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S ~1yr~1 TOBACCO WEEKLY Farrell Dehnan President CORPORATE FINANCE RJR NAMES HARPER CEO, RICCIARDI PRESIDENT; VON DER HEYDEN RETIRES S S On 5/27 RJR Nabisco Holdings Corp. (RJR) named Charles M. Harper chairman and ceo, replacing Louis V. Gerstner Jr. who resigned in 3/93 to take the top spot at IBM. The company also announced the appointment of former co-chairman Lawrence R. Ricciardi as president and the retirement of former co-chairman Karl von der Heyden. Mr. Harper's not have any experience in the cigarette business, RJR spokesman Jason Write said the company was looking for a good marketeer. "Packaged goods are packaged TW93-21 May 27,1993 FITCH ANALYZES CIGARETTE MANUFACTURERS CASH FLOW Tobacco analvsts repo ed in ' th~t the tobagco industry face~ an~n cerfai-n cashlow~ res t o e cigarette price war, t e continued shift tpward less protitale iscount cigarettes, and the specter of increased excise taxes -- w}uch could further reduce overall domestic ret 4 consut~pti~~~ "However, with the exce'ption of Brooke Gr up, l[d., w~ich may tae (,`hap~er 1f later (his~pear, to6acco companies wil be able to maintain overali credit quality i) the are willing To materiall redu,r.e cjiscreti na outl ~i ry sjock Anc~ ryca~ ys, such as ureas~s of,treasu acquts~tions," ~itch sat . T~ie report further detatled the six major cigarette manufacturers net free cash flow (Fitch Research S/17). goods," he said. Henry Kravis, whose Investment firm controls RJR, contacted Harper about the job several months ago. Kravis reportedly had discussed the position with him in 1988, however, Harper declined to accept. Some industry analysts were "stunned" by the announcement. "Leave it to Henry Kravis to do the dramatic thing," said Prudential Securities Inc. analyst John McMiilin. (see RJR on page 2) EXCISE TAXES appointment to RJR takes effect 5/31 as he will resign as chairman of ConAgra Inc. -- a$20bn company with interests ranging from frozen foods to cooking oAs. At ConAgra, Harper started the successful 'Healthy Choice' food line, which spawned at least a dozen other brands named "healthy.". Although Harper does OPPOSITION TO CIGARETTE TAX IS FIRM IN SC Although some Kentucky burley tobacco growers may not fight a proposed Federal cigarette excise tax increase (see TW 93-19), according to tobacco warehouseman George Abbott, South Carolina flue-cured tobacco growers remain opposed to any kind of cigarette tax increase. The Kentucky growers are threatening to boycott the anti-tax efforts unless an agreement can be reached with cigarette (see SC on page 2) CT: HIGHER CIGARETTE TAX APPROVED On 5/19 Connecticut Gov. Lowell Weicker (I) signed the State's omnibus tax bill, S 842, which MO: LEGISLATURE PASSES HEALTH(CARE BhLL9,e 2) INCLUDES TOBACCO TAXES On 5/18 both the Missouri House and Senate passed S 564, the State's health care bill. The measure would increase the cigarette tax by 4a (from 130 (see MO: on page 2 & 3) USE ACCOMMODATION & RESTRICTION CO-WORKERS MOST INFLUENTIAL IN GETTING SMOKERS TO QUIT According to a study released on 5/24 before the annual meeting of the American Psychiatric Association, co-workers can be more influentiai than a smoker's spouse, children, doctor or friends in influencing the smoker to stop smoking. Researcher Cheryl Gore-Felton, who is working toward a Ph.D. in counseling at Stanford University, conducted the research among 112 adult long-time smokers. TOBACCO MERCHANTS ASSOCIATION OF THE U.S., INC. TEL: (609) 275-4900 MD: WOMAN ALLEGEDLY ATTACKED FOR SMOKING On 5/22 Debra Jane Lowenstein alleged that Paul Korotki, a lawyer, and his friend, Harry Steven, attacked her for smoking a cigarette in a Baltimore Countv. MaWand restaurant -- even though she was seated In the designated smoking area. Lowenstein filed battery charges against the men claiming Korotki struck her like an old-time faith healer saying, "Heall Heall," while Steven tried to tie her belt loops to the chair. 3vu1rQeQ1! 915 P.O. BOX 8019 PRINCETON, N.J. 08543-8019 FAX: (609) 275-8379

RJR Continued from pgge 1 The retirement of Mr. von der Heyden is considered a blow to RJR because he played a key role In cutting RJR's debt load in half to about $14bn, and his departure comes on the heels of the resignation of top Nabisco executive Ellen Marram, who recently left to take a top post with Seagram Co. "You want more continuity," said McMlllin. Phil Sokolof, head of the National Heart Savers Association, a group that praised ConAgra's efforts to reduce fat content In food said Harper "will be hard-pressed to come out with a 'Healthy Choice' cigarette." Asked about his feelings on taking over a tobacco company, Harper said, "Obviously, it's not a matter of great concern to me, otherwise I wouldn't be doing what I'm doing" (WSJ, NYT 5/28). CONSOUDATED SAVORS CIGAR SALES RENAISSANCE Featured in two news articles, Consolidated Cigar Corp., is reportedly capitalizing on the trend toward expensive cigars by releasing a new line of products. Among the new products is a new version of 'H. Upmann' cigars sold In natural wood boxes and -- the company's biggest move -- a new, Americanized version of the legendary Cuban 'Montecristo' cigar. Founded in 1918 when six independent cigar manufacturers banded together, Consolidated bought the trademarks of famous Cuban cigar brands like 'Montecristo' and 'H. Upmann' in the early 1970's. The new 'Montecristo' wUl sell for about $5 each In a copy SC Continued from page 1 manufacturers concerning the importation of foreign tobacco. While Abbott said the import Issue was important, he thinks the burley farmers have only themselves to blame for the rise In Imports because they failed to produce as much tobacco as they were permitted to grow under the Federal tobacco program. "1 think it's fair to say that most of the flue-cured growing community is firmly in opposition to any kind of tax increase, State or Federal," Abbott said (State [Coiumbia,SC] 5/17). CT: Continued from page 1 includes a provision to Increase the cigarette tax in two steps. On 7/1 the State's cigarette tax will increase by 20 per pack to 47e, then on 7/1 /94 it will increase to 50¢ per pack (TMA Leg-database). MO: Continued from page 1 to 17e) per pack and impose a new 10% OTP tax. In addition, local cigarette tax rates, which are imposed in more than 120 cities, would be capped at rates in effect of the original yellow and red packaging, and will be made In the Dominican Republic using a special blend that includes Cuban-seed tobacco, the company said. Speaking about the comeback in premium cigar sales, Richard DiMeola, executive vp of Consolidated said, "They're back In fashion because we're discovering that a cigar still means male bonding: sitting In a comfortable chair, and just having a good chat." In 1992 sales of premium cigars -- which are those priced from $1 to $20 or more -- increased 5%, said Norm Sharp, president of the Cigar Association of America. "Personally, I think a $2 cigar is just as good as a $12 cigar," DiMeola said. "I even tell our customers that. But they keep buying expensive cigars. So guess what, we're going to make them" (Knight-Ridder 5/25). UGGETT OFFERS EARLY RETIREMENT 4/21 was the last day for employees to accept an early retirement package aimed at trimming Liggett Group Inc.'s Durham, NC payroll, however, the number of employees who opted for the package is not known. "We're still in the process of gathering everything up," said Uggett manager of communications, Carol Jova. "We regret this action is necessary. However, we are trying to accomplish this down-sizing as fairly as necessary for all Liggett employees," the company said. Uggett officials have declined to speculate about the possibility of forced layoffs after reviewing the results of its early retirement and separations package. Officials have also declined to talk about how many workers may have accepted the offer (Herald-Sun [Durham,NCJ 4/22). .qr10/1. Upon approval by Gov. Carnahan (D), S 564 will take effect 10/1 (TMA Leg-database). MIUTARY TOBACCO SALES BILL PROPOSED On 5/19 Sen. Jeff Bingaman (D-NM) introduced S 992, the "Military Tobacco Sales Act." The legislation would subject cigarette and OTP military sales at commissaries, exchanges, and ships' stores to all State and local excise taxes and would require that the price charged for cigarettes and OTP in military stores located outside of the US to be the prevailing price charged by private commercial businesses. In remarks made before the Senate, Bingaman said that his proposal was consistent with President Clinton's health care goals and accused cigarette manufacturers of lowering their prices "to attract and retain smokers In a declining market." Bingaman added "the military is one market In which the tobacco industry has met with long-standing success," and said the reason for a higher smoking rate among military personnel compared with the general population was because of lower tobacco prices charged at military installations. The bill was referred to the Committee on Armed Services for consideration (TMA Leg-database). • • S 2 TW93-21

S • S WORLDWATCH CLAIMS CIGARETTE TAX HIKE WOULD IMPROVE HEALTH, CUT COSTS According to a study released by Workiwatch Institute during a 5/26 press conference hold In Washington, DC, President Clinton's proposal to raise the Federal cigarette excise tax by $2 a pack would cut government spending on health care, produce a healthier and more effective workforce, and bring in revenue to mitigate health care costs. The Worldwatch study analyzed US and international data on taxation, consumption, and alleged social "costs" of smoking. The full study will be available in 7/93 for $10.95 a copy (DaNy Report for Executives 5/27). FL: TOBACCO TAXES EUMINATED A 25¢ per pack cigarette tax Increase and similar OTP tax, proposed by Florida's Gov. Chiles (D) to fund prison construction, was amended out by the Legislature In a Special Session. Reportedly, 84% of the respondents to a Safe Streets Now poll supported the concepts of Chiles' plan to build more prisons, with 8196 supporting the plan after being informed that a 25e cigarette tax would be used to fund the prison expansion. However, after the Legislature convened its Special Session on 5/24, Gov. Chiles said he would not seek a cigarette tax hike because welfare costs would be $167mn under budget, freeing the money for other uses. Also, House and Senate committees amended Chiles' plan and passed a plan to build 10,524 more prison beds instead of the 20,000 more beds Chiles' had proposed (Miami Herald 5/18, Gannett 5/22, UPI 5/25). IL: CIGARETTE TAX "DEAD" Although MjpQjB Senate President James Philip (R) proposed raising the State's cigarette tax by 700 per pack as a means to fund Medicaid and to "discourage teenagers from smoking," such a tax Increase was pronounced as "dead" by other Senators. Philip's plan SMOKERS Continued fom page 1 After the smokers filled out a questionnaire about such things as how important it was to them that their children wanted them to stop smoking and how likely it was that they would stop based on co-workers' attitudes, they were randomly assigned to one of three treatments. While the method of treatment did not make a difference In their smoking cessation success rate, researchers claimed that co-workers' attii:udes were the strongest of the social pressures measured, followed in order by attitudes of the smoker's children, doctor, friends, and, ranked lowest by a wide margin, spouse. Smokers reportedly pick up co-workers' attitudes by such things as not seeing colleagues smoke and noticing a lack of ashtrays at office social gatherings. "it really goes to people wanting to be accepted," Gore-Felton said. The results suggest that TW93-21 would have raised the State's current 30¢ per pack tax to $1 per pack and raise an estimated $50pmn annually -- which would be matched by Federal funds - to pay for Medicaid. But Gov. Edgar (R) and other legislative leaders did not embrace Philip's plan. Harry'Bud' Kelley, executive director of the Illinois Association of Tobacco & Candy Distributors said: "We're dealing In a legitimate product. If you take this [cigarette) tax that high, you're going to create an illegitimate business, and it's called bootlegging." Reportedly, no other tax proposals have been offered (Gannett News Service 5/19, Chicago Tribune 5/20, UPI 5/26). OR: "SIN TAXES" TO PAY FOR HEALTH CARE On 5/19 Oregon State Health Services Executive Director Paige Sipes-Metzler told a California "watchdog" organization which is lobbying for government controlled health care, that Oregon is likely to fund the additional cost of Its universal health care plan through a combination of "sin" taxes and levies on providers, but oniy until a general- funding mechanism can be adopted. Sipes-Metzler expressed optimism that the Legislature would pass a bill -- within the next six weeks -- to Impose provider taxes and increase alcohol and cigarette taxes to raise the projected $83.6mn needed over the next two years to fund the State's health care plan. However, she did not speculate on what the higher cigarette tax rate would be. Eventually, the State's additional need for revenue to fund the program will have to come from a more generally funded source, she said, such as a State sales tax. Sipes-Metzler said there was "great reticence" among designers of the health plan to incorporate some form of a higher premium for "bad" health habits such as smoking or drug abuse, explaining that the State wanted first to emphasize education and prevention. She did not, however, rule out "personal responsibility" premiums at a later date (Daily Report for Executives 5/21). -~,,~1 programs designed to assist workers stop smoking can have some benefit, she said (AP 5/25). MD: Continued from page 1 Lowenstein's lawyer, Craig M. Kadish, said the 5/15 incident is "scary" and "strikes at the heart of the smokers' rights issue." "This implies that If someone doesn't like what you're doing, even if it's legal, you may not be safe," said Kadish, who daimed that his client "was increduious that this could happen to her while seated in a public restaurant." In 1990 Korotki's license to practice law was suspended for 18 months after State investigators concluded that he had overcharged Baltimore firefighters who had been badly burned fighting a magnesium fire (Washington Post 5/22). 51712 8209 3

LOCAL ANTI-TOBACCO ACTIVITIES In Ca(lfamla , Sapt$eoga Fashion Park Mail held an anti-smoking event on 5/21 In honor of the 5/31 World No-Tobacco Day 1993, and announced that it will ban smoking In all common areas of the mall. On 5/20 the Rancho Palos Verdes City Council approved an ordinance to ban smoking In restaurants and to restrict smoking In bars. On 6/16 the Moorpark City Council Is expected to approve a broad-based smoking ban (PR 5/20, Los Angeles Times 5/21,). • In Howard County. Ma and a County Council member introduced a proposal to ban smoking in all enclosed public places, including restaurants and bars. Restaurant owners spoke-out against the proposal saying their businesses would be put at a"competftive disadvantage" with restaurants located in neighboring Counties that permit smoking (Washington Post 5/20). • The Metro Omaha_ Nebraska Tobacco Awareness Coalition was recently formed to lobby for anti-tobacco legislation and enforce existing sales and consumption restriction laws (USA Today 5/26). • In Qb(Q, Gov. Voinovich's (R) Executive Order to ban smoking in all State-owned or-leased buildings takes effect 6/13. The Franklin Countv and C" Columbia Boards of Health are considering a broad-based smoking ban proposal. Under the proposed rule, smoking would be banned in nearly all public places, inciuding bars, restaurants, bowling aileys and shopping malls. Only buildings not under the health boards' Jurisdiction and tobacco stores wouki be exempt from the smoking ban (UPI 5/24). CA: SMOKING RESTRICTION BILLS ADVANCE On 5/19 two smoking restriction bills passed the CalffoCpla Assembly Ways and Means Committee and were sent to the floor for debate. A 13, which would ban smoking in virtually all indoor workplaces, and A 996, which would adopt Statewide smoking restrictions In workplaces, restaurants and other public places, and would also preempt more stringent local ordinances, both advanced to the Assembly floor, where a major debate is expected. "It will be a big fight, but I think we have a good chance of winning," said A 13 sponsor Terry Friedman. Curtis Tucker Jr., sponsor of A 996, said his bill would provide a balance between the health concerns of workers and the economic health of restaurants and other businesses with patrons who smoke. A 996 was also supported by restaurant owner Jimmy Murphy because he said R tries to "balance the concerns and rights of all parties -- business, the public, smokers and nonsmokers -- and Is therefore worthy of broad support." (Sacramento Bee 5/20). • In other action, on 5/13 the California Assembly passed A 291, which would prohibit smoking in the Capitol and put into law Gov. Wilson's 2/93 Executive Order (see TW 93-08) banning smoking in all State buildings (fMA Leg-database). .~~ MARKETING & DISTRIBUTION WA: SAMPUNG, VENDING RESTRICTION LAW APPROVED On 5/18, the same day he approved the State's higher tobacco taxes, Washingt;on Gov. Mike Lowry (R) signed H 2071 Into law. The measure gives the Liquor Control Board authority over tobacco sales, restricts vending machine locations, sampling and the use of coupons, and preempts new local ordinances. The law takes effect on 7/25 (TMA Leg-database). .~~ ANTI-TOBACCO CAMPAIGNS SURGEON GENERAL, AMA URGE FTC ACTION AGAINST CIGARETTE ADS At a 5/26 news conference, Surgeon General Antonia Novello and the American Medical Association (AMA) called on the Federal Trade Commission (FTC) to stop cigarette manufacturers from using ads which are allegedly targeted toward people under 18 years of age. Both the AMA and Novello singled out 'Camel' ads as an example of such advertising. "We don't mind If they advertise. What we object to Is to use a comedic figure to appeal to the youth of America," said AMA President John Clowe. Clowe also announced the winners of an AMA-sponsored contest for the best children's poem, letter, essay or poster telling 'Old Joe Camel' why he should stop smoking. Among the 175,000 entries, three contest winners were announced with each winner receiving a $200 savings bond and a two-day trip to Washington, DC to meet Novello. In addition, each winner's school gets a $5,000 grant for educational or recreational supplies (UPI 5/26). FIRE-SAFE CIGARETTE MEETING SCHEDULED The Consumer Product Safety Commission and a technical advisory group will meet on 6/11 to discuss the research status of fire-safe cigarettes. The meeting will take place in Washington, DC (Product Safety Letter 5/24). • 4 TVV93-21

• ANTI-TOBACCO REP. PROFITS FROM PM STOCK In 4/93 Rep. Tom Foglietta (D-PA) Introduced legislation to eliminate the tax deduction for expenses Incurred In the advertisement of tobacco products, however, he reportedly faAed to mention that in 1/93 he sold all but 35 of his shares in Philip Morris Co. Inc. (PM) which were worth between $16,002 and $65,000. Financial disclosure forms lawmakers are required to fite annually with the Clerk of the US House show Foglietta purchased 150 shares of PM as recently as 12/92. He earned between $201 and $1,000 in interest on the PM holdings last year, records show. "This particular Investment shows what kind of public servant Tom is," said Fogiletta spokesman Anthony Green. He has taken actions that "directiy hurt his investments." Green said Foglietta will sell his remaining 35 shares of PM (State News Service 5/21). LEAF & TRADE USDA ANNOUNCES GRADE LOAN RATES On 5/25, the USDA's Commodity Credit Corp. (CCC) announced that grade loan rates for the 1993 crop of flue-cured tobacco, based on the price support level of $1.577 per pound, range from $1.04 to $1.92 per pound. This compares to the 1992-crop grade loan rates which ranged from $1.05 to $1.93 per pound, based on the average support level of $1.56 perr pound. The 1993-crop grade loan rates reflect minor adjustments from the 1992 rates due to changes in the level of price support as well as shifts In the historical average grade distribution. The Flue-Cured Tobacco Stabilization Corp., as in the past, will deduct 10 per pound from the grade loan rates to help defray administrative overhead costs (USDA News 5/25). James F. Vari Issues Manager S • TW9.3-21 5

_~ TOBACCO TAX GUIDE The country's most comprehensive source of information on current tobacco tax law. .,  Legislative and regulatory activity in all 50 states.  Federal Section.  Summarizes all tobacco products tax laws.  Minors Sections.  Point of sale requirements.  Allocations of tax revenues.  Current list of State Tobacco Tax Administrators.  Quarteriy Updates.  Quick and Easy Reference The GUIDE has a color-coded comparison section which presents an easy reference overview of rates and tax policy for each state. The format, which includes helpful maps and charts, is the same for all states. •  Complete Accuracy Complete accuracy in the GUIDE is maintained through TMA'S direct contact with State Administrators. Quaterly updates include new laws and regulations, or material changes in the laws which would be of interest to the industry. Available to TMA Members for $495 and Non-members for $795. Upadates are $100 Annually. Tobacco Merchants Association of the U.S., Inc. P.O. Box 8019 Princeton, NJ 08543-8019 Phone (609) 275-4900 Fax (609) 257-8379 0