6141 - NOTICE OF TRANSACTION INVOLVING DEFENDANTS R. J. REYNOLDS TOBACCO COMPANY AND LORILLARD TOBACCO COMPANY 4/7/15

May 11, 2015 1:04 pm by Gene Borio

The PDF is Here

EXCERPT:

[RJRT and LTC] have agreed to participate in a transaction that, as described below, will ultimately result in one Defendant-LTC-merging into another Defendant-RJRT. Set forth below are (A) a description of the transaction, (B) a brief explanation for why, in accordance with the terms described below, RJRT and LTC do not believe that this transaction requires this Court’s approval . . . the Government stated that “the United States is generally willing to accept [RJRT and Lorillard’s] representations,” but requested “that RJRT and Lorillard provide similar explanations and representations directly to the Court.” This Notice fulfills that request. Defendants have consulted with Plaintiffs, who have authorized RJRT and Lorillard to state that, based on the representations made in RJRT and Lorillard’s January 29 letter and set out herein, the United States and Intervenors concur that Court approval is not required under Paragraph 20 of Order #1015.

END EXCERPT

FULL TEXT:

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

UNITED STATES OF AMERICA,

Plaintiff,

v.

PHILIP MORRIS USA INC., et al.,

Defendants.

Civil Action No. 99-2496 (GK)

Next Scheduled Court Date:
None

NOTICE OF TRANSACTION INVOLVING DEFENDANTS R. J. REYNOLDS TOBACCO COMPANY AND LORILLARD TOBACCO COMPANY

Defendants R. J. Reynolds Tobacco Company (”RJRT”) and Lorillard Tobacco Company (”LTC”) hereby give notice that Reynolds American Inc. (”RAI”), indirect parent of Defendant RJRT, Lantern Acquisition Co. (”LAC”), a direct, wholly owned subsidiary of RAI, and Lorillard, Inc. (”Lorillard”), direct parent of Defendant LTC, have agreed to participate in a transaction that, as described below, will ultimately result in one Defendant-LTC-merging into another Defendant-RJRT.
Set forth below are (A) a description of the transaction, (B) a brief explanation for why,

in accordance with the terms described below, RJRT and LTC do not believe that this transaction requires this Court’s approval under Paragraph 20 of Order #1015, and (C) a summary of the understanding of all parties with regard to the position advocated by RJRT and Lorillard. The representations in (A) and (B) below are substantively identical to those contained in counsel for

RJRT’s January 29, 2015, letter to counsel for the United States and Intervenors (collectively, “Plaintiffs”), attached as Exhibit 1.1
Based on these representations, in a letter dated February 13, 2015, and attached hereto as Exhibit 2, the Government stated that “the United States is generally willing to accept [RJRT and Lorillard’s] representations,” but requested “that RJRT and Lorillard provide similar
explanations and representations directly to the Court.” This Notice fulfills that request. Defendants have consulted with Plaintiffs, who have authorized RJRT and Lorillard to state that, based on the representations made in RJRT and Lorillard’s January 29 letter and set out herein, the United States and Intervenors concur that Court approval is not required under Paragraph 20 of Order #1015.
In conjunction with this Notice, Defendants RJRT and LTC state as follows:

The Transaction

The terms of the merger of LAC and Lorillard are set forth in the Agreement and Plan of Merger and Asset Purchase Agreement. These documents, however, do not describe the details of how various corporate entities will be structured after LAC is merged with and into Lorillard, since that is not the purpose of those agreements. Consequently, set forth below is a description of how the corporate entities will be structured after the closing of the merger of LAC with and into Lorillard.

The only difference between the representations set forth herein and the representations in RJRT’s January 29 letter is that, when Lorillard converts to an LLC, as discussed in the paragraph immediately below the graphic on page 4, it will take the name Lorillard Tobacco Company, LLC, rather than Lorillard Tobacco LLC, as referenced in the graphic on page 4 of Exhibit I.

2

Current Structure

In order to understand the post-transaction structure, it is useful to understand how the relevant corporate entities are currently structured. Currently, RJRT, a Defendant in this litigation, is a direct, wholly-owned subsidiary of R.J. Reynolds Tobacco Holdings, Inc. (”RJRH”), which is itself a direct, wholly-owned subsidiary of RAI. Neither RAI nor RJRH is a Defendant in this litigation or directly subject to Order #1015.
Defendant RJRT has several subsidiaries listed in Order #13-Remand (Dkt. No. 5877, filed Feb. 25, 2011 ). Of particular relevance here is Reynolds Innovations Inc., an indirect subsidiary of RJRT from which RJRT licenses brand trademarks for the cigarette brands it designs, manufactures, distributes, markets, and sells. On the graphic below, the licensing agreement between RJRT and Reynolds Innovations Inc. is represented by a dotted arrow.
RAI also has a separate subsidiary, LAC, which, as described below, is relevant to this transaction.
For its part, LTC, also a Defendant in this litigation, is a wholly-owned subsidiary of Lorillard, which, like RAI and RJRH, is not a Defendant in this litigation or directly subject to Order #1015. Like RJRT, LTC has subsidiaries listed in Order #13-Remand. Of particular relevance here is Lorillard Licensing Co., LLC, from which LTC licenses brand trademarks for the cigarette brands it designs, manufactures, distributes, markets, and sells. On the graphic below, the licensing agreement between LTC and Lorillard Licensing Co., LLC is represented by a dotted arrow.
Below is a graphic representation of the current relationships among the relevant entities.

3

I

I I
I I
)
I I I
I

I
I
I
I
I
I
I

I I I
I I
\
I Reynolds
Innovations Inc.

Just prior to the closing of this transaction, it is anticipated that Lorillard will convert LTC to a limited liability company (”LLC”). Nothing about LTC’s operations or its relationships to other Lorillard entities, as expressed above, will change. Nor will LTC’ s conversion to an
LLC alter any of the details about how the transaction will proceed.

Post-Transaction Structure

On July 15, 2014, Lorillard, RAI, and LAC entered into the Agreement and Plan of Merger. That document has been publicly filed with the United States Securities and Exchange Commission (”SEC”).2 On October 17, 2014, RAI publicly filed a Registration Statement on
Form S-4 (”Form S-4″) with the SEC.3 In subsequent Amendments to Form S-4, also publicly

See www.sec.gov/ Archives/edgar/data/1275283/000 l l 9312514269468/d757470dex2 l .htm.
3 See www.sec.gov/ Archives/edgar/data/1275283/000 l l 9312514375048/d803939ds4.htm.

4

filed with the SEC,4 RAI has disclosed its intention to merge LTC with and into RJRT after the closing of the merger of LAC with and into Lorillard. See Amend. No. 1 at 42 n.(3); amend. No. 2 at 42 n.(3).
Upon closing, the transaction will proceed as follows:

LAC will merge with and into Lorillard. The resulting entity, a direct, wholly-owned subsidiary of RAI, will retain the Lorillard name, and will not engage in the design, manufacture, distribution, marketing, or sale of any tobacco products. Rather, as described below, those functions will remain with Defendant LTC, which, in turn, will be merged into Defendant RJRT.

Contemporaneously with the merger of LAC with and into Lorillard, ITG Brands, LLC (formerly known as Lignum-2, L.L.C.) will purchase certain assets currently belonging to subsidiaries of RAI and subsidiaries of Lorillard. The terms for the asset
transfers are set forth in the Asset Purchase Agreement and the Transfer Agreement between Lorillard and Lignum-2, L.L.C.5 Among the assets to be transferred to ITG Brands, LLC are the Winston, Salem, and Kool cigarette brands 6 currently designed,
manufactured, distributed, marketed, and sold by RJRT; the Maverick cigarette brand currently designed, manufactured, distributed, marketed, and sold by LTC; and certain facilities and equipment.7

Promptly thereafter, Lorillard will be transferred to RJRH, where it will exist as a wholly-owned subsidiary of RJRH, similar to RJRT, and be converted to an LLC. As noted, however, Lorillard will not engage in the design, manufacture, distribution, marketing, or sale of any tobacco products.

Immediately after that, Defendant LTC will merge with and into Defendant RJRT. The resulting entity will retain the RJRT name and RJRT’s position in the corporate structure. LTC’ s subsidiaries will, as a result of this merger, become subsidiaries of RJRT. Specifically, Lorillard Licensing Co., LLC will become a direct subsidiary of

See Amendment No. 1 to Fonn S-4 (filed November 24, 2014), available at www.sec.gov/Archives­
/edgar/data/1275283/0001193 l 2514423543/d803939ds4a.htm; Amendment No. 2 to Fonn S-4 (filed December 12, 2014), available at www.sec.gov/Archives/edga….
Those documents have been publicly filed. See www.sec.gov/Archives/edga… 000119312514269468/d757470dex22.htm. The Transfer Agreement is Exhibit I to the Asset Purchase Agreement.
Depending on specified market-share calculations at the time the merger closes, ITG Brands, LLC, may also receive the Doral brand.
7 Unlike the transaction described herein, this transfer of brands from RJRT and LTC to ITG Brands, LLC, does require court approval under Paragraph 20 of Order #1015. These brand transfers, therefore, are the subject of separate discussions among the Government, the lntervenors, the Defendants, and ITG Brands, LLC. This Court will receive a motion, shaped by those discussions, regarding those transfers, once those discussions are completed.

5

RJRT. Reynolds Innovations Inc. will continue to license trademarks for remaining Reynolds-legacy cigarette brands to RJRT. Lorillard Licensing Co., LLC will license trademarks for remaining Lorillard-legacy cigarette brands to RJRT.

Below is a graphic representation of the relationship among the relevant entities after these events. 8
Reynolds American Inc.

R.J. Reynolds Tobacco Holdings, Inc.

I
L\ R. J. Reynolds Tobacco Company
… (including L\ Lorillard
I
I Tobacco Company, LLC) ‘
I ‘
I ‘
I
I I
I I
I I
I
I I
I I
( Lorillard Licensing I
\
\ Co., LLC
\
\
I
\
I
\
\

The end-result of the transaction as outlined above will be the merger of one Defendant- LTC-with and into another Defendant-RJRT-with RJRT assuming ownership of all LTC subsidiaries named in Order #13-Remand.

As referenced in note 1, supra, this graphic contains the following minor modification from what appears in Exhibit 1: when Lorillard converts to an LLC, as discussed in the paragraph immediately below the graphic on page 4, it will take the name Lorillard Tobacco Company, LLC, rather than Lorillard Tobacco LLC, as referenced in the graphic on page 4 of Exhibit 1.

6

Paragraph 20

RJRT and LTC believe that, under the terms described above, no Court approval of this transaction is required under Paragraph 20 of Order # 1015. Paragraph 20 provides, in relevant part:
No Defendant shall sell or otherwise transfer or permit the sale or transfer of any of its cigarette brands, brand names, cigarette product formulas or cigarette businesses … to any person or entity unless (1) such person or entity is already a Defendant subject to this Final Judgment and Remedial Order, or (2) prior to the sale or acquisition, such person or entity (a) submits to the jurisdiction of this Court; and (b) applies for and obtains an Order from this Court subjecting such person or entity to the provisions of this Final Judgment and Remedial Order as of the date of the sale or transfer . . .. The sale or transfer by a Defendant of any of its cigarette brands, brand names, cigarette product formulas or cigarette businesses shall not relieve that Defendant from its joint and several liability under this Final Judgment and Remedial Order.

Order # 1015 at 17-18,published as United States v. Philip Morris USA Inc. , 449 F. Supp. 2d 1, 945 (D.D.C. 2006), aff’d in relevant part, 566 F.3d 1095 (D.C. Cir. 2009) (per curiam), cert. denied, 561 U.S. 1025 (2010). Here, the transaction as described above falls within clause (1) of Paragraph 20, involving “the sale or transfer of . . . cigarette brands, brand names, cigarette product formulas or cigarette businesses … to any person or entity … [that is] already a Defendant subject to this Final Judgment and Remedial Order,” because, apart from the contemplated transfers to ITG Brands, LLC, described above (which will be the subject of a motion that does seek court approval under Paragraph 20), all other cigarette operations of one Defendant-LTC-will be merged with and into another Defendant-RJRT. Accordingly, RJRT and LTC do not believe that court approval under Paragraph 20 is required for the contemplated transfers from LTC to RJRT.

7

Finally, this will not weaken the remedial impact of Order #1015. After the merger, RJRT will remain subject to all requirements of Order #1015 and the Court’s subsequent Orders in this matter. In addition, RJRT will assume LTC’s obligations regarding public disclosure of documents produced in litigation and administrative actions, production of disaggregated marketing data, and publication of the corrective statements on television, in newspapers, on onserts (other than for transferred brands), and on applicable websites (subject, of course, to the outcome of the pending appeals concerning the corrective-statement text, United States v. Philip Morris USA, Inc. , 907 F. Supp. 2d 1 (D.D.C. 2012), appeal docketed, Nos. 13-5028 & 14-5161 (D.C. Cir. argued Feb. 23, 2015)); as well as any order concerning the point-of-sale corrective­ statement displays currently pending before the Court (again subject to the outcome of any appeals). See, e.g., Dkt. Nos. 6096-6101, 6104-6108 (most recent briefing). Likewise, those LTC subsidiaries subject to the mandates of Order #1015 will become RJRT subsidiaries and will remain subject to Order #1015.
The Parties’ Understanding

In August 2014, counsel for RJRT and LTC contacted Plaintiffs to discuss the pending transaction and, in particular, the applicability of Paragraph 20 of Order # 1015. Those discussions continued through the exchange of correspondence and documents and discussions held via conference calls over several months.
On January 29, 2015, counsel for RJRT set forth in writing the details of this transaction in the letter to counsel for Plaintiffs attached as Exhibit 1.
On February 13, 2015, the Department of Justice sent the responsive letter attached as Exhibit 2 stating that “the United States is generally willing to accept [RJRT and Lorillard’s]

8

representations,” but requesting “that RJRT and Lorillard provide similar explanations and representations directly to the Court.”9
This Notice fulfills Plaintiffs’ request that RJRT and LTC make representations directly to the Court.
In view of this Notice, the United States and Intervenors have authorized RJRT and LTC to state that the United States and Intervenors concur, based on the representations set out herein, that Court approval is not required under Paragraph 20 of Order # 1015.
Counsel for Defendants Altria Group, Inc. and Philip Morris USA Inc. have also authorized RJRT and LTC to state that those Defendants do not object to this filing, except to the extent that the filing addresses the point-of-sale corrective-statement requirements. Because this Court has not decided whether to re-adopt a POS remedy, Altria Group and Philip Morris USA submit that it is premature to address those requirements in this Notice and that the references to POS in this submission are therefore inherently unclear.

Dated: April 7, 2015 Respectfully submitted,

I sl Noel J. Francisco Noel J. Francisco (D.C. Bar No. 464752) Peter J. Biersteker (D.C. Bar No. 358108) JONES DAY
51 Louisiana Avenue, N. W. Washington, D.C. 20001-2113
Telephone: (202) 879-3939
Fax: (202) 626-1700

The Government has informed RJRT and LTC that ITG Brands, LLC, advised it of two inadvertent errors in its February 13 letter attached as Exhibit 2: First, ITG Brands, LLC, is a newly renamed entity, rather than (as the letter mistakenly said) a newly formed entity; and second, ITG Brands, LLC, is no longer a subsidiary of Commonwealth Brands, but is now a sister entity.

9

Geoffrey K. Beach
WOMBLE CARLYLE SANDRIDGE & RICE, PLLC
One West Fourth Street Winston-Salem, NC 27101
Telephone: (336) 721-3600
Facsimile: (336) 733-8389

Attorneys for Defendant R.J Reynolds Tobacco Company

Michael B. Minton
Elizabeth Blackwell THOMPSON COBURN LLP
One U.S. Bank Plaza, Suite 3500 St. Louis, MO 63101-1693
Telephone: (314) 552-6000
Facsimile: (314) 552-7597

Attorneys for Defendant Lorillard Tobacco Company

10

Exhibit 1

JONES DAY

51 LOUISIANA AVENUE, N.W. • WASHINGTON, D.C. 20001.21 13
TELEPHONE: +1.202.879.3939 • FACSIMILE: +1.202.626.1700

Direct Number: (202) 879-5485 njfrancisco@jonesday.com

January 29, 2015

VIA E-MAIL

Daniel K. Crane-Hirsch (daniel.crane-hirsch@usdoj…) Department of Consumer Protection
United States Department of Justice

Howard Crystal (hcrystal@meyerglitz.com) Meyer Glitzstein & Crystal

Re: United States v. Phili p Morris USA Inc.

Dear Counsel:

I write to follow up on our telephone conversation of Thursday, December 18, 2014, regarding the proposed merger of Lantern Acquisition Co. (”LAC”) with and into Lorillard, Inc. (”Lorillard”). In particular, Iseek your agreement that, in accordance with the terms described below, this transaction does not require court approval under Paragraph 20 of Order #1015, as the end result of the merger as described below will result in one Defendant- Lorillard Tobacco Company (”LTC”)-·merging into another Defendant-R. J. Reynolds Tobacco Company (”RJRT”).

Set forth below are (A) a description of the transaction and (B) a brief explanation for why, as described, we do not believe that this transaction requires court approval under Paragraph 20 of Order #1015.

The Transaction

The terms of the merger of LAC and Lorillard are set forth in the Agreement and Plan of Merger and Asset Purchase Agreement, copies of which we have provided to you.

As we have discussed, however, these documents do not describe the details of how various corporate entities will be structured after LAC is merged with and into Lorillard, since that is not the purpose of those agreements. Consequently, set forth below is a description of how the corporate entities will be structured after the closing of the merger of LAC with and into Lorillard.

ALKHOBAR • AMSTERDAM • ATLANTA • BEIJING • BOSTON • BRUSSELS • CHICAGO • CLEVELAND • COLUMBUS • DALLAS DUBAI • D0SSELDORF’ • FRANKFURT • HONG KONG • HOUSTON • IRVINE • JEDDAH • LONDON • LOS ANGELES • MADRID MEXICO CITY • MIAMI • MILAN • MOSCOW • MUNICH • NEW YORK • PARIS • PITTSBURGH • RIYADH • SAN DIEGO SAN FRANCISCO • SAO PAULO • SHANGHAI • SILICON VALLEY • SINGAPORE • SYDNEY • TAIPEI • TOKYO • WASHINGTON

JONES DAY

Current Structure

In order to understand the post-transaction structure, it is useful to understand how the relevant corporate entities are currently structured. Currently, RJRT, a Defendant in this litigation, is a direct, wholly-owned subsidiary of R.J. Reynolds Tobacco Holdings, Inc. (”RJRH”), which is itself a direct, wholly-owned subsidiary of Reynolds American Inc. (”RAI”). Neither RAI nor RJRH is a Defendant in this litigation or subject to Order #1015.

Defendant RJRT has several subsidiaries listed in Order #13-Remand. Of particular relevance here is Reynolds Innovations Inc., an indirect subsidiary of RJRT from which RJRT licenses brand trademarks for the cigarette brands it designs, manufactures, distributes, markets, and sells. On the graphic below, the licensing agreement between RJRT and Reynolds Innovations Inc. is represented by a dotted arrow.

RAI also has a separate subsidiary, Lantern Acquisition Co. (”LAC”), which, as described below, is relevant to this transaction.

For its part, Lorillard Tobacco Company (”LTC”), a Defendant in this litigation, is a wholly-owned subsidiary of Lorillard, which, like RAJ and RJRH, is not a Defendant in this litigation or subject to Order #1015. Like RJRT, LTC has subsidiaries listed in Order #13- Remand. Of particular relevance here is Lorillard Licensing Co., LLC, from which LTC licenses brand trademarks for the cigarette brands it designs, manufactures, distributes, markets, and sells.
On the graphic below, the licensing agreement between LTC and Lorillard Licensing Co., LLC is represented by a dotted arrow.

Below is a graphic representation of the current relationships among the relevant entities.

I Reynolds American Inc. l
I
I Lorillard, Inc. I

I’
”’ I
(
\
I
Lorillard Licensing /
Co., LLC
\
\
\
\
\
\
\
\
\
\

2

JONES DAY

Just prior to the closing of this transaction, it is anticipated that Lorillard will convert LTC to a limited liability company (”LLC”). Nothing about LTC’s operations or its relationships to other Lorillard entities, as expressed above, will change. Nor will LTC’s conversion to an LLC alter any of the details about how the transaction will proceed.

2. Post-Transaction Structure

On July 15, 2014, Lorillard, RAJ, and LAC entered into the Agreement and Plan of
Merger. That document has been publicly filed with the United States Securities and Exchange Commission (”SEC”).1 We have provided a copy of this document to you, and we have endeavored to answer all of the questions you have posed about that document. On October 17, 2014, RAI publicly filed a Registration Statement on Form S-4 (”Form S-4″) with the SEC.2 In
subsequent Amendments to Form S-4, also publicly filed with the SEC,3 RAJ has disclosed its intention to merge LTC with and into RJRT after the closing of the merger of LAC with and into Lorillard. See Amend. No. I at 42 n.(3); Amend No. 2 at 42 n.(3). We identified this disclosure
in the publicly filed documents in an e-mail to you dated December 12.

Upon closing, the transaction will proceed as follows:

LAC will merge with and into Lorillard. The resulting entity, a direct, wholly-owned subsidiary of RAI, will retain the Lorillard name, and will not engage in the design, manufacture, distribution, marketing, or sale of any tobacco products. Rather, as described below, those functions will remain with Defendant LTC, which, in turn, will be merged into Defendant RJRT.

Contemporaneously with the merger of LAC with and into Lorillard, ITO Brands, LLC (formerly known as Lignum-2, L.L.C.) will purchase certain assets currently belonging to subsidiaries of RAI and subsidiaries of Lorillard. The terms for the asset transfers are set forth in the Asset Purchase Agreement and the Transfer Agreement
between Lorillard and Lignum-2, L.L.C. 4 Among the assets to be transferred to ITO Brands, LLC are the Winston, Salem, and Kool cigarette brands 5 currently designed,
manufactured, distributed, marketed, and sold by RJRT; the Maverick cigarette brand

I See www.sec.gov/Archives/edga… 19312514269468/d757470dex2 L htm.
2 See www.sec.gov/Archives/edga… 19312514375048/d803939ds4.htm.
3 See Amendment No. I to Form S-4 (filed November 24, 2014), available at www.sec.gov/Archives­
/edgar/data/1275283/0001 193!2514423543/d803939ds4a.htm; Amendment No. 2 to Form S-4 (filed December 12, 2014), available at www.sec.gov/Archives/edga… 1931251444 I 386/d803939ds4a.htm.
4 Those documents have been publicly filed, we have provided copies of them to you, and we have endeavored to answer the follow-up questions you have posed about them. See
www.sec.gov/ Archives/edgar/data/1275283/0001 I 9312514269468/d757470dex22.htm. The Transfer Agreement was filed as Exhibit I to the Asset Purchase Agreement.
Depending on specified market-share calculations at the time the merger closes, ITG Brands, LLC, may also receive the Doral brand.

3

JONES DAY

currently designed, manufactured, distributed, marketed, and sold by LTC; and certain facilities and equipment. 6
Promptly thereafter, Lorillard will be transferred to RJRR, where it will exist as a wholly-owned subsidiary of RJRH, similar to RJRT, and be converted to an LLC. As noted, however, Lorillard will not engage in the design, manufacture, distribution, marketing, or sale of any tobacco products.

Immediately after that, Defendant LTC will merge with and into Defendant RJRT. The resulting entity will retain the RJRT name and RJRT’s position in the corporate structure. LTC’s subsidiaries will, as a result of this merger, become subsidiaries of RJRT. Specifically, Lorillard Licensing Co., LLC will become a direct subsidiary of RJRT. Reynolds Innovations Inc. will continue to license trademarks for remaining Reynolds-legacy cigarette brands to RJRT. Lorillard Licensing Co., LLC will license trademarks for remaining Lorillard-legacy cigarette brands to RJRT.

Below is a graphic representation of the relationship among the relevant entities after these events.

I
I
I
I
I
I
I
I
II I I
I ”
I Lorillard Licensing I
\
I Co., LLC
\
I
I I I
\ Reynolds
I

Innovations Inc.

Unlike the transaction described herein, this transfer of brands from RJRT and LTC to ITG Brands, LLC, does require court approval under Paragraph 20 of Order # I O 15. These brand transfers, therefore, are the subject of separate discussions among the Government, the Intervenors, the Defendants, and ITO Brands, LLC.

4

JONES DAY

The end-result of these events will be the merger of one Defendant-LTC-with and into another Defendant-RJRT-with RJRT assuming ownership of all LTC subsidiaries named in Order # 13-Remand.

Paragraph 20

As we have discussed, we believe that, under the terms described above, no court approval of this transaction is required under Paragraph 20 of Order # 1015. Paragraph 20 provides, in relevant part:

No Defendant shall sell or otherwise transfer or permit the sale or transfer of any of its cigarette brands, brand names, cigarette product formulas or cigarette businesses … to any person or entity unless (1) such person or entity is already a Defendant subject to this Final Judgment and Remedial Order, or (2) prior to the sale or acquisition, such person or entity (a) submits to the jurisdiction of this Court; and (b) applies for and obtains an Order from this Court subjecting such person or entity to the provisions of this Final Judgment and Remedial Order as of the date of the sale or transfer …. The sale or transfer by a Defendant of any of its cigarette brands, brand names, cigarette product formulas or cigarette businesses shall not relieve that Defendant from its joint and several liability under this Final Judgment and Remedial Order.

Order # I O 15 at 17-18. Here, the transaction as described above falls within clause ( 1) of Paragraph 20, involving “the sale or transfer of … cigarette brands, brand names, cigarette product formulas or cigarette businesses . .. to any person or entity .. . [that is] already a Defendant subject to this Final Judgment and Remedial Order,” because all cigarette operations
of one Defendant-LTC-will be merged with and into another Defendant-RJRT. Accordingly, we do not believe that court approval under Paragraph 20 is required.

Finally, this will not weaken the remedial impact of Order #1015. As we have stated previously, after the merger, RJRT will remain subject to all requirements of Order #1015 and the court’s subsequent Orders in this matter. In addition, RJRT will assume LTC’s obligations regarding public disclosure of litigation documents, production of disaggregated marketing data, and publication of the corrective statements on television, in newspapers, on onserts (other than for transferred brands), and on applicable websites (subject, of course, to the outcome of any appeals on these issues). Likewise, those LTC subsidiaries subject to the mandates of Order
# 1015 will become RJRT subsidiaries and will remain subject to Order # I O 15.

* * *
In light of the foregoing, we request the agreement of DOJ and the Intervenors that, under the facts and circumstances outlined herein, court approval of the transaction under Paragraph 20 of Order # 1015 is not required.

Please let me know if you have questions or would like to discuss this matter further.

5

JONES DAY

Sincerely,
-1! 4,
Noel J. Francisco Counsel for Defendant
R. J. Reynolds Tobacco Co.

cc: Anand Agneshwar (anand.agneshwar@aporter.c…) Geoffrey K. Beach (gbeach@wcsr.com)
A. Elizabeth Blackwell (eblackwell@thompsoncoburn…) Elizabeth B. McCallum (emccallum@bakerlaw.com) Michael B. Minton (mminton@thompsoncoburn.co…)
Amir C. Tayrani (atayrani@gibsondunn.com)

6

Exhibit 2

Post Office Box 386 Washington, DC 20044-0386

U.S. Department of Justice

Consumer Protection Branch

Telephone: (202) 616-8242
Telecopier: (202) 514-8742

February 13, 2015

Noel J. Francisco (via email to n jfrancisco@ jonesday.com) Jeffrey A. Mandell ( via email to imandell@ jonesday.com) Geoffrey K. Beach (via email to GBeach@wcsr.com )
Michael B. Minton (via email to mminton@thompsoncoburn.co…)
A. Elizabeth Blackwell (via email to eblackwell@thompsoncoburn…)

Re: United States v. Philip Morris USA Inc., No. 99-cv-2496 (D.D.C.) Dear Counsel:
I write concerning the proposed acquisition of Lorillard, Inc. Simplified to some degree, and focusing only on cigarette matters, the planned transaction calls for Reynolds American, Inc. (”RAI”), through a subsidiary, to acquire all of Lorillard Tobacco, Inc.’s cigarette brands, brand names, cigarette product formulas, and cigarette businesses (hereafter “brands”). Also as part of the transaction, RAI would cause its R.J. Reynolds Tobacco Inc. subsidiary (”RJR”) to transfer three or four of its brands to an outside entity called ITG Brands LLC; and would cause its
acquisition subsidiary to transfer one of the just-acquired Lorillard brands to the same entity.1
ITG Brands is a recently-created subsidiary of Commonwealth Brands Inc., which is in turn a subsidiary oflmperial Tobacco Group pie. Finallf , RAI would cause its acquisition subsidiary to transfer the remaining Lorillard brands to RJR.

Paragraph 20 of Order #1015 requires, subject to one pertinent exception, that the Court review and grant prior approval for any proposed transfer of any of Defendants’ cigarette brands,

1 The brands to be transferred to ITG Brands include RJR’s Winston, Salem, and Kool brands; and Lorillard’s Maverick brand. There has been some suggestion that RJR’s Doral brand may also be transferred to ITG Brands.

2 As noted, this paragraph simplifies matters to a degree. For example, as we understand it, RJR formally leases each brand’s intellectual property from a wholly-owned RJR subsidiary, rather than owns such intellectual property in its own right. Thus, as we understand it, the transfer to ITG Brands of the intellectual property associated with the transferred RJR brands would formally come from RJR’s intellectual-property subsidiary, rather than from RJR itself; and for similar reasons, the intellectual property of the Lorillard brands that RAI is not transferring to ITG Brands would not be owned by RJR itself, but owned by RJR’s intellectual­ property subsidiary and leased to RJR. Such distinctions are not fully set out in the papers RJR and Lorillard have provided for us to review; but in any event, as we understand it, RJR and Lorillard represent that such distinctions do not affect the present analysis.

Noel Francisco, et al. February 13, 2015
Page 2 of 2

brand names, cigarette product formulas, or cigarette businesses (together termed “brands” above for purposes of this letter). 449 F. Supp. 2d at 945, 20. Plaintiffs and ITG Brands have exchanged views on ITG Brands’ proposals to seek jud icial approval for its contemplated acquisition of the various RJR brands and Lorillard’s Maverick brand.

This leaves the question of how, if at all, Paragraph 20 affects the transfer of Lorillard’s brands to the RAI acquisitions subsidiary, and that subsidiary’s subsequent transfer of those brands (other than Maverick) to RJR. The exception mentioned above to Paragraph 20 is that no judicial approval is required when the acquiring entity “is already a Defendant subject to this Final Judgment and Remedial Order.” Id.

In connection with the proposed transaction, RJR provided copies of the “Agreement and Plan for Merger,” “Asset Purchase Agreement” (without disclosure schedules), and various licensing agreements; and, subject to a confidentiality agreement, allowed the United States to review, but not retain copies of, the disclosure schedules to the Asset Purchase Agreement. In correspondence from Mr. Francisco, most recently in a letter dated January 29, 2015, RJR has represented that prior court approval under Order # 1015 is unnecessary; and explained, over five pages, the basis for RJR’s determination that once the transaction is fully consummated, all Lorillard cigarette brands that have not been transferred to ITG Brands will be manufactured, marketed, distributed, and sold by entities that are already directly bound by Order #1015.

Based on our review of the materials, the United States is generally willing to accept these representations. But to create a clear and public record, the United States asks that RJR
and Lorillard provide similar explanations and representations directly to the Court, in explaining why neither of them is requesting prior Court approval for the non-ITG Brands portions of the proposed transaction.

We are happy to discuss with you possible formats for such a filing; one possibility, for example, might be for RJR and Lorillard to submit a Praecipe. We are also happy to discuss with you wording for a sentence or a footnote, should RJR and Lorillard desire one, along the lines of, “We have given the United States similar explanations and representations, and are authorized to state that the United States is willing to accept those representations, subject to RJR’s and Lorillard ’s making the present filing.”

Sincerely yours,
· 1,w/J’ /:
Daniel K. Crane-Hirsch Trial attorney

cc: Anand Agneshwar (via email to Anand.Agneshwar@aporter.c…) Amir C. Tayrani ( via email to atayrani@gibsondunn.com)
Thomas J. Frederick (via email to tfrederick@winston.com) Howard Crystal (via email to howardcrystal@meyerglitz….) Elizabeth B. McCallum ( Via email to emccallum@bakerlaw.com)

Leave a Reply

The primary purpose of this site is to provide information in a timely manner. Postings should be informative. The usual rules apply: No libel, no profanity, no personal abuse, keep it on topic, and short.

If you are scheduled as a court witness, CHECK with your lawyer before posting anything here!