ATTORNEYS GENERAL SETTLEMENT AGREEMENT

This SETTLEMENT AGREEMENT is entered into this 20th day of March, 1997 by and among the States listed in Appendix A hereto (collectively, "Plaintiffs") and Brooke Group Ltd., a Delaware corporation ("Brooke Group"), Liggett & Myers Inc., a Delaware corporation ("Myers"), and Liggett Group, Inc., a Delaware corporation (which, with Myers, is hereinafter referred to as Liggett).

RECITALS

WHEREAS,

A. The Plaintiffs, by and through their respective Attorneys General (the "Attorneys General"), have brought [or are contemplating bringing] civil actions ("Actions") in various jurisdictions across the nation ("Actions") against, among others, the American Tobacco Company, Inc., BAT industries, PLC, British American Tobacco Company, R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco Corporation, Philip Morris, Inc., Liggett & Myers, Inc., Lorillard Tobacco Company, Inc., and United States Tobacco Company and their various parent and related companies ("Defendants"), asserting claims for, among other things, expenses allegedly arising from tobacco-related matters and injunctive relief concerning sales of cigarettes to minors.

B. Because of the importance of the agreements and undertakings by Liggett and Brooke Group herein to the goals of the Plaintiffs and the Attorneys General, including the prosecution of the Actions against non-settling defendants, Plaintiffs have agreed to extend financial settlement terms to Liggett and Brooke Group which will not be offered to any other defendants, all as set forth in this settlement agreement.

C. On March 15, 1996, the Commonwealth of Massachusetts, the State of Florida, the State of Louisiana, the State of Mississippi and the State of West Virginia and the Liggett and Brooke Group entered into a settlement (the Initial Settlement") of the Actions brought by the foregoing States, pursuant to which Liggett agreed to make certain payments, comply with certain proposed regulations restricting the marketing and sale of cigarettes to minors and to offer certain cooperation in connection with the prosecutions of such Actions against the other Defendants; all in accordance with the terms of the Initial Settlement, a copy of which is annexed hereto as Appendix B.

D. The Attorneys General, the Initial Settling States and Liggett and Brooke Group wish to expand upon the Initial Settlement, through this Settlement Agreement to cover all of the Actions and to provide for, among other things, significantly greater cooperation by the Settling Defendants with the Attorneys General, all in accordance with the terms of this Settlement Agreement.

E. The Attorneys General acknowledge and agree that this Settlement Agreement, including the cooperation provisions thereof, are important to the prosecutions of their Actions against the non-settling Defendants.

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

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

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

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

1. Definitions.

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

"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 Class Action Court of 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. With respect to the Settlement Fund, in the event that the Settling States and the Settlement Class, and/or their respective counsel, cannot agree on an allocation of the Settlement Fund between the Settling States and the Settlement Class, the Settling States and the Settlement Class will petition the Court for appointment of an arbitrator. In so doing, the parties do not consent, nor should it be inferred, that the Multidistrict Litigation Panel has jurisdiction over any of the parties.

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

"Attorney General Actions" or "Actions" means the actions listed in Appendix A hereto, including those actions brought on behalf of the State as taxpayer actions.

"Attorney General Settlement Fund Board" or "Attorney General Board" means, the entity established pursuant to Section 5 of the Initial Settlement.

"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 described in subparagraph (1).

"Cigarette Pack" means a unity of twenty Cigarettes or one ounce of Tobacco Snuff, or any other similar method of delivery to consumers.

"Cost Per Cigarette Pack" means, with respect to a Tobacco Company, the aggregate costs incurred by such Tobacco Company under a Global Settlement during the 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 of a similar or successor report.

"Defendants" means The American Tobacco Company, Inc., BAT Industries, PLC., British American Tobacco Company, R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco Corporation, Philip Morris, Inc., Liggett & Myers, Inc., Lorillard Tobacco Company, Inc., and United States Tobacco Company and their various parent and related companies.

"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 on August 28, 1996 concerning the sale and distribution of cigarettes and other products at 60 Fed. Reg. 44396, to be codified at 21 C.F.R. Parts 801, 803, 804, 807, 820, and 827.

"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 of Brooke Group; (ii) directly or indirectly acquires all or substantially all of the stock or assets of the Liggett or Brooke Group; (iii) all or substantially all of whose stock or assets are directly or indirectly acquired by Liggett of Brooke Group; or ((iv) directly or indirectly merges 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 one or more Tobacco Companies receive the benefit of a limitation of, or total or partial immunity from, liability to plaintiffs for the types of claims released under the terms of this Agreement.

"Initial Settlement" means the settlement agreement entered into by the initial Settling States and the Settling Defendants on March 15, 1996.

"Initial Settling States" means the States of Mississippi, West Virginia, Florida, and Louisiana, the Commonwealth of Massachusetts, and the respective Attorneys General thereof.

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

"Mandatory Class Settlement Agreement" of "Mandatory Class Agreement" means the Agreement entered into on or about March 20, 1997 between Brook Group and Liggett and a nationwide class.

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

"Mandatory Settlement Class" means the Settlement Class defined in the Mandatory Class Agreement.

"Mandatory Class Settlement Date" means the date on which all of the following shall have occurred: (a) the entry of the Mandatory Class Final Order and Judgment without material modification, and (b) the achievement of the 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 Defendant and a specified year, the Domestic Tobacco Operations market share in that year of all of such Defendant's cigarettes and other tobacco products, as determined by The Maxwell Consumer Report published by Wheat First Butcher Singer or a similar or successor report.

"Medicaid Population" means, with respect to a Settling State and a specified data, the Medicaid population of such Settling State as reported by the most recent United States Census.

"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 settlement of an 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 Defendants under Section 4.3.1 and 4.3.2 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.

"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.

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

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

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

"Settlement Class" means the settlement class provided for in the Mandatory Class Agreement.

"Settlement Class Counsel" means the firms listed as Settlement Class Counsel in Section 25.8 of the Mandatory Class Settlement Agreement.

"Settlement Fund" means the fund established in accordance with the terms of Section 6 of this Agreement, which shall be established in a reputable bank or other financial institution, to provide a secure and interest-bearing fund, and which shall be jointly controlled by the Settling States and the Mandatory Settlement Class.

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

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

"Settling States" means the States listed in Appendix A hereto and Subsequent Settling States, if any.

"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.

"Subsequent Settling States" means States other than the States listed in Appendix A hereto which commence an Attorney General Action and which execute this Agreement within six months from the date of this Agreement (unless such six-month period is extended or reopened at the option of the Settling Defendants).

"Tobacco Companies" means Defendants.

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

2. Settlement Purposes Only.

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

3. Parties.

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

3.2 No Settling Defendant shall sell, use, dispose or transfer substantially all of its cigarette brands or businesses without first causing the acquirer, on behalf of itself and its successors, to be bound by all of the obligations of a Settling Defendant pursuant to Sections 4.2 and 4.4 through 4.8 hereunder as to such transferred brands or businesses; provided that this Section 3.2 shall not apply to the extent such sale, disposition or transfer is required by the Federal Trade Commission, Department of Justice, State Attorney General or court order.

4. Public Statement; Cooperation; Advertising Limitations.

5. Global Settlement.

6. Settlement Fund.

7. Release.

8. Exclusive Remedy; Dismissal of Action; Jurisdiction of Court.

9. Term.

10. Continuing Enforceability

Unless earlier terminated, as to the Settling States, this Agreement and each provision of or obligation arising from this Agreement shall continue and remain fully executory and enforceable if a Settling Defendant institutes or is subject to the institution against it of any proceeding or voluntary case under title 11, United States Code, or other proceeding seeking to adjudicate it insolvent or seeking liquidation, winding up, reorganization, arrangement adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief or protection of debtors or other proceeding seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any part of its property (each, a "Bankruptcy Proceeding"). The Settling States acknowledge and agree that Brooke Group has 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 in Section 6.3.2 hereof, and so long as the Brooke Group is paying all amounts due hereunder and so such payments are voidable, then the Settling States waive any and all rights they may have not to accept such cure or performance in any Bankruptcy Proceeding.

11. Entry of Good Faith Bar Order on Contribution and Indemnity Claims

12. Tax Status of Settlement Fund

13. Effect of a Default of Settling Defendant

In the event a Settling Defendant fails to make a payment due and owing under the terms of this Agreement, or is in default of this Agreement in any other respects, Plaintiffs’ Counsel shall so notify the defaulting Settling Defendant, which shall then be given 60 calendar days to "cure" the default. If the defaulting Settling Defendant does not "cure" the default in the time provided in this Section 13, Plaintiffs’ Counsel may apply to the Court for relief, in addition to any other remedies it may have hereunder.

14. Representations and Warranties.

15. Arbitration

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

16. Most Favored Nation

17. Future Affiliate

18. Miscellaneous

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

BROOKE GROUP LTD

By Bennett S. LeBow

LIGGETT GROUP, INC.

By Bennett S. LeBow

Signed, 3/20/97

KASOWITZ, BENSON, TORRES & FRIEDMAN

Marc E. Kasowitz

Signed, 3/20/97

Attorneys for BROOKE GROUP LTD. and LIGGETT GROUP, INC.

STATE OF ARIZONA

Grant Woods, Attorney General

Signed, 3/20/97

STATE OF CONNECTICUT

Richard Blumenthal, Attorney General

Signed, 3/20/97

STATE OF HAWAII

Margery Bronster, Attorney General

Signed, 3/20/97

STATE OF ILLINOIS

Jim Ryan, Attorney General

Signed, 3/20/97

STATE OF INDIANA

Jeffrey Modisett, Attorney General

Signed, 3/20/97

STATE OF IOWA

Tom Miller, Attorney General

Signed, 3/20/97

STATE OF KANSAS

Carla Stovall, Attorney General

Signed, 3/20/97

STATE OF MARYLAND

J. Joseph Curran, Attorney General

Signed, 3/20/97

STATE OF MICHIGAN

Frank Kelley, Attorney General

Signed, 3/20/97

STATE OF MINNESOTA

Hubert H. Humphrey, III, Attorney General

Signed, 3/20/97

STATE OF NEW JERSEY

Peter Verniero, Attorney General,

Signed, 3/20/97

STATE OF NEW YORK

Dennis Vacco, Attorney General

Signed, 3/20/97

STATE OF OKLAHOMA

Drew Edmondson, Attorney General

Signed, 3/20/97

STATE OF TEXAS

Dan Morales, Attorney General

Signed, 3/20/97

STATE OF UTAH

Jan Graham, Attorney General

Signed, 3/20/97

STATE OF WASHINGTON

Christine Gregoire, Attorney General

Signed, 3/20/97

STATE OF WISCONSIN

Jim Doyle, Attorney General

Signed, 3/20/97