Tobacco Documents Online

0 * think he can do both, because they are only two weeks apart. My guess is he's going to go up against Liggett again. Because you don't want to go up against Reynolds. Reynolds, of course, has got all the great attorneys that have done him well over the last, you know, thirty years. Liggett because they are not really in the best of financial shape. They might not have the management team that you would want. I would think that Wilner, if he's smart, he is a smart guy, would rather go up against Liggett than Reynolds. That's all that I really have to say. one final point I would make about Rogers is that most people were expecting it to be a hung jury. And I can't emphasize enough that in talking to the jurors there was nobody on this jury that really even seemed close to saying we should give money to this plaintiff. I thought it was a great...a well run case by (Shook,Hardye Bacon), who seemed to take the lead on this. I think they put up much better witnesses than Brown & Williamson did. I think the documents, obviously, are the important issue going forward. But one of the big things that you're going to see...two big things that I think will change going forward is, one, I think they will be able to put people up on the stand, and talk about the documents and try to at least put context around or at least diffuse them and challenge them. The second thing...I think we saw David Hardy do this in closing 14

s 0 • domestic tobacco at about 80 dollars a share. Now with Philip Morris U.S.A, if you back out the corporate expense is about 3.7 billion dollars. So you take the 3.7 billion dollars. You get 830 million shares. That mean that each multiple point is worth about $4.50. So if I start with the $80, and I say, OK, if you could somehow get the marketer to put a five or six multiple on the domestic tobacco instead of the one multiple or two multiple that is there right now. That's the same thing as saying that I' d be willing to give up 67 0 because I'm putting two points on domestic tobacco now, where it really should be six or seven. That's saying that I would be willing to give up 67% of my domestic tobacco profits in order to get rid of all this litigation. So I think there is a lot of room, is my point. I think that the money that is available could be substantial, and everybody would go away happy. Because you could finally get rid of this litigation. Now a lot of people have asked us what our numbers on that, if you would look at what is domestic tobacco. What is the company worth if domestic tobacco is worthless? At Philip Morris it's about 81 dollars. For Reynolds it's about 22 dollars. So we can send back of people are interested. On the FDA. You know we don't believe that the FDA has any leg to stand on. There are two issues, and we've talked about them both in the past. One is the 9

0 0 • these stocks for years have always said it would be great if Philip Morris could trade at a market multiple. Yet I think the chit on the table where you could say, I'm willing to accept legislatively some FDA jurisdiction on some issues in return for some language in that-same -legislation that basically forever says you can't sue the tobacco industry because we do want to stay in business. And that is a big difference between this and asbestos. Because with asbestos, obviously, you had substitute products. With tobacco you can't ban it because people are still going to smoke. - As far as the litigation calendar. There is something -new that we haven't really told people about. We just really heard about it last- week. September 9th, there,is a tobacco trial that starts in Louisiana. It's called Hulin. It's versus Brown & Williamson. It's somewhat different, though, than your typical tobacco trial. Because it also involves asbestos. Apparently Hulin was exposed to asbestos and he also smoked. He says_he's got lung cancer, so he's suing both, one asbestos company and Brown & Williamson. But it's probably something that we should look at. In the past, you know, people haven't really thought too much about these type of cases, because it seems like with the Lourillard filters, people just kind of say, that's not really a tobacco case. I think 11

• • • focus on. Because you're going to have this big fight about whether you can get Brown & Williamson documents introduced against Liggett. Again, I would take the view that you can probably can under state of the art, if your competition was doing these scientific studies, the court can say, you knew or should have known about these same type studies. But I think it's up to the attorneys for Liggett, obviously, to say, well, you know, just because one person at Brown & Williamson thought this, it doesn't mean that we thought this at LiggAtt. And what you would do is you'd put your own person up on the stand, and basically talk about what types of studies you were doing. And try to show that you did not believe that nicotine was addictive. And you give all the data that we all know. And that we saw in Rogers. One out of two people quit. 90% of people quit without professional help. So I think that would make a world of difference, versus what Brown & Williamson did in the Carter case. Then there is also a second trial, another Wilner case in November. November 4th. It's a case called Wallerson versus Reynolds. Wallerson is actually the_personal representative of Jane Conner. Now Jane Conner was a 40 something woman who died, allegedly of_lung cancer. And she left, I think, two kids. Talking with some of the folks in the industry about which case Wilner would rather do...I don't 13

0 ! • 44 liquormart decision. That basically says you can't take away somebody's first amendment rights. If there is a viable alternative, and you can't take it away, unless you can show definitively that you are restriction or your ban is going to actually accomplish your stated objective. Which in this case is to get kids not to smoke. And there is nothing in the FDA documents that shows that if the FDA is successful that it would basically work in getting kids not to smoke. So the question becomes why did the FDA do it, then, if obviously it's going to get blocked in court. And we've heard that Judge Esteem from North Carolina, a Republican, is going to have, kind of like a status meeting today on the case to try to figure out where's going to go in terms of amending complaints, and giving a time table to as to when he might rule. Because obviously come Wednesday, when it gets published in the federal register the industry will file for a preliminary injunction. Probably on Wednesday. So I think_ the reason why they did this was, because, again, they wanted to get something on a table. Clinton is using it as a campaign issue, obviously. I think that if you get something on the table maybe people-would start trying to actually be serious about negotiating some sort of solution. And, again, it fits into this whole idea of a settlement. I think this is a great opportunity. People who follow 10 IV

0 • • time, people hear about these settlements, and then everybody starts suing. What I think the industry would like is there to be some legislated settlement where, for example, you could say, we're willing to accept a lot of the FDA provisions if its part of the...let's use for example, the 1997 tobacco Education and Awareness Act. But we want to stay in business. And in return for accepting of these requirements, we would like there to be some pre- empting language. Similar to like the_'_Black Lung" legislation from about 15 years ago. Which the coal miners...the odors of the coal mine got introduced. They were able to stay in business, and people would not be able to sue the tobacco industry anymore. I think, though, that that would really only preempt future litigation. And it wouldn't take care of all the past litigation, unless you were to try to make that legislation retroactive. So I think you'd need to convince the courts to basically say that anybody who has been exposed to tobacco up until the point of the legislation, would have to be part of a mandatory class action. And those are rare. You usually see mandatory class actions when there is limited funds available, which usually means bankruptcy. But I think the industry would be willing to accept some kind of settlement if it was a legislated settlement as opposed to something like Ben LeBow did, which was to 7

0 • • three people full time working on it. That doesn't really pay the bills, is my point. However if you can win, and he says he's going to do one a month. If he can win...let's say he does twelve of these next year, and let's say he can win, you know, if he feels he can win half of them, and then, you know, again, looking at present value next year, $180 times six, that's like a million dollars. It still kind of barely pays the bills, if you want to think about lawyers. And maybe it does...for two associates and maybe Wilner, that's not really a bad pay day. I think the real money comes in if you can somehow consolidate these cases. You know we have all talked about class actions, and we've all talked about how the Castano ruling in the Fifth Circuit kind of, you know...would send a signal that the courts don't want to have Class Actions. The problem is that in Florida you've got kind of the opposite approach going on. Most people are aware by now that the Florida Supreme Court decided to allow the Broin Class Action, which is the flight attendant Class Action to go through. Even though it's got the same manageability problems that Castano had. It's a lot fewer people. There are only 60,000 flight attendants, instead of 50 million addicted people in Castano. Really it'll be interesting to see what the Florida Supreme Court does with Engel. Because with Engel you've got potentially 19

• • • Operator: Mr. Geiger you may ask your question. Geiger: Can you give us your perspective on this plaintiff proposal in terms of the likelihood that goes forward, with give or take on both sides, and what are the potential....(difficult to hear part of question). I realize it's very early in the game. Gary: I mean this proposal that's in the paper today. There is a 0 chance of it occurring. I mean 0. It's a plaintiff proposal that was concocted by Dicky Skruggs and six Attorney Generals. And you know, in talking to the industry, again, everybody would like there to be some legislated solution. You know Steve Goldstone said back in March in the Financial Times that he would like there to be some legislated solution. I think that this specific proposal that you see in the paper, there is a 0 probability. However I think it's a trial balloon. I think that if there is going to be a settlement. And this is why people should really think about mathematically what tobacco stocks are worth right now. And I think if you're going to have a solution now would be the time when the industry would be willing to come up with something, and agree to give up something such as the FDA. They have a very strong position on the FDA,_contrary to what the press would say. Because the court precedent would say that 44 Liquor Mart, would stop the FDA from being able to take action on the advertising issues, on the 21

• ® Morris, because of the international growth, and because it just spits out so much cash flow that it doesn't know what to do with it, so it just gives it back. Then what you really...and I think that investors are going to start doing this with Philip Morris as the settlement discussion stuff heats up. What you really then should do is come up with a lesser of settlement expected value, or damages expected value, and take the lesser of it and subtract it from the fundamental value. When you do that using as worst a case as you can come up, they're going to come up with at Philip Morris and most of these tobacco stocks are just tremendously under valued. Because people are basically assuming domestic tobacco is worth nothing right now. And that's just absurd because this industry is not going to be allowed to go bankrupt given that it generates 17 billion dollars, which is about 11% of the U.S. corporate tax bill- Philip Morris is the largest tax payer in the country. They're not going to be allowed to go bankrupt. People are still going to have to smoke. They're not going to allow a black market to start taking over the streets where they sell cigarettes out of the backs of vans. So I think that the odds of a settlement are relatively high, almost perversely, as someone said to me over the weekend, almost perverse, it would have been better if they 23

i • • have all-these factors replicate themselves in every one of these trials. And you're going to have the lawyers basically say the documents are unimportant so ignore them again. And you're not going to have jurors going into the jury room thinking that Brown & Williamson and American Tobacco are one and the same. I think it actually will do some good at getting the industry to say, well, perhaps, maybe, we should really think about how we can go about getting all this litigation to go away once and for all. And I think now is the time when they will do it. Because you've got this FDA proposal out there circulating. The industry's got a very strong position. And you've got a judge_who's from North Carolina who's going to decide this issue. I think you could make a trade. And somehow convince investors that the litigation is not going to hurt you again. Operator: At this time there are no further questions. Gary: OK. Thank you very much everybody. N O __ V V .p _- O t0 O O -4 25