1. FDA Regulation: The Impact on Product Development and Reporting Monica Graves Director – Marketing Operations Oversight RAI Services Company May 18, 2009

2. Agenda Compliance and reporting timeline Ongoing post-enactment reporting Additional FDA authority Product launch requirements Summary 2

3. Obtain pre-market approvals for all “New” products Remove cigarettes with prohibited flavors Submit product info: - Ingredients - Nicotine - Health-related documents Comply with pesticide restrictions Submit listing of constituents & quantities - FDA to identify - Includes smoke Comply with tobacco GMPs 3 Enactment E + 3 mos.E + 6E + 24 E + 36 Compliance & Reporting Timeline

4. Ongoing Reporting Register facilities  Dec. 31 of enactment year  Immediately for added facilities  June and Dec. updates for registered products Disclose Changes to Products  90 days prior – additions / increases  60 days post – eliminations / decreases Submit Documents Relating to Health Constituent Testing as Prescribed by FDA 4

5. Additional FDA Authority Establish and enforce compliance with product standards  Reduce nicotine yields  Reduce or eliminate additives, constituents, or other components  Establish compliance timing  Periodically review and update product standards 5

6. Additional FDA Authority (cont.) Take action on menthol  Scientific Advisory Committee to issue menthol impact report (E+18) Require adverse event reporting  Serious and unexpected 6

7. Product Launch Requirements 7

8. New Products - Definitions FDA defines a “new” tobacco product as:  Not marketed as of 2/15/07; and  Not affirmed by FDA as “substantially equivalent” A “substantially equivalent” (SE) product:  Has the same characteristics (materials, ingredients, design, composition, heating source, etc.); or  Has different characteristics, but does not raise different questions of public health 8

9. February 15, 2007 E+21 mos. No Action Required Pre-market review required Demonstrate “substantially equivalent” (SE) −E+21 months to file SE report SE Products - Timeline 9

10. Post E+21 Launch Process Substantially Equivalent? YesNo 90-day advance notification“New” product requiring pre-market application (PMA) - FDA to Approve Product Development 10 −FDA to Affirm

11. PMA Evaluation Criteria “ New” product does not increase “Net Harm”: 1) To individual users Risk of disease Supported by controlled investigations and/or existing scientific evidence 2) To the population as a whole Does not deter quitting the category Does not initiate entry or re-entry to the category (including youth) Supported by consumer studies 11

12. Potential Research Implications Beyond science  to consumer behavior and attitudes Beyond product  to entire proposition and marketing Beyond individual user  to population at large 12

13. Product Approval Timing Product TypeApply / NotifyFDA Response Substantially Equivalent 1)E+21 months if post February 15, 2007 2)At least 90 days before introduction for E+21 launches 1)Affirmation (required to stay in market) 2)Affirmation (required before launch) New ProductAnytime prior to launch (FDA required to “respond” within 6 months) Approval (required before launch) 13

14. Summary Reasonably defined  Specific guidelines  Appear to be sufficient timeframes Many details yet to be determined  E.g., which constituents? Which tests? Burdensome, but manageable requirements 14