; (c) providing that, to the extent such documents are or may be subject to
the attorney/client privilege or attorney work product doctrine, such production
or use of the documents does not constitute a waiver of such privilege, doctrine
or protection with respect to any party other than the parties to whom the
documents are produced subject to the order.  The provisions of the Protective
Order shall not apply to documents claimed to be privileged but which are
determined by the Court or by any other court not to be privileged for reasons
other than waiver due to production pursuant to this Agreement.

     "Recoupment Subclass" means a settlement subclass composed of:  all
persons or entities not in the Personal Injury Subclass (including, without
limitation, any territory, city, county, state, parish, possession or any other
political subdivision thereof, or any agency or instrumentality of any of the
foregoing, or any insurance company) in the United States, its territories,
possessions, and the Commonwealth of Puerto Rico, which, prior to or during the
term of this Agreement, have incurred or claim to have incurred, directly or



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indirectly, economic loss as a result of paying for the treatment of diseases,
illnesses, or medical conditions allegedly caused by Cigarettes (or exposure
thereto, including by way of environmental or second hand smoke); provided that
excluded from such settlement subclass are (i) officers and directors of any of
the Settling Defendants, (ii) any person or entity which has entered into any
prior or contemporaneous settlement with Liggett of a Tobacco Action, and (iii)
any State that opts out of this Settlement pursuant to Section 9 of this
Agreement.

     "Settlement Class" means a settlement class composed of the Personal
Injury Subclass and the Recoupment Subclass as herein defined.

     "Settlement Class Counsel" means the firms listed as Personal Injury
Settlement Subclass Counsel and Recoupment Settlement Subclass Counsel in
Section 26.8 of this Agreement.

     "Settlement Class Representatives" means the Plaintiffs approved by the
Court to serve as Settlement Class representatives for their respective
settlement subclasses.

     "Settlement Fund" means the fund established in accordance with the terms
of Section 7 of this Agreement, which shall be established in a reputable bank
or other financial institution subject to the jurisdiction of the Court, to
provide a secure and interest-bearing fund, which shall be jointly controlled
by the Settling States and the Settlement Class.

     "Settlement Fund Board" or "Board" means the board which shall be
established pursuant to this Agreement to administer that portion of the
Settlement Fund allocated to the Settlement Class pursuant to this Agreement.
The Settlement Class representatives shall be appointed by the Court pursuant
to procedures for selection of the representatives established by the Court.
At least one-third of the Board shall be comprised of representatives of the
public


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health community who shall be designated by majority vote of the other
members of the Board.

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

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

     "Settling States" means those States that entered into the Attorneys
General Settlement Agreement.

     "Smokers" means all persons who, prior to or during the term of this
Agreement, have smoked Cigarettes or have used other tobacco products and have
suffered or claim to have suffered Injury as a consequence thereof.

     "State Opt Out Period" means the period commencing on the Initial Notice
Date and extending for a period of time as provided in Section 9 hereof.

     "Subsequent Notice" means the written notice to be provided by Liggett and
its Present Affiliates to Settlement Class members as defined and provided by
Section 8.4 of this Agreement.

     "Subsequent Notice Dates" means the dates defined in Section 8.4 hereof.

     "Tobacco Action" means any individual lawsuit, putative or certified class
action lawsuit or action on behalf of a governmental entity brought against one
or more Tobacco Companies in connection with smoking-related claims such as
(without limitation) those asserted in the FLETCHER Action or any Attorney
General Action.

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



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

2. SETTLEMENT PURPOSES ONLY.
   -------------------------

     2.1. This Agreement is for settlement purposes only, and neither the fact
of, nor any provision contained in, this Agreement nor any action taken
hereunder shall constitute, be construed as, or be admissible in evidence
against the Settling Defendants as, any admission of the validity of any claim,
any argument or any fact alleged or which could have been alleged by Plaintiffs
in the Action or alleged or which could have been alleged in any other action
or proceeding of any kind or of any wrongdoing, fault, violation of law, or
liability of any kind on the part of the Settling Defendants or any admission
by them of any claim or allegation made or which could have been made in the
Action or in any other action or proceeding of any kind, or as an admission by
any of the Plaintiffs or members of the Settlement Class of the validity of any
fact or defense asserted or which could have been asserted against them in the
Action or in any other action or proceeding of any kind.

3. SUBMISSION FOR PRELIMINARY APPROVAL.
   ------------------------------------

     Promptly after execution of this Agreement, the Parties shall, through
their respective attorneys, jointly submit this Agreement to the Court and move
the Court for Preliminary Approval.

4. PARTIES.
   --------

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



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     4.2. No Settling Defendant shall sell, dispose or transfer substantially
all of its cigarette brands or businesses without first causing the acquiror,
on behalf of itself and its successors, to be bound by all of the obligations
of a Settling Defendant pursuant to Sections 5.2 and 5.4 through 5.8 hereunder
as to such transferred brands or businesses; provided that this Section 4.2
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.

     4.3. The Parties acknowledge and agree that the willingness of Brooke
Group and Liggett to enter into this Agreement, and in particular their
willingness to agree to the equitable and other relief relating to cigarette
marketing and to cooperation provided for in Section 5 hereof, are important to
the interests of the Settlement Class.

5. CONSENT DECREES; WARNINGS; COOPERATION.
   ---------------------------------------

     5.1. 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 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, the FDA 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


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that, as the Surgeon General, the Food and Drug Administration and respected
medical researchers have found, nicotine is addictive.

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

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

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

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

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



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           5. In accordance with our settlement agreements, Liggett agrees to
      fully cooperate with the Attorneys General and Settlement Class Counsel
      in their lawsuits against the other tobacco companies.  To that end,
      Liggett will make available to the Attorneys General, Settlement Class
      Counsel and other parties with whom we have settled 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
      industry's joint privilege claims.

     5.2. As promptly as reasonably practicable, but no later than six months
after execution of the Attorneys General 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 sells other tobacco
products, a similar warning shall be placed on such product.

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

            (1) cooperate with the Settlement Class, its members and counsel, in
     that such Settling Defendant will take no steps to impede or frustrate
     their investigations into, or prosecutions of, any of the non-settling
     defendants in Tobacco Actions, so as to secure the just, speedy and
     inexpensive determination of all such




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     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 Tobacco Actions;

            (3) actively assist the Settlement Class, its members and counsel in
     identifying and locating any and all persons known to such Settling
     Defendant to have documents or information that is discoverable in such
     proceedings, and to actively assist in interviewing and obtaining documents
     and information from all such persons, and to encourage such person to
     cooperate with the Settlement Class; and shall actively assist in
     interpreting documents relating to litigation against Non-settling Tobacco
     Companies; and

            (4) insofar as such Settling Defendant has or obtains any material
     information concerning any fraudulent or illegal conduct on the part of any
     parties, including Non-settling Tobacco Companies, their agents, or their
     co-defendants designed to frustrate or defeat the claims of the plaintiffs
     against such parties, companies, agents or co-defendants, or which have the
     effect of unlawfully suppressing evidence relevant to smoking claims,
     disclose such information to the appropriate judicial and regulatory
     agencies.



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             5.3.2. With respect to each Settlement Class member and her
             counsel, subject to, and promptly after (i) the entry of a
             Protective Order by the Court, and (ii) an agreement by such
             Settlement Class member and her counsel to abide by, and not object
             to this Settlement Agreement, 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 a Tobacco Action, subject to the provisions of Section
             5.3.2(2) hereof;

                  (2) waive any and all applicable attorney-client privileges
             and work product protections with respect to such documents and
             information.  Such waiver shall not extend to (a) documents and
             information not relevant to the subject matter of Tobacco Actions
             or not reasonably likely to lead to admissible evidence in
             connection with claims asserted in any Tobacco Action (b) documents
             subject to a joint defense or other privilege or protection which
             Settling Defendants cannot legally waive unilaterally, except that
             the waiver by the Settling Defendant shall apply, to the extent
             permitted by law, to its own joint defenses or other privileges. To
             the extent that a Settling Defendant has a good faith belief, or
             one or more Non-settling Tobacco Companies claims, that documents
             to be provided pursuant to Section 5.3.2(1) hereof may be subject
             to a joint



                                    -21-

<PAGE>   22

             defense or other privilege (or a claim of such privilege) of one or
             more of the Non-settling Tobacco Companies, such documents shall be
             deposited under seal for in camera inspection by the Court, or a
             court in which a Tobacco Action is pending, together with a
             statement to the Court that such Settling Defendant has concerns as
             to whether some or all of such documents should be protected from
             discovery, and the Parties agree to request that the Court shall
             retain jurisdiction to resolve that issue.  Liggett will
             participate in proceedings, including by way of court appearances
             or declarations, concerning issues of whether such documents are
             discoverable;

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

                  (4) demand from its past or current national legal counsel all
             documents and information obtained in the course of representation
             of any Settling Defendant which in any way relates to the
             cooperation required in paragraphs 5.3.1(1) -5.3.2(3) above,



                                    -22-

<PAGE>   23

             which shall be provided to the Settlement Class, its members and
             counsel as provided under this paragraph.

           5.3.3. With respect to the cooperation set forth in paragraphs 5.3.1
      and 5.3.2 above, the Attorneys General and Settlement Class Counsel shall
      appoint, on a yearly basis, an Oversight Committee, to oversee such
      cooperation so that it fairly assists them and minimizes the burden on a
      Settling Defendant.  All requests for cooperation will be first made to
      the Oversight Committee.  The Oversight Committee shall coordinate such
      requests giving due regard to the legitimate needs of the litigants
      requesting cooperation and the burden on the Settling Defendant.  Nothing
      in this Agreement shall waive or alter the rights of Settlement Class
      members 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.

           5.3.4. In the event the Oversight Committee cannot agree on the
      sharing of cooperation by litigants, any member of the Committee
      may seek resolution by an Arbitrator.  In the event that the Oversight
      Committee cannot agree on the selection of an Arbitrator, the Oversight
      Committee will petition the Multidistrict Litigation Panel for
      appointment of an Arbitrator.  In the event any Settling Defendant,
      absent good cause, does not provide requested cooperation as promptly as
      reasonably practicable, after receiving written notice from the Committee
      of such request, (1) the Committee may seek relief from an Arbitrator,
      and (2) the Committee, upon notice to the Settling Defendant, may
      petition an Arbitrator for specific performance of such requested
      cooperation.




                                    -23-

<PAGE>   24

     5.4. 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.

     5.5. 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 5.5.1
- 5.5.4 hereof until a final determination is reached respecting the FDA Rule
at which time the Settling Defendants will be bound by the FDA Rule only
insofar as, and to the extent that, the FDA Rule becomes an enforceable
obligation binding upon all of the Tobacco Companies.

                  5.5..  FDA Rule Section  897.16(b), as proposed.

                  5.5..  FDA Rule Section  897.16(d), as proposed.

                  5.5..  FDA Rule Section  897.30(a), as proposed.

                  5.5.. FDA Rule Section  897.30(b), but only to the extent
             that such section applies to billboards within 1,000 feet of a
             clearly marked public or private elementary or secondary school or
             a clearly marked, outdoor, municipal or other government-operated
             public playground for children.

     5.6. Notwithstanding anything to the contrary in the Proposed Rule or in
this Agreement, Liggett will commence compliance with Section 5.5 of


                                    -24-

<PAGE>   25

this Agreement as soon as reasonably practicable, according priority as to
compliance to the States listed in Appendix A to the Attorneys General
Settlement Agreement and then to Subsequent Settling States; provided that
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 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 Section 5.5 (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 Section 5.5, 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 Section 5.5.

     5.7.  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 so become such a legal
obligation, Liggett shall, during the duration of this Agreement, continue to
comply with Section 5.5.

     5.8.  Each Settling Defendant shall not use cartoon characters, such as
"Joe Camel" in any of its advertising and promotional materials and



                                    -25-

<PAGE>   26

activities with respect to tobacco products.  No Settling Defendant shall enter
into any new contract for advertising and promotion with respect to tobacco
products using any such cartoon characters after the date the Settling
Defendants become bound by this Agreement.

     5.9.  Each Settling Defendant may, after becoming bound by this Settlement
Agreement, continue in the lawful 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 Recoupment Subclass
members, to the extent such members possess such authority or ability, to
enforce compliance with the laws of their respective jurisdictions.

6. GLOBAL SETTLEMENT.
   ------------------

     6.. Effective upon the execution hereof, Settlement Class Counsel each
agree (a) to exercise best efforts to ensure 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, and (b) to issue a public statement substantially in the
following form and substance:

      The historic settlements entered into by Liggett, whereby Liggett
      has agreed, among other things, to provide full cooperation to
      twenty-two Attorneys General and a nationwide settlement class and
      to consent to FDA regulation of tobacco marketing, are a major
      advance in our efforts to prevent smoking by children and



                                    -26-

<PAGE>   27

      adolescents and to ensure that the tobacco industry markets its
      products lawfully.  Accordingly, the undersigned counsel will use
      their best efforts in Congress and elsewhere to ensure that any
      such industry-wide resolution provide for financial terms for
      Liggett that reflect appropriate recognition of Liggett's
      cooperative efforts, and which are no more onerous on, or less
      favorable to Liggett than those provided for in our Settlement
      Agreement.

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

7. SETTLEMENT FUND.
   ----------------

     7.1. 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
Settlement Fund to be allocated and distributed to Settlement Class members and
Settling States in accordance with this and the Attorneys General Settlement
Agreement.  In the event that the Settling States and Settlement Class Counsel
cannot agree to an equitable allocation of the Settlement Fund between the
Settling States and the Settlement Class, the Settling States and Settlement
Class Counsel shall seek to agree on the



                                    -27-

<PAGE>   28

selection of an Arbitrator to determine such allocation.  In the event that the
Settling States and Settlement Class Counsel cannot agree on the selection of an
Arbitrator, the Settling States and Settlement Class Counsel will petition the
Court to determine such allocation; it being understood that some portion of the
Settlement Fund will be allocated to counter-market advertising.

     7.2. 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 7.1
above.

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

          7.3.1. An initial payment of $25 million due 120 days from the date of
a Future Affiliate Transaction; and

          7.3.2. Subject to the provisions of Sections 7.7 - 7.9, payments, each
equivalent to 25% of Liggett's Pretax Income, due 120 days after the end of each
fiscal year of Liggett.  The first payment shall be made with respect to the
first full fiscal year commencing after the date of this Settlement Agreement.

     7.4. 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 $1 million in any year for
such expenses or the costs of Initial and each Subsequent Notice.

     7.5. The amounts payable hereunder to the Settlement Fund shall represent
the maximum amounts payable to the Settlement Fund under this



                                    -28-

<PAGE>   29

Agreement and the Attorneys General Settlement Agreements.  Subject to the
approval of the Court, the Settlement Fund Board shall institute a process for
the allocation of the Settlement Fund to the Settlement Class, as set forth in
this Agreement.

     7.6. The Court shall retain exclusive and continuing jurisdiction over the
Settlement Fund, and any and all claims thereto.  All allocations of, and
distributions from, the Settlement Fund to the Settlement Class shall be
subject to Court approval.

     7.7. 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 this Agreement so that such aggregate payments shall be no more
than 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).

     7.8. Liggett shall receive as a credit against any and all amounts due
hereunder, any and all amounts it is required to pay under a Global Settlement.

     7.9. In the event that one or more States elect to opt out of the
Mandatory Settlement Class and action(s) are brought against any Settling
Defendant on behalf of such State(s), the annual payment amount due under
Sections 7.3.2 of this Agreement from a Settling Defendant shall be reduced by
an amount equal to the product of (i) the ratio that the Medicaid Population of
the



                                    -29-

<PAGE>   30

States that elect to opt out of the Mandatory Settlement Class then bears
to the total Medicaid Population and (ii) 20% of Liggett's Pretax Income.

     7.10. The Settlement Fund shall constitute the sole source of recovery on
any and all claims against Liggett and its Present Affiliates which have been,
will be, or could be asserted, directly or indirectly, by, on behalf, or for the
benefit of any and all Settlement Class members, such that, subject to the
Court's final determination that this Settlement Agreement is fair pursuant to
Mandatory Class Final Approval, Liggett and its Present Affiliates shall enjoy a
universal release from all claims associated with or resulting from the smoking
of their cigarettes in consideration of their agreeing to the entry of the
Consent Decree and of Liggett's payments into the Settlement Fund and of the
reasonable expenses of the administration, allocation, and distribution of the
Settlement Fund, for the benefit of Settlement Class members, in accordance with
this Agreement.

     7.11. The Board shall institute a process for the equitable adjudication
of smoking-related claims against Liggett for compensatory damages by
Settlement Class members in view of, among other things, the history of the
outcome of such claims; it being understood that all claims for punitive,
exemplary or other such damages are hereby waived.  The Board shall also
consider any and all comments, recommendations, requests and suggestions from
Settlement Class members and their counsel, as to the appropriate and equitable
allocation and distribution of the Settlement Fund, for evaluation and
recommendation by the Board to the Court for its approval.  The Court shall not
be requested by the Parties or the Board to make any specific orders regarding
the ultimate allocation and distribution of the Settlement Fund at the time of
Preliminary or Mandatory Class Final Approval.  The notice forms



                                    -30-

<PAGE>   31

to be submitted to the Court for its approval shall inform Settlement Class
members that issues of allocation and distribution are reserved for future
rulings, conditioned upon and subsequent to Mandatory Class Final Approval, and
that any and all Settlement Class members who wish to do so may submit their
comments, recommendations, requests and suggestions for the allocation and
distribution of the Settlement Fund, under a procedure to be established by the
Court.  The Court will be requested to grant Preliminary and Mandatory Class
Final Approval without regard to the ultimate equitable allocation and
distribution of the Settlement Fund, in order to provide Settlement Class
members with a full opportunity to participate in the allocation decision-making
process after the Settlement Fund is in place; and to avoid distracting the
parties and the Court, during the settlement approval process, with comments or
objections more properly directed at the specifics of allocation and
distribution with respect to particular claimants rather than the common class
interest in the overall fairness, adequacy, and reasonableness of the Settlement
itself, in the context of the "limited fund" available from Liggett to pay
claims, the provision of valuable equitable relief, and the compromise of
disputed and risky claims.

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

8. NOTICE TO THE SETTLEMENT CLASS.
   -------------------------------

     8.1. Upon Preliminary Approval, and as the Court may direct, each Settling
Defendant shall cause notice of the settlement embodied herein (the "Initial
Notice") to be given to the members of the Settlement Class.

     8.2. The Initial Notice to Settlement Class members shall inform them as
follows:



                                    -31-

<PAGE>   32

           The allocation of the Settlement Fund to specific uses or among
      particular claimants has not been determined.  Future allocation and
      distribution of the Settlement Fund will be administered by the
      Settlement Fund Board.  The Board shall be comprised of representatives
      appointed by the Attorneys General of certain settling states and by
      Settlement Class Counsel with the approval of the Court, and it shall
      include representatives of the public health community.  The Board shall
      be responsible for recommending and implementing guidelines and procedures
      for the administration of claims.  The Settlement Agreement does not
      specify any particular allocation of Settlement proceeds.  Settlement
      Class members will be given notice and an opportunity to be heard and
      make suggestions regarding allocation before any final allocation or
      distribution decisions are made.

     8.3. The Initial Notice, in a form to be approved by the Court, shall be
disseminated as provided in this Section 8 over the course of a period not to
exceed ninety (90) days from the Initial Notice Date, subject to approval by
the Court.

     8.4. At the end of each successive three-year interval during the term of
this Agreement ("Subsequent Notice Dates"), each Settling Defendant shall cause
notice of the settlement embodied herein (the "Subsequent Notice") to be given
to the members of the Settlement Class.

     8.5. Each Subsequent Notice, in a form to be approved by the Court, shall
be disseminated over the course of four periods each not to exceed sixty (60)
days from each applicable Subsequent Notice Date.

9. STATES' RIGHT OF EXCLUSION/INCLUSION.
   -------------------------------------


                                    -32-

<PAGE>   33

     A Settlement Class member that is a State may opt out at any time during
the thirty day period from the Initial Notice Date.  In order to exercise the
opt out right set forth in this Section 9, such State must complete and return
a request for exclusion in a form to be agreed upon by the Parties and approved
by the Court.  Such request must be postmarked on or before the end of the
thirty day period.  Any such State that has not so elected will be a Settlement
Class member for all purposes under this Agreement.  Any State that elects to
opt out of the Settlement Class pursuant to this Section 9 shall not be
entitled to relief under or be affected as to a Settling Defendant by this
Agreement.

10. MANDATORY CLASS CERTIFICATION AS TO LIGGETT.
    --------------------------------------------

     The mandatory certification of the Settlement Class under Rule 23(b)(1)(B)
and/or 23(b)(2) of the Alabama Rules of Civil Procedure is essential to the
ability of the Parties to perform the terms and conditions set forth in this
Settlement Agreement.  It is the intent and understanding of the Parties that
the undertakings of Liggett and Brooke Group as described in Section 5 of this
Settlement Agreement, with respect to Liggett's promotional, advertising,
marketing and sales practices in order to inform the Settlement Class and the
American public of the dangers of smoking and the addictive nature of nicotine,
to prevent sales of cigarettes to children and adolescents, and to provide
active and meaningful cooperation in the prosecution of smokers' claims against
Non-Settling Tobacco Companies constitute injunctive, equitable, and
declaratory relief of real, immediate, and ongoing benefit to the Settlement
Class and the public, sufficient to satisfy the criteria of mandatory class
certification under Rule 23.  The Parties shall cooperate in establishing, to
the satisfaction of the Court, the evidentiary predicates for the Court's
determination of a "limited fund" under Rule 23.  In the event the Settlement
Class is not certified under one or more of


                                    -33-

<PAGE>   34

these mandatory provisions, or is later decertified by the Court or on appeal,
Liggett and Brooke Group shall have the right and option to withdraw from this
Settlement Agreement.

11. FUTURE AFFILIATE.
    -----------------

     11.1. 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 11.

     11.2. (a) In the event of a Future Affiliate Transaction, the Settlement
Class shall not 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 engaged in Domestic Tobacco Operations.  The Settlement Class
reserves the right to seek to enjoin such a spinoff 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.

           (b) In the event of and after a Future Affiliate Transaction: (i) the
Settlement Class members each release (pursuant to, mutatis mutandis, Section
13.1 hereof) and covenant not to bring suit for any claim so released against
any Affiliate of the Future Affiliate, other than the Affiliate engaged in
Domestic Tobacco Operations; and (ii) if prior to the Future Affiliate
Transaction, a Settlement Class member shall have obtained a verdict or judgment
in an action, against an Affiliate (including the Parent) of the Future
Affiliate, other than against the Affiliate engaged in Domestic Tobacco
Operations, such Settlement Class member shall not seek to enforce such verdict
or judgment against any such Affiliate other than the Affiliate engaged in
Domestic Tobacco Operations.



                                    -34-

<PAGE>   35

     11.3. In the event a Settlement Class member obtains a verdict or judgment
against a Non-settling Tobacco Company in a Tobacco Action, and a Settling
Defendant commences a proxy contest or similar action seeking control of such
Non-settling Tobacco Company or an Affiliate thereof, then such Non-settling
Tobacco Company or an Affiliate thereof will not be required to post a
bond in order to stay enforcement of such verdict or judgment, and such
Settlement Class member will not seek to enforce such verdict or judgment
against such Non-settling Tobacco Company or such Affiliate, for a period of
the earlier of (i) one year from the commencement of such proxy contest or
action, and (ii) completion or resolution of the proxy or merger vote.

     11.4. In the event that subsequent to a Future Affiliate Transaction, and
in conformity with Section 17.2(b) hereof, a Settlement Class member obtains a
verdict or judgment against a Future Affiliate in an action, such Future
Affiliate will not be required to post a bond in order to stay enforcement of
such verdict or judgment, and such Settlement Class member will not seek to
enforce such judgment against such Future Affiliate or an Affiliate of such
Future Affiliate until the verdict or judgment becomes final and
non-appealable.

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




                                    -35-

<PAGE>   36

     11.6. With respect to subsections 11.1 - 11.5 above, nothing in these
provisions, or elsewhere in this Agreement, limits the authority of the
Settlement Class to challenge any transaction which they reasonably believe is
in violation of federal or state antitrust law.

     11.7. 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 6.3.2 hereof shall remain in effect with respect to Pretax
Income solely attributable to such separate entity.  In the event of 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 payment schedule to replace that set forth in Section 6.3.2.  Nothing
in this Section 17.7 affects in any way Liggett's payment obligations under
Section 7.3.1 hereof.

     11.8. Promptly after a Future Affiliate Transaction, a Future Affiliate
shall abide by Sections 5.4 - 5.7 hereof.

     11.9. Promptly after a Future Affiliate Transaction, Settling Defendants
and the Settlement Class Counsel, each agree to exercise best efforts to
negotiate in good faith a settlement of all claims against a Future Affiliate.

     11.10. As promptly as reasonably practicable after a Future Affiliate
Transaction, a Future Affiliate shall agree to eliminate cartoon characters
such as "Joe Camel," from all of its advertising and promotional materials and
activities with respect to tobacco products.



                                      -36-

<PAGE>   37

12. RELEASE.
    --------

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

     Provided, however, as follows:

     1) If this Agreement expires upon completion of its full term, this
release shall continue and apply in full force and effect with respect to all



                                      -37-

<PAGE>   38

released claims which accrued or shall accrue prior to, through and including
the date of such expiration, such that such claims shall be forever released,
but only as to such claims through and including such date; if this Agreement
terminates for any reason prior to its full term, this release shall be of no
further force and effect and Settling Defendants shall be entitled to a credit
to the extent otherwise provided in this Agreement against all claims covered
by the release for the full amount paid by such Settling Defendants hereunder.

     2) Except as specifically provided herein, this release does not pertain
or apply to any other existing or potential defendant in any present or future
action.

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

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

13. EXCLUSIVE REMEDY; DISMISSAL OF ACTION; JURISDICTION OF COURT.
    -------------------------------------------------------------

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



                                      -38-


<PAGE>   39

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

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

14. TERM.
    -----

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

     14.2. The performance of this Agreement by Liggett and Brooke Group is
expressly contingent upon the Court's issuance of the Mandatory Class Final
Order and Judgment.  If the Court fails to hold the Mandatory Class Fairness
Hearing within six (6) months of the date hereof or to issue a Mandatory



                                      -39-

<PAGE>   40

Class Final Order and Judgment within sixty (60) days following conclusion of
the Mandatory Class Fairness Hearing, Liggett and Brooke Group may elect to
terminate this Agreement by written notice to the Court and the Settlement
Class Counsel within twenty (20) business days following the end of either such
period.

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

15. CONTINUING ENFORCEABILITY.
    --------------------------

     15.1. The parties acknowledge and agree that the purpose of this Agreement
and the mandatory certification of the Settlement Class with respect to Liggett
and its Present Affiliates is to provide the Settlement Class with certain
equitable and other relief, and a secure and ongoing source of recovery,
subject to equitable allocation and distribution, while ensuring that Liggett
may make its payments hereunder without risking bankruptcy or other insolvency;
this Agreement is intended to be a mutually beneficial and equitable
alternative to the prospect of bankruptcy.

     15.2. Unless earlier terminated, as to the Settlement Class, 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 of the United States Code, or other proceeding
seeking to adjudicate it insolvent or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief or composition of
it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief or protection of debtors or other proceeding seeking
the entry of an order for relief or the appointment of a receiver, trustee,
custodian or other similar official for it or for any part of its property
(each, a "Bankruptcy Proceeding").  Brooke Group has




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<PAGE>   41

the right but not the obligation to cure and to perform any and all obligations
of Liggett under this Agreement notwithstanding the occurrence and continuation
of any Bankruptcy Proceeding with respect to Liggett; provided, however, that
until such time as Liggett decides whether to reject or assume this Agreement,
Brooke Group shall have the obligation to pay the annual installments as
provided by Section 7 hereof and any and all rights the Settlement Class may
have not to accept such cure or performance in any Bankruptcy Proceeding are
waived.

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

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

     16.2. Any Settlement Class member making a claim against a non-settling
person for what would be a claim settled under this Agreement if asserted
against a Settling Defendant shall indemnify and hold harmless each Settling
Defendant from any claim ever asserted against such Settling Defendant arising
from such claim.

     16.3. Claims by or on behalf of any Settlement Class members against any
non-settling parties are not released and shall not be barred,
precluded, limited, or reduced as a consequence of this Agreement or the



                                    -41-

<PAGE>   42


subsequent award and distribution of funds to such Settlement Class members
from the Settlement Fund, except if and to the extent required under federal or
state law applicable under choice-of-law doctrines in the forum in which any
such claims may be instituted or pursued.

17. EXPENSES AND FEES.
    ------------------

     17.1. Subject to Section 7.5 hereof, all reasonable and necessary expenses
incurred by the Board in administering, allocating and distributing the
Settlement Fund, and the costs of Initial and Subsequent Notices, shall be paid
by the Settling Defendants in addition to, and without reducing, their payments
into the Settlement Fund.

     17.2. In addition to the above described expenses of administration and
notice, the reasonable fees and expenses of the Settlement Class Counsel, if
and as approved by the Court, shall be paid by the Settling Defendants after
the Settlement Date separate and apart from, and in addition to, their initial
payments into the Settlement Fund.

     17.3. In the event of a failure by the Court to issue the Final Order and
Judgment or a decision by any Settling Defendant to exercise its right to
withdraw pursuant to Section 15 of this Agreement, the Settling Defendants will
bear, in accordance with the terms of this Agreement, the costs of the Initial
Notice incurred to such point (in the case of Brooke Group and Liggett not to
exceed a total of $1 million; provided that Brooke Group, Liggett and Plaintiffs
shall each have the right to terminate this Agreement in the event that the
Court orders Initial Notice costing in excess of $1 million, unless Brooke Group
and/or



                                    -42-

<PAGE>   43

Liggett and/or Plaintiffs and/or Settlement Class Counsel agree to pay such
excess.)

18. TAX STATUS OF SETTLEMENT FUND.
    ------------------------------

     18.1. 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 (the "IRC"), 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, subject to
Court approval, any changes to the Agreement which may be necessary to obtain
IRS approval of the Settlement Fund as a QSF.

     18.2. Representatives of the Settling States and the Settlement Class 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 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.




                                    -43-

<PAGE>   44

     18.3. 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.

19. COURT'S SETTLEMENT APPROVAL ORDER.
    ----------------------------------

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

20. EFFECT OF DEFAULT OF ANY SETTLING DEFENDANT.
    --------------------------------------------

     In the event any Settling Defendant fails to make a payment due and owing
under the terms of this Agreement, or is in default of this Agreement in any
other respect, the Settlement Class Counsel shall so notify the Court.  The
defaulting Settling Defendant shall then be given up to sixty (60) calendar
days to "cure" the default.  If the defaulting Settling Defendant does not
"cure" the default in the time provided in this Section 20, the Settlement
Class Counsel may apply to the Court for relief, including withdrawal from the
agreement.

21. REPRESENTATIONS AND WARRANTIES; COVENANTS.
    ------------------------------------------

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



                                    -44-

<PAGE>   45

Settling Defendant; and (iii) this Agreement has been duly and validly executed
and delivered by such Settling Defendant and constitutes its legal, valid and
binding obligation.

     21.2. Each Settling Defendant covenants and agrees for the benefit of the
Settlement Class that it will not enter into any transaction involving the
borrowing of funds in excess of $100 million unless such transaction is fair
from a financial perspective to the Settling Defendant and represents the
reasonable exercise of such Settling Defendant's business judgment.

22. ARBITRATION.
    ------------

     22.1. In the event that the Parties are unable to agree, after good faith
efforts, as to the determination or calculation of Pretax Income or Market
Share for any year hereunder, such determination or calculation shall be
submitted to binding arbitration under the supervision of the Court.

     22.2. The Settlement Class Counsel shall during the term of this Agreement
have the right, at its sole cost, to have an independent auditor review the
Settling Defendants' compliance with their payment obligations under this
Agreement; provided that any such review will not be binding upon such Settling
Defendants.

23. MOST FAVORED NATION.
    --------------------

     23.1. In the event of any Other Settlement with any Non-Settling Tobacco
Company, the payments due from each Settling Defendant in each year under this
Agreement shall be reduced to the extent, if any, necessary to ensure that such
payments are the lesser of (a) on a percentage of Pretax



                                    -45-

<PAGE>   46

Income basis, payments such that the percentage in each year of such Settling
Defendant's Pretax Income represented by such payments is no more than one-third
of the percentage in such year of such Non-Settling Tobacco Company's Pretax
Income represented by the product of (i) the average annual payments due from
such Non-Settling Tobacco Company under such Other Settlement and (ii) the
Population Quotient with respect to such Other Settlement and (b) on a Cost Per
Cigarette Pack basis, no more than the product of (i) one-third of the lowest
Cost Per Cigarette Pack due in such year from the Non-Settling Tobacco Companies
under such Other Settlement and (ii) the Population Quotient with respect to
such Other Settlement.  The Benchmark Figure set forth in this Section 23.1 does
not reflect in any fashion the Settlement Class's or Settlement Class Counsels'
views as to an appropriate settlement or resolution with any Non-Settling
Tobacco Company.

     23.2. In the event of the entry of any final monetary judgment (other than
by way of settlement) in a Tobacco Action, against any one or more of the
Non-Settling Tobacco Companies, then each Settling Defendant shall have the
right to reduce the payments it is obligated to make pursuant to this Agreement
to the extent, if any, necessary to make the sum of all amounts theretofore
paid and the then Present Value of all amounts thereafter payable
pursuant to this Agreement (assuming for purposes of such Present Value
calculation that the annual amounts due hereunder remain unchanged from the
then most recent fiscal year) by any Settling Defendant per percentage point of
the then Market Share of such Settling Defendant no more than the lesser of (a)
fifty (50%) of (i) the dollar amount of the product of (A) such judgment and
(B) the Population Quotient with respect to such judgment per (ii) percentage
point of the then Market Share of each such Non-Settling Tobacco Company and



                                    -46-

<PAGE>   47

(b) on a Cost Per Cigarette Pack basis, no more than the product of (i)
one-third of the lowest Cost Per Cigarette Pack due in each year from such
Non-Settling Tobacco Company under such judgment and (ii) the Population
Quotient with respect to such judgment; provided that such Settling Defendant
shall give written notice of such reduction and the method of calculating such
reduction to the Court and Settlement Class Counsel as soon as practicable
after the entry of such judgment.

     23.3. In each year beginning with the second year a Settling Defendant
becomes bound by this Agreement, the annual payment amount due under Section 7.3
of this Agreement from such 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.  Such Settling Defendant, as soon as
practicable after the end of such year, shall give written notice of any such
decrease or increase and the method of calculating it to the Court and
Settlement Class Counsel.

     23.4. The Plaintiffs, on behalf of themselves (upon the execution hereof)
and the Settlement Class (upon Preliminary Approval), Settlement Class Counsel,
and any attorneys or representatives of any of the foregoing, agree that for
the next fifteen (15) years neither the Plaintiffs, the Settlement Class, nor
any attorneys or representatives of the foregoing will, without the express
written



                                    -47-

<PAGE>   48

consent of Brooke Group (which may be withheld for any reason or for no
reason) discuss, negotiate, support, approve or enter into any agreement or
understanding with any creditor, claimant, trustee, receiver or other
party-in-interest, of Liggett, Brooke Group or any of their affiliates, other
than Brooke Group itself (collectively, "Prohibited Parties"), with respect to
any restructuring, liquidation or reorganization of Liggett, Brooke Group or
any of their affiliates, including with respect to any plan under Chapter 11 or
Chapter 7 of title 11, United States Code (the "Bankruptcy Code").

     23.5. The rights and remedies of each Settling Defendant under this
Section 23 are cumulative and not exclusive of each other and shall survive the
termination of this Agreement.

24. FURTHER ACTIONS.
    ----------------

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

25. MISCELLANEOUS.
    --------------

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

     25.2. This Agreement shall be construed under and governed by the laws of
the State of Alabama.




                                    -48-

<PAGE>   49

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

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

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

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

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

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

     Personal Injury Settlement Subclass Counsel
     -------------------------------------------




                                    -49-

<PAGE>   50

     Steven A. Martino
     JACKSON, TAYLOR, MARTINO, PC
     South Trust Bank Building
     61 St. Joseph St., Suite 1600
     Mobile, Alabama 33602

     Howard M. Acosta
     LAW OFFICES OF HOWARD M. ACOSTA
     300 First Avenue North
     St. Petersburg, Florida 33701

     Norwood S. Wilner
     SPOHRER WILNER MACIEJEWSKI &
     STANFORD P.A.
     444 E. Duval Street
     Jacksonville, Florida 32202


     Recoupment Settlement Subclass Counsel
     --------------------------------------

     Russell Jackson Drake
     COOPER MITCH
     505 20th Street North
     1100 Financial Center
     Birmingham, Alabama 35203-2605


     Brooke Group and Liggett
     ------------------------

     Mr. Bennett S. LeBow
     BROOKE GROUP LTD.
     100 S.E. Second Street
     Miami, Florida  33131


     Mr. Marc E. Kasowitz
     Mr. Daniel R. Benson
     KASOWITZ, BENSON, TORRES & FRIEDMAN LLP
     1301 Avenue of the Americas
     New York, New York  10019

     Mr. Michael L. Hirschfeld
     MILBANK, TWEED, HADLEY & MCCLOY
     1 Chase Manhattan Plaza
     New York, New York  10005-1413



                                    -50-

<PAGE>   51

     The above designated representatives may be changed  from time to time by
any Party upon giving notice to all other Parties in conformance with this
Section 24.8.

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




                                      -51-

<PAGE>   52

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


                                     SETTLEMENT CLASS COUNSEL




                                     BROOKE GROUP LTD.

                                     By:
                                        ----------------------------------
                                        Bennett S. LeBow


                                     Date:




                                     LIGGETT GROUP INC.


                                     By:
                                        -----------------------------------
                                        Bennett S. LeBow

                                     Date:


                                      -52-