Peter Vemiero
Attorney General of New Jersey
Attorney for Plaintiff
R.J. Hughes Justice Complex
CN 112
Trenton, New Jersey 08625

By: Peter Vemiero Attorney General
(609) 984-8466

Counsel for plaintiffs:

Susan Nial
Michael Testa
Michael Ferrara
Ness, Motley, Loadholt
Basile & Testa. P.A.
Ferrara & Rossetti
Richardson & Poole

Lee S. Goldsmith
Michael Gordon
Donald A. Cammitt
Goldsmith & Richman, P.A.
Gordn & Gordon, P.C.
Breslin & Breslin, P.A.


SUPERIOR COURT OF NEW JERSEY
CHANCERY DIVISION-MIDDLESEX COUNTY
DOCKET NO: ___________________

THE STATE OF NEW JERSEY,
BY PETER VERNIERO, ATTORNEY
GENERAL OF THE STATE OF NEW
JERSEY, Plaintiff

v.

R.J REYNOLDS TOBACCO COMPANY
THE AMERICAN TOBACCO COMPANY
BROWN & WILLIAMSON TOBACCO
CORPORATION, B.A.T. INDUSTRIES
PLC, BATUS HOLDINGS INC., BRITISH
AMERICAN TOBACCO COMPANY,
LTD, BRITISH-AMERICAN TOBACCO
(HOLDINGS), LTD, PHILIP MORRIS
INCORPORATED (PHILIP MORRIS
U.S.A), LIGGETT & MYERS INC.,
LORILLARD CORPORATION, THE
COUNCIL FOR TOBACCO RESEARCH
U.S.A, INC. (.successor in interest to the
TOBACCO INDUSTRY RESEARCH
COMMITTEE), TOBACCO INSTITUTE,
INC., HlLL & KNOWLTON INC., and
JOHN DOE TOBACCO CORPORATIONS
'A"THROUGH"Z,"
Defendants.

THE STATE OF NEW JERSEY, by Peter Vernero, Attorney General of New Jersey,
with offices located at R.J, Efughes Justice Complex, CN 112, Trenton, New Jersey
08625, by way of complaint says:

1.The State of New Jersey brings this action pursbant to its constitutional, statutory,
common law, and/or equitable authority, including without limitations N.J.S.A. 56 :8-9,
for the purposes, inter alia of obtaining injunctive and equitable relief, including
restitution as well as for the purposes of obtaining reimbursement for all money paid for
the expense and costs that the State has incurred, and continues to incur, in providing
health care and other services to the citizens of the State who suffer, or who have
suffered, from tobacco-related injuries, diseases a nd illnesses as a result of the actions of
defendants. This action sounds in equity, statutory and common law, and, unless
otherwise noted, each and every count alleged applies to each and every defendant.

Parties
Plaintiffs

2.The State of New Jersey is a sovereign state of the United States. Attorney General
Peter Vernicro brings this action for relief on behalf of the State of New Jersey pursuant
to his common law parens patriae power, in order to discharge his obligations of
protecting the public interest, and property, and of enforcing public duties, through the
institution of appropriate legal proceedings on matters affecting the public interest. In
addition, the Attorney General brings this action pursuant to his statutory authority to act
as legal counsel for the Governor and. all State of New Jersey officers, departments,
boards, bodies, commissions and instrumentalities in all legal proceedings in which they
have an interest, As provided in X.J.S.A. 52:17A-4. Specifically, the Attorney General
also brings this action in order to vindicate the public interest, pursuant to iv..l S.A. 26- 1-
1 el seq.; N.JS.A. 56:8-1 el Feq., to protect the Children cif the State of New Jersey
targeted by the defendants' marketing and promotional efforts, pursuant to N.JS.A.
2C:414(b), and all other applicable State of New Jersey statutes and regulations.

Defendants

3. R.J. Reynolds Tobacco Company ("R-J. Reynolds") is a New Jersey corporation
whose principal place of business is located at 4th & Main Street, Winston-Salem, North
Carolina 27102. At times pertinent to the Complaint, defendant R.J. Reynolds Tobacco
Company designed, tested, manufactured, marketed and sold cigarettes for use in the
State of New Jersey or materially participated, conspired, assisted, encouraged and
otherwise aided and abetted one or more of the defendants in doing so.

4. The American Tobacco Company ("American Tobacco") is or was a Delaware
corporation whose principal place of business is or was located at 6 Stamford Forum,
Stamford, Connecticut 06904. At times pertinent to the Complaint, defendant The
American Tobacco Company designed, tested, manufactured, marketed and sold
cigarettes for use in the State of New Jersey or willfully participated, conspired, assisted,
encouraged and otherwise aided and abetted one or more of the defendants in doing so.

5. Brown & Williamson Tobacco Corporation ("Brown & Williamson") is a Delaware
corporation whose principal place of business is located at 1500 Brown & Williamson
Tower, Louisville,Kentucky 40202. Defendant Brown & Williamson Tobacco
Corporation -- is or was an agent, alterego, subsidiary and/or division of defendant Batus
Holdings, Inc., defendant British American Tobacco Company, Ltd., defendant British-
American Tobacco (Holdings), Ltd., and/o defendant B.A,T. Industries, PLC. At times
pertinent to the Complaint, defendant Brown & Williamson Tobacco Corporation
designed, tested, manufactured, marketed and sold, cigarettes for use in the State of New
Jersey or materially participated, conspired, assisted, encouraged and otherwise aided and
abetted one or more of the defendants in doing so.

6. B.A.T. industries, PLC ("BAT") is i a British corporation whose registered office is
located at Windsor House, 50 Victoria Street, London, England SWIH ONL in the United
Kingdom. Defendant B.A.T, Industries, PI.C is or was the parent corporation of
defendant Brown & Williamson Tobacco Corporation and defendant Batus Holdings, Inc.
At times pertinent to the Complaint, defendant B,A.T. Industries, PLC, individually
and/or through its agents, alter egos, subsidiaries and/or divisions, defendant Brown &
Williamson Tobacco Corporation and defendant Batus Holdings, Inc., designed, tested,
manufactured, marketed and sold cigarettes for use in the State of New Jersey or
materially participated, considered, assisted, encouraged and otherwise aided and abetted
one or more of the defendants in doing so.

7. Batus Holdings, Inc. ("Batus") is a Delaware corporation with its principal place of
business at 1500 Brown & Williamson Tower, Louisville, Kentucky 40202. Defendant
Batus Holdings, Inc. is or was an agent, alter ego, subsidiary and/or division of defendant
B.A.T. Industries, PLC, defendant British-American Tobacco (Holdings), Ltd., and/or
defendant British American Tobacco Company, Ltd, Defendant Batus Holdings, Inc. is a
parent corporation of defendant Brown & Willi n Tobacco Corporation. At times
pertinent to the Complaint, defendant Batus Holdings, Inc., individually and/or through
its agent, alter ego subsidiary and/or dimensions defendant Brown & Williamson
Tobacco Corporation, designed, tested, manufactured, marketed and sold cigarettes for
use in the State of New Jersey or materially participated, conspired, assisted, encouraged
and otherwise aided and abetted one or more of the defendants in doing so.

8. British American Tobacco Company, Ltd., is a British corporation whose registered
oflice is at Milbank, Knowle Green, Staines, Mddlesex, England TWI8 IDY in the United
Kingdom. Defendant British American Tobacco Company, Ltd., is or was a parent
corporation of defendant Brown & Williamson Tobacco Corporation and defendant
BATUS. At times pertinent to the Complaint, defendant British American Tobacco
Company, Ltd., individually and/or through its agent, alter ego, subsidiary and/or
division, defendant Brown & Williamson Tobacco Corporation, designed, tested,
manufactured, marketed and sold cigarettes for use in the State of New Jersey or
materially participated, conspired, assisted Encouraged and otherwise aided and abetted
one or more of the defendants in doing so.

9. British-American Tobacco (Holdings), Ltd., is a British corporation whose registered
office is at Millbank, Knowle,Green, Staines, Middlesex, England TW]8 IDY in the
United Kingdom. Defendant British-American Tobacco (Holdings), Ltd., is or was a
parent corporation of defendant Brown & Wilson Tobacco Corporation and defendant
BATUS. At times pertinent to the Complaint, defendant British-American Tobacco
(Holdings), Ltd., individually and/or through its agent, alter ego, subsidiary and/or
division, defendant Brown & Williamson Tobacco Corporation, designed, tested,
manufactured. marketed and sold cigarettes for use in the State of New Jersey or
materially participated, conspired, assisted, encouraged and otherwise aided and abetted
one or more of the defendants in doing so.

10. Philip Morris incorporated (Philip Morris U.S.A.) ("Philip Morris")'is a Virginia
corporation whose principal place of business is located at 120 Park Avenue, New York,
New York 10016. At times pertinent to the Complaint, defendant Philip Morris
Incorporated (Philip Morris U.S.A.) designed, tested, manufactured, marketed and sold
cigarettes for use in the State of New Jersey or materially participated, conspired, assiste4
encouraged and otherwise aided and abetted one or more of the defendants in doing so.

11. Ligget & Myers, Inc. ("Liggett") is a Delaware corporation whose principal place of
business is located at 700 West Main Street, Durham, North Carolina 27701. At times
pertinent to the Complaint, defendant Liggett & Myers, Inc., designed, tested,
manufactured, marketed and sold cigarettes for use in the State of New Jersey or
materially participated, conspired, assisted, encouraged and otherwise aided and abetted
one or more of the defendants in doing so,

12. Lorillard Corporation ("'Lorillard") is a Delaware corporation whose principal place
of business is located at 1 Park Avenue, New York, New York 10016. At times pertinent
to the Complaint, defendant Lorillard Corporation designed, tested, manufactured,
marketed and sold cigarettes for use in the State of New Jersey or materially participated,
conspired, assisted, encouraged and otherwise aided and abetted one or more of the
defendants in doing so.

13. The Council for Tobacco Research - U.S.A-, Inc. (successor in interest to the Tobacco
Institute Research Committee ("TIRC")) ("CTR") is a non-profit corporation organized
under the laws of the State of New York with its principal place of business located at
900 3rd Avenue, New York, New, York 10022. At all times pertinent to the complaint,
defendant, Council for Tobacco Research - U.S.A., Inc., acted individually and as the
agent and/or co-conspirator of the tobacco industry.

14. Tobacco Institute, Inc. ("TI") is a nonprofit corporation organized -under the laws of
the State of New York with its principal place of business located at 1975 "I" Street NW,
Suite 800, Washington, D.C. 20006. At all times pertinent to the complaint, defendant,
Tobacco Institute, Inc., acted individually and as the agent and/or co-conspirator of the
tobacco industry.

15. Hill & Knowlton, Inc., is a Delaware corporation with its principal place of business'
located at 420 Lexington Avenue, New York, New York 10070. At all times pertinent to
the coropration, defendant, Hill & Knowlton, Inc,. acted individually and as the Agent
and/or coconspirator of the tobacco industry.

16. John Doe Tobacco Corporations "A" through "Z" business entities, both domestic
and foreign, whose identities are presently unknown to plaintiff, but who may be
described as certain manufacturers, distributors, and/or trade organizations, public
relations firms, law firm, and/or other .such entities which may have designed, tested,
manufactured, marketed and sold cigarettes for use in the State of New Jersey or
materially participated, assisted, encouraged, and/or otherwise aided and abetted one or
more of the other defendants in doing so or materially participated, conspired, assisted,
encouraged and otherwise aided and abetted one or more of the defendants in doing so.

Nature of the Action
17. Through this action, the Attorney General seeks to protect the public interest, and the
public health of New Jersey citizens, through his request for various forms of equitable
relief including, without limitation, injunctive relief prohibiting the promotion and sale of
tobacco products to minors. In addition, the Attorney General seeks restitution from the
defendants for the expense and costs that the State has incurred and continues to incur, in
providing health care and other related services to the citizens of the State, resulting from
the wrong conduct of the defendants. Such sums were expended, and continue to be
"pended," in order to pay for health care costs and other related services resulting, in
whole or in part, from use by New Jersey citizens Of tobacco products. The State of New
Jersey has expended, and continues to expend, such sums pursuant to various State
programs. The Attorney General also seeks relief pursuant to the Consumer Fraud Act
and Civil RICO, N.J-S. 2C-41-1 in order to recover monies fraudulently obtained.

Conduct Allegations
A. General
18. At all pertinent times, defendants acted individually and by and through their duty
authorized agents, servants and employees who were then acting in the course and scope
of their employment and in furtherance of the businesses of said defendants. At all
pertinent times, defendants Tobacco Institute and Council for Tobacco Research were the
agents, servants, and/or employees of defendants and acted individually and/or within the
scope of said agency, servitude and/or employment. At pertinent times, defendant Hill
and Knowlton was the agent, servant, and/or employee of defendants and defendants
Tobacco Institute and Council for Tobacco Rsearch and acted individually and/or within
the scope of said agency, servitude and/or employment.

19. Defendants, and/or their predecessors and successors in interest, themselves and/or
through their agents, servants, employees and instrumentalities, performed such acts as
were intended to, and did, result in, assist and/or contribute to the design, testing,
manufacture, marketing or sale of cigarettes for use in the State of New Jersey. In
connection with these acts, defendants, and/or their predecessors and successors in
interest, transacted business within the State of New Jersey, committed the acts
complained of herein within the State of New Jersey, owned, used or possessed real estate
in the State of New Jersey, contracted to insure persons, property or risk located within
the State of New Jersey, entered into express or implied contracts to be performed in
whole or in part in the State of New Jersey, and/or caused injury and continues to cause
injury to persons or property within the State of New Jersey.

20. The cigarettes for which these defendants are responsible are substantially
interchangeable.

21. Substantially similar issues, both legal and factual, are involved in determining
liability of each of these defendants.

22. At all pertinent times, defendants purposefully and intentionally engaged in these
activities, and continue to do so, knowing full and well that when the State of New
Jersey's citizens used those cigarettes as they were intended to be used, that the State of
New Jerseys citizens would be substantially certain to suffer injury, disease, and illness,
including cancer, emphysema, heart disease, and other illnesses causing disability and
death and that the State of New Jersey itself would be economically injured thereby.

23. Also, at all pertinent times, defendants purposefully and intentionally engaged in
these activities, and continue to do so, knowing full and well that the State of New Jersey
would unofficiously confer a benefit upon defendants by providing or paying for health
care and other necessary medical goods and services for certain of the State of New
Jersey's citizens thus harmed by the intended use of defendants' cigarettes, and. in the
absence of performance of such duty by defendants, that the State of New Jersey itself
thereby would be harmed.

24. Cigarette-related disease has killed and continues to a untold millions of Americans.
The Center for Disease Control (."CDC") has estimated that over 400,000 persons die
each year from smoking. Approximately one in five deaths is attributable to smoking.
Thousands of citizens of the State of New Jersey die each year as a result of smoking
cigarettes. Each day, more than 3,000 young people begin to smoke--or more than one
million each year. Most of the new smokers who replace the smokers who quit or die
prematurely from smoking-related disease are children or teens. About 90% of smokers
born since 1935 started smoking before age twenty-one (21) and almost 50 percent
started before age eighteen (IS).

25. The monetary consequences of smoking cigarettes are equally as staggering. In May
of 1993, the Office of Technology Assessment advised the (United States Congress that
in 1990 smoking-related illnesses cost United States taxpayers a total of approximately
$68 billion, broken down as follows-. $20.8 billion in direct costs; $6.9 billion in indirect
costs for morbidity; $40.3 billion indirect costs for mortality.

26. The State of New Jersey spends hundreds of millions of dollars each year to provide
or pay for health care and other necessary facilities and services on behalf of indigents
and other eligible residents whose said health care costs are caused by tobacco-induced
cardiovascular disease, lung cancer, emphysema and other respiratory di as well as the
complications of pregnancy and childbirth, including but not limited to low-weight
babies.

27. The CDC recently found that there are currently over 1. 1 million adult smokers
within the State, with the highest percentage failing within the 25-44 year old age group.
As to the health care effects of smoking by New Jersey citizens, the study indicates that,
in 1990. 12,605 deaths were related to smoking, resulting in loss of 151,773 years of
potential life, and total medical costs in excess of $1.1 billion. The actual numbers of
smokers in New Jersey, and the costs in medical care resulting from smoking-related
conditions, are unquestionably higher as of the current date.

28. Defendants have known for decades of the lethal dangers of smoking their cigarettes.
By the late 1930's, based on published research, defendants had notice of the potential
health hazards presented by smoking cigarettes. In 1946, defendants' chemists
themselves reported Concern for the health of smokers. Dr. Ernst L. Wynder, in 1953,
reported to the scientific community, and to defendants, a definitive link between
cigarette smoking and cancer,

B. .The Composition of the Cigarette Industry in the United States
29. Philip Morris, RJR, Brown & Williamson, B.A-T. Industries, Lorillard, Liggttt and
ATC (hereafter sometimes collectively the "cigarette companies") together control
virtually 100% of the cigarette market in the United States and New Jersey. Philip
Morris and RJR are the largest cigarette manufacturers, with market shares in the United
States of 42 percent and 30 percent, respectively. The national market shares of the other
defendant tobacco companies are approximately as follows: Brown Williamson - 11
percent; Lorillard - 7 percent; ATC - 7 percent; and Liggett 2 percent.

30. The cigarette industry is one of the most profitable industries in the United States,
with profit margins estimated to be in the range of 30 percent. Industry profits are in the
billions of dollars annually from domestic sales alone.

31. The unusual concentration of the cigarette industry has facilitated the planning,
implementation and funding of a decades-long conspiracy by the cigarette companies and
their trade associations and attorneys relating to the issues of smoking, health and
addiction.

C. 1994 Congressional Testimony by Cigarette Manufacturers
32. The basic terms of the industry strategy of deception are intact today. For example,
on April 14,1994, seven tobacco company chief executives testified under oath before the
Subcommittee on Health and the Environment of the Committee on Energy and
Commerce, U.S. House of Representatives, chaired by Congressman Waxman.
("Waxman Subcomiittee"). Each of these executives knowingly made material
Misrepresentations and/or omissions to the Waxman Subcommittee.

33. For example, Chairman Waxman and Andrew Tisch, CEO of Laril lard, had the
following exchange about smoking and cancer:

Mr. Waxman: In a deposition last year you were asked whether cigarette smoking causes
cancer. Your answer was "I don't believe so" Do you stand by that answer today?

Mr. Tisch: I do, sir,

Mr. Waxman: Do you understand how isolated you are in the belief from the entire
scientific Community?

Mr. Tisch:I do, sir, Mr. Waxman-You're the head of manufacturing of a product that's
been accused by the overwhelming scientific community to cause cancer, You don't
know? Do you have an interest in finding out?

Mr. Tisch: I do, sir, yes.

Mr. Waxman: And what have you done to pursue that interest?

Mr. Tisch:We have looked at the data and I the data that we have been able to see has all
been statistical data that has not convinced me that smoking causes death.

34. Philip Morris President and CEO William 1. Campbell gave the following testimony
about nicotine and addiction:

a. "Philip Morris does not manipulate nor independently control the level of nicotine in
our products."

b. "Cigarette smoking is not addictive."

c. "Philip Morris research does not establish that smoking is addictive."

35. RJR CEO James W. Johnston told the Subcommittee that: "smoking is no more
addictive than coffee, tea, or Twinkies."

36. These assertions are contradicted by overwhelming evidence that smoking kills, and
that nicotine is addictive.

37. These representations were also made despite a substantial body of evidence
developed by the cigarette manufacturers themselves, dating from as early as 1962,
indicating that nicotine is not only addictive, but is the reason why people smoke.

38.While the tobacco manufacturers continue to deny that nicotine is addictive and
instead use various misleading euphemisms to describe the role of nicotine, such as
"satisfaction," "impact," "strength," "rich aroma"' and "pleasure," there is widespread
agreement in the medical and scientific communities that its primary, if not sole, function
is to make tobacco products addictive.

39. Nicotine is recorded as an addictive substance by such major medical organizations as
the Office of the U.S. Surgeon General, the World Health Organization, the American
Medical Association, the American Psychiatric Association, the American Psychological
Association, the Amencan Society of Addiction Medicine and the Medical Research
Council in the United Kingdom. All of these organizations acknowledge tobacco Use As
a form of drug dependence or addiction with severe adverse health consequences.

40. The testimony of the cigarette manufacturers that smoking is not a proven cause of
disease and death, and that nicotine is not addictive, is also contradicted by their own
internal documents. Numerous documents, many marked confidential, describe industry
studies that show that the cigarette companies have known for decades that nicotine is
addicting, and that their products cause cancer, disease, and death, The cigarette
manufacturers have made every effort to hide this research from the public, and to
misrepresent the facts about smoking, health and addiction. The testimony of the
cigarette executives before Congress last year is only a recent example of an ongoing
pattern of deception and suppression that began more thin 40 years ago.

D. The 1953 "Big Scare" and the Joint Industry Response
41. In December, 1953, Dr. Ernest L. Wynder of the Sloan-Kettering Institute published
the results of a study where he painted the shaved backs of mice with cigarette smoke
condensate residue. Malignant tumors grew in 44 percent of the mice in Dr, Wynder's
study, providing biological evidence that cigarette smoke caused cancer. The previous
year, a British researcher, Dr. Richard Doll, published a statistical analysis showing that
lung cancer was more common among people who smoked and that the risk of lung
cancer was directly proportional to the number of cigarettes smoked. The widespread
reporting of these studies caused what cigarette company officials later called the "Big
Scare."

42. The cigarette industry responded quickly to the mounting adverse publicity of a link
between smoking and cancer. The Chief Executive officers of the leading cigarette
manufacturers met on December15, 1953, at the Plaza Hotel in New York City. Also in
attendance was the public relations firm of Hill & Knowlton which was to play a central
role in formulating and executing the industry response.

43. According to a Hill & Knowlton memorandum summarizing the meeting, cigarette
industry executives viewed the problem as "extremely serious, and worthy of drastic
action." The document continues "officials stated that salesmen in the industry are
frantically alarmed and that the decline in tobacco stocks on the stock exchange market
has caused grave concern. .

44. The participants in the meeting agreed that a strong public relations response from the
industry was necessary. From the beginning, the emerging research linking smoking and
cancer was viewed by the defendants as a public relations problem, not a public health
issue. According to the Hill & Knowlton memorandum summarizing the meeting:

a. The Chief Executive officers of all the leading companies, except Liggett, "have agreed
to go along with a public relations program on the health issue." Liggett decided not to
participate at this point because it "feels that the proper procedure's to ignore the whole
controversy."

b. "They feel that they should sponsor a public relations campaign which is positive in
nature and is entirely 'pro-cigarettes,"'

c. "They are also emphatic in saying that the entire activity is a long-term, continuing
program, since they feel.that the problem is one of promoting cigarettes and protecting
them from these and other attacks that may be expected in the future, Each of the
company presidents attending emphasized the fact that they consider the program to be a
long-term one."

d. The role of Hill & Knowlton in executing the plan was also discussed. "The current
plans are for Hill and Knowlton to serve as the operating agency of the companies, hiring
all the staff and disbursing all funds."

E. Creation of the Tobacco Industry Research Committee
45. Nine days later, Hill & Knowlton presented a detailed recommendation to, the
cigarette companies. The recommendation recognized the importance of gaining the
public trust, find avoiding the appearance of bias, if the "pro-cigarette" industry strategy
was to be successful. According to the memorandum:

The grave nature of a number of recently highly publicized research reports on the effects
of cigarette smoking. . . - have confronted the industry with a serious problem of public
relations.

It is important that the industry do nothing to appear in the fight of being callous to
considerations of health or of belittling medical research which goes against cigarettes.

The situation is one of extreme delicacy. There is much at stake and the industry group,
in moving into the field of public relations, needs to exercise great care not to add fuel to
the flames.

46. As a result of the meeting of December 15. 1953, and the recommendations of Hill &
Knowlton, five of the six cigarette companies agreed to create the Tobacco Industry
Research Committee. ("TIRC"). Liggett joined the industry trade group in 1964, the
same year the Surgeon General issued his first report on smoking which concluded that
cigarette smoking was a cause of lung cancer. Also in 1964, TIRC changed its name to
the Council for Tobacco Research ("CTR"). A second trade group, the Tobacco Institute
("TI"), was formed by cigarette manufacturers in 1958.

F. TIRC Control
47. As had been proposed at the December 15, 1953 meeting, the cigarette companies
(except Liggett), through the tobacco attorneys and Hill & Knowlton, operated and
effectively controlled TTRC.

48. 'I'IRC was physically established in the Empire State building, one floor below the
Hill & Knowlton offices. Internal documents confirm that Hill & Knowlton, and not the
independent scientists, actually ran TIRC. A "highly confidential" internal memo
reported:

Since the (TIRC) had no headquarters and no staff, Hill and Knowlton, Inc. was asked to
provide working staff and temporary office space. As a first organizational step, public
relations counsel assigned one of its experienced executives, W.T. Hoyt, to serve as
account executive and handle as one of his functions the duties of executive secretary for
the TIRC,

49. The confidential memorandum also states that Hill & Knowlton "provided assistance
in selecting" the TIRC Scientific Advisory Board-, "proposed" the Scientific Director;
and "handled liaison, agendas, organizational plans, business affairs,. reports, and
materials for meetings of the Tobacco Industry Research Committee, and the scientific
Advisory Board . . . in addition to developing operating procedures for the research
program. . ."

50. In 1954, 35 staff members of Hill & Knowlton worked full or part time for TIRC. In
that year, TIRC spent $477,955 on payments to Hill & Knowlton, over 50 percent of
TIRC's entire budget.

G. The Industry's Response to Smokers

51. Shortly after creating TLRC, defendants made an unambiguous pledge to the public,
including the people of New Jersey. Defendants represented that, through TLRC, they
would conduct and report objective and unbiased research regarding smoking and health.
When they made this representation defendants intended that the public and government
regulators believe and rely upon it, and knew or should have known that New Jersey
consumers would consider the representation material to their decisions to purchase and
smoke cigarettes and that government regulators would consider the representation
material to their decisions to regulate cigarettes. At that time, and continuing to the
present, defendants knew or should have known that their failure to fulfill the duty they
undertook would directly increase the health care costs to New Jersey.

52. On January 4, 1954, defendants announced the formation and purpose of TIRC with a
full page newspaper advertisement entitled "A Frank Statement to Cigarette Smokers."
The statement appeared in newspapers across the nation, reaching a circulation of
43,245,000 in 258 cities, The advertisement ran in daily newspapers across the country
including New Jersey.

53. The "Frank Statement to Cigarette Smokers" stated in pan:

a. "Recent reports on experiments with mice have given wide publicity to a theory that
smoking is in some way linked with lung cancer in human beings,

b." Although conducted by doctors of professional standing, these experiments are not
regarded as conclusive in the field of cancer research."

c. "There is no proof that cigarette smoking is one of the causes" [of lung cancer.]

d. "We accept an interest in people's health as a basic responsibility, paramount to every
other consideration in our business,"

e. "We believe the products we make are not injurious to health."

"We have always and always will cooperate closely with those whose task it is to
safeguard the public health."

9."We are pledging aid and assistance to the research effort into all phases of tobacco use
and health."

h. "For this purpose we are establishing a joint industry group consisting initially of the
undersigned. The group will be known as TOBACCO INDUSTRY RESEARCH
COMMITTEE."

i. "In charge of the research activities of the Committee will be a scientist of
unimpeachable integrity and national repute- In addition there will be an Advisory Board
of scientists disinterested in the cigarette industry. A group of distinguished men from
medicine, science, and education will be invited to serve on this Board, These scientists
will advise the Committee on its research activities.'

j. "This statement is being issued because we believe the people are, entitled to know
where we stand on this matter and what we intend, to do about it."

54. By the spring of 1955, the self-defense strategy recommended by Hill & Knowlton
and implemented by the industry through the "Frank Statement' was largely successful.
Hill & Knowlton reported to TRLC:

a. It progress has been made" "The first 'big scare" continues on the wane.

b. "The research program of the TIRC has won wide acceptance in the scientific world as
a sincere, valuable and scientific effort."

c. "Positive stories are on the ascendancy,"

H. History of Industry Knowledge that Smoking is Harmful

55. Even before defendants represented in the Frank Statement that "(there is no proof
that cigarette smoking is one of the causes of lung cancer," an -industry researcher had
reported the contrary.

56. As early as 1946, Lorillard chemist H.B. Pamele, who later became Vice President of
Research and a member of Lorillard's Board of Directors, wrote to his company's
manufacturing committee:

Certain scientists and medical authorities have claimed for many years that the use of
tobacco contributes to cancer development in susceptible people. Just enough evidence
has been presented to justify the possibility of such a presumption,

57. After the 1954 "Frank Statement.' the cigarette industry's breach of its assumed duty
to report objective facts on smoking and health was virtually immediate. As evidence
mounted, both through industry research and truly independent studies that cigarette
smoking causes cancer and other diseases, the cigarette industry continued publicly to
represent that nothing was proven against smoking. Internal documents show that the
truth was very different. The cigarette companies knew and acknowledged among
themselves the veracity of scientific evidence of the health hazards of smoking, and at the
same time suppressed such evidence where they could, and attacked it when it did appear.

58. Internal cigarette industry documents reveal, for example:

a. A 1956 memorandum from the Vice President of Philip Morris' Research and
Development Department to top executives at the company regarding the advantages of
"ventilated cigarettes" stated that: "Decreased carbon monoxide and nicotine are related
to decreased harm to the circulatory system as a result of smoking. . Decreased irritation
is desirable. . , as a partial elimination of a potential cancer hazard."

b. A 1958 memorandum sent to the Vice President of Research at Philip Morris who later
became a member of its Board of Directors from a company her stated the evidence. . . is
building up that heavy cigarette smoking contributes to lung cancer either alone or in
association with physical and physiological factors ....

c. A 1961 document presented to the Philip Morris Research and Development
Committee by the company's Vice President of Research and Development included a
section entitled "Reduction of Carcinogens in Smoke." The document stated, in part,.

"To achieve this objective will require a major research effort, because Carcinogens are
found in practically every class of compounds in smoke.

This fact prohibits complete solution of the problem by eliminating one or two clases of
compounds.

The best we can hope for is to reduce a particularly bad class, L.C., the polynuclear
hydrocarbons, or phenols....

Flavor substances and carcinogenic substances come from the same classes in many
instances."

d. A 1963 memorandum to Philip Morris' President and CEO from the company's Vice
President of Research describes a number of classes of compounds in cigarette smoke
which are "known carcinogens." The document goes on to describe the link between
smoking and bronchitis and emphysema "Irritation problem am now receiving greater
attention because of the general medical belief that irritation leads to chronic bronchitis
and emphysema. These are serious diseases involving millions of people. Emphysema is
often fatal either directly or through other' respiratory complications. A number of
experts have predicted that the cigarette industry ultimately may be in greater trouble in
this area than in the lung cancer field."

e. A 1961 "Confidential" memorandum from the consulting research firm hired by
Liggett to do research for the company states:

"There are biologically active materials present in cigarette tobacco, These are:

a) cancer causing
b)cancer promoting
c)poisonous
d)stimulating, pleasurable, and flavorful."

F. A 1963 memorandum from the Liggett consulting research firm states: "Basically, we
accept the inference of a causal relationship between the chemical properties of ingested
tobacco smoke and the development of carcinoma, which is suggested by the statistical
association shown in the studies of Doll and Hill, Hom, and Dom with some reservations
and qualifications and even estimate by how much the incidence of cancer may possibly
be reduced if the carcinogenic matter can be diminished, by an appropriate filter, by a
given percentage."

59. These internal Liggett documents sharply contrast with the information Liggett
provided to the Surgeon General in 1963. Liggett withheld from the Surgeon General the
views of its reseachers and consultants that the evidence shows cigarette smoking causes
human disease. A "Draft of an Outline for a Background Paper on the Smoking Problem
to be Used in Connection with a Presentation of Arguments Before the Surgeon General's
Committee' states:

a. "All types of Smoking are associated with Increased Morality from all causes
combined. . .

b. "For cigarette smokers who smoke regularly, excess mortality increases with current
number of cigarettes smoked...."

c. "Lung cancer extremely safe among non-smokers . . .

d. As "reported by Hammond ... Excess Mortality [is] (1) higher for cigarette smokers
than others, and (2) increases with daily cigarette consumption"

C. "For both sexes. all chronic respiratory diseases, chronic bronchitis, irreversible
obstructive lung diseases ...increased in prevalence with increasing amount of smoking."
(Emphasis in original.)

60. The report Liggett presented to the Surgeon General did not contain any of these
conclusions, and instead, focused on alternative causes of disease, such as air pollution,
coffee and alcohol consumption, diet, lack of exercise, and genetics, Liggett criticized the
known statistical association between smoking and mortality and various diseases as
"unreliably conducted" and "inadequately analyzed." The Liggett report concluded that
the association between smoking and disease was inconclusive, and was in fact due to
other factors coincidentally associated with smoking.

61. Philip Morris also concealed from the public its actual views of the research
conducted outside the effluence of the industry. A 1971 memorandum written by Dr. H.
Wakeham, then Vice President of Research and Development, discussed a recent study
which found cigarette smoke inhalation caused lung cancer in beagles:

1970 might very property be called the year of the beagle. Early in the year, the
American Cancer Society announced that they had finally demonstrated the formation of
lung cancer in beagles by smoke inhalation in the now infamous Auerbach and Hammond
study. I am sure all of you have read extensively about this in the newspapers, how the
industry asked to have independent panel of pathologists review the histological sections
showing cancer, how the Society refused, how generally the ACS was put on the
defensive, how publication was refused by two medical journals and how the story was
changed somewhat by the time it was published

62. The memorandum goes on to describe how the industry publicly dismissed the mice
cancer studies, such as the 1953 Wynder research. Dr. Wakeham explains that "mouse
skin is not human lung tissue," "smoke condensate has different chemical composition
from inhaled smoke," and painting is not the method of application practised (sic) by
human smokers."

63. In contrast to the mice studies, however, Dr, Wakeham continued:

The logical extension of these objections is that an inhalation test in which an animal
breathed smoke like a human would be a better model system. Presumably, in such a
test, the information of lung cancers in the test animal would be strong evidence for the
cigarette causation hypothesis, That is why the beagle test was a critical one. . So the test
was not conclusive. But it was a lot closer than skin painting.

The strong opposition in the industry to the beagle test is indicative of a new more
aggressive stance on the part of the industry in the smoking and health controversy. We
have gone over from what I have called the "Vigorous denial" approach, the take it in the
chin and keep quiet attitude, to the strongly voiced opposition and criticism. I personally
think this counter propaganda is a better stance than the former one.

64. Taken together with the internal acknowledgments of cigarette smoking as a cause of
human disease, this memorandum from a senior Philip Morris researcher demonstrates
that the 1954 Frank Statement representations were deceptions, and that the cigarette
industry promptly breached the duties it had undertaken. Far from "accepting an interest
in people's health as a basic responsibility, paramount to every other consideration in our
business" and "cooperating closely with those whose task it is to guard the public
health," the cigarette industry approach was to deny and attack with "counter-
propaganda" the mounting evidence that smoking caused human disease evidence that the
industry plainly viewed internally as accurate.

I. Health Risks of Nicotine

65. Not only did the cigarette manufacturers know that cigarette smoking caused cancer
and other disease, they knew that nicotine was toxic to the heart. In a 1963 memorandum
Philip Morris's Wakeharn stated, "The cardiovascular effects in smoke are believed to be
mainly due to nicotine and have been thoroughly explored in literature and conference.
We do not believe this will be a specific area of attack. If forced to, we could produce a
fairly tasty low nicotine product."

66. As alleged in more detail below, in 1980 Philip Morris hired Dr. Victor DeNoble with
the specific mission of research and developing nicotine analogues - compounds that
would mimic nicotine's effect on the brain, but without the cardiovascular effects, such as
rapid heartbeat.

67. Brown & Williamson and its British parent(s) researched the health effects of nicotine
and were aware early on, as reported at a B.A.T. Group Research Conference in
November 1970, that "nicotine may be implicated in the etiology of cardiovascular
disease."

68. A memorandum from Dr. S.R. Evelyn of BATCO, dated May 30, 1974, reported,
"Nicotine- The reported correlation of nicotine with tumori8enicity was considered to be
of the utmost importance to the industry."

69. AGAA in Febuary 1979, BATCO held a group research and development conference
to review the activities of its laboratories located throughout the world. Notes from the
conference reveal that research conducted at a BATCO laboratory found that high
nicotine cigarettes are more tumorigenic and possibly more malignant. The notes also
indicated that the laboratory was continuing work on nicotine analogues.

70. At a 1994 research conference held in the United Kingdom, Brown & Williamson and
BATCO were informed of the harmful effects of nicotine. As a report from that
conference stated:

"The role of nicotine and cardiovascular disease was outlined, in particular the role of
smoke in decreasing prostacyclen and increasing thromboxane levels." Researchers at the
conference also recommended that the company perform additional Studies on the role of
nicotine in heart disease, and its effect on developing fetuses.

J. Repeated False Promises to the Public
71. Despite increasing internal knowledge of the dangers of cigarette smoking which they
did not disclose, the defendants continued, renewed and repeated the representations and
undertakings of the 1954 "Frank Statement to Cigarette Smokers." The cigarette industry
continued to pursue its two-pronged strategy of falsely representing the objectivity of
industry research to the public in order to gain credence, and then misrepresenting,
distorting, and suppressing information in order to support its pro-cigarette position.

72. For example, RJR chairman Bowman Gray told Congress in 1964: "If it is proven that
cigarettes are harmful, we want to do something about it regardless of what somebody
else tells us to do. And we would do our level best, It's only human."

73. Additional representations were made in 1970 when the cigarette industry, through its
lobbying group the Tobacco Institute, placed a number of advertisements similar to the
1954 "Frank Statement." These advertisements stated in part:

a. "After millions of dollars and over 20 years of research: The question about smoking
and health is still a question."

b."[N]o particular ingredient, as it occurs in cigarette smoke, has been demonstrated as
the cause of any particular disease."

c."[A] major portion of this scientific inquiry has been financed by the people who know
the most about cigarettes and have a great desire to learn the truth . .the tobacco industry.
And the industry has committed itself to this task in the most objective and scientific way
possible."

d. "A $35,000,000 program"

e. "In the interest of absolute objectivity, the tobacco industry has supported totally
independent research efforts with completely non-restrictive funding."

f. "In 1954, the Industry established what is now known as CTR, the Council for Tobacco
Research -- U.S.A., to provide special support for research by independent scientists into
all phases of tobacco use and health. Completely autonomous, CTR's research activity is
directed by a board of ten scientists and physicians who retain their affiliations with their
respective universities and institutions. This board has full authority and responsibility
for policy, development and direction of the research effort.".

g. "The findings are not secret."

h. "From the beginning, the: tobacco industry has believed that the American people
deserve objective, scientific answers."

j. "The tobacco industry stands ready today to make new commitments for additional
valid scientific research that offers to shed light on new facets of smoking and health,"

74. Another advertisement in 1970 stated that the industry "believes the American public
is entitled to complete, authenticated information about cigarette smoking and health....
The tobacco industry recognizes and accepts a responsibility to promote the progress of
independent scientific research in the field of tobacco and health."

75. Yet another advertisement co-sponsored by TIRC and the TI called "A Statement
about Tobacco and Health," stated:

We recognize that we have a special responsibility to the public to help scientists
determine the facts about tobacco and health, and about certain diseases that have been
associated with tobacco use. We accepted this responsibility in 1954 by establishing the
TIRC, which provides research grants to independent scientists. We pledge continued
support of this program of research until the facts are known.

Scientific advisors inform us that until much more is known about such diseases as lung
cancer, medical science probably will not be able to determine whether tobacco or any
other single factor plays a causative role or whether.. such a role might be direct or
indirect, incidental or important.

We shall continue all possible efforts to bring the facts to light. In that spirit we are
cooperating with the Public Health Service in its plan to have a special study group
review all presently available research."

76. In 1972 Tobacco Institute President Horace Kornegay testified before Congress:

Let me state at the outset that the cigarette industry is as vitally concerned or more so
than any other group in determining whether cigarette smoking causes human disease,
whether there is some ingredient as found in cigarette smoke that is shown to be
responsible and if so what it is,

That is why the entire tobacco industry. . . since 1954 has committed a total of $40
million for smoking and health research through grants to independent scientists and
institutions.

77. In 1984, RJR placed an editorial style advertisement in the "New York Times"
stating:

Studies which conclude that smoking causes disease have regularly ignored significant
evidence to the contrary. These scientific findings come from research completely
independent of the tobacco industry.:

78. Each of the representations to the public that defendant tobacco companies were
sponsoring independent objective research, that, they were endeavoring to bring the truth
to light, and that the public could therefore rely upon, the statements made, were false and
deceptive. These misrepresentations were designed to gain the trust of the public in order
to better distort and suppress substantive information about smoking and health.

K. The Gentlemen's Agreement

79. This industry strategy depended for its success on joint and concerted action by the
defendants. Upon information and belief, each of defendants agreed not to reveal to the
public the true nature of TIRC, and later CTR, and not to disclose adverse information on
smoking and health, in order to protect continued cigarette sales.

80. Each company also agreed not to perform research oft smoking and health on their
own. This agreement was referred to as the "gentlemen's agreement" . A 1968 internal
Philip Morris draft memorandum entitled "Need for biological research by Philip Morris
research and development," and prepared by the company's Vice President of Research
and Development. states:

We have reason to believe that in spite of the gentlemen's [sic] agreement for the
tobacco industry in previous years that at least some of the major companies have been
increasing biological studies with their own facilities.

81. Also in 1968, a memo addressed to the CEO of Liggett regarding a meeting of the
research directors of the six cigarette companies stated on the topic of smoking and health
"a general Feeling that an industry approach as opposed to an individual company
approach was highly desirable,"

82. As indicated by the 1968 "gentlemen's agreement memo, it was believed within the
industry that individual companies were performing certain research on their own, in
addition to the joint industry research. But the fundamental understanding and agreement
remained intact: that harmful information and activities would be restrained, suppressed,
and/or concealed. This included restraining, suppressing, and concealing research on the
health effects of smoking, including the addictive qualities of cigarettes, and restraining,
concealing, and suppressing the research and marketing of safer cigarettes,

L. Role of CTR as a "Front"
83. Intenal documents demonstrate that the joint industry research efforts undertaken
through TIRC, and later through CTP, were not disinterested or objective. Rather, they
were designed and used to promote favorable research, to suppress negative research
where possible, and to attack n r h where it could not be suppressed, all in order to
convince the public that the "case against smoking is not closed."

84. 1974 report to the CEO of Lorillard provides a retrospective look at some of the true
purposes of the joint industry research effort. Contrary to the public representations of
joint industry research as designed to examine and resolve smoking and health questions,
the author, a Loriliard research executive. described the actual criteria for CTR's selection
of scientific projects:

Historically the joint industry funded smoking and health research programs have not
been selected against specific scientific goals, but rather for various purposes such as
public relations, political relations, position for litigation, etc. Thus, it seems obvious that
reviews of. such programs for scientific relevance and merit in the smoking and- health
field are not likely to produce high ratings. In general, these programs have provided
some buffer to public and political attack of the industry, as well as background for
litigious strategy. .

85. Another internal document from a Tobacco Institute official to the group's president
described the importance of using joint industry research to maintain public doubt about
evidence of smoking and disease:

For nearly twenty years, this industry has employed a single strategy to defend itself on
three major fronts litigation, politics, and public opinion.

While the strategy was brilliantly conceived and executed over the years helping us win
important battles, it is only fair to say that it is not - nor was it ever intended to be - a
vehicle for victory. On the contrary it has always been a holding strategy, consisting of

--creating doubt about the health charge without actually denying it

--advocating the public's right to smoke, without actually urging them to take up the
practice

--encouraging objective scientific research as the only way to resolve the question of the
health hazard

As an industry, therefore, we are committed to an ill-defined middle ground which is
articulated by variations on the theme that, "the case is not proved.

In the cigarette controversy, the public

--especially those who are present and potential supporters (e.g, tobacco state
congressmen and heavy smokers)

--must perceive, understand, and believe in evidence to sustain their opinions that
smoking may not be the causal factor,

As things stand, we supply them with too little in the way of ready made credible
alternatives,

86. A 1979 memo addressed to the CTR file from a Philip Morris official provides
another description of the history and role of the joint industry research effort, a role very
different from that represented to the public.

CTR began as an organization called Tobacco Industry Research Council (TIRC). It was
set up as an industry "shield" in 1954, That was the year statistical accusations relating
smoking to disease were leveled at the industry, litigation began; and the
Wynder/Graham reports were issued. CTR has helped out legal counsel by giving advice
and technical information, which was needed at court trials, CTR has provided
spokesmen for the industry at Congressional hearings. The monies spent on CTR
provides a base for introduction of witnesses.

[T]he "public relations"' value of CTP, must be considered and continued. It is emremeiy
important that the industry continue to spend their dollars on research to show. that we
don't agree that the cast against smoking is closed. There is "CTR basket"' which must be
maintained for "PR purposes....,

97. A former 24-year employee of CTR confirmed in public statements that the joint
industry research efforts were never objective. A woman who wrote summaries of
grantee research for CTR until 1989 stated: "When CTR researchers found out that
cigarettes were bad and it was better not to smoke, we didn't publicize that. "The CTR is
just a lobbying thing. We were lobbying for cigarettes." She continued "In the '60s, there
was so much bad news about smoking that there really wasn't much the CTR could put
out but anything they could find they would use."

88. This evidence demonstrates that the role and purpose of TIRC and CTR in the
cigarette company's strategy was to gain the public's trust, and then to use that trust to
propagate pro-cigarette propaganda. A cigarette industry official wrote in his personal
notes-describing a meeting which included high level officials from the various cigarette
Companies that:

CTR is best & cheapest insurance the tobacco industry could buy and without (it) the
Industry would have to invent CTR or would be dead."

M. The Example of Dr. Freddy Romburger
89. Most CTR sponsored research projects were directed away from research that might
add to the evidence against smoking, Nonetheless, when CTR sponsored research
reached negative results, the information was distorted or simply suppressed.. For
example, Dr. Freddy Homburger, a researcher in Cambridge, Massachusetts, received a
grant from CTR to study smoke exposure on hamsters. Halfway through the study, CTR
changed his funding from a grant to a contract, Dr. Homburger states that the CTR
changed his finding "so they could control publication they were very open about that.
As a consequence, Dr. Homburger was required to send CTR a draft of his proposed
publication of the research results. Dr. Homburger found that when Syrian hamsters were
exposed to inhaled smoke twice a day for 59 to 80 weeks, 40 percent of those of a cancer
susceptible strain and 4 percent of a resistant strain developed malignant tumors.

90. The Scientific Director of CTR and a CTR lawyer, Edwin Jacob of Jacob, Medinger
& Finnegm then visited Dr. Homburger. Dr. Homburger has testified that "[t]hey didn't
want us to call anything cancer." "They wanted it to be pseudo-epitheliomatous
hyperplasia, and that is a euphemism for lesions preceding cancer. And we said no, this
isn't right. It is a cancer." Dr. Homburger also stated that the lawyer told him that he
would "never get a penny more' if the paper was published without making the demanded
changes. Dr. Homburger 'compromised' and changed the paper to read "microinvasive"
cancer.

91. Dr. Homburger apparently then considered making public the events leading to the
change in his paper, Internal CTP, documents describe how Dr. Homburger attempted to
call a press conference, and how CTR stopped it. He was to tell the press that the tobacco
industry was attempting to suppress important scientific information about the harmful
effects of smoking. He was going to point specifically at CTR." "I arranged later that
evening for it to be cancelled." "Homburger was given a cordial welcome and nicely
hastened out the door." "P. S. I doubt if you or Tom will want to retain this note."

N. Special Projects

92. Another mechanism that CTR used to suppress research results that implicated
smoking in disease was to selectively involve lawyers. and then invoke the attorney/client
privilege to prevent the disclosure of harmful information. CTR used the term "special
projects" to mean a project that carried a risk of a negative result that might have to be
suppressed. "Special Projects" were selected and monitored by industry lawyers to
prevent disclosure.

93. Notes prepared at a 1981 meeting of the cigarette industry's Committee of General
Counsel state:

a. When we started the CTR Special Projects, the idea was that the scientific director of
CTP, would review a project. If he liked it, it was a CTR special project, If he did not
like it, then it became a lawyers special project.

[W]e were afraid of discovery for FTC and Aviado, we wanted to protect it under the
lawyers. We did not want it out in the open.

b. Difference between CTR and Special Four (lawyers' projects). Director of CTR
reviews special projects if project was problem for CTR, use Special Four. Also, if there
are work-product claims, need the lawyers' protection, . . . e.g. motivational research that
was done during the FTC investigation was done through S ecial Four because of
possibility that CTR would be subpoenaed.

94. The memorandum addressed to CTR from a Philip Morris official characterizes CTP,
as a "front" for performing "special projects." "[Slpecial projects" are the best way that
monies are spent. On these projects, CTR has acted as a "front" --however, there are
times when CTR has been reluctant to serve in that capacity....

95. The industry's use of lawyers and the claim of attorney/client privilege to insulate
CTR funded research from disclosure to the public and to government officers,
demonstrates that each of the industry representations to jointly fund objective research,
and to report the results of that research to the public was utterly false.

O. Clearing the "Deadwood"

96. Brown & Williamson went to even greater lengths to suppress and avoid disclosure of
its internal research on smoking and disease. A memorandum from Brown &
Williamson's general counsel, J. KendrickWilliamson's. recommended that much of the
'company's biological research be declared "deadwood" and shipped to England. He
recommended that no notes, memos or lists be made about them. Wells stated "I have
marked with an X documents which I suggested were deadwood in the behavioral and
biological studies area. I said that the B series are Janus series studies and should also be
considered deadwood," Janus" was a name of a project which attempted to isolate and
remove the harmful elements of tobacco.) Wills further recommended that the research,
development and engineering department also "should undertake to remove the
deadwood from its files."

P. "Mouse House" Massacre
97. As indicated in an internal tobacco company memorandum, in contravention of the
industry's gentlemen's agreement many of the defendants began to perform biologic
research through their own Facilities. In sharp contrast to the pro-cigarette research
usually sponsored by CTR, some of this research was directed at explanation of this link
between smoking and disease. When this research revealed or suggested that cigarette
smoking is harmful, rather than reporting it to the public as they had undertaken and
represented, the cigarette companies suppressed it.

98. One example of this practice occurred at RJR. In the 1960s, RJR established a
facility in Winston-Salem North Carolina, to perform research on the health effects of
smoking using mice. Nicknamed the "Mouse House," RJR scientists conducted research
in a number of specific areas, including studies of the actual mechanism whereby
smoking causes emphysema in the lungs.

99. The RJFL lab made significant progress in understanding the role of substances
known as pulmonary surfactants in air sacks in the lungs. R.JR researchers learned that
smoking damages the pulmonary surfactants, meaning the lung air sacks were damaged at
the cellular level, and had made progress in teaming how that led to emphysema. Despite
this progress, RJR disbanded the entire research division in one day, and fired all 26
scientists without notice.

100. Several months before the 1970 closure and firings. RJR attorneys had collected
dozens of research notebooks from the scientists.- The notebooks have still not been
disclosed.

101. One of the r hen later stated about RJR's executives and lawyers, "They like to take
the position that you can't prove harm because you don't know mechanism. And sitting
right under their noses is evidence of mechanism. What are they going to do with this
stuff. They decided to kill it."

102. RJR later conducted a confidential report in which the Mouse House emphysema
work-was favorably described. The 1985 report states that the work is "the more
important of the smoking and health research effort because it comes close to determining
what was thought to be the underlying pathology of emphysema." None of the work done
at the "Mouse House" was disclosed to the public.

O. "Safer' Cigarettes
103. One of the reasons RJR and other cigarette companies began to do internal
biological research appears to have been to attempt to develop a cigarette with reduced
health risks. in order to reduce the health risk, studies were needed to discover how
cigarette smoking causes disease. Once this was known, attempts could be made to
remove or modify the harmful agents. Several companies performed research of this kind
by dividing cigarette smoke into its different chemical constituents, or "Fractions," to
discover which part of the cigarette smoke caused disease. Several companies were
successful in discovering which specific constituents in tobacco smoke were carcinogens,
or were linked to other diseases. This research was kept secret and never reported to the
public.

104. Even more shocking, industry documents reveal that a number of companies
successfully removed certain harmful constituents from cigarette smoke, and developed
prototype cigarettes with reduced health effects, but flat these products were never
marketed. The reason was the industry conspiracy not to reveal I research results that
would undermine the unified position that 'there is no proof that smoking causes disease.

105. A memorandum written by an attorney at the firm of Shook, Hardy & Bacon,
longtime lawyers for the cigarette industry, confirmed that there was an industry-wide
position regarding the issue of a safer cigarette. The 1987 memorandum referred to the
marketing by R.J. Reynolds of a smokeless cigarette, Premier, which heated rather than
burned tobacco. The Shook, Hardy attorney wrote that the smokeless cigarette could
"have significant effects on the tobacco industry's joint defense efforts" and that "[t]he
industry position has always been that there is no alternatives design for a cigarette as we
know them," The attorney also noted that, "Unfortunately, the Reynolds announcement ...
seriously undercuts this component of industry's defense."

106. As early as 1959, a memorandum from a Philip Morris researcher to the company' s
Vice President of Research and Development proposed that the company attempt to make
a safer cigarette that could enable it to "jump on the other side of the fence ... on the issue
of tobacco smoking and health. .

107. Philip Morris did perform the research and development of such a product.
However, the company never released the research, and never informed the public that
existing cigarettes were not safe or that a safer cigarette was possible, A 1964 Philip
Morris research and development presentation to its Board of Directors stated:

Two years ago, in anticipation of a health crisis to be precipitated by the Smoking and
14ealth Report of the Surgeon General's Committee, we undertook to develop a
physiologically superior cigarette.

[W]e put together a charcoal filter product with performance superior to anything in' the
market place. That product was known as Saratoga. Physiologically it was an
outstanding cigarette. Unfortunately then after much discussion we decided not to tell the
physiological story, which might have appealed to a health conscious segment of the
market. The product as test marketed didn't have good 'taste' and consequently was
unacceptable to the public ignorant of its physiological superiority.

108. The research and development department at Philip Morris nonetheless continued to
performing research on smoking and health, including research into safer cigarettes. The
company viewed this as necessary in order to compete if another cigarette company
marketed a safer cigarette. This was viewed as less likely, because work was being done
through joint industry sponsered research abroad. The presentation to the Philip Morris
'Board of Directors continued:

In England a research laboratory sponsored by the industry has been established at
Harrogate to do biomechanical research. On the Continent individual companies and
monopolies have agreed to pool research on the health question, thereby reducing it as a
basis for competition. Technical researchers meet to share information and to plan future
work. All these efforts underscore the broad and serious attempts to eliminate what are
generally believed to be harmful aspects of cigarette smoke,

In short, the Research and Development Department is working to establish a strong
technological base with both defensive and offensive capabilities In the smoking and
health situation. our philosophy is not to start a war, but if a war comes, we aim to fight
well and to win.

R. Liggett Safer Cigarette: XA
109. Liggett also developed a safer cigarette. Company researchers believed that they
had discovered which cigarette's smoke constituents were carcinogens, and found a way
to remove them. And unlike the Philip Morris product, Liggett officials believed the
Liggett product was commercially marketable- Nonetheless, in violation of the company's
representations and duty to the public, Liggett never marketed the cigarette, and
suppressed the research that led to its development.

110. Liggett began its reasearch by repeating the smoke condensate painting studies of
mice performed by Dr. Wynder, Through a contract with Arthur D. Little, Inc., Liggett
sought "to determine the validity of Wyndcr's results when the appropriate smoking
conditions were used, and to determine the efforts of different types of tobacco on the
response level. An extensive program was also directed toward defining the nature of the
material responsible for the tumorgenic effects

111. This work began soon after Dr, Wynder's study was published in 1953, and was
successful. A Liggett document discussing the history of the project states:

Wynder's findings were confirmed and all commercial cigarette types produced virtually
identical mouse skin tumor incidences. The tumorigenic initiating effect was found to
reside in a relatively small smoke fraction containing polycyclic aromatic hydrocarbons."

112. As a result of these discoveries, in 1968, Liggett began "a tobacco additive program
designed to reduce or eliminate the tumorigenic activity of cigarette smoke." Company
researchers discovered that palladium metal and magnesium nitrate, when added to
cigarette tobacco, acted as catalysts in the burning process that removed carcinogenic
compounds from the cigarette 'smoke. Liggett performed animal studies which indicated
that "[c]igarette tar has been neutralized" and that there was no evidence for "new or
increased hazard to the smoker."

113. By 1979, Liggett had declared the work a success, Company documents state:

a. Briefly, as a result of 20 years effort in cooperation with Arthur D. Little, we have
developed a cigarette system which produces smoke of reduced biological activity..
tumorigenicity of smoke on the skin of the mouse.

b. cigarette smoke contains a number of promoters which act in concert with other true
carcinogens to enhance the production of mouse skin tumors.... [T]here can be no
argument that the use of the additives has resulted in a product with lower carcinogenic
effects....

114. Liggett concluded that it had isolated carcinogens in cigarette smoke and found a
way to reduce them in cigarettes of commercial quality. Despite these findings, the
product called "XA" was never marketed.

115. Liggett decided not to market the new product, and decided instead to abandon the
XA project. On information and belief, Liggett did so for two reasons. One was the
danger that disclosure that a safer cigarette was possible would also require the admission
that all existing cigarettes were not gas:. One Liggett executive wrote that "[a]ny
domestic activity will increase the risk of cancer litigation on existing products. U.S.
manufacture for export will be less risky .

116. The other reason was the apparent threat of retaliation by the largest cigarette
company, Philip Morris, if Liggett violated the industry agreement not to disclose
negative information on smoking and health. Dr. James Mold, the Assistant Research
Director at Liggett during the development of the XA safer cigarette, has testified that:
"Mr. Dey who was the . who at that time, and I guess still is the president of Liggett
Tobacco, made the statement that he was told by someone in the Philip Morris Company
that if we tried to market such a product that the, would clobber us,"

S. Liggett, James Mold and the XA Research
117. The testimony of Dr. Mold a central Liggett researcher on the safer cigarette project,
provides additional insight into what Liggett discovered, and how the company
suppressed that information from the public they had pledged to infonn, and why it did
not market the XA cigarette.

Dr. Mold stated:
[W]e'd been able to find specific materials or groups of materials which did produce
carcinogenic effects on mouse skin. This is what we'd started out to try to do. And, in
addition to that, we had found things which promoted activity. carcinogen activity on the
mouse skins.

We produced a cigarette which was, we felt, was commercially acceptable as established
by some consumer tests, which eliminated the carcinogenic activity on the mouse skin as
carried out by various workers in the field, and decreased the level of a number of
gaseous components which had been pointed to as problems in. possible problems lets
say, in cigarette smoking. We felt that the cigarette was certainly in the direction of one
containing less hazardous materials.

118. During the XA project, Liggett attempted to insulate the research from disclosure by
use of company lawyers, Dr. Mold stated that, after 1975, all meetings that we had
regarding the project were to be attended by a lawyer .... All paper that was generated,
reports, research progress reports, memoranda, were to be directed to the Law
Department, someone in the Law Department.

Dr. Mold stated that lawyers even collected all the notes after each meeting.

In other words, the Law Department was maintaining a confidential client/lawyer
privilege state on all action on the project from that point forward.

119. Dr. Mold stated that the company lawyers not only ultimately succeeded in stopping
the project, but ordered him not to publish the results of the research that led to the safer
cigarette, Dr. Mold stated:

Whenever any problem came up in the project, the Legal Department would pounce upon
that in an attempt to kill the project, and this happened time and time again, So at this
point in time when they say, "Well, you can't publish a paper," we didn't ask why. We
knew why.... That they had no intention of making this any more public than they had to,

120. Thus, despite the significance of the research, and Dr. Mold's requests to publish a
scientific paper on the results, Liggett suppressed the work, and ordered Dr. Mold not to
publish and not to present the findings to a scientific forum.., Dr. Mold got as far as
preparing a paper for publication and presentation. Dr. Mold explained that:
Before the paper was presented, I got a frantic call from Mr. Greer, our ... at that time, the
legal counsel of Liggett, not ... to not distribute the press release and not hold a press
conference that they had changed their mind.

It was my understanding that Liggett did not want to be associated in public with this
developments

121. Dr. Mold stated that he had requested permission to publish the paper in "'Science'
or in the "Journal of Preventative Medicine." He stated that the Liggett legal department
had ordered him not to submit the paper. Dr. Mold also stated that the legal department
had instructed him not to attend a conference on smoking and health.

122. Ultimately, only an abstract of the paper was published, and Dr. Mold was not
allowed to have his name on the publication. Rather, after changes by the legal
department, the abstract was published by the consulting firm Arthur D. Little,

123. When asked why Liggett never marketed the safer XA cigarette, Dr, Mold explained
that:

Well, I can't give you, you know, a positive statement because I wasn't in the
management circles that made the decision, but I certainly had a pretty fair idea why.

Well, my feeling was that they, as was stated in terms of our appearing on publications
and our presenting the information to the Cold Springs Harbor symposium and other
public pronouncements, that they felt that such a cigarette if put on the market would
seriously indict them for having sold other types, of cigarettes that didn't contain this. for
example., Or that they were carrying on this biological research at the same time saying it
meant nothing.

T. Liggett Safer Cigarette Patent

124. Before deciding not to market the XA cigarette, Liggett obtained a patent for the
process it had discovered to produce the safer cigarette. The patent application describes
the reduction in cancer in mouse studies, Stories in @ media then appeared stating that
Liggett was the first cigarette company to admit that smoking caused cancer. In 1978
Liggett reacted by placing a advertisement it called a "Liggettgram' which stated;
Liggett and the cigarette industry continue to deny, as they have consistently, that any
conclusions can be drawn relating to such test results on mice in laboratories to cancer in
human beings. It has never been established that smoking is a cause of human cancer.

'I'he laboratory experiments reported in the patent were conducted for Liggett by an
independent reseacher, The Life Sciences Division of Arthur D. Little, Inc.

125. At the time Liggett made these statements, including the statement that no
conclusions regarding human cancer can be drawn from mouse studies, Dr. Mold
estimates that Liggett, directly and through its consultant Arthur D. Little, had spent a
total of $10 million on smoking and health research involving mice, in part to develop the
safer XA cigarette. Liggett's internal reports on the benefit of the XA, and the absence of
increased risk of harm from the additives used, specificly used animal studies as reliable
indicators of the health effect of the product on humans.

126. Despite overwhelming scientific, evidence, and the confirmation of this evidence by
their own the cigarette manufacturers and their trade associations continue to this day to
repeat again and again, in a unified stance, that there is no causal connection between
cigarette smoking and adverse health effects. These representations are fraudulent,
misleading, deceptive and untrue, They rest at the heart of the industty's ongoing
conspiracy to market and profit from a product it knows is deadly.

U. The Role of Nicotine in Smoking
127. The other truth which the cigarette industry has made every effort to supress, deny
and misrepresent is that nicotine is a powerfully addictive substance. While carefully
studying its addictive character and acting upon that knowledge to maintain cigarette
sales, the cigarette manufacturers have uniformly denied that nicotine is addictive.

128. This public deception and the cigarette industry's secret manipulations of nicotine
were and are critically important to the cigarette manufacturers. As truly objective
researchers increased their warnings of the health dangers of cigarettes, nicotine addiction
kept people smoking, This second front in the war against the public health allows the
cigarette manufacturers to continue to sell their dangerous products even to those who
eventually come to doubt the industry's health claims, And if a new consumer is fooled
for a time by "pro-cigarette" disinformation on health, and takes up the habit, it may well
be too late. Instead of a simple decision not to purchase a product, the consumer must
grapple with an addiction.

V. Industry Knowledge of the Addictiveness of Nicotine
129. The cigarette companies have long known of the addictive properties of the 'nicotine
contained in the cigarettes they manufacture and sell. The following illustrates such
knowledge:

a. In 1962, Brown & Williamson's parent company, British American Tobacco
Company("BATCO"), held a meeting of its worldwide subsidiaries in Southampton,
England. During the course of that meeting, Brown & Williamson and. BATCO
executives were told by Sir Charles EIlis, scientific advisor to the board of directors of
BATCO, that smoking is a habit of addiction' and that nicotine is not only a very fine
drug, but the technique of administration by smoking has considerable psychological
advantages." Sir Charles Ellis declared again in 1967 in a document from Brown &
Williamson that the company "is in the nicotine rather than the tobacco industry."

b. A research report dated May 30, 1963, prepared under contract by researchers in
Switzerland for BATCO and Brown & Williamson and deliberately withheld by Brown
& Williamson from the- U.S. Surgeon General, explained the physiological basis of
nicotine addiction. The Brown & Williamson-comissioned report shows that tobacco
industry research on the addictive properties of nicotine.(, was years ahead of the research
on the subject conducted outside of the industry Brown Williamson and other tobacco
companies have never disclosed any infrormation from such research. C.A 1972
"confidential" company memo written by William L. Dunn, Jr. or the Philip Morris
Research Center, concludes:

"Without nicotine, the argument goes, there would be no smoking, Some strong evidence
can be marshalled to support this argument.... No one has ever become a cigarette smoker
by smoking cigarettes without nicotine,"

d. Additional internal reports prepared by Dunn in 1972 and the Philip Morris U.S.A.
Research Center in March 1978, demonstrate Philip Morris's understanding of the role of
nicotine in tobacco use - "We think that most smokers can be considered nicotine seekers,
for the pharmacological effect of nicotine is one of the rewards that come from smoking.
When the smoker quits he foregoes (sic) his accustomed nicotine. The change is very
noticeable, he misses the reward, and so-he returns to smoking."

"The cigarette should be conceived not as a product but as a package. The product is
nicotine. Think of the cigarette pack as a storage container for a day's supply of
nicotine.... Think of the cigarette as a dispenser for a dose unit of nicotine."

e. Philip Morris scientists Confirmed their early research findings with direct anecdotal
evidence. In 1971, they interviewed people from the town of Greenfield, Iowa eight
months after they had quit smoking "cold turkey." A report of the interviews, called
"Bird-I. A Study of the Quit-Smoking Campaign in Greenfield, Iowa in Conjunction with
the Movie Cold Turkey," and distributed to top Philip Morris executives concluded:

"'This is not the happy picture painted by the Cancer Society s anti-smoking commercial
which shows in exuberant couple leaping in the air and kicking their heels with joy
because they've kicked the habit. A more appropriate commercial would show a restless,
nervous, constipated husband bickering viciously with his bitchy wife, who is nagging
him about his slothful behavior and growing waistline."

f. ATC also conducted its own research on nicotine. From 1940 to 1970, ATC funded
over 00 studies on the pharmacological and other effects of nicotine on the body. Of the
111 biologic studies funded by ATC over this period, over 80 percent were related to the
effects of nicotine, ATC even test marketed a nicotine-enriched cigarette in Seattle,
Washington in 1969.

W. Suppression and Concealment of Research on Nicotine Addiction
130. Defendants, rather than fulfilling their promise to the public to disclose material
information about smoking and health, chose a course of suppression, concealment, and
disinformation about the true Properties of nicotine and the addictiveness of smoking,

131. Philip Morris' professed interest in- discovering and disclosing, the truth to was
proven to be a lit early on, Philip Morris hired Victor DeNoble in 1980 to study effects on
the behavior of rats and to research and test potential nicotine analogues. DeNoble,
recruited Paul C. Mete. a behavioral pharmacologist. DeNoble and Mete disco nicotine
met two of the hallmarks of potential addiction - self-administration (rats would press to
inject themselves with a nicotine solution) and tolerance (a given dose of nicotine over
time a reduced effect).

132. However, Philip Morris instructed DeNoble and Mete to keep their work secret
from fellow Philip Morris scientists. Test animals were delivered at dawn and brought
loading dock to the laboratory under cover.

133. DeNoble was later told by lawyers for the company that the data he and Mete
generating could be dangerous. Philip Morris executives began talking about killing the
moving it outside of the company so Philip Morris would have more freedom to disavow.
DeNoble recalled that Philip Morris discussed several possible scenarios, including
having he and Mete leaving the company payroll and continuing as contractors, and
shifting their in Switzerland.

134. In August 1983, Philip Morris ordered DeNoble to withdraw from research paper on
nicotine that had already been accepted for publication after full peer review in journal
Psychopharmalogy. According to DeNoble, the company changed its mind not want its
own research showing nicotine was addictive or harmful to compromise defense in
litigation recently riled against it, DeNoble subsequently told Jack Henigfield, of the
Clinical Pharmacology branch of the National Institute on Drug Abuse Addiction
General who was preparing his first official report on smoking and health. what the
company knew about the addictiveness of nicotine and the adverse effects of smoking on
health.

139. Addison Yeaman, general counsel at Brown & Williamson stated in a 1963 report
that "[wle are, then, in the business of selling nicotine, an addictive drug. . Yeaman
advised Brown & Williamson to its responsibility" and disclose its findings to the
Surgeon General, He said that such disclosure would then allow the company openly to
research and develop a safer cigarette,

140. Brown & Williamson rejected Yeaman's advice to make full disclosure to the
Surgeon General. A series of six letters and telexes exchanged by Yeaman and senior
BATCO official A.D. McCorrnick between June 28 and August 8, 1963, document the
company's decision not to disclose to the Surgeon General the company's research
findings on the addictive and other harmful effects of nicotine and the disease-causing
properties of cigarettes.

X. The Industry's Interest in Nicotine
141. The cigarette companies also understood early on that nicotine played a pivotal role
in the success of the tobacco industry. A chronology of the, industry's research and
development activities leaves no doubt about the cigarette companies' conviction that
nicotine was the key to their industry's success.

142. The results of research undertaken by Brown & Williamson more than 30 years ago
for a study called Project Hippo were finally disclosed by the company in May 1994.
Documents from this study show that as far back as 1961, the tobacco industry was
actively studying the physiological and pharmacological effects of nicotine.

143. In a 1968 internal report, BATCO noted that "[I]n view of its pre-eminent
importance, the pharmacology of nicotine should continue to be kept under review.

144. Again, in 1972 a BATCO report noted:

It has been suggested that a considerable proportion of smokers depend on the
phamacological action of nicotine for their motivation to continue smoking. it this view is
correct, the present scale of the tobacco industry is largely dependent on the intensity and
nature of the pharmacological action of nicotine.

145. To this day, the cigarette manufacturers have deliberately determined not to disclose
to the public or to public health officials their extensive knowledge of the addictive
properties of nicotine and its critical role in smoking and not to use that knowledge to
reduce or eliminate nicotine from their products. Instead, the cigarette companies have
chosen to focus their energies and research on developing new and more sophisticated
methods of hooking smokers and keeping them hooked, all to boost cigarette sales.

146. The cigarette industry's intense interest in the, pharmacology of nicotine to industry
efforts to find an artificial nicotine that would have the addictive and
psychopharmacological properties of nicotine without nicotine's dangerous effects on the
heart,

147. For example, one of Dr. DeNoble's primary functions at Philip Morris was to
research and develop a nicotine analogue. DeNoble testified before the Waxman
Subcommittee that he did, in fact, discover a nicotine analogue that caused animals to
behave as if they were getting a nicotine high but without signs of the heart distress that
comes with nicotine.

148. Philip Morris, however. chose to halt its effort to determine whether the nicotine
analogue could be used to make a safer cigarette. On information and belief, Philip
Morris decided not to pursue nicotine analogues in order to avoid the risk of adverse
publicity and of compromising the industry's consistent position that there was no
alternative design for cigarettes.

149. Brown & Williamson also understood that for purposes of maintaining its sales,
nicotine was the essential ingredient in tobacco. The company attempted to develop a
safer cigarette which internal documents described as "a device for the 'controlled
administration of nicotine," Project Ariel focused on heating father than burning tobacco,
and according to company documents, was "a nicotine delivery device."

150. RJR's eftorts to develop a safer cigarette also focused on delivering nicotine to the
consumer without the harmful constituents of tobacco smoke. In the late 1980's, RJR
developed and test marketed Premier, a smokeless and virtually tobacco-free cigarette
which was, in essence, a nicotine delivery system. RJR conducted human studies to
determine whether the nicotine from Prernier was absorbed, metabolized and excreted
from blood at the same rate as a standard cigarette.

151. Former head of RJR Nabisco F. Ross Johnson. a driving force behind the
development of Premier, said about tobacco, "Of course, it's addictive. That's-why you
smoke the stuff."

152. RJR, like the other cigarette manufacturers, concealed and suppressed its findings on
the addictiveness of smoking and continued to misrepresent to the public its commitment
to determining whether smoking was harmful.

153. The cigarette companies have affirmatively misrepresented to consumers and to
Congress the role of nicotine in tobacco use, Even today, the cigarette industry continues
to claim that nicotine is important in cigarettes solely for flavor.

154. A substantial body of evidence refutes that claim. Tobacco industry specifically
distinguish nicotine from flavorants. An RJR book on flavoring tobacco, while listing
approximately a thousand flavorants, fails to include nicotine as a flavoring agent.

155. In fact, the cigarette industry has concentrated on developing technologies to mask
the flavor of increased levels of nicotine, in cigarettes. According to the Merck Index an
internationally recognized listing of drugs, nicotine has "an acrid burning taste." U.S.
Patent, 4,620,554 describes the taste of nicotine as hazardous," The role, of nicotine in the
tobacco industry's business is pure and simple - to hook smokers on their deadly products
and keep them hooked in the face of mounting evidence that smoking causes human
disease. The cigarette industry has focus tremendous energy and resources on developing
the technology to ensure that smokers become and remain addicted to the industry's
cigarettes.

Y. Light Cigarettes: a Marketing Hoax

156. The cigarette industry's conspiracy to deceive the public about the dangers of
smoking was not confined to suppressing and concealing their own findings and
discrediting or dismissing the findings of outside researchers. The conspiracy also
extended to efforts to retain that segment of the smoking market that was becoming
increasingly concerned about health. The cigarette industry was well aware that low-
nicotine products while better for the heart - were worse for business. As one company
researcher reported to Philip Morris executives:

If the industry's introduction of acceptable low nicotine products does make it easier for
dedicated smokers to quit, then the wisdom of the introduction is open to debate.

157. The cigarette industry's research indicated that low-tar cigarettes with
correspondingly low levels of nicotine were likely to rejected by consumers and,
therefore, attempted to determine to what extent the craving for nicotine overrode other
considerations including health.

158. Brown & Willamson's parent company BATCO, for example commissioned a study
called "Project Wheat."' More than 1,000 British male smokers were questioned about
their smoking habits, about nicotine, and about their attitudes toward smoking and health.
Among Project Wheat's findings were that: (1) reductions in nicotine delivery caused
progressive rejection of the cigarette by consumers, (2) a large group of smokers had both
a high "inner need" for nicotine and a high concern for both; (3) concern for the possible
health risks of smoking "influenced smokers' willingness to try low tar brands, but there
is evidence of a conflict between their concern for health and their desire for a satisfying
cigarette."

159. On information and belief, a restricted report on Project Wheat by Group Research
& Development Centre, a subsidiary of BATCO, shows that the cigarette industry's
promotion and marketing of low-tar cigarettes was a deliberate attempt to deceive health-
conscious smokers with high nicotine needs into believing that "light" cigarettes were
less addictive:

Concern for the possible health risks of smoking was -shown in the earlier report to have
an important influence on consumers in the direction of trying low tar brands, and to be
independent of Inner Need. It was also shown that in many cases, smokers' concern for
health evidently conflicted with their desire for a satisfying cigarette.

160. The report pointed out the substantial market potential of a cigarette with lower tar
and higher nicotine delivery to those smokers with an "inner need" for nicotine but a
concern for health. Brown & Williamson's introduction of Barclay a low tar. high
nicotine cigarette was a result of the findings from Project Wheat.

161. The cigarette industry has cultivated that health conscious segment of the Smoking
market by promoting and selling "light" cigarettes with reduced tar and added nicotine,
National Gallup polls have found that smokers believe that 'cigarette brands labeled
"light" arc less hazardous to their health and less addictive because they deliver less tar
and less nicotine, However, this widely held belief although false has been promoted by
the cigarette companies through several misleading strategies.

162. First, the industry has consistently told the public and the FDA that -- in the words
of Dr. Alexander Spews Vice Chairman of Lorillard, in his 1994 testimony before the
Waxman Subcommittee - "[nicotine [level] follows the tar level," and that the correlation
between the two "is essentially perfect."

a. Another defendant, ATC, has recently testified similarly, For example told the
Waxman Subcommittee in an Otober 14, 1994 letter that nicotine follows 'tar' delivery
i.e. high 'tar'-- high nicotine, low 'tar' --low nicotine. .
Nicotine is neither adjusted nor altered to compensate for losses inherent in the
manufacturing process."

b. Internal company documents reviewed by the Waxman Subcommittee, however, show
that ATC's " experimentation with adding nicotine to its tobacco was extensive -
extensive enough for ATC executive lohn T. Ashworth to instruct employees in a
confidential memorandum: "In the future, our use of nicotine should be referred to as
'Compound W' in our experimental work, reports, and memorandums, either for
distribution within the Department or for outside distribution,"

c. Moreover, recent tests conducted at the direction of the FDA show that the low-tar
brands actually have more nicotine than the non-"light" brands. Because even the
cigarette industry concedes that nicotine levels follow tar levels, the unexpectedly high
level found in lower tar cigarettes seriously misleads consumers and renders the industry
s claim of "an essentially perfect correlation" completely false.

163. Second, the nicotine deliveries, as measured by the Federal Trade Commission
("FTC' method, published by the cigarette industry, seriously mislead consumers. The
cigarette manufacturers know that the significant changes they have made in cigarette
design make the FTC method of measuring nicotine and tar denies highly inaccuarate.
Cigarette manufacturers know that the machine-measured deliveries understate the
amounts of nicotine and tar actually ingested by human smokers. As Philip Morris senior
scientist William L. Dunn, Jr.7 noted in a 1972 internal report:

The smoker has a wide latitude in further calibration: puff volume, puff interval, depth
and duration of inhalation. We have recorded wide variability in intake among smokers.
Among a group of pack-a-day smokers, some will take in less than the average half-pack
smoker, some will take in more than the average two-pack-a-day smoker.

164. Third, cigarette manufacturers add various ammonia compounds during the
manufacturing process which increase the efficiency of nicotine delivery to the smoker
and thereby increase the smoker's absorption of the drug. In April 1994 the industry
disclosed the 599 ingredients added to tobacco. Among them were several ammonia
compounds which, according to Dr. David A. Kessler and confirmed by the industry's
own internal documents, increase the delivery of nicotine and almost double the nicotine
transfer efficiency of cigarettes..

165. Fourth, on information and beliefs the cigarette industry also misleads consumers
by fortifying the tobacco used for its "lighter brands with additional nicotine in order to
ensure' that the nicotine content of the low-tar cigarettes remains at addictive levels. The
cigarette industry thereby maintains a continuing market for what consumers are misled
to believe is a lower tar, lower nicotine and thus less addictive product. For example, a
1991 study by "essentially perfect correlation" author, Dr. Spears states explicitly that
low-tar cigarettes use special blends of tobacco to keep the level of nicotine up while tar
is reduced: "The lowest tar segment [product catagories) is composed, of cigarettes
utilizing a tobacco blend which is significantly higher in nicotine."

166. In March 1994, Dr. David Kessler summarized for the Waxman Subcommittee the
Federal Trade Commission data on nicotine levels. He testified that the nicotine/tar ratio
was higher in the ultralow tar group of cigarettes, even, though low tar has usually been
associated with low nicotine. Dr. Kessler posed to Congress the obvious question - it has
often been said that tar and nicotine travel together in the cigarette smoke. The disparities
in the nicotine/tar ratios among these varieties, raise the question as to how this can
occur.

167. Dr. Kessler's question appears to have been answered by the compelling evidence
recently made public by the Waxman Subcommittee of nicotine manipulation and control
by the cigarette industry.

Z. Industry Control and Manipulation of Nicotine
168. The cigarette industry's control and manipulation of nicotine levels in their cigarettes
goes well beyond fortifying low-tar or "light" style cigarettes with nicotine. Recent
evidence shows that the cigarette manufacturers are capable of and do, in fact, manipulate
the amount and even the presence of nicotine in cigarettes.

169. The cigarette companies have developed and, use highly sophisticated technologies
designed to deliver nicotine in precisely calculated quantities quantities that are more than
sufficient' to create and sustain addiction in the vast majority of individuals who smoke
regularly.

AA. "Y-1"
170. The story of Brown & Williamson's development of a new tobacco plant dubbed
"Y-1" is one of the more egregious examples of the cigarette industry's outright lies about
its control and manipulation of the nicotine levels in its products.

171. On June 21, 1994, Dr. David A. Kessler testified before the Waxman Subcommittee
that FDA investigators had discovered that Brown & Williamson had developed a super-
high- nicotine tobacco plant which the company called "Y-l.". This discovery followed
Brown & Williamson's flat denial to the FDA on May 3, 1994, that it had engaged in
"any breeding of tobacco for high or low nicotine levels."

172. Four FDA investigators who had visited the Brown & Williamson plant in Macon,
Georgia on May 3, 1994 swore in affidavits that company officials had denied that Brown
& Williamson was involved in breeding tobacco for specific nicotine levels. Only after
the FDA had learned of the development of Y- I in its investigation and confronted
company officials with the evidence did the company admit that it was growing and using
the high-nicotine plant,

173. In fact, in a decade-long project Brown & Williamson secretly developed a
genetically-engineered tobacco plant with a nicotine content more than twice the average
found naturally in flue-cured tobacco. Brown & Williamson took out a Brazilian patent
for the new plant, which was printed in Portuguese. Brown & Williamson and a
Brazilian sister company Souza Cruz Overseas, grew Y- I in Brazil and shipped it to the
United States for use in five Brown & Williamson cigarette brands sold in New Jersey,
including three labeled "light." When the company's deception was uncovered, company
officials admitted that close to four million pounds of Y- I were stored in company
warehouses in the United States.

174. As part of its massive cover-up, Brown Williamson even went so far as to instruct
the DNA Plant Technology Corporation of Oakland, California, which had developed Y-
1, to tell FDA investigators that Y- I had "never been commercialized." Only after the
FDA discovered two United States Customs Service invoices indicating that "more than a
half-million pounds" of Y- I tobacco had been shipped to Brown & Williamson on
September 21, 1992, did the company admit that it had developed the high-nicotine
tobacco.

BB. Other Methods of Nicotine Manipulation
175. The number and pattern of tobacco industry patents show that the cigarette industry
has developed the capability to manipulate nicotine levels in cigarettes to an exacting
degree. The following quotations from industry patents demonstrate the industry's
capabilities:

a. A Philip Morris patent application discusses an invention that permits the release into
tobacco smoke, in controlled amounts, of desirable flavorants, as well as the release, in
controlled amounts and when desired, of nicotine into tobacco smoke."

b."[P]rocessed tobaccos can be manufactured under conditions suitable to provide
products having Various nicotine levels."
C."[T]he present invention ... is particularly useful for the maintenance of the proper
amount of nicotine in tobacco smoke,"
176. David A. Kessler, M.,D., Commissioner of Food and Drugs, testified in detail
before; the Waxman Committee about the various forms of nicotine manipulation
practiced by the tobacco industry manipulating the rate at which nicotine is delivered in
the cigarette; transferring nicotine from one material to another, increasing the amount of
nicotine in cigarettes, and adding nicotine to any part of a cigarette.

177. Dr. Kessler's disclosures show that nicotine not an inevitable or unavoidable
component of tobacco products. In fact, cigarette manufacturers have the capability to
remove all or virtually all of the nicotine from their products using technology already in
existence.

178. Other revealing evidence of the cigarette companies' manipulation and control of
nicotine, levels includes: the emergence of companies that specialize in manipulating
nicotine and that are now doing business with tobacco manufacturers. On infomation and
brief, Philip Morris uses or has previously used a process called tobacco' reconstitution
for controlling nicotine levels. The process was patented and marketed by the Kimberly-
Clark Corporation subsidiary, LTP, Industries.

179. Peconstituted tobacco is made from stalks and stems and other waste that cigarette
companies used to discard and now use to make cigarettes more cheaply. On information
and belief, ordinarily, reconstituted tobacco contains 25 percent or less of the nicotine in
regular tobacco. A former RJR manager who demanded anonymity told the ABC news
program "Day One" that on the average, currently marketed brands contain about 22
percent reconstituted tobacco and that cut rate or generic brands typically contain about
double that amount.

180. A laboratory analysis commissioned by "Day One" and conducted by the American
Health Foundation confirmed the industry's heavy' use of reconstituted tobacco. One
RJR brand had 25 percent and another had about-33 percent reconstituted tobacco. Yet,
tested samples of the reconstituted tobacco implanted in RJR brands Winston, Salem,
Magna and Now had up to 70 percent, rather than the expected 25 percent, of the nicotine
that would be found in regular tobacco, thereby indicating that RJR had fortified the
reconstituted I tobacco with additional nicotine.

181. On information and belief, because reconstituted tobacco has inferior taste and less
nicotine, the cigarette man or their agents apply a powerful tobacco extract either alone or
as part of a solution of flavorings to the reconstituted tobacco.: RJR and the other
cigarette manufacturers have the technology to add flavorings with or without nicotine, so
the addition of nicotine to reconstituted tobacco is purely at the manufacturer's discretion.

182. The Kimberly-Clark tobacco reconstitution process is believed to be used
throughout the tobacco industry in a number of countries. A Kimberly-Clark
advertisement published in tobacco industry trade publications states, Nicotine levels are
becoming. a growing concern to the designers of modern cigarettes, particularly those
with lower "tar" deliveries. The Kimberly-.Clark tobacco reconstitution process used by
LTR Industries permits adjustments of nicotine to your exact requirements. These
adjustments will not affect the other important properties of customized reconstituted
tobacco produced -at LTR Industries, low tar delivery, high filling power, high yield and
the flexibility to convey organoleptic modifications. We can help you control your
tobacco.

183. Furthermore, the tobacco industry's own trade literature explains that the Kimberly-
Clark process enables manufacturers to triple or even quadruple the nicotine content of
reconstituted tobacco, thereby increasing the nicotine content of the final manufactured
product.

184. Another enterprise which does business under the name "The Tobacco Companies of
the Contraf Group' quite explicitly specializes in the manipulation of nicotine and its use
as an additive. An advertisement run by the Contraf Group in the international trade
press states: "Don't Do Everything Yourself! Let us do it More Efficiently!". Calling
itself "The Niche Market Specialists," Contraf lists among its areas of specialization
"Pure Nicotine and other special additives."

185. The cigarette industry has also used a process called "denaturing" to add nicotine to
cigarettes. Nearly-pure nicotine is combined with alcohol and then applied to tobacco
during the manufacturing process Trucking records show that Philip Morris, for example,
received thousands of gallons of this nicotine/alcohol mixture during the 1980s.

186. Against this mounting body of evidence of the cigarette industry's manipulation and
control of nicotine levels in cigarettes, the cigarette manufacturers continue to deny to the
public, and recently denied to Congress under oath, that they manipulate and control
nicotine levels:

a. William I. Campbell, President and CEO of Philip Morris, told Congress on April 14,
1994 that "Philip Morris does not manipulate nor independently control the levels of
nicotine in our products.... Cigarettes contain nicotine because it occurs naturally in
tobacco."

b. James W. Johnston, President and, CEO of RJR Nabisco, told Congress that "We do
not add or otherwise manipulate nicotine to addict smokers."

C. Andrew J. Schindler, President and Chief Operating Officer U.S.A., R.J. Reynolds
Tobacco Company, told Congress that "We do not restore any nicotine anywhere in our
process. . . We lose nicotine, for example, in the reconstituted sheet process. (nowhere in
that process is any nicotine being incrementally added into the process." Contradicting
Johnston's and Schindler's statements, Dr. Robert Suber, a toxicologist with RM
admitted, however, that PJEL controls the nicotine in its products. He told CNN that: "[I]
order to deliver to the consumer a product that he wants, a consistent level of nicotine, we
have to blend the tobaccos accordingly. So we do control it."

d. Andrew H. Tisch, chairman and CEO of Lorillard, told Congress that "Lorillard does
not take any steps to assure a minimum level of nicotine in our products. Lorillard does
not add nicotine to cigarette tobacco for the purpose of manipulating or spiking the
amount of nicotine received by the smoker."

e. Edward A. Horrigan, Jr., Chairman and CEO of