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EXECUTIVE REPORT OF ACTIVITIES S&T NEUCHATEL February, 1992 THE MAIN POINTS ` A V%4 ev ,'04lD~,k 1. SAFEGUARDING COMMERCIAL INTERESTS IN THE MARKET PLACE AND AT THE LEVEL OF APPLIED TECHNOLOGY - Unfair competition, patent infringement, product related aspects such as ingredients, etc. Results : BARCLAY, COCOA, COOKED FLAVOURS, ELECTROSTATIC PERFORATION, TOBACCO EXPANSION (DIET), ULTRA-SLIM CIGARETTES ....................... p 2 2. THE CREATION AND CULTIVATION OF GOODWILL FOR PHILIP MORRIS Reason : Goodwill is, in many instances, the critical element for success. Approach : Put the right S&T team together, good relations with important personalities, a well-balanced research programme, up-grade friends, take a lead within Industry, seek co-operation, avoid fruitless confrontations. Results : PROFESSIONAL S&T TEAM, GOOD EXTERNAL RELATIONS, A BALANCED MIX OF RESEARCH TOPICS, TOP CLASS CONSULTANTS & RESEARCHERS, SUCCESS WITH THE MEDIA ................................•--.......--•--.................. p 3 3. COUNTERACTING AND ANTICIPATING REGULATORY CONSTRAINTS - Taxation, tariffs, smoking restrictions, advertising, promotion, sponsorship, health warnings, MCL's, ingredients, pesticides.. Approach : Remove the ("moral") base of anti-tobacco measures and point towards the real socio-economic priorities in Europe and the world. Results : NETWORK OF FRIENDS, FAVOURABLE OUTCOME OF HEARINGS, USABLE MESSAGES, ASSISTANCE TO ALLIES, INFORMATION FOR LOBBYISTS .............. p 5 4. S&T PROVIDING A SCIENTIFIC SERVICE FUNCTION TO PHILIP MORRIS Approach : Provide the requested services, gather information for anticipating future events, discuss and alert within PM. Results : PRESENTATIONS CREATED, BRIEFING MATERIAL UPDATED CONTINUOUSLY, BRIEFS GIVEN AND SEMINARS HELD, JOINT PLANNING WITH CA, LEGAL AND OTHER PM DEPARTMENTS ............................................................ p 6 2501254590

Activity report, S&T - page (2) I AN OVERVIEW This report covers a selection of past S&T activities and results. 1. SAFEGUARDING COMMERCIAL INTERESTS IN THE MARKET PLACE AND AT THE LEVEL OF APPLIED TECHNOLOGY - Unfair competition, patent infringement, product related aspects such as ingredients, etc. Approach : * Follow developments, keep all business aspects in mind, anticipate events, liaise with other PM departments, devise strategies, maintain readiness, bring together all necessary capabilities from pure science to patents, review capabilities constantly, act. Results : * BARCLAY - Pat Sheehy, the Chairman of BAT, introduced Barclay with the intention to attack and eventually overtake Marlboro on the international scale. This was thwarted, and S&T was prominently involved in scoring the decisive victories that forced BAT to the negotiating table, ie. the Cologne unfair competition trial blocking the German Barclay launch, the Berlin BGA hearing resulting in the creation of the temporary Barclay-specif DIN "Vornorm", the Oslo lobbying resulting in the introduction of the DIN 'Vornorm' in Norway, the Munich patent court trial wiping out B&W's channel ventilation patents, the GCC lobbying efforts (eg. Mrs. Maarafi, Kuwait) leading to the DIN "Vornorm" becoming compulsory for Barclay, the Geneva unfair competition trial forcing "double figures" on Barclay in Switzerland, and the ISO lobbying efforts (Finland, Czechoslovakia, India, Egypt, Belgium, Norway, Germany, GCC) resulting in a revision of the international standard. * COCOA/CHOCOLATE - This important casing ingredient was deliberately excluded from the original ISCSH (Hunter) list in the UK. As it would have been ill-advised to use an ingredient which was disallowed in an important country, we had to obtain the ISCSH's approval. Experimental work at INBIFO served as base for a submission, personally delivered by Drs. Osdene & Gaisch to Dr. Fairweather (ISCSH/DHSS), which was accepted, resulting in cocoa/chocolate to be listed in the London Gazette as tobacco additive, also authorised for use in the U.K. * COOKED FLAVOURS - These PM-specific indispensable ingredients to reconstituted sheet were not included in the original "Hunter" list in the UK. S&T prepared a submission based on "toasting flavours", developed by

Activity report, S&T - page (3) R&D Neuchatel, and patented for FTR, which were tested at INBIFO and the Life Sciences Institute, and, upon presentation (Marcovitch, Gaisch), authorised by the ISCSH. The approval was published in the London Gazette. * FTR MACHINE PATENT - S&T handled the_negotiations in 1983 on behalf of FTR with the German packaging machine company Niepmann, Gevelsberg, to conclude a licence agreement for a machine development made by FTR engineers. This was the first time in the history of PM that a patent was licenced to a machine manufacturer. * ELECTROSTATIC PERFORATION - Benkert, a German company, had filed patents for this type of ventilation technology which could be of competitive importance in low-technology countries. S&T took action which resulted in a rejection of the Benkert patents in Germany and other key countries. As soon as the Benkert patent was defeated in 1986, Olin, an American company came up with a similar Patent, which was also successfully opposed in 1987, paving the way for the freedom to use this technology. * TOBACCO EXPANSION (DIET) - Support given to PM USA in their litigation with B&W/BAT in the DIET patent interference case (1986), which Philip Morris eventually won. * ULTRA-SLIM CIGARETTES - Action against the B&W patents was started in 1989 with the objective to achieve freedom to use ultra-slim cigarettes. The case is pursued in parallel in Switzerland, Germany and Japan and should be terminated soon. 2. THE CREATION AND CULTIVATION OF GOODWILL FOR PHILIP MORRIS - (This is not a"motherhood" objective). Goodwill is essential for succeeding in crucial situations, such as litigations (need for friendly witnesses and a good image of the Company), submissions to legislators (development of mutual trust with the bosses and sympathy of the staff), public debate (again trust and mutual respect). Approach : * Make S&T a team of true professionals. Develop the range of expertises, skills and language capabilities necessary for successfully dealing, either directly or through friends and allies, with journalists, lawyers, administrators, representatives of other industries (eg. British Airways) or the consumers (eg. Swiss Consumer Union), etc., so as to be able to establish contact with virtually anybody through a "common friend". 2501254592

Activity report, S&T - page (4) * Seek co-operative and constructive relationships and avoidance, whenever possible, of confrontations, adversarial situations. Results : * A coherent and motivated S&T team was built which can address all issues facing the Industry, embracing knowledge in the biological sciences, chemistry, physics, psychology, mathematics & statistics, engineering & patent matter, being also able to communicate in a considerable number of languages. * Solid business experience has been accumulated and is embodied in the team. * Good relations were established with leading scientists and engineers throughout Europe, getting a good balance of disciplines, languages and countries (see list under item 3). * Specific research was supported to obtain vital data and/or to enhance our consultant's knowledge and academic reputation : Improving ventilation systems in offices, at the workplace and in public transport (Perry, Neurath, the TNO team, the CERIA team, ACVA/Link, the Fresenius team, Swiss office buildings, Belgian railways, McDonnel-Douglas, Schindler, British Airways, Swissair, Balair, Martinair, SAS, etc.); a better understanding of the nicotine metabolism in order to avoid pitfalls in the interpretation of dose estimates based on body fluid or hair measurements (Wahren, Gorrod, Nilsen, Schwartz, INBIFO, Fresenius); improved basic scientific understanding in order to counter preconceived ideas on tobacco use (Tassin/receptors, Vincze/adducts, Syman/oncology, Schneider & Schwartz/low level riks, competitive risk, Molimard/behaviour, Lee/smoking statistics, Syrianen & Hirt/viral oncogenesis, Weetman/inconsistencies in standardi- sation, Wahren & Gorrod/metabolic pathways & mechanisms, Warter & Micheletti/neuromotricity, etc.). * S&T's expertise is recognised within the Industry, eg. S&T speaks on behalf of the ASFC, S&T continued to contribute on scientific matter to TAC, Dr. Reif is a leading pesticide expert, recognised throughout the Industry. On many occasions we took the lead in Industry relations (CORESTA, ISO, NMA's). * Background briefings to the media were given. In many instances we succeeded in establishing very good personal relations. We simply presented facts, remained professional and provided information in a much wider field than most visitors expected us to do, sketching a picture of 2501254593

Activity report, S&T - page (5) the many areas of real public and personal concern. This not only satisfied a genuine interest, but also made it easy to show that many widely held views were quite fallacious. It also allowed us to draw attention to the real issues of this world, so as to put the tobacco issues into perspective and thus to forestall unfavourable reports on tobacco use in the media. 3. COUNTERACTING AND ANTICIPATING REGULATORY CONSTRAINTS - Taxation, tariffs, smoking restrictions (ETS), advertising, promotion, sponsorship, health warnings, MCL's, ingredients, pesticides. Direct S&T action and support of Corporate Affairs. Approach : * Demonstrate to lawmakers that, under the changed economic climate, the pursuit of outdated socio-economic policies could easily become politically suicidal but that there are viable alternatives. * Remove the "moral" base of anti-tobacco legislative efforts by exposing the fallacious nature of most anti-tobacco allegations. To discreetly feed the media with supportive information. * Discreetly assist Third World countries anti-tobacco campaigns and in demanding in denouncing WHO's misleadin~ the discontinuation of these campaigns, in view of the potential damage they may otherwise cause to Third World economies and welfare. Results : * We created, maintained and further developed a European network of friendly scientists for potential expert/witness use, including the sponsorship of specific research and the organisation of international scientific meetings (Scientists . Roe, Lee, Schneider, Tassin, Weetman, Molimard, Cerioli, Manzo, Neurath, Martin, Perry, Poma, Schwartz, Wahren, Voss, Leslie, Battig, Altmann, Bieva, Skrabanek, Lenges, Hirt, etc., Research : College de France (Paris), TNO (Delft), Swiss Federal Cancer Research Institute (Lausanne), Imperial College (London), Kings College (London), Semmelweiss University (Budapest), University Hanover, Karolinska Institute (Stockholm), University of Strasbourg, University of Brussels, etc., Meetings : London 88 IAQ, Brussels 89 IAQ, Lisbon 90 IAQ, Visby 90 Nicotine, Montreux 91 IAQ, Venice 91 ARISE, Athens 92 IAQ). * The creation of IAI, an independent international association on indoor air quality was discreetly solicited by S&T and put into effect by key ARIA 2501Z54594

Activity report, S&T - page (6) members (ARIA is an association of our consultants. The name stands for Associates for Research on Indoor Air). * Some of the scientists appeared in hearings and as solicited experts, eg. Perry, Select Committee of the House of Commons on Indoor Air Quality; Schneider, various expertises on risk assessment and population trends for the German Federal Government and European Community, Leslie on IAQ in a range of countries on behalf of IAI, etc. * We developed messages in usable formats, adapted to be used by a range of messengers - Packages of S&T presentations on the structure of health issues in develoged and developing countries, correcting misconceptions on smoking and "passive" smoking , issues, fundamental re-thinking and re-structuration of health care (abolition of advocacy campaigns, give priory to certain specific aspects of curative medicine and surgery, take a management approach to social integration for the care of the elderly and the disabled), to take into account the decline of birthrates in Western Europe (age strata with population deficits) and their impact on work force / consumer patterns, indicate how to counteract the growing up-market migration pressures across Europe. Books, reports and briefing documents written by top-class experts (Atteslander, Skrabanek, etc.), published by respected and listened-to think-tanks (Digby Anderson, Martino, etc.) re-enforcing our messages. The briefing documents serve a two-fold purpose, as they are intended for direct use by our lobbyist in their personal contacts and as they are the seminal material (source) for secondary media stories (eg. the Digby Anderson, Skrabanek books). This project has now entered the phase of a novel series of documents being prepared for lobbying. * Scientific assistance was given to allies such as smoker's rights groups in their attack on WHO's anti-tobacco programme (HEN-RY, Roykringen, Smokepeace, and the Finnish Group, Hu-Tu), and to personalities close to the government in Zimbabwe, Malawi and South Africa (The latter efforts are presently ongoing and Messrs. Sharif and Carlson were, and still are, being kept "au courant"). * Creation of the so-called "ad-hoc" group (CA/S&T) to create information packages for the specfic needs of our lobbyists. The first four-language report on "priority setting in public health" (working title) is under way. 25Q1254595

Activity report, S&T - page (7) 4. S&T PROVIDING A SERVICE FUNCTION TO PHILIP MORRIS - S&T fulfilled an in-house consultants' function, principally in providing scientific advice upon specific requests either within the Company or towards the outside. Overall objective : To provide the service requested by Corporate Affairs and others, and to gather information that might enable PM to anticipate future events. Results : * The proposed Norwegian "Zero Nicotine" indoor air standard was succesfully opposed, thus avoiding a bad precedent, S&T having provided the attorneys with the necessary technical argumention. * The counteraction in Sweden against certain formulations and exaggerated sizes of HWL was successful, S&T having provided the scientific input to the attorneys. * S&T created range of presentation packages, such as "Tobacco science and technology", "Smoking, health and population structure", "ETS and indoor air quality", "Why people smoke", "Air quality at the workplace", "Air quality in aircraft", etc, consisting of sets of overhead projector slides, videos and handouts. The following video material was developed by us - "What about Smoking" (78), "Care for a Smoke" (79), The Science of Quality" (88), "Of People and Numbers" (90), "Why People Smoke" (90), "The EEC Map on Lung Cancer Incidence" (91), and for restricted use, "International News" (91). Within the subject of "Tobacco science and technology" we gave specialised tailor-made presentations to persons associated with Industry, colleagues from other tobacco companies, INFOTAB, ITGA (The International Tobacco Growers Association), smokers' rights groups, etc. on subjects such as ingredients, pesticides, smoke chemistry, tobacco growing in the Third World, tobacco processing (primary, sheet making, expansion), filter technology, etc., contributing to the fact that PM is the leading edge of the Industry on strategic thinking (ie. where PM goes, the Industry goes). * Presentations were given, in co-operation with INFOTAB, to ambassadors to the UN agencies in Geneva. * Numerous presentations to the media were given, amounting to several hundred attendees (In recent years there was hardly a week without a presentation being given). The principal presenters were Marcovitch, Reif, Badstuber, Martin, and Gaisch. We gave presentations in seminar form to PM, resp. Affiliate staff, and to outside guests. The duration ranged from 20 2501254596

Activity report, S&T - page (8) min briefs to complete two-day seminars. Presentations were also given in outside locations such as Oslo, Stockholm, Helsinki, Copenhagen, Brussels, London, Paris, Milano, Rome, Lagos, Abijan, Casablanca, Harare, Athens, Cairo, Vienna, Eibsee (near Munich), Telfs (near Innsbruck), etc. The persons addressed came from Germany, Britain, Italy, France, Belgium, Norway, Sweden, Finland, Denmark, Turkey, Greece, China and Switzerland, including well-known names such as Nigel Hawkes, the science editor of "The Times". Interviews were given to Italian, French and Belgian television and French and Swiss radio. * Frequent exchanges of view and discussions with Corporate Affairs, Legal, and other PM departments took place, transmitting information gathered by S&T, with the aim of anticipating future events, resulting in strategic planning. Helmut W. Gaisch adequate Neuchatel, 9th February, 1992