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SUMMARY OF DISCUSSIONS REGARDIN SUPPORT FOR BASIC RESEAR H Some of the products manufactured by the operating companies of Philip Morris have been implicated in one way or another with various chronic human diseases. With respect to cigarettes in particular, but also with respect to other products manufactured by the Company, we have taken the position publicly that, until the fundamental biological mechanisms of cancer and other chronic diseases are understood, no categorical conclusions about the role of any product in these diseases can be reached. We have also publicly said that more research is necessary in order to discover how these biologicall mechanisms work. Recent developments in scientific research, especially in the areas of cell biology and molecular genetics, suggest that important breakthroughs may soon be possible which will significantly improve our understanding of the processes by which many chronic diseases occur. For these reasons, and because current Philip Morris basic research support is not focused in a manner which brings the most benefit to the varied interests of the Philip Morris companies and our consumers as well as the total body of science, there has been increased interest at Philip Morris in supporting a more focused research effort which will provide answers to these difficult issues. We have consulted with some of the leading scientists in the field of basic research in an- effort to determine what research to support, and how. Two such scientists, Gerald Edelman, a Nobel Laureate as a result of his work on the chemical structure of antibodies, and now with The Scripps Research Institute, and Richard Lerner, a member of the National Academy of Science and President of The Scripps Research Institute, have been asked to advise the Company on these issues and research matters generally. N O N O CW 0 ~ Ow.

~...._ _:...~ . :__:.:.. _.,.,;. ..~----- -_. ..._.... .: t Edelman and Lerner wholeheartedly support the basic research concept, and have urged us to identify a unique research niche that a program sponsored by Philip Morris could occupy. They urged us to support research which would meet the following four criteria: 1. lead to an understanding of the cellular mechanisms involved in chronic diseases; 2. be at the "cutting edge" of current scientific investigation; 3. be attractive to the best researchers throughout the world; and 4. have the potential to lead to a major advancement in the state of scientific knowledge. They further recommended the creation of a research institute which would bring together, under one roof, leading scientists, to focus on research meeting these criteria. Understanding that we preferred not to fund "bricks and mortar" or manage research laboratories, they suggested asking an existing research or anization to provide the land, build the laboratories and lease them to us, as well . asrri ~anage the institute. We would then provide the major initial funding to accompany whatever other research grants the scientists were able to obtain. Edelman and Lerner recommended this concept, rather than the more traditional corporate funding of researchers located in institutions scattered throughout the world, because it is truly unique. For the first time, an entire institute would be devoted to one research area providing the opportunity for interaction, on a regular and frequent basis, among researchers in that area. They emphasized that this focus and daily sharing of ideas would optimize the chances for significant scientific breakthroughs. As discussions with Edelman and Lerner were taking place, scientists at Kraft General Foods were exploring the area of nutrition research. More specifically, these scientists were addressing the questions of how nutrition, foods and nutrients, 2

can be employed to improve functional health and offset the health risks associated with our lifestyles and environments. Scientists working on both projects agreed to discuss whether the two could be merged into a common project which would be of value to all areas of the Company and provide a vehicle for consolidation of all Philip Morris sponsored basic research. The objective of such a project would be to contribute to the advancement of basic scientific knowledge in a defined area so that the knowledge could be applied to the consumer products of Philip Morris companies, to optimize their impact on the quality of life of our customers, as weIl as contribute to the advancement of science generally. Subsequent meetings and discussions among Philip Morris scientists and Drs. Edelman and Lerner resulted in agreement with the four research criteria previously mentioned, as well as the addition of two more: - 1. that the research be, and be seen to be, pro bono publico; and 2. that the research contribute information useful to the specific business needs of the Philip Morris companies. The participants in these discussions agreed that the most spectacular results in biomedical research during the next decade will be achieved in the area of Signal Transduction, which is concerned with the mechanisms by which extracellular stimuli elicit both transitory and lasting responses in cells. Normal cell growth and differentiation are dependent on the ability of the cell to receive, interpret and respond appropriately to both external and internal signals. An understanding of how cells process these signals will lead to an understanding of the mechanisms involved in both normal cell growth as well as aberrant cell behavior leading to chronic diseases. Not only will such an understanding lead to the prevention and cure of certain chronic diseases, but it will provide essential information for ways we can modify our-products to change beneficially cell responses which will lead to better health, improved functional capacity and a better quality of life, covering an entire life span. 3

Research into Signal Transduction meets all the research criteria. 1. This research studies the mechanisms by which outside stimuli affect the growth and development of cells - some benign and quite normal, others; leading to disease. 2. This research contributes to a basic understanding of cell biology and, therefore, to scientific knowledge generally. In this sense, it is indeed pro bono publico. 3. This is the next great research area, the study of which is just beginning. It is exciting, "cutting edge" research, which will attract the best scientific minds. 4. This research provides the greatest potential for scientific breakthroughs which, when they occur, will have the most impact on the understanding of the human disease processes, leading to prevention and cures for the major chronic diseases affecting our aging population. 5. This research may lead to new products, or modifications in current products, which will have an effect on our health and quality of life. Therefore, this research could contribute information useful to the specific business needs of Philip Morris companies. We are continuing to explore specific issues, including whether an institute is indeed the best way to achieve our research objectives and, if so, how it should be organized and managed, what should be its size and location, and how much funding should we provide. We are also continuing to discuss the specific ways in which such research may provide us with opportunities to improve our products and benefit our consumers. 4 N 0 N CJ O W ~