North Carolina Judge Halts 2004 Phase II Payment

Virginia Phase II Board Appeals Ruling

RICHMOND (December 23, 2004) - The Virginia Tobacco Certification Board, Inc., a private corporation that administers the National Tobacco Grower Settlement Trust in Virginia, today joined with its counterparts in thirteen other tobacco-growing states to notice its appeal of a ruling that frees cigarette manufacturers from making their 2004 contribution to the Trust.

On December 22, 2004, Judge Ben Tennille of the North Carolina Superior Court ruled that the three major cigarette manufacturers are not required to pay several hundred million dollars in funds otherwise due to be paid in 2004 to the Trust, commonly referred to as the Phase II Trust.

The Phase II Trust was created as part of the national tobacco litigation settlement to aid tobacco growers and quota holders in the 14 tobacco-growing states. In 2003, the Phase II Trust made payments to more than 340,000 tobacco growers and quota holders around the country, with over 42,000 payments made to Virginia recipients.

In an agreement signed in 1999, the three companies, Philip Morris Inc., R.J. Reynolds Tobacco Company, and Lorillard Tobacco Company, pledged to deposit a Base Payment in 2004 totaling up to $500 million. That payment, as adjusted, was scheduled to exceed $422 million. On October 22, 2004, President Bush signed the Fair and Equitable Tobacco Reform Act, commonly known as the tobacco quota buyout law. The tobacco companies argued that the buyout barred their obligation to make further Phase II payments.

North Carolina appellate courts are expected to review the merits of the appeal in 2005. Because Judge Tennille stayed release of the Phase II Trust funds pending appeal, there will be no Phase II payments in 2004 unless and until Judge Tennille’s decision is overturned in the courts.