Big Tobacco also conceded that the U.S. Federal Drug Administration can regulate nicotine as a drug and admitted for the first time that smoking is addictive and causes cancer.

"This is the beginning of the end for how the tobacco industry has treated the American public," Mississippi Attorney General Mike Moore said at a press conference in Washington, D.C. "We wanted this industry to have to change the way they do business."

The sweeping agreement requires the industry to reduce under-age tobacco use by 42 percent in 5 years, 58 percent in 7 years and 67 percent in 10 years -- or face fines of up to $2 billion a year.

The companies also promised to ban vending machines, all billboards and other outdoor advertising. Smoking in public places will also be dramatically restricted.

Steve Parrish, senior vice president for Philip Morris, said the accord would allow the industry to operate in a more stable environment and preserve the rights of adults who choose to smoke.

"The proposal is a bitter pill because our company has made concessions that were extremely difficult," Parrish said. "But on balance this plan is preferable to the situation of a decade-long controversy."

President Clinton was cautious in his remarks about the settlement. He said the administration would study the agreement for several weeks. A final settlement would require both presidential and congressional approval.

Reaction on Wall Street, however, was immediate and negative. Tobacco stocks spent much of the day trading in a narrow range. As word of the settlement reached shareholders, however, leading issues tumbled.

Philip Morris (MO), down just 3/8 in the minutes leading up to the announcement, closed down 1-3/4 to 45-5/8. RJR Nabisco (RN) lost 1-3/8 to 34-1/2, while US Tobacco (UST) dropped 1 to 29 and Loews (LTR) fell 3-1/4 to 103-3/8. Brooke Group (BGL), parent of Liggett Group, was the only stock to rise. It ended up 1/8 at 4-3/4.

For years, the tobacco industry has vehemently denied that smoking is harmful and the companies wielded heavy influence on Capitol Hill. Their power started to wane as scientific studies connected smoking to cancer and other life-threatening diseases.

The two sides came to the table after 39 states sued to recoup the Medicaid costs to treat smoking-related illnesses. Another 17 class action lawsuits are on the dockets.

Progress came slowly over thousands of hours of grueling talks, Moore said. In recent weeks, state negotiators would predict a settlement almost every day, then backpedal. (317K WAV) or (317K AIFF)

"I'm not here today to tell you 'I'm still optimistic,' " Moore joked. "We are here today to announce … the most historic public health achievement in history."

The last roadblock was a clause protecting so-called whistle-blowers from retribution by the companies, Moore said. "We were willing to walk away from this deal completely if they didn't concede."

Moore said state negotiators insisted on a provision to protect whistle-blowers like Jeffrey Wigand, a former tobacco executive who testified before a Mississippi grand jury in that state's suit against the tobacco industry.

Wigand had claimed a former Brown & Williamson executive lied in Congressional testimony about what the company knew about the health hazards of cigarettes. The company later sued Wigand, charging he violated a confidentiality clause.

Earlier in the process, the companies had balked at a proposal for FDA oversight of nicotine, while the states refused to consider a deal without such a clause.

The deal allows the FDA broad regulatory powers over cigarettes, including reducing or eliminating nicotine. It requires FDA approval of all agreements in tobacco products and testing. Attorney General Christine Gregoire of Washington state said the FDA would be aggressive to make the product safe. (256K WAV) or (256 AIFF)

Another sticking point was the question of future liability. The companies wanted future punitive damage suits banned, while smoking foes insisted the door remain open.

The agreement protects the public's right to sue and offers no civil or criminal immunity. It also provides an immediate "down payment" to states of $10 billion.

The attorneys general wanted to protect children by wiping away any advertising geared towards kids. That will mean a ban on T-shirts, hats, and knapsacks bearing the Joe Camel logo, said Attorney General Grant Woods from Arizona.

"Sporting events will no longer feature anything to do with tobacco," Woods said. "Entertainment, concerts, any place where children might be - those days are over." (293K WAV) or (293K AIFF)

Moore said the states "mobilized an army" to fight the industry because it had caused more damage and been more irresponsible than any other. (515K WAV) or (515K AIFF)

"We had to punish this industry in such a way that everybody in this country and everybody in the world would recognize that they had paid a higher price than any other," Moore said.

Smoking kills 400,000 people a year and the habit hooks 3,000 more kids every day, of which 1,000 will eventually die from it, the negotiators said. The lawsuits were motivated by smoking's massive toll, Gregoire said. (240K WAV) or (240K AIF)

"The industry would not be at the table but for the unification of the attorneys general of this country," Gregoire said. "They would not allow the continued premature death of the adults in this country."

The industry agreed to nine new warning labels for cigarettes that will cover 25 percent of the pack on front. There will be four new labels on "smokeless" tobacco products.

Along with the labels is what negotiators called the most comprehensive public education campaign in history. The Tobacco Institute and the Council for Tobacco Research will be abolished, and the industry will have to release a full statement outlining the danger of cigarettes.

Some anti-smoking advocates, however, were angry the pact didn't go far enough.

Minnesota Attorney General Hubert Humphrey III called the terms "woefully inadequate."

"The negotiators did a good job, but we have a lot further to go," Humphrey said.

Humphrey and some other attorneys general said they were still fully prepared to go to trial.

Today's pact will also not halt an ongoing and wide-ranging Justice Department probe of the tobacco industry.

"What happens in that settlement is not binding on us," an official said.
--Martine Costello