SMALL AGREEMENT NO SURE SIGN IN TOBACCO CASE

The latest, if minor, tobacco settlement between state lawyers and a small
part of the tobacco industry might seem as if it would bode well for a more
encompassing agreement between the two sides, that this baby step might lead
to a big one.

But people involved, including the attorney general, say that yesterday's $2
million settlement with the smallest of five tobacco companies - U.S.
Tobacco - does not serve as a blueprint for a bigger deal with major
companies.

"We won't be celebrating until the big ones are down," said Mark Funk, who,
as a spokesman for the Washington Alliance on Tobacco Control and Children's
Health, keeps close tabs on the trial.

The issues surrounding the smokeless tobacco industry are far less
complicated than those of the cigarette industry - relatively speaking they
are almost unrelated - and a settlement was easier to come by, lawyers said.
In fact, the talks with U.S. Tobacco took place at separate tables from
talks with the other companies.

U.S. Tobacco, maker of Skoal smokeless tobacco, cut the deal with state
Attorney General Christine Gregoire in talks in New York as lawyers
continued to press their antitrust and consumer-fraud case against the other
tobacco companies in a King County courtroom. The state is seeking $2.2
billion to recover the costs of treating sick tobacco users, a price tag
that could double if the jury exacts stiff penalties.

The Smokeless Tobacco Council, a small industry group, also was part of the
settlement and was dismissed from the King County lawsuit.

Gregoire said the snuff maker's agreement to pay legal costs is an indicator
that things are going well in the jury trial, which heard its first witness
Thursday. "U.S. Tobacco has done the responsible thing in agreeing to this
settlement, but I also think it is a recognition that we have a good case
and a good jury for this trial," Gregoire said. "That's one tobacco company
down and four to go."

Gregoire also said the $2 million was termed "legal costs" because U.S.
Tobacco does not want to be named in future lawsuits. By calling the $2
million a penalty, it would suggest the company is liable and can be sued.

The settlement was approved by Superior Court Judge George Finkle yesterday;
attorneys met with him during what was an off-day for the trial. In the
settlement, Gregoire said she secured public-health terms similar to
settlements won by Florida and Texas, two states that settled their lawsuits
with U.S. Tobacco and the four major cigarette companies.

Under the agreement, U.S. Tobacco will:

- -- Discontinue all billboard and transit advertising.

- -- Refrain from opposing legislation that would ban tobacco vending machines
in all but adult-only facilities.

- -- Refrain from opposing legislation strengthening civil penalties for sale
of tobacco to minors.

The settlement is limited only to Washington state's allegations against
U.S. Tobacco, and Gregoire said that while this smaller agreement is a good
win for her and her team of negotiators, there still are three "major
issues" standing in the way of a nationwide settlement in her talks with
Philip Morris and Lorillard. The nationwide talks are continuing in the
Manhattan skyscraper headquarters of a New York law firm - though without
R.J. Reynolds and Brown & Williamson, the nation's second- and third-largest
tobacco companies. They dropped out of those talks in August.

Washington officials remain optimistic about a national settlement, and
after two days of talks, Gregoire was prepared to work through the weekend
rather than return to the state as earlier planned.

"They're making some progress," said Fred Olson, director of administration
for Gregoire. "The real issue is the complexity of this agreement. It is not
that they've been at loggerheads over issues. These certainly are complex
issues."

Gregoire said she is optimistic because most of the issues the two sides
tackle are resolved in some way; some simply take longer than others. As it
stands, "it depends on how well we can finish the drafting." Gregoire would
not elaborate on what the three issues are except to say that they are
"transactional" and "non-economic" and that there still "isn't a meeting of
the minds."

The advantage of settling with the tobacco industry, Gregoire says, is that
it can offer gains that are not economic, such as limits on advertising and
establishing a code of conduct, that a jury could never award. "We are
trying . . . to establish a code of conduct that will stand the test of
time," Gregoire said.

The nationwide talks are far more scaled back than the proposed $368.5
billion settlement of June 1997 that required approval by Congress. That
deal collapsed when congressional committees attempted to change the deal,
the tobacco industry balked and the U.S. Senate rejected a national plan.

Gregoire is leading the effort of 38 states seeking at least what was won in
the June 1997 deal: a $196 billion payout - the portion of the $368.5
billion designated for the states. Of that, Washington state would get at
least $143 million a year, or $3.58 billion over 25 years. Gregoire said she
thinks the two sides are close on monetary damages. A Wall Street analyst
estimates the industry has offered close to what the states are asking; the
money would come from a 35-cent-a-pack price increase.

U.S. Tobacco was a smaller player in the scheme alleged in the state's
lawsuit, said John Hough, a top administrator for Gregoire. Washington
alleged that U.S. Tobacco was a co-conspirator to keep secret the dangers of
smoking and a participant in the creation of the Tobacco Institute, which
lawyers say was a front organization to spread misinformation. As a maker of
smokeless snuff, U.S. Tobacco products are associated with mouth and throat
cancer. The amount of Medicare damages the state alleges U.S. Tobacco caused
is small in comparison to the amount sought from other companies being
sued - Philip Morris, R.J. Reynolds, Brown & Williamson and Lorillard.

Checked-by: Don Beck