(B&W) PROTECTED BY MINNESOTA TOBACCO LITIGATIOXI'TIZOTECTiM
BAT / MY R&D cosr AND RISK POOLING AGREEMDU
'The parties to this contract arc British-American Tobacco
Company Limited, a United Kingdom corporation with main offices
at Westminster Housc, 7 Millbank, London, S.W. 1. , England, and t,
"Brown & Williamson Tobacco Corporation, a Delaware corporation
with main offices at 1600 West Hill Street, Louisville, Kentucky
(herein 'Brown & Williamson').
RECITATIONS
(a) Brown & Williamson is a wholly owned subsidiary of
British-American Tobacco Company Limited. British-Americah
Tobacco Company Limited has interests'in tobacco products
manu
factoring companies located throughout the free world.' Both
Brown & Williamson and British-American Tobacco Company Limited
engage extensively in research an d development work in fne
cultures processing and treatment of I tobacco and-other
IDiz
tobacco products materials, the manufacture-of tobacco products,
the control of.product and smoke stream content, and the
packaging of tobacco products.
.(b) Brown & Williamson carries on such work primarily at
its laboratory and manufacturing facilities in Louisville and
Lexington, Kentucky, Petersburg, Virginia and Winston-Salem,
North Carolina and through contractual arrangements with
independent-laboratories and other development facilities and
.-manufacturers of machinery, equipment; and suppl'ies. British-
American Tobacco Company Limi-ted carries on. such work at its
laboratories in Southampton, England, through the facilities of
various of its associated companies, and through third party
arrangements.
(c) The product of most of the research and development
work conducted by the parties is mutually beneficial. That
pertaining particularly to manufacturing equipment and processes
is useful to most of the companies associated with British-

(B&,Wj_.PkOTEMD';'BY M NNESOTA To, LIV6@'ONFIROTECTIVE ORDER
Amcrican Tobacco Company Limited.' That pertaining
particularly to refinement of smoking and related
products is useful to companies associated with British:':
American Tobacco Company Limited which serve the
relatively more sophisticated markets.
(d) The parties have for many years exchanged the
product of their development work . Brown & Williamson
has the rights to all'such developments wi thin United--'-"-
States of America, including its Commonwealths, territories,
possessions, protectorates, and mandates (herein the 'United
States').; . British-American-Tobacco Company Limited has
such rights elsewhere.
(.e) It is the purpose of the parties to continue
exchange of this development product as heretofore on the
basis of-this formalized cost and risk sharing agreement
which is intended to meet the requirements of the
regulations of the United States Internal Revenue Service
under section 482. and other provisions of the United States
Revenue Code.
.2. DEFINITIONS
(a) I Dr it is means the British-American
Tobacco Company Limited, all of its associated companies
outside of the United States engaged in the manufacture
or marketing of tobacco products or tobacco products
supplies and materials.' An associated company is one-
in which the British-American Tobacco Company Limited
owns directly or indirectly not less than thirty per cent.
of the voting capital stock.
(b) 'Mechanical I means the invention,
dcvclopment, and improvement of machinery useful in the
handling and treatment of leaf tobacco and other smoking'
and related products materials and the manufacture and
620856956!
L

M&MYPROTECTED-SYMMESOTA TOBACCO LITIGATION-PR" 011 EC ITVE ORDER
packaging of smoking products, and 'product development' means
the devclopmeii. and evaluation of new smoking materials and
smoking and related products and improvement therein through
changes in ingredient materials, filtration,the use of tobacco
-purposes, and combustion
and filtration additives for various
d other smoke stream controls as well as other scientific
an
search pertinent to smoking products. Both terms include
re
process as-well as'product development and, in addition, fall-
t development useful.for other purposes.. Neither term inclu
ou
-i) current crop analy meaning the testing and appraising
---------------
from time to time of crops of leaf tobacco or other natural
smoking materials as a transitory guide to current leaf
17
purchasing prograrmncs , or (ii) quality control, meaning.
laboratory and other analytical work undertaken to assure
uniformity of manufactured product in conformance with
established Specifications. Generally','neither terms includes
(iii) materials testing, meaning the analysis and testing of
----------------
materials and-supplies used or potentially useful in the manu-
facture of tobacco products, or (iv) machinery and equipment
testing, meaning the testing and appraisal of machinery and
------------------
equipment furnished by outside' suppliers.
(c) 'Development projects' mean undertakings of a define
area of mechanical or product development-work intended to meet
particular goals,.and 'pooled development work' means all
devzlopment projects and the product thereof, except-(i) those
excluded from this contract and Cii) those which either party
may-by timely election exclude from the pooling
covered by this contrwct. Development work undertaken by
either party for the account of the other shal e
----------
treatcd a.s a development project for purposes of this contract.
(d)' 'Developing party' means the party undertaking any
development project (including participation in joint dcvelopmc
ventures with third parties), the othcr-party being the
GZOSSGSS7

(B&NV) PROTECTED BY MINNESOTA TOBACCO' LTTIGATIOT@@TE
'beneficiary party', though in some joint dcvc 1 opincit
projects both may be developing parties.
-'Development product' means, without limitation,
patent rights, know-how,-reports.-drawi.ngs, specifications,
roduct
necessary or useful to tho.cvaluation. protection.
of development work.
W 'Primary BAT development centres' means the
laboratory and development facilities of British-American
Tobacco Company Limited, Impcrial Tobacco Company of Canada
Limited, B.A.T..Cigaretterr-Fabriken.C.m.b.H., British
Comp United Tobacco
Companies- .(South) Limited.
3. EFFECrIVE DATE
This contract, which is a further formalization and
refinement of existing practice, shall become effective on
January the First 1969.
4.- DEVELOPMENT PROGRANOZES AND PARTICIPATION IN
DEVELOPMENT PROJECTS
(a) The parties shall periodically exchange.forward
programmes comprised on their approved projected development
projects, classified as to mechanical or product development,
indicating the estimated total cost of each and the estimated
cost of each to be incurred during the ensuing 12 months.
Such cost estimates will be for information only, and they
under this contract,
Will.not be-controlling of liabilities
it being acceptcd.that precise cost estimates are usually
unobtainable as to such research and development work.
(b) Following exchange of such programmes, the
parties shall give timely advice of approved and newly
jccted development projects, together with estimated
pro
-ept ,
costs, and of substantial modifications in conc, scope
purpose, or projected cost of projects previously included-

PROTECTED BY MINNESOUTOMCCOUTIG ITECTIVE ORDER
in pooled development work. Arrangements shall be agreed for
periodic cx of actual project cost information.
(c) It is accepted that it.may not be fcasiblc to bring
joint development ventures between one party and suppliers or
other third parties fully within the terms of this contract.
Such third-party joint-venture. projects are therefore excepted
foregoing requirement. It is agreed, however, that
in-such cas-es'best-efforts will be used to secure rights
approximating, as closely as feasible, those provided by this
contract as to direct development work unless the other party
nifies no interest in the venture.
Sig
(d) The beneficiary party may give notice of non-
participation in any development project within si
the receipt of
the purpose or scope of any pooled project is
substantially changed-or its estimated cost is substantially
increased by the developing party, the beneficiary party may'
within 60 days of receipt of notice of such change withdraw
entirely from participation without rights and with appropriate
retroactive cost adjustment
(f) In any event the beneficiary party may on 60 days
:notice withdraw from participation at any with rights and
al, but such party shall
obligati ons accrued to date of withdraw
then be liable for its share of-costs incurred to the date of
withdrawal.
(g) In order to simplify administration of this contract
all mcc ha ni development projects estimated to cost less than
$.12 t development projects estimated to cost
less than 50,000 (r to as Imino.r-devclopment projects'
shall automatically be included in the pooled development work
-project or
unless the developing party judges that any such
-projects will be of no substantial value to the other par ty.
let such cases, they shall be excluded.
4
G20S5G9.59

:VJ
MINI PROTECTED BY-MINNESOTA-TOBACCO@LITIGAT-ION-PROT-rlI KIN%
(h) Reports and estimates under paragraph (a) need
not include minor development projects, but minor develop-
mcnt projects undertaken and pooled shall be identified
from time to time under procedures to be agreed.
Paragraphs (e) and (f) shall not apply to minor development
projects. For budgeting purposes, each party shall provide
uary first of each year an estimate of minor
nt project costs to be pooled during the
ng year.
RI GFrrS OF THE PARTIES TO DEVELOPI&W PRODUCT
Brown & Williamson shall have ful I proprietary rights
in the United States to'development product resulting from
pooled deve I mcnt work. British-American Tobacco Company
p
Limited shall have such right.
7vrrtr- Mird p@.rtie. @for development projects which are to
be part of the pooled development work shall include
appropriate provision to assure, insofar.as feasible, that.
the foregoing-rights irture, to the beneficiary party.
The parties shall provide such assignments and other
process as may be useful in securing and protecting the
foregoing rights,
6. COST SHARING-'
(a) The full costs of all-p ooled development wo rk
--Shall be charged by each party to pooled development work
accounts, one covering pooled mechanical developments and
one covering pooled product developments. The costs to
be pooled shall include both direct and indirect costs
lawfully required or permitted-to be pooled for this
sional and technicians' service
purpose, incl
hargcs, head office expense allocation, and payments made
c
to third parties for work done in connection with any pooled
project. Unless otherwise generally or specifically agreed,
62085G960

M`@'MINMESOTA:TOBACCO LITIGATION-PRO
professional and technicians' service charges shall include th,
-als and suppl
cost of labour and related fringe benefits, ma
and overhead (such as depreciation, taxes and insurance) and hc
g
cable
(-b) British-Amcrican Tobacco C
ompany Limited shall inclio
...as its-costs the cost of primary development centres applicable
to.pooled-developmpnt work.
(c) These accounts of the-parties shal-I be combined at
least-annually for purposes of this contract.
(d) The cost of pooled mechanical development shall be
---------------- _-
shared by the parties on the basis of the ratio of (i) unit
cigarette sales of Brown & Williamson and ( unit
al of both. The
st of pooled product development shall be shared on the basis
co
of the ratio, d (iv)
such sales of British-American in major BAT markets to the tota
oth. 'Uajor BAT markets' means British-American markets
other than thois--claA-Cified as less developed countries under
secti.dn 955(c -2) of the Internal Revenue Code. For' purpose
of -this paragraph, sales shall be the sales of the previous yea
.(c) Cost records shall be maintained by .bot parties, an
they shall be available for inspection by either such party at
any reasonable time. British-American's cost records shall
qj.yde_.thqsc of any primary development centre related to thei
costs which are charged to pooled dcvelopment.work.
(f) Adjusting payments between the parties shall be made
at least annually, based on the New York rate of exchange
prevailing on dates when such payments are due.
7. PATFbrr COVERAGE OF' POOLED DEVELOPMENTS
The parties do not warrant either the patentability or
originality of any development made under the terms of this
contract. Brown & Williamson undertakes when judged practicab

TOBACCO LITIGATION PROTECTIVE ORD
to scek, maintain, and protect patent covcraec of such
developments in the United States and Br it is
Tobacco Company Limited undertakes to do the same on
like terms, directly or through associated companies in
those territories outside of the United States in which
it consider it practicable to do so. British-American
--.Tobacco Company-Limited.-will give Brown & Williamson
timely notice of the patent coverage sought and secured
and of coverages to be allowed to lapse. Where coverage
is not sought or is to be allowed to lapse, the development
'a s to such territories shall be assigned to Brown &
Williamson to the at it undertakes-to se_ek and..
maintain patent Rrotection, such rights of Brown
Williamson to be limited to the valid patent coverage so
obtained and.-maintained. The parties may agree other-
patterns of protectionwhcri deemed mutually beneficial
to effective exploitation.
THIRD PARTY LICENCES
This contract does not pcrtainto licences, assignments,
or other-rights obtained by either party from third parties
7:
under patents or covering know-how, reports, drawings,
specifications, mock-ups, specimens or other proprietary
rights which did not flow from development projects
covered by this contract.
9. DURATION OF CONTRACr
This contract shall continue in force for a p@eriod
of . I years from its effective date except that either
any time af ter two years by
not less than 180 days notice. Upon termination, the
__7J-,_h @t. n@dob I i @gat i on"so f t he pa r t i c sshall continue as to
all pooled research development then in process until its
-conclusion, abscnt.withdrawal from any project under the
620856962i

.1 -1V MR
@B"IYPROTECTED,BYM-INNESOTA-TOBAM.
procedures of this contract, and until patent obligations have
been fulfilled as to pooled work then in process or completed.
10. ASSIGNABILITY
This contract is non-assignable.
11. CONTROLLING LAW
This contract shall be enforceable under the laws of the
Commonwealth of Kentucky.
IN WITNESS whereof British-American Tobacco Company Limi
has hereunto affixed its Common Seal this day of
One thousand nine hundred and @ixtynine in the presence
0
tor
)Sccre tary
BY
BROWN-& WILLIAMSON TOBACCO CORPORATION

(MW)TROTECTED BY MINNESOT-A-TOBACeO- LITIGATIONPRO I VMVE Mm
DATED 1969'
BRITISH-afERrcAN TOBACCO
COMPANY LIMITED
and
BROUT4& WILLIAMSON
TOBACCO CORP OR AT I ON
R&.D COST AND RISK
POOLING AGREEMENT