0 U., BATCo document for Legal Services : Health Canada 18 October 1999 SUMMARY OF BOARD AND COMMITTEE STRUCTURES Introduction This paper sets out the proposed terms of reference and membership of the BATCo Board, of its sub-committees, and of the operational committees which will replace the existing separate committee structures within BATCo and BATUKE. The new decision making structure, which is summarised graphically in Attachment 1, is based on the principles that all decisions within budget should be taken as far down the management structure as limits of authority allow, and that wherever practicable decisions should be taken by individuals in preference to committees. This means, in effect, that the majority of operational decisions will be taken at RBU level by the Regional Director or his nominee. Regional Directors also have authority to resolve issues lying outside the scope of approved budgets or company plans, but not materially impacting the profitability of BATCo (e.g. impacting the latest MOPE or QPR estimate of trading profit, cash flow, or revenue expenditure by not more than L1.0 million.). The financial authority limits of Directors for capital expenditure are sho%m in Attachment 2. There are three co-ordinating committees (E.P.P.E., S.T.O.P.E. and Product Development), as shown in Attachment 1, which bring together the information needed for those daky or weekly operational decisions affecting more than one RBU or division. Even in those cases, the chairman of the committee concerned will take responsibility for the decisions reached. There %ill be few operational issues which =not be resolved by the above structure. However, major issues may arise which fall substantially outside budget, which affect more than one RBU or division, or which materially impact on BATCo's performance (e.g. likely to impact upon latest estimate of BATCo's trading profit or cash flow by more than;E 1.0 million). Those issues should be referred to the Chairman or, in his absence, to another member of the BATCo Executive Committee. Within the above principles, the committee structures are set out under the following headin2s: - I . CORPORATE. 2. 41ARKET7NG. 3. EXPORTSALLES AND PRODUCT70N SCHEDULING. 4. PR OD UCTTO.IV OPERA 77 OINIS S. FINANCE. C_rl Oper;i=g Procedures Deceiziber 1992 Section 10 Page I BATCo document for Legal Services : Health Canada 18 October 1999 1. CORPORAIT The existing committee structures at corporate level which need to he revised are :- BATCo Board BATUKE Board I I I I I TECSET I BATCo Audit BATUKE Audit Committee Committee These will be replaced by a single structure as follows BATCo Board BATCo Executive Committee BATCo Audit Committee BATUKE will retain its existing trade and assets. it will continue to operate its existing factories at Corb-, and Southampton and will continue to be the invoicing company for export sales from the UK. Existing and new contracts with BATUKE distributors will remain with BATUKE. Management decisions regulating BATUKE's business will in practice be taken by the RBUs, by the Marketing Director, by the Production Operations Controller, and bv the Southampton Control Committee (see Section 4). The BATUKE Board will be responsible for fulfilling all the statutory requirements of the company. SETwill no longer operate after 31.12.92. The BATCo Board Ile BATCo Board as described below combines its twin roles of a Management Board and of a formally constituted legal meeting of the Board of Directors. Ile general purposes of the BATCo Board will be: - I To fulfil all necessary legal and statutory requirements. 2. To set the strategic direction and key policies of the company. 3. To be a top level forum for communication. The routine components of the Board's annual agenda will therefore include the following, with a quorum Board only required for those items which are starred. Operating Procedures Deceznber 1992 Section 10 Page 2 L'i BATCo document for Legal Services : Health Canada 18 October 1999 Legal i. Appointment and resignation of Directors. ii. Reports and Accounts, and Stock Exchange announcements. i1i. DiAdends and convening of general meetings. iv. Issue and allotment of shares and stock. V. Establishment of Board Committees. 2. ~Financial i. Annual and half-yearly accounts. ff. Take-over bids and merger proposals. Hi. Donations and subscriptions. iv. Risk Management. V. Financial and Treasury Policy. 3. Personnel Personnel and remuneration policiesi including revisions of salary structure and general salary increases. U. Terms and conditions of service. iii. Management Development and Succession Planning. iv. Changes in organisation structure affecting more than one department, RBU or division. 4. Planning and Reporting i. The BATCo Preview and the Five Year Plan. H. QPRS andMOPEs. iii. Key Area Papers. S. Marketing i) International Brand Strategies. ii) Trademark Policies. iii) Nlinutes; of the Marketing and Product Strategy Group and the Product Development Team. C-D Openzing Procedures Dere-ber 1992 Section 10 Pige 3 BATCo document for Legal Services : Health Canada 18 October 1999 6. Board Committees i. 13ATCo Executive Committee Minutes I Audit Committee Minutes iii. Health and Safety Committee Minutes iv. Matters arising from the prior circulation of the Co-ordinating Committees' minutes 7. Functional Reviews i. Production I Lear iii. Research and Development 01 iv. Legal, including Product LiabflitT and Security V. Personnel Vi. Security Vii. Environment viii. information Technology ix. Public Affairs X. Taxation, including Excise Xi. Progress of major investment projects in the UK, particularly Projects Test, Itchen and MillbTook The BATCo Board will meet monthly. Its membership isunchanged and the responsibilities of individual Directors are as announced on 22nd October 1992. The Secretary of the Board is the Head of Legal Department. Agenda items (original plus twelve copies) should reach the Secretary not less than three days in advance of the 0 meeting. Agenda items will be referred to CPC, as appropriate. Lri C-_- Opera=* Procedures Deev-rnber 1992 Section 10 Page 4 BATCo document for Legal Services : Health Canada 18 October 1999 BATCo Executive Committee The BATCo Executive Committee will replace the present Tobacco Executive Committee. The objective of the Executive Committee is to take responsibility for certain matters (mainly appointments and investments) delegated by the BATCo Board. The membership of the BEC remains unchanged. Ile Secretary will invite the Director(s) who are sponsoring business to be considered at a iEC to attend the appropriate meeting. The normal items to be considered by the BATC reference where appropriate to the CFC, will be 1. rhvestment Proposals i. Major capital expenditure and disposal of assets in excess of the authorisation limits in Attachment 1. ii. Corporate investments and dis-investments. iii. Any entry into an activity outside tobacco. iv. Monitoring the progress of major investment projects in the UK. V. Increases of authorised and/or issued capital by a subsidiary or associated company. Vi. Furchase or sale of trademarks or licences outside the Group. vii. Approval of new marketing opportunities requiring investment in working capital or assets of m ore than;ES. Gmillion or in excess of Diercrors'authorised limits. 2. UK Staffand Overseas Board Members (Grade 43 and above) 0 i. All appointments, promotions and transfers. ii. job grading and regrading. iii. Redundancies and early retirements. iv. Individual salary revisions. V. Appointment of all directors (including non-executive Directors) to subsidiary and associated company boards. vi. Monitoring of staff movements against establishment. V ii. Unbudgeted consultancy agreements, and proposed consultancy U-1 agreements with former employees of the Group- N) U Operating Procedwes De=nber 1992 secdon 10 Page 5 U_ _-C BATCo document for Legal Services : Health Canada 18 October 1999 viii. Employees wishing to stand as candidates for UK and European parliaments. 3. Other i. Immediate notification of serious accidents involving fatalities. ii. Political moves of significance or any unusual matter severely affecting the normal performance of an RBU or operating company. iii. Staff Council Matters. iv. Minutes of Co-ordinating Committees. V. Review of BATCo HQ Budget. Vi. Approval of Operating Company Plans and budgets. The Executive Committee will normally meet weekly but may be convened at any time in an emergency. The Secretary will be the Head of Legal Department or his nominee. BEC papers must be submitted to his Department no later than 12 noon on the previous worldng day but one (or if diis deadline -nnot be met, Secretarial Department in= be advised by then that a paper is under preparation). Full agenda papers %ill be circulated to those Directors scheduled to attend a BEC meeting one full working day before the meeting. Minutes will continue to be circulated to all Directors as well as the members of the CPC at BAT Industries. The Chairman In his capacity as the Chief Executive of BATCo, the Chairman will be concerned to resolve operational issues which cannot be resolved at individual director level, or by specific functional committees e.g. EPPE (see below). His main objectives will be : - To ensure proper co-ordination of all BATCo's operations, particularly between functional departments and RBUs. ii. To authorise major variations from approved budget (e.g. leaf purchases, price reductions or working capital requirements) likely to impact the latest estimate of BATCo's trading profit or cash flow by more than L 1.0 million. iii. To approve significant new marketing initiatives where initial losses may be incurred. iv. To resolve conflicts of priorities between RBUs. e.g. disagreements on brand launches or acceptance of orders. V. To approve and review action being taken between RB Us to resolve any issues having a material impact on BATCo's profitability or cash, as defined above. CD Operating Procedures Dec=ber 1992 Section 10 Page 6 BATCo document for Legal Services : Health Canada 18 October 1999 vi. To monitor and/or to approve the launch of any Category I or if UK International Brand in any market, the launch of any brand belonging to another BAT Operating Group in any BATCo market, and any fundamental change proposed to the core blend or the packaging of a Category I or 11 UK International Brand. N.B. Category land Category Ilbrands are listed inAttachment 3. The chairman will also determine whether specific issues should be referred to the BEC, the BATCo Board or the CPC. Delegated Authority The authority to undertake the actions below, which used to be the responsibility of TEC, has been delegated as shown. To the Chairman and Personnel Director Requests for accompanied travel overseas. To the Personnel Director Car telephone requests Reports on staff movements Annual review of level of expatriate educational assistance Annual increases to USS pensions Award of expatriate status and back service pay in Operating Companies. BATCo and BATUKE staff up to Grade 13 on appointment, promotion, regrading, transfer or salarv revision I To the Personnel and Finance Directors Requests for augmentation of pension benefit To the Personnel and Regional Directors, and to the appropriate Functional Director International staff up to Grade 13 on appointment, promotion, regrading, transfer or salarvre,vision. I To the Finance and Regional Directors Charges on Millbank Operating Procedures December 1992 Section 10 Page 7 BATCo document for Legal Services : Health Canada 18 October 1999 The Audit Committees are dealt with under Section 5 - Finance. z ALARKE77NG The existing Committee structures within Marketing are. - BATCo BA7UKE I Product Development Group The Marketing Planning Group Chairman: J. Remb&zcwski Chairman: A.D.G. Pereira Long term development of Resolution of marketing/brand international brands. issues in export markets. Quarterly meetings Monthly meetings 0- 1 2. Additive/Materials Guidance Panel Product Development Team Chairman: G. Smith Chairman: A.D.G. Pereira Guidance on use of materials in Initiation and development of new cigarette construction. products. Meetings as necessary Monthly meetings Within the revised organisation, the number of marketing committees will be reduced within the following structure. 2.1. Marketing and Product Stmtegv Group The existing BATCo Product Development Group and the BATUKE Marketing Planning Group will be subsumed into a new Marketing and Product Stratc&v Group (MPSG), with a revised membership as shown below. The Group will be concerned essentially with the long term development of international brands and of the related marketing strategies. 7be terms of reference of the MPSG will be: i. to identify product opportunities ii. to ensure the application of improvements arising from technological advances to the revision of I.B. standards iii. to plan forward 1. B. strategy in the fight of market changes Operamng Procedures Dcc=ber 1992 Sec-mon 10 Page 8 BATCo document for Legal Services : Health Canada 18 October 1999 iv. to ensure the co-ordinated implementation of agreed international brand strategies V. to review control procedures -.7i. to advise RBUs and the BATCo Board on the allocation of communications resources between brands. vii. to review the work of the Product Development Team (see below) viii. to endorse RBU proposals for the launch or repositioning of Categor7 I and 11 international brands The composition of the MPSG will be: The Marketing Director 3 x International Brand Managers 3 x Regional Marketing Managers The Sexiior Regional Export Manager Product Development Manager (Marketing) -Me Regional Finance Controller (Europe) as Head of Marketing Finance. The Secretar)~ of the MPSG will be the Head of Marketing Intelligence and Staff Development. Tle MPSG v~ill meet twice a year. The primary purpose of the March/April meeting will be to review overall marketing strategy, and to review proposals put fom-ard by the RBUs for the launch or repositioning of Category I and 11 international brands, as concepts to be developed in the Regional five Year plans. The primary purpose of the 0 0 September/ October meeting will be to approve the Statement of Marketing Strategy to be included in the BATCo ~S year plan. The work of the MPSG wfll be closely inter-related with stages of the corporate Planning (;vcle so that international brand strategies, as set out in the Marketing Division Plan and the individual Brand Phins, will be consistent with the Regional Plans. The International Brand Control Procedures, which are set out in Section 2i) of the Manual, are intended to follow and reinforce the work of the MPSG, not to replace it, (-7-. Operanno Frocedurrs December 1992 Section 10 Noe 9 BATCo document for Legal Services : Health Canada 18 October 1999 2-2. Product Development Team The Product Development Team will act as a sub-committee of the MPSG. Its role within the new structure will be primarily tacdcaL lt%rill focus operadon-d~y on: i. Projects referred to it by the MPSG ii. Review of proposed changes to the packaging and blends of international brands iii. Reviews of the level and content of product development projects requested by operating companies on R&D. (All such requests must be signed offby the RBU Marketing Manager before action is taken by R&D) iv. Specification and performance of the I.B. product range from Southampton and offshore manufacturing units including- commercially acceptable conformance to group standards including any necessary development to achieve this maintenance of specifications and Performance resolution of technical issues and operational issues arising from the development of new specifications or changes to existing specifications V. Development of specifications to extend therange of tactical products (mainly for Cat IIAII brands) in response to RBU needs Review of the outcome of PQRS and MASQ quality testing in operating companies vii. Provision of product development advice to Operating Companies viii. Provision of technical information on competitors' brands to the RBUs The Product Development Team will meet monthly. Its composition will be: The Marketing Director (in the Chair) or in his absence the Regional Marketing Manager (Asia-Pacific) Product Development Manager (Marketing) Head of R&D Head of Product Development Section BTC 'Me Head of a Brand Group (initially SE SSS) c::: Openting Procrdures De--~brr 1992 Section 10 Page 10 BATCo document for Legal Services: Health Canada 18 October 1999 Senior Blender Production Planning Manager Materials Development Manager Southampton Plant Manager Southampton Fin=ce Controller - Secretary Brand Managers and Regional Marketing Managers will be co-opted to meetings, as necessary. The Marketing and Product Strategy Group and the Product Development Tearn will need to establish a close working relationship in order: i. to avoid situations where an RBU requires the launch of Cat I brand on a short lead time and for commercial or operational reasons the standard specifications cannot be used ii. to ensure that technological advances are built into BATCo standards and operational developments iii. to ensure optimal deploy ment of resources in project work, whether originating I from Marketing Depar=ent, the RBUs, or the operating companies 2.3 Sales Cc>-ordination 7he co-ordination of all export sales world-Aide, and in particular the monitoring of supply routes and the reNiew of pricing structures, is the responsibility of the Senior Regional Export Manager, who will resolve issues, such as the acceptance of orders from new customers or competing priorities, in consultation with the Regional Export Managers, the Regional Directors and, in the case of disputes, with the Marketing Director. When necessary, the Senior Regional Export Manager may call ad hoc meetings of the four Regional Export Manager and the Head of Customer Services in order to resolve sales planning issues and to co-ordinate the flow of product to key markets. 2.4- The Additive/ Alaterials Guidance Panel will remain unchanged and will continue to meet as necessary and as requested. LTI Operating Procedures December 1992 Section 10 Page I I _4 ;=1 BATCo document for Legal Services: Health Canada 18 October 1999 3. sALEs oPERA 77osS ANrD PLANNING The Sales Operations and Planning system, which is the process of converting export customers' orders into production programmes, shipment estimates and finished goods stock, is operated by Logistics using the BPCS system. Crbis is explained in Section 3ii) of the Manual). It is supervised and direded by two teams The Export Production Planning Executive (EPPE) The EPPE will expect to make decisions in the period from 2 - 3 months forward and up to five years. It will meet every two months or when alerted by STOPE (see below). The principal objective of the EppE is to match long term production capacity, including contract manufacturing, to export sales forecasts, and to approve the resultant Sales Operations Plan having regard to : Sales forecasts by the RBUs (see Section 3ii of the Manual). World-wide stocks Production capaci%v sources Conformity with the overall BATCo plan Financial impact and working capital requirements in giving authority to the Sales Operations Plan, the EPPE will be concerned to ensure that Capacity is available for future demands Demand is being monitored and accurately maintained Changes in the plan conform to RBUs' business plans and appropriate resource usage. Projects are being properly supported, managed and communicated. The knock on effects of options decisions are properly understood and agreed. EPPE has responsibility for the co-ordination and, where necessary, resolution of coafbcting or competing priorities between RBUs within the sphere of Sales Operations planning. EPPE also has responsibiht~ for authorising major disposal of obsolete and slow moving stock affecting BATUKE. The EPPE carries responsibility for managing a programme of continuous improvements of the operation through the use of performance measures, training and U-1 Operating Procedures Dec=ber 1992 Section 10 Page 12 CIN BATCo document for Legal Services : Health Canada 18 October 1999 investment. Examples are Customer Services levels, Class A status business quality, accuracy of forecasts /demand management, stock policies, and exploitation of IT. The preparation of "smoothing" overrides to the end-quarter and end-,vear cost forecasts in the SOP system for the purposes of the monthly management accounts (QPR and MOPE) is the responsibility of the Production Finance Controller in consultation with the Head of Accounting Services and the Corporate Finance Manager. It is essential that the EPPE should be kept informed of new product developments, brand rationalisation proposals, new regulations affiecting the product or pack, and similar changes which may affect its longer term decisions. The EPPE will comprise: The Marketing Director - Chairman The Production Operations Controller A representative of PP & D The Production Finance Controller 4 x RBU Regional Managers The Mister Production Planner - Secretary Other executives, e.g. from Leaf Department or Materials Development, may be co- opted for meetings, as required. Th e Sh art Tez-m Opera tions Pla nn ing Evecu tive (STOPE) STOPE will normally meet weekly. STOPEAill be responsible for managing demand v supply conflicts in the immediate future (I - 6 weeks) and for ensuring future demand /supply balance for up to 6 months. It will have responsibility for ensuring that demand is managed and that forecast accuracy is monitored. STOPE will be responsible for resohing short term production allocation issues (with PP & D) and for co-ordinating the impact of brand launches affecting more than one RBU. It is also responsible for ensuring that stock levels are within policy, and thus would act on overstocked or under stocked situations. Operaung Procedures Dectznber 1992 Section 10 Page 13 BATCo document for Legal Services : Health Canada 18 October 1999 STOPE's data v6ffl be at product code level (i.e. brand in market, the stocked item). Capacity figures will be derived from offibore plants as necessary. The principal plant is Southampton. 7le membership of STOPE wfll bc : - The Master Production Planner - Cbairman A Logistics/ Customer Services representative 4- x RBU Assistant Regional Managers (as required) A Southampton production operations representative A BAT Benelux factory planner (as required) A representative of PP & D (as required) The Production Finance Controller - Secretary 4. PRODUCT70NOPERA77ONS The Production Operations Controller reporting to the Marketing Director, will be responsible for the total operations, as cost centres, of the Southampton and Corby factories, for Projects Test, Itchen and Millbrook, and for the implementation of agreed contract manufacturing arrangements for BATUKE exports. Hevvillalsobe administratively responsible for all Southampton site operations, including R&D. Production Operations (Southampton) will continue to control its own leaf stocks based on sales forecasts and BATCo stock policies. Leaf requirements will be generated C' within Materials Planning under the guidance of a Leaf Co-ordinator. Orders will be placed on BATCo Leaf Department after the approval procedures shown below. A revised paper on leaf procurement policy and authorisation of leaf purchases will be published shortly for inclusion in the manual. In the meantime: Where the value of the Leaf Purchase Authorisation form (LPA) for a particular country of origin does not exceed the value quoted in the compan plan or, if exceeded, is less than 2.5% of the specific country of origin value but not exceeding LI.0 million, the required approval signatures are: The Production Operations Controller The Production Finance Controller Ln Operating Procedures Dece-ber 1992 Section 10 Page 14 U. 4~ C--. BATCo document for Legal Services : Health Canada 18 October 1999 The Leaf Blender The Head of Production Planning. 2. Where the value of an LPA exceeds the limits idendfied in I above, the required approval signatures are: The Executives shown in I above, p1m The Finance Director; or. The Marketing Director 3. Where the value of an LPA exceeds the limits by more than ES.0 million, it should be referred to the BATCo Executive Committee. Ihe leaf stock-pile will be managed by Leaf Department and financed by BATUKE based on customer estimates. Production Operations (Southampton) will proNride logistical support (shipping in and out of storage). A revised paper on authorisation for stockpile leaf purchases will also be ublished shortly. p I A local Southampton committee will be set up to cover and co-ordinate, within authorised limits, capital expenditure, leaf purchases, fixed assets write-off's, MDDs, monthly reports, authorities and cheque signing. Promotion /dismis", job evaluations, contracts and appraisals will be handled locally in line with laid-down BATCo procedures. The Southampton Control Committee will comprise: The Production Operations Controller T'he Southampton Plant Manager The Head of R & D (as required) The Logistics Manager The Production Finance Controller Project Test Manager The Southampton Personnel Manager The Southampton Committee will meet weekh- and will keep minutes. Monthly progress reports in Projects Test, Itchen and Millbrook will be submitted to the BATCo Board. U-1 Openting Procedures Dec=ber 1992 seczion 10 Page 15 ~-n --I Z~ ~10 BATCo document for Legal Services: Health Canada 18 October 1999 5. FINANCE The current committee structures within Finance are :- BATCo BA7UKE Audit committee Audit committee Finance Advisers Meeting Finance Management Team Currency/Treasury Committee is Tax/Legal Committee Within the revised organisation, the structure of the above committees will change as follows :- 5.1 Audit Committee The two existing Audit Committees will be merged. The composition of the new BATCo Audit Committee will be announced shortly. The Audit Committee is a formally constituted committee of the BATCo Board. Its meetings will normally be hcld~quarterly in January, March, June and September. The Cliief Internal Auditor is ~ecretary of the Committee. The business of the Audit Committee is to : - 2. ascertain whether the accounting and reporting policies of BATCo are in accordance with legal requirements and agreed ethical practices; b. review the scope and planning of audit requirements: C. review the findings of management letters in conjunction with the external auditor and local BAT comments thereon; d. keep under review the effectiveness of the BATCo's operating procedures accounting systems and internal controls; Operating Procedum December 1992 Section 10 Page 16 (-P~ U-- C~ BATCo document for Legal Services : Health Canada 18 October 1999 e. make recommendations to the Board in regard to the appointment, removal and remuneration of the various external auditors within BATCo and its subsidiaries; f. authorise the Internal Auditor to carry out investigations into anv activities of the BATCo Operating Group which may be of interest or concern to the Committee. S.2 Finance Alanagement Meeting The two existing Finance Management meetings will be amalgamated into a six weekly meeting of:- The Finance Director The Regional Finance Controllers 'Me Head of Accounting Services The Head of Tax Department The Chief Internal Auditor The Head of MSD The Corporate Finance Manager 5.3 The Treasury and Credit Committee I The CurrencylTreasury Committee will be reconstituted as the Treasury and Credit Committee under the Chairmanship of the BATCo Finance Director. It ,Aill meet monthly. Its membership will be: The Finance Director The Head of Accounting Services The Treasury Manager The Credit Controller 5.4 The Tax/Legal Committee The necessity for the TaxlLxgal Committee will be reviewed in the earl stages j Y of the implementation of the reorganisation. U-1 Operating Promdures Deceraber 1992 Smian 10 Page 17 BATCo document for Legal Services: Health Canada 18 October 1999 AITACHME FINA.NCIAL CONMOIS Directors arc authorised to note up to the following limits in respect of capital projects. - Argentina Australia BAT (UK E) Belgiurn Chile Cigar Group Hong Kong Malaysia Pakistan SouthAfrica Switzerland Venezuela Denmark, special arrangements India with BAT Industries All others a million Notes 1. Limits are at cwTent values. 2. Limits a ply to any one project or group of projects which are connected in purpose or p I I Is -hich arise from implementing a particular strategy. 3. Limits apply to total expenditure or commitment of resources, including investrnent: in associated working capital. Ltmes to be entered into are valued at present-day discounted value. Oper2ting Procedures December 1992 Section 10 hge IS BATCo document for Legal Services : Health Canada 18 October 1999 Marketing Departrnent PROJECT BRIEF BAT (U-K and Export) Lknited woldng YEAR PROJECT NUMBER~ INITIATOR BUDGET DATE OF BRIEF CHARGE RECEIVED MD CODE CATEREQUESTED DATEAGREED 7ERRIMRY IN MARI