EXPLANATION – Matter in bolded italics is new; matter between brackets [omitted material] is material to be omitted. Green numbers along left margin indicate location on the printed bill (e.g., 5-15 indicates page 5, line 15).

1-1 Section 1. 1. Cigarette smoking presents serious public health

1-16 state by cigarette smoking be borne by tobacco product manufacturers

2-1 rather than by the state to the extent that such manufacturers either

2-2 determine to enter into a settlement with the state or are found culpable by

2-3 the courts.

2-4 5. On November 23, 1998, leading United States tobacco product

2-5 manufacturers entered into a settlement agreement, entitled the "Master

2-6 Settlement Agreement," with the state. The Master Settlement Agreement

2-7 obligates these manufacturers, in return for a release of past, present and

2-8 certain future claims against them as described therein, to pay substantial

2-9 sums to the state (tied in part to their volume of sales); to fund a national

2-10 foundation devoted to the interests of public health; and to make substantial

2-11 changes in their advertising and marketing practices and corporate culture,

2-12 with the intention of reducing underage smoking.

2-13 6. It would be contrary to the policy of the state if tobacco product

2-14 manufacturers who determine not to enter into such a settlement could use a

2-15 resulting cost advantage to derive large, short-term profits in the years

2-16 before liability may arise without ensuring that the state will have an

2-17 eventual source of recovery from them if they are proven to have acted

2-18 culpably. It is thus in the interest of the state to require that such

2-19 manufacturers establish a reserve fund to guarantee a source of

2-20 compensation and to prevent such manufacturers from deriving large, short-

2-21 term profits and then becoming judgment-proof before liability may arise.

2-22 Sec. 2. Title 32 of NRS is hereby amended by adding thereto a new

2-23 chapter to consist of the provisions set forth as sections 3 to 18, inclusive,

2-24 of this act.

2-25 Sec. 3. As used in sections 3 to 18, inclusive, of this act, the words

2-26 and terms defined in sections 4 to 14, inclusive, of this act have the

2-27 meanings ascribed to them in those sections.

2-28 Sec. 4. "Adjusted for inflation" means increased in accordance with

2-29 the formula for inflation adjustment set forth in Exhibit C to the Master

2-30 Settlement Agreement.

2-31 Sec. 5. "Affiliate" means a person who directly or indirectly owns or

2-32 controls, is owned or controlled by, or is under common ownership or

2-33 control with, another person. Solely for the purposes of this definition,

2-34 the terms "owns," "is owned" and "ownership" mean ownership of an

2-35 equity interest, or the equivalent thereof, of ten percent or more, and the

2-36 term "person" means an individual, partnership, committee, association,

2-37 corporation or any other organization or group of persons.

2-38 Sec. 6. "Allocable share" has the meaning ascribed to it in section

2-39 II(f) of the Master Settlement Agreement.

2-40 Sec. 7. "Cigarette" means any product that contains nicotine, is

2-41 intended to be burned or heated under ordinary conditions of use, and

2-42 consists of or contains:

3-1 1. Any roll of tobacco wrapped in paper or in any other substance

3-2 not containing tobacco;

3-3 2. Tobacco, in any form, that is functional in the product, which

3-4 because of its appearance, the type of tobacco used in the filler, or its

3-5 packaging and labeling, is likely to be offered to or purchased by

3-6 consumers as a cigarette; or

3-7 3. Any roll of tobacco wrapped in any substance containing tobacco

3-8 which, because of its appearance, the type of tobacco used in the filler, or

3-9 its packaging and labeling, is likely to be offered to or purchased by

3-10 consumers as a cigarette described in subsection 1.

3-11 The term includes "roll-your-own" tobacco, that is, any tobacco which

3-12 because of its appearance, type, packaging or labeling is suitable for use

3-13 and likely to be offered to or purchased by consumers as tobacco for

3-14 making cigarettes. For the purposes of this section, 0.09 ounces of "roll-

3-15 your-own" tobacco constitutes one individual cigarette.

3-16 Sec. 8. "Manufacturer of tobacco products" means an entity that,

3-17 after the effective date of this act, directly, and not exclusively through an

3-18 affiliate:

3-19 1. Manufactures cigarettes anywhere that such manufacturer intends

3-20 to be sold in the United States, including cigarettes intended to be sold in

3-21 the United States through an importer (except where such importer is an

3-22 original participating manufacturer, as that term is defined in the Master

3-23 Settlement Agreement, that will be responsible for the payments under

3-24 the Master Settlement Agreement with respect to such cigarettes as a

3-25 result of the provisions of subsection II(mm) of the Master Settlement

3-26 Agreement and that pays the taxes specified in subsection II(z) of the

3-27 Master Settlement Agreement, and provided that the manufacturer of

3-28 such cigarettes does not market or advertise such cigarettes in the United

3-29 States);

3-30 2. Is the first purchaser anywhere for resale in the United States of

3-31 cigarettes manufactured anywhere that the manufacturer does not intend

3-32 to be sold in the United States; or

3-33 3. Becomes a successor of an entity described in subsection 1 or 2.

3-34 The term does not include an affiliate of a manufacturer of tobacco

3-35 products unless the affiliate itself is an entity described in subsection 1, 2

3-36 or 3.

3-37 Sec. 9. "Master Settlement Agreement" means the settlement

3-38 agreement, and related documents, entered into on November 23, 1998,

3-39 by this state and leading United States manufacturers of tobacco

3-40 products.

3-41 Sec. 10. "Participating manufacturer" has the meaning ascribed to

3-42 it in section II(jj) of the Master Settlement Agreement.

4-1 Sec. 11. "Qualified escrow fund" means an escrow arrangement

4-2 with a federally or state-chartered financial institution, that has no

4-3 affiliation with any manufacturer of tobacco products and has assets of

4-4 at least $1 billion where the arrangement requires the financial

4-5 institution to hold the principal of the amount deposited in escrow for the

4-6 benefit of releasing parties and prohibits the manufacturer of tobacco

4-7 products which deposits the money from using, having access to or

4-8 directing the use of the principal of the amount deposited except as

4-9 permitted under section 17 of this act.

4-10 Sec. 12. "Released claims" has the meaning ascribed to it in section

4-11 II(nn) of the Master Settlement Agreement.

4-12 Sec. 13. "Releasing parties" has the meaning ascribed to it in

4-13 section II(pp) of the Master Settlement Agreement.

4-14 Sec. 14. "Units sold" means, with respect to a particular

4-15 manufacturer of tobacco products for a particular year, the number of

4-16 individual cigarettes sold in this state by the manufacturer directly or

4-17 through a distributor, retailer or similar intermediary or intermediaries

4-18 during that year, as measured by excise taxes collected by the state on

4-19 packs, or containers of "roll-your-own" tobacco, bearing the excise

4-20 stamp of this state.

4-21 Sec. 15. The department of taxation shall adopt such regulations as

4-22 are necessary to ascertain the amount of excise tax collected by the state

4-23 on the cigarettes of each manufacturer of tobacco products for each

4-24 year.

4-25 Sec. 16. A manufacturer of tobacco products that sells cigarettes to

4-26 consumers in this state, directly or through a distributor, retailer or

4-27 similar intermediary or intermediaries, after the effective date of this act

4-28 shall do one of the following:

4-29 1. Become a participating manufacturer and generally perform its

4-30 financial obligations under the Master Settlement Agreement; or

4-31 2. Deposit into a qualified escrow fund, on or before April 15 of the

4-32 year following the year in question, the following amounts as such

4-33 amounts are adjusted for inflation:

4-34 (a) For the year 1999, $0.0094241 for each unit sold after the effective

4-35 date of this act;

4-36 (b) For the year 2000, $0.0104712 for each unit sold;

4-37 (c) For each of the years 2001 and 2002, $0.0136125 for each unit

4-38 sold;

4-39 (d) For each of the years 2003 through 2006, $0.0167539 for each

4-40 unit sold; and

4-41 (e) For each of the year 2007 and each year thereafter, $0.0188482

4-42 for each unit sold.

5-1 Sec. 17. A manufacturer of tobacco products that deposits money

5-2 into escrow pursuant to subsection 2 of section 16 of this act shall receive

5-3 the interest or other appreciation on the deposit as earned. The principal

5-4 of the deposit may be released from escrow only under the following

5-5 circumstances:

5-6 1. To pay a judgment or settlement on a released claim brought

5-7 against that manufacturer by this state or by a releasing party located or

5-8 residing in this state. Money may be released from escrow under this

5-9 subsection only in the order in which it was deposited into escrow and

5-10 only to the extent and at the time necessary to make payments required

5-11 under the judgment or settlement.

5-12 2. To the extent that the manufacturer establishes that the amount it

5-13 was required to deposit into escrow in a particular year was greater than

5-14 this state’s allocable share of the total payments that the manufacturer

5-15 would have been required to make in that year under the Master

5-16 Settlement Agreement if the manufacturer had been a participating

5-17 manufacturer, as such payments are determined pursuant to section

5-18 IX(i)(2) of that agreement and before any of the adjustments or offsets

5-19 described in section IX(i)(3) of that agreement other than the inflation

5-20 adjustment, the excess must be released from escrow and revert to the

5-21 manufacturer.

5-22 3. To the extent not released from escrow under subsection 1 or 2,

5-23 deposits must be released from escrow and revert to the manufacturer 25

5-24 years after the date on which they were deposited.

5-25 Sec. 18. 1. A manufacturer of tobacco products that elects to

5-26 deposit money into escrow pursuant to subsection 2 of section 16 of this

5-27 act shall annually certify to the attorney general that it is in compliance

5-28 with that subsection and with section 17 of this act. If the attorney

5-29 general does not receive the annual certification, he shall mail a notice to

5-30 the manufacturer. The attorney general may maintain a civil action on

5-31 behalf of this state against any manufacturer of tobacco products which

5-32 fails to deposit into escrow the amount required by section 16 of this act.

5-33 2. A manufacturer of tobacco products that fails in any year to place

5-34 into escrow the money required under section 16 of this act shall:

5-35 (a) Be required within 15 days to place such money into escrow as

5-36 shall bring it into compliance with section 16 of this act. The court, upon

5-37 a finding of a violation of subsection 2 of section 16 or section 17 of this

5-38 act, may impose a civil penalty to be paid to the state general fund in an

5-39 amount not to exceed 5 percent of the amount improperly withheld from

5-40 escrow per day of the violation and in a total amount not to exceed 100

5-41 percent of the original amount improperly withheld from escrow.

5-42 (b) In the case of a knowing violation, be required within 15 days to

5-43 place such money into escrow as shall bring it into compliance with this

6-1 section. The court, upon a finding of a knowing violation of subsection 2

6-2 of section 16 or section 17 of this act, may impose a civil penalty to be

6-3 paid to the state general fund in an amount not to exceed 15 percent of

6-4 the amount improperly withheld from escrow per day of the violation and

6-5 in a total amount not to exceed 300 percent of the original amount

6-6 improperly withheld from escrow.

6-7 (c) In the case of a second knowing violation, shall be prohibited from

6-8 selling cigarettes to consumers in this state, directly or through a

6-9 distributor, retailer or similar intermediary, for a period to be fixed by the

6-10 court not to exceed 2 years.

6-11 3. Each failure to make an annual deposit required by section 16 of

6-12 this act constitutes a separate violation.

6-13 Sec. 19. This act becomes effective upon passage and approval.