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PiiIUP MORRIS COMPANIES INC. INTER-OFFICE CORRESPONDENCE 120 PARK AVENUE, NEW YORK, N.Y 10017 r©' Hamish Maxwell DAiE: June 15, 1990 FROM: subJECL Charles R. Wall Meeting with Maurice C. Kaplan On Wednesday June 6 I met with Maurice Kaplan for an hour to discuss his views on the funding by Philip Morris of research in the area of molecular and cellular medicine. What follows is the substance of his views some of which he put in his letters to you of May 26 and June 1. Mr. Kaplan believes that as a good corporate citizen Philip Morris should be willing to make a significant commitment to funding research into the fundamental causes of chronic human diseases, some of which are associated with the use of our products. In Mr. Kaplan's view, and presumably that of UCSD faculty members, now is a particularly opportune moment to support such research because science is in a revolutionary state with profound and dramatic discoveries occuring, almost daily, especially in the field of cellular and molecular biology. Consequently, money given now will be more beneficial than money given 5 years ago or 5 years hence. It is Kaplan's view that science is on the verge of discovering the biological mechanisms of a number of chronic human diseases and Philip Morris will benefit by being there "at just the right time" with research money. Kaplan also points out that much of the current federal funding for the sciences is going to major projects such as AIDS, mapping the human genome and space exploration, leaving other research to private funding. Kaplan also argues that the public attitude toward the tobacco industry has rapidly deteriorated, especially in the last six months. He fears that without some affirmative action the tobacco business has 8 - 10 years to go before it substantially disappears. Kaplan cites the federal legislation, media attention to the ETS issue and the movement to sell tobacco stocks as evidence of the worsening public climate. The result is that the stock is considerably undervalued, according to Kaplan, and the P/E ratio is under what he thinks it should be given the profitability of the company. Kaplan believes the announcement of a major research commitment will improve the public attitude (and the stock value) and perhaps eventually lead to an answer to the question of what are the mechanisms that cause chronic diseases in humans. In any event, he adds, such a commitment could hardly leave the company worse off than it is.

. . k Finally, Kaplan suggests that such a financial commitment will do much to improve employee morale and productivity.. Kaplan feels that,employees must find it difficult to listen to the constant and consistent attacks upon the company without having their pride and morale significantly affected. How can they be proud working for a company that is accused of making a product which causes hundreds of thousands of deaths each year? He argues that the company owes it to the employees to give them something about which to be proud. What does Kaplan propose? He suggests that Philip Morris make a$50,000,000 commitment over 10 years to UCSD to be used in the field of . cellular and molecular medicine. If this commitment is well received in the scientific community, as he anticipates, he proposes that Philip Morris follow with a $450,000,000 commitment over 10 years to other institutions in the same field. Both grants would focus on the company's commitment to discovering the basic causes of chronic human diseases at this most opportune time in a scientific revolution. I asked Kaplan the following questions: 1. Wouldn't the announcement draw still more fire from the media accusing us of (a) further trying to mislead the public into believing that there is still doubt as to whether cigararette smoking causes cancer; (b) offering too little money and much too late, (c) trying to buy respectability with money tainted by the deaths of former smokers? Won't the result.be a worse public image? 2. Will the institutions take the money? After all some in the scientific community have raised the question of accepting CTR grants. 3. Will the UCSD scientists be willing to speak out favorably about the commitment? Will they be willing to defend within the scientific community Philip Morris's commitment as timely and of considerable scientific benefit? 4. How will the investment community react to such a large charitable contribution? Kaplan said that institutions and scientists will take the money because they desparately need it. He is confident the Trustees of the California university system and the Chancellor and faculty of UCSD will welcome the commitment and will speak out favorably. He added that this is obviously an assurance Philip Morris will need before making any commitment. Kaplan added that he is confident that at least some of the media will

react adversely to the announcement, but countering,that will be the outspoken support of scientists at UCSD including George Palade, a Nobel Laureate, who now heads the department of molecular and cellular research at the university. Kaplan said he thinks the investment community will react favorably. Kaplan reasoned that to the extent the public's perception of the company improved, it might stem the divestment movement. To the extent the commitment offered hope that a scientific solution to the smoking and health problem would be found, investors would begin to look at an extension of the life of the industry; instead of profits for only the next decade, perhaps they will be viewed as continuing considerably beyond that. This commitment, according to Kaplan, while significant is not large when compared with the company's net profits or its advertising budget. In fact Kaplan suggested the money could come out of the advertising budget and "be the best advertising of all." The meeting was at all times extremely cordial and I thanked Mr. Kaplan for taking the time to talk with me. I told him that I knew both you and Frank were interested in the topic of scientific research and that someone will be in contact with him in the near future. cc: Frank E. Resnik