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COV{NGTC?hi & BI.JRt.ING 1201 PENNSYLVANIA AVENUE, N. W. P.C7,E3OX 7566 WASHINGTON, D.C.20044 JOHN P, RUPP (202) 662-6000 DIRECT DIAL NUMBER (202) 662-5650 CIL Si7-tfi- w`-~JC rm E +'w .- U "- E E7~c SC-c~ TELEX: 89••593 (COVLING WSH) TELECOPIER:(202) 662-6291 CABLE: COVLING Mr. John A. Dollisson Area Director Philip Morris Asia, Inc. 25/F, United Centre 95 Queensway Central Hong Kong Dear John: VIRGINIA OFFICE 2000 CORPORATE RIDGE McLEAN,VIRGINIA 22102 (703) 749-3860 k'RI.VILEGE0 AND CONFIDENTIAL A'~.~~,°~x~:N~ '~°~x~:N~'~ WORK PRODUCT May 25, .R,E CEt VED MAY 3 ~ 1989, I. P., 989 t I apologize for the delay in responding to your letter of May 15. Life here over the past few weeks has involved one crisis after another. It will be great when the state legislatures finally go out of session. There are attached two reports that should provide you with a reasonably complete picture of the evolution of the ETS consultant project in Asia. The second report, which David Billings prepared following the recruiting trip that he and George Leslie took in early April, summarizes the current status of the project -- who has agreed to participate, their level of knowledge of the issues, the role they may be able to play in the project. As noted in David's April 10 memorandum, we have invited the scientists whom we have recruited to a training session in Bangkok on June 22 and 23. The assignment that we have given the scientists in anticipation of that meeting is to read, and to become thoroughly familiar with, all of the ETS scientific publications within their fields of expertise. We have provided packets of pertinent materials to each of the scientists, and have stayed in touch with them to make sure that they are making progress. Our goal is to leave the meeting on June 22 and 23 with a core group of scientists who are fully trained on the relevant issues and have developed sufficient enthusiasm to be prepared to make a real contribution -- by way of writing articles, participating on our behalf at scientific meetings, joining industry people at briefings of government officials and so forth. It is unfortunate, of course, that we have not ~o ~f343's C- -(S CL .

COVINGTON & BURLING Mr. John A. Dollisson May 25, 1989 Page 2 yet been given a green light to add Japanese scientists to our group. Even without Japanese representatives, however, we certainly have enough people to proceed with the Bangkok meeting. We are concerned that any delay in that meeting, awaiting developments in Japan, would put us at risk of losing people we already have recruited. There is also attached a copy of the agenda for the Bangkok meeting, which we have worked out with George Leslie. You will note that Dr. Chris Proctor of BAT in Southhampton is scheduled to make a presentation at the Bangkok meeting designed to put ETS into perspective from a chemical point of view. Chris is a good scientist who knows his stuff. His participa- tion also carries the added benefit of tending to lock BAT into the project. Our experience with BAT people in Europe is that if they are not involved actively from the outset, it is difficult to get them subsequently to the point of being com- pletely satisfied with the project's direction. Both Tom Humber and Ernie Pepples are pleased that BAT has seen fit to make Chris available for the meeting. Jim Goold of Reynolds told me a couple of days ago that he would like to attend the second day of the Bangkok meeting. Jim's goal, as I understand it, is to get himself in the position of being able to represent to his superiors in Winston-Salem that he has met the Asian consultants and, hope- fully, has been impressed with them. Again, I believe we should welcome Jim's involvement since he can have a major impact on Reynolds' continuing support for the project. You may want to consider attending the second day of the Bangkok meeting as well, both to make your own assessment of where we are and to show the PM flag to the new consultants. You are, of course, correct in recalling that when we met in Hong Kong on March 1, 1989, we projected that the recruitment and initial training of ETS scientific consultants for Asia was likely to cost approximately $15,000 per scientist. Since we then were projecting a total of ten consultants, our preliminary budget projection totaled approximately $150,000 for the project's first phase. You will recall that we also projected that an additional $100,000 would be needed for a modest level of deployment of the scientists during the proj- ect's first year, a figure that we indicated would be control- lable by the companies as they approved or disapproved of proposed activities for the scientists individually or as a group. Thus far we have recruited ten scientists -- Drs. Og1e,'Bacon-Shone, Wongphanich, Reverente, Go, Roh, McIntyre,

COVINGTON & BURLING Mr. John A. Dollisson May 25, 1989 Page 3 Liao, Kim and Somera. For the reasons noted in the second of David's memoranda, Dr. Wongphanich cannot now be regarded as a full-fledged member of the group. But she will be attending the Bangkok meeting and, given her position with the Asian Occupational Health Association, she ought to be of substantial value to us over time. Additionally, we learned on our second trip to Hong Kong that Dr. McIntyre has decided to return to the U.K. We thus plan to delete him from our Asian contingent and add him to our U.K group. Finally, but by no means insig- nificantly, we have reestablished a productive ongoing working relationship with Dr. Linda Koo, who is the single most promi- nent ETS scientist in all of Asia. Although Dr. Koo, for reasons that I think you understand, cannot afford formally to join our group, the ability we have developed to consult with her should pay substantial dividends. -You will note in that connection, as you review the Bangkok agenda, that Dr. Koo has agreed to make a presentation in Bangkok on the ETS/lung cancer issue. With Dr. McIntyre's relocation to the U.K., we will be left with eight full-fledged group members (i.e., excluding for the moment Drs. Wongphanich and Koo). That leaves us with at least two slots for Japanese scientists when we are given permission to proceed there. On the financing side, the story is as follows. We thus far have paid consultant bills totaling $25,486.93. We have advanced those payments out of firm funds and are awaiting reimbursement. We have on hand two additional consultant statements totaling $39,232.29, which we forwarded to the participating companies on March 20 ($2,968.72) and April 21 ($36,263.57), respectively. Our hope is that company checks covering these statements will arrive here on time to avoid our having to advance additional monies from our firm to keep the project afloat. I am prepared, however, to arrange an additional advance if that should prove to be necessary. The great bulk of the $64,719.22 in consultant charges described in the preceding paragraph ($25,486.93 plus $39,232.29) has been for time charges incurred in identifying candidate scientists and for the two recruiting trips to various Asian countries that have been completed. In addition, we anticipate receiving over the next several weeks statements from our individual consultants totaling approximately $25,000. Those statements will cover the consultants' time charges in reading the ETS literature packets we have provided to them, doing other work in preparation for the Bangkok meeting and actually attending the Bangkok meeting. Finally, travel and time charges for the scientific trainers for the Bangkok meeting (Drs.

COVINGTON & BURLING Mr. John A. Dollisson May 25, 1989 Page 4 Leslie, Roe, Perry and Koo) should be in the neighborhood of $20,000. The latter figure does not include any allowance for Dr. Chris Proctor, whose expenses will be borne by BAT, or any time charges for Dr. Perry. I plan to cover Dr. Perry's time charges out of an annual retainer agreement that we have nego- tiated through Dr. Helmut Gaisch. Thus, the total consultant fees that we anticipate incurring up to and including the time of the Bangkok meeting -- at which time we would hope to be able to deliver a group of trained consultants -- is approxi- mately $110,000 ($65,000 plus $25,000 plus $20,000). As I have mentioned to Jan Goodheart, legal fees and expenses for our work in Asia during the first calendar quarter of 1989 totaled $98,056.51. Of that amount, $60,257 was for time charges and the remainder ($37,799.01) was in disburse- ments and other expenses. Approximately $42,000 of the $60,257 in time charges are directly attributable to the ETS consultant project. Those charges covered our first recruiting trip to Asia, ending with the session that David and I attended with company representatives in Hong Kong to report on the results of the trip and to discuss future plans. In addition, of course, we spent substantial time during the first quarter reviewing articles that had been written by candidate scien- tists, working with Drs. Leslie and Weinberg in identifying candidates, preparing ETS literature packages, consulting with representatives of the participating companies on individual candidates, and so forth. The remaining $18,000 in first quarter 1989 time charges are not attributable to the scien- tific consultant project, covering such matters as our January 1989-~t_r.~. ~to Hong Kong, the work that we did in coordinating ~ ACVA semi~r~r in Hong Kong, providing advice in connection with_t-he-article that appeared in the International Tax-Free ~ Trader, rev' win th entation that Dr. Fran is Roe made • a~_~hP pM ~o~pszra~e a_ffa~rs seminar, completing some miscel a- neous assignments in connection with our discussions on air- line smoking issues and reading background materials discussing corporate affairs developments in Asia. Of the $37,799.01 in first quarter disbursements, $22,991.01 were attributable to the ETS consultant project and were incurred following the decisions by BAT/B&W and Reynolds to participate in the project. Those disbursements should, of course, be subject to sharing among the companies. Inciden- tally, of the $22,991.01 in disbursements.subject to sharing, $9,202.52 represents an additional advance -- not included in the advance mentioned earlier -- to George Leslie for travel expenses and payments to Asian consultants.

COVINGTON & BURLING Mr. John A. Dollisson May 25, 1989 Page 5 I hope to send to you within the next few days first quarter statements from our firm detailing our activities during the first quarter of 1989. Consistently with the cost- sharing arrangements that we have on the ETS consultant project, we will prepare and send two statements -- the first covering our PM-only work and the second, which I understand will be divided equally among the participating companies, covering the ETS consultant project. Please let me know, of course, if you would like us to proceed in some other way. We anticipate that our time charges and expenses for the second quarter of 1989, attributable to the ETS consultant project and therefore subject to sharing, will total approxi- mately $35,000. That total will include the time and expenses incurred on our second recruiting trip to Asia, our work in connection with the Bangkok meeting, discussions with the individual consultants as they have been reviewing their lit- erature packets, further work identifying candidate scientists in Japan (an activity that we now have on hold because of the delay we have experienced in obtaining approval to proceed there) and work on other related matters. We thus anticipating completing the Bangkok meeting, the end point covered by our original $150,000 budget projection, with legal/consultant fees and expenses totaling $210,000 -- a figure that, of course, exceeds the original budget by $60,000. Although I regret that we will be over budget at the end of the second quarter, I hope that you understand that we have made every effort to keep our time and expenses -- as well as those of our consultants -- to as modest a level as possible. As you will see from David's memoranda, we have had more trouble finding consultants in Taiwan than we had antici- pated and travel expenses on trips to Asia from the U.S. and U.K. are significant. While it may provide preciously little solace, you might care to know that Reynolds has established a budget of $850,000 for the recruitment of six ETS consultants in the United States for use by Reynolds-only lawyers in pos- sible ETS-related lawsuits here. The Tobacco Institute Execu- tive Committee approved at its last meeting $1.4 million in additional 1989 funding to permit us to recruit, train and deploy -- on behalf of the U.S. industry -- a total of ten new ETS consultants in the United States. I mention those figures only because they give me some reason to hope that our col- leagues at Reynolds and B&W will understand that the effort in which we are engaged is neither easy nor inexpensive, and that identifying, recruiting and training a total of eight consul- tants from a number of different countries at a cost in the neighborhood of $200,000 represents something of an accomplish- ment., That having been said, I still regret that we were not

COVINGTON & BURLING Mr. John A. Dollisson May 25, 1989 Page 6 able to complete the first phase of the project within the $150,000 cost estimate that we provided to you. Please let me know if you have questions about any of the matters that I have covered. When you have a moment, I would appreciate having any thoughts that occur to you that might lead to our breaking the deadlock that exists with respect to Japan. We also need to begin planning deployment, during the period following the Bangkok meeting, of the ETS consultants we have recruited. Best wishes. Sincerely, jz~ John P. Rupp Attachments ceb bcc with attachments: Ms. von Maerestetten Mr. Pollak