STATE AG WARNS LORILLARD ABOUT NON-PAYMENT

Owes $28 Million to Anti-Smoking Foundation

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WASHINGTON (AdAge.com) -- The attorney general of Vermont today warned Lorillard Tobacco Co. that its decision to withhold a $28.4 million scheduled payment to fund an anti-tobacco ad program from an anti-smoking group could be challenged by other state attorneys general.

"I very much doubt that [the National Association of Attorneys General] will sit on its hands," said Vermont Attorney General Bill Sorrell, who heads the association's tobacco committee and also sits on the board of the anti-smoking group, the American Legacy Foundation.

$28.4 million
The $28.4 million includes a

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$25.9 million payment that may be the last of Lorillard's payments to fund the foundation's "Truth" anti-smoking ad campaign and an additional $2.4 million to fund the foundation's work. The latter payment will continue.

Mr. Sorrell said the proper way to resolve Lorillard's contention that some of American Legacy's ads illegally vilified tobacco makers is in court, not by withholding money. He said the payments are due March 31 and attorneys general are likely to act quickly if no payment is made.

Lorillard said it will keep the money in an escrow account until a Delaware Chancery Court rules on Lorillard's contention that some of the foundation's "Truth" campaign ads violated specific language in the Master Settlement Agreement it signed with state attorneys general.

The 1998 agreement, which settled 46 state class action lawsuits against tobacco companies, prohibits the vilification of tobacco makers in ad campaigns.

'Clearly' vilify company
"Our assertion from the beginning is that [American Legacy] should not be allowed to vilify and attack tobacco companies or our employees as some of their ads clearly do," said Ronald S. Milstein, vice president and general counsel of Lorillard.

The foundation's president-CEO, Cheryl Healton, said she was "outraged" by Lorillard's action.

Havas's Arnold Worldwide, Boston, and Maxxcom-backed Crispin Porter & Bogusky, Miami, handle the foundation's advertising duties.

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