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IAUCO, DAVID CondcnseltTM MISSISSIPPI TOBACO LF 1 DAVID IAUCO, ~ being f'wst duly sworn, testified as follows: 3 EXAMINATION 4 BY MS. FLOWERS: 5 Q. Good morning, Mr. Iauoo. I'm Jodi 6 Flowers. I represent the State of Mississippi in the 7 case in which you've been designated as an expert 8 witness. 9 A. Good morning. I0 Q. If at any time you need to take a break, I ! just let mc know. If you don't understand my 12 questions, I'd appreciate it if you'll let mc know ~3 that, too. Could you state your name for the record, ]4 please? ~5 A. David lauco. t6 Q. And you're currently employed by It,. J. 17 Reynolds; is that correct? 18 A.R.J. Reynolds Tobacco Company. 19 Q. Have you cvcr been deposed before? 20 A. Yes. 21 Q. Could you tell mc which cases you've been 22 deposed in? 23 A. Yes. There are three cases. One was 24 Keuper. 25 Q. K-e-u-p-e-r? Page 1 A. I believe that's oorreet. The other was 2 Mangini. 3 Q. Okay. 4 A. And the third was Conner, I believe. 5 Q Do you know the -- I believe Keuper was 6 in 1992 or thereabouts and I know when Conner was. 7 Do you know have any idea when the Mangini deposition 8 took place? 9 A. I'm going 1o have to --it's about two 10 years ago. I l Q. ] going to mark this as Iauco Deposition 12 Exhibit Number 1, Plaintiff's Notice of Dgposition. 13 I apologize, I only have one copy of this. 14 (EXH. L Plaintiff's Notice of 15 Deposition, was marked for 16 identification.) 17 BY MS. FLOWERS: 15 Q. Do you recognize this document? 19 A. Yes. 20 Q. Okay. When was the first time you saw 21 it? Do you know? 22 A. I think it was last week. 23 Q. Did you assist in the document 24 compilation that was produced to the State in 25 conjunction with the notice and document request? A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 1 - Page

IAUCO, DAVID l A. Yes. 2 Q. And who did you assist in that? Did you 3 do it all yourself'?. 4 A. No. 5 Q. Can you identify for me who helped you 6 with "&at? 7 A. Bob McDermott, Geoff Beach. 8 Q. Is that it? 9 A. That's all I can recall at this point. I0 Q. So you're fairly familiar with the t I documents that have been produced? 12 A. YOs. 13 Q. It's about a quarter of a hox? 14 A. YOS. 15 Q. Do you feel that those are complete and 16 covered by what we've requested? 17 MR. McDERMOTT: Let me inteljcct here. CondenseltTM MISSISSIPPI TOBACO LrrlGATIO~ 19 21 Z2 23 24 25 l 2 3 4 5 6 7 9 l0 11 12 13 14 15 16 18 19 20 21 22 23 24 25 Page Page A. I applied. 2 Q Did you apply anywhere else? 3 A. Yes. Many different companies. 4 Q How many? Can you give rne an idea? 5 A. Well, it was over 20 years ago. So 6 Proctor and Gamble, Exxon, Xerox, 3M, I believe. I'm 7 sure there were other. 8 Q. Was R JR your first pick for potential 9 employers? Io A. What do you racan by fn'st pick? 11 Q. Your fast choice of the ones you just 12 mentioned. 13 A. Not going 14 Q. You began with Reynolds in 6 of '76; is that fight? 16 A. '75. |7 Q. Okay. The CV that I've got, which I'll We have produced not what you have asked for, but what wc gaink you're entided to and in accordance with the understandings that govern ~he expert discovery in this case. Everything which is on this list has not been produced to you. MS. FLOWERS: Okay. Thank you. MR. McDERMOTT: And those judgments were made by the lawyers, not by Mr. lanco. Page 6 MS. FLOWERS: well, the State would just interpose an objection at this time to the failure to produce all the documents that have been requested. 18 go ahead and mark as lauco Deposition Exhibit Number 19 2, and we'll go ahead and pul the Rule 26 sta~ment 20 w~th it. 21 (EXH. 2, Rule 26(B)(4) Expert Statement 22 and Curriculum Vitae of David N. lanco, 23 was marked for identification.) 24 BY MS. FLOWERS: 25 Q. Now, if you'll look under the first line Page 8 1 of work experience, it has listed that you hegan in 6 2 of '76. 3 A. Yeah. That's-- MR. McDERMOTT: Again, we have produced in accordance with the understandings between the parties, but your objection is noted. BY MS. FLOWERS: Q. Mr. Iauco, you have a master's degree in Q. A. Q. start? Is that incorrect? That's incorrect. Could you tell me when you did, in fact, Yes. It was 6/75. marketing; is that correct? A. Master's degree in management, marketing management. Q. Okay. Was that a ~vo-year program? A. Yes. Q. And have you had any formal education beyond that? A. Don't know what you mean by formal education. I have been to, you know, seminars, that kind of thing. I have not had any advanced degrees beyond that. Q. Thank you. Did you go to work for R. J. Reynolds directly after leaving college? A. Yes. Q. Could you please tell me about being hired by R. J. Reynolds? Did you apply there or did ¢aey come and recruit you? 9 Q. 6/75? Okay. Is this the most current cv ]0 you have? 11 A. No. 12 Q. I also notice, when you look at your Rule 13 26 statement, it says that you arc "currently senior 14 vice president, business development and market 15 research." 16 A. That's correct. 17 Q. And I, in looking at the cv, note that it IS has you as senior vice president of worldwide '19 business development. 20 A. Right. And that's what missing, the 21 latest change. 22 Q. So you were promoted after the worldwide 23 business position? 24 A. Well, I wasn't promoted; but my job 25 ddscription changed in, would have been ] believe, A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 5 - Page 8

IAUCO, DAVID 1 2 3 4 CondenseltTM 5 6 7 8 9 I0 substitute. And if you have no objection, we'll send 11 a copy to the court reporter and put the substitute, 12 thg updated cv - 13 MS. FLOWERS: I'd appreciate that. 14 MR. McDERMOTT: - into ~ dcpositio~ 15 record as well, so there's no confusion. 16 BY MS. b'LOW~RS: 17 Q. Jus~ so I understand today though, you, IS from '94 to '96, held the position that's listed ~9 here? 20 A. Yes. 21 Q. And ~ in '96, you began the position 22 that's listed in your Rule 26 statement, the senior 23 vice president, business development and market 24 research? 25 A. Yes. Page March or April of '96, my present position, senior vice president of business developraent and market re~arck MR. McDERMOTr: Jodi -- THE WI1WESS: SO this is just out of MR. McDERMOTT: - we'll update the internal CV. We didn't realim it was out of date when we provided ft to you. We'll furnish a bI1SSISSIPPI TOBACO LITIGATIOb Page 11 ~nded up returning to Reynolds. Q. Were you recruited back or did you reapply? A. I had kept contacts with the company. It was only a year that I was gone. And it was made clear to me that if ! was interested in returning that there was an in~r~t on the part of th~ company and I sought that out. Q. In your current position, who do you Q. And that's th~ position you currently hold today? A. Yes. Q. Do you have any expertise on the policy and practices of R. J. Reynolds' advertising, marketing and promotion prior to ! 975? A. Just observations. Q. Have you ever worked for anyone other than R. J. Reynolds? A. Yes. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 19 20 21 22 23 24 25 Q. Would this he Kubcrman? A. Kuheman. Yes. Q. Kubcman? A. Yes. N-a-n. Q. Okay. And what is Kubcman? Page 1C A. It was a firm that was in the computer software business. We marketed a small, medium size law firm, tim~, accounting and billing system that was developed by the f'wm and marketed during the advent of minicomputers. Q. Why did you leave Reynolds in '79 to go to Kuhernan? A. It was just an entrepreneurial opportunity that I wanted to explore. I left, tried it, didn't work out the way I hoped it would, and I I0 t~port to? l I A. I report to the CEO, Andrew Schindler. 12 Q. And he is the cEo o~ 13 A. He is president and CEO of R. J. Reynolds 14 Tobacco Company. ]5 Q. Do& he mpor~ din~tly to the hoard or 16 do you know who he reports 17 A. I believe he reports to the board; but 18 don't know the... 19 Q. How many people are under your 20 supervision? 21 A. I should know this. I just acquired 22 responsibility for another department, the planning 23 department, and I'm going to guess around 60 or 70 24 people. 25 Q. Okay. And these are all within the Page 12 market research departracnt? 2 A. No. All within marketing. 3 Q. All within marketing? 4 A. (Nodding head.) 5 Q. So market research is a subdivision of 6 the marketing department? 7 A. Yes. 8 Q. What other consumer products have you 9 worked on besides cigarettes? I know you just mentioned the computer software, but hesides that. ,11 A. Pipe tobaccos, chewing tobaccos. !2 Q. Any non-tobacco products? ,13 A. NO. Q. I'd like to direct your attention for '15 just a minute to your Rule 26 statement, ~e second !6 paragraph. It says you're expected -- I'm quoting. "Expected to testify on the subjects of ,!8 advertising, marketing and promotion of consumer products, including cigarettes." Is that statement, !20 consumer products, then limited to tobacco products? 2! A. No. I've got both my education, as well 22 as experience. I serve on ~e board of the 23 Association of National Advertisers. I've got, I 24 think, a well-rounded view and understanding of how 25 consumer products beyond just cigarettes or tobacco A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 9 - Page 12

IAUCO, DAVID CondenseltTM Page 131 t products are markctvd. 2 Q. What othex consumer products would you 3 anticipate testifying about at trial? 4 A. 1ust in gengral? 5 Q. Stir. 6 A. I can talk about other consumer 7 products. I don't intend to testify specifically 8 about any other ones. 9 Q. So you don't have any specifically in to mind in tiffs broader category of consttmcr products? 11 A. No. 12 Q. I'd like to direct your attention back . 13 for a moment to your Cv and go back to the beginning, 't4 wben you started with Reynolds. 16 Q. What does a marketing assistant do? A. It's an envy level position in marketing and primarily it's task based. It's a position where 19 a new hire would be grounded in the category, understand how we market our products, how we 21 distribute our products, how the products are developed. And a marketing assistant would be given 25 I 2 3 5 6 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MISSISSIPPI TOBACO LFFIGATIO] Page I wants are. Repositioning is simply changing how a 2 consumer views the brand, both from a product and a~ 3 image standpoint. 4 Q Is it fairly common in cigarette 5 marketing? 6 A. Yes. 7 Q. In '7g, when you were promoted from 8 assistant brand manager to brand manager, did you 9 stay on the Salem brand or did you -- 10 A. No. 11 Q. -- switch then? 12 A~ I switebed. 13 Q. Which brand were you assigned to then? 14 A. It was new brands. So I worked on a 15 variety of new brand projects, 16 Q. Could you describe any of flx~m for me? 17 A. Frankly, I don't recall what #hey were. I 8 It was for a short period of time and they were in 19 the formative stages and I don't believe that any of 2o them ended up coming to market, being brought to 21 market. 22 Q. Then, you left and went to Kubernan. various tasks as part of the marketing of our products. Q. Was it specific to any brands? A. My experience? Q. In that position. A. My experience arc you talking about? Q. Yes. A. Yes. It usually is specific to brands. Q. With regard to the enwy level position at that time, was that specifically - A. Yes. Q. -- assigned a couple of brands or a brand? A. One brand. Moore, Moore Cigarettes. 23 When you came back in '80 as a brand manager, do you 24 recall what brands you were assigned to at that 25 point? Page 14 Page 16 1 A. Yes. I'm sony. I made a mistake. 2 During the time that I was brand manager, from '78 te 3 '79, I worked in specialty tobacco products. And 4 that was our smoking, chewing, little cigar business. 5 Q. Were those sold off or -- 6 A. Yes. We divested ourselves of that 7 business. It was then in '$0 when I came back as a 8 brand manager on new brands. 9 Q. Do you know what brands you worked on -- 10 A. No. That's what I don't recall. 11 Q. All right. How about in '82 to '84, when Q. When you were promoted to assistant brand manager in '78, was that also in the Moore brand? A. It was in '77. No. It was on Salem. Q. You switched then to Salem? A. Yes. Q. Can you tell me what repositioning is? A. Yes. Positioning is a - first of all, positioning is a fundamcmal concept in marketing. It's understanding what particular consumers wants are in th¢ category, both in terms of product and image. And positioning a brand is developing the product that would meet those wants, positioning that product in the minds of the consumer and developing an image that is in concert with what that consumer's 12 yOU were a senior brand manager? 13 A. Yes. That was on the Camel brand. 14 Q. Can you tell me generally how your 15 responsibilities and duties changed from, say, brand 16 manager to senior brand manager? Does that mean 17 there's no one above you on that brand? 18 A. I'm sorry. I may have -- I may be 19 confused on my brand manager positions. It's been a 20 long time and I... 21 MR. McDERMOTT: why don't you just take a 22 moment and just look down the roster of jobs and try 23 to sort it out. 24 THE WITNESS: I want to give you the 25 right answer here and I can't remember which one was A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 13 - Page 16

IAUCO, DAVID 6 7 9 10 l! 12 13 14 16 17 18 19 20 2l 22 23 24 25 CondenseltTM Page 17 which, whether I was in specialty tobacco products before I left the company or aflmauards, I BY MS. FLOWERS: Q. That's all right. I won't hold you to it. I'm just trying to get a feel for what time frames you worked -- a. Yeah, MR. MCDERMO'I-f: Yoxt want to go off the record for a second, take a break for a couple of minutes and sort that out or,.. BY MS. FLOWERS: Q. If you like, ] could just list off some brands and you can tell rm whether you worked on them. A. No. I know exactly which brands 1 worked on and I know what I -- l just can't remember during which time period. Whether it was -- whether I worked in specialty tobacco products prior to '79 or afterwards and that's the only point of confusion. MR. COLINGO: Does it really matter? MS. FLOWERS: I think it probably doesn't. Q. I think it's the former. I think it was before you left. MISSISSIPPI TOBACO LITIGATIO Page 1 1 A. Yeah. I was responsible for a number of 2 brands at that point. 3 Q. Those were existing brands? 4 A. Yes. 5 Q. Do you have any recollection of what 6 those were? 7 A. Yes. Camel, Salem, Doral, Century. 8 Q. From '87 to '88, you were, I assume it's 9 a promotion, to vice president, brand management? 10 A. (Nodding head.) 11 Q. Did you continue to manage those sarue 12 brands you just-- 13 A. I had all the brands in the company. Page 18 A. That's what -- that's what I ~call, 2 but -- well, ff it's important, I can go back and 3 check and l~ you -- Q. I'm not interested in -- 5 A. -- correct the record. 6 Q. -- when you worked in specialty tobacco 7 products. I'm a little more interested in the time s frames in which you worked on some of the other 9 brands during the '80s. 10 A. Okay. Well, again, if it's important and 11 we need to correct the record, we can do that. 12 Q. Okay. 13 A. Okay. You were talking. 14 Q. Yes. Let'sjustgo abead andmoveon. 15 We know you worked at Camel at some point in the 16 early- 17 A. No. That was 4/82. I know that one. IS Q. In '84 to '85, group manager of new 19 brands. Do you recall which brands those were? 20 A. Oh, I think at that point we were working 21 on Magna, which later came to market, and there was 22 some other development. There were other brands in 23 development. 24 Q. '85 to '87, were you sort of switched out 25 of new brands to marketing director, brand marketing? I,t Q. All of the brands at that point? 15 A. Yes. I was responsible for all of our 16 established brands. 17 Q. From '88 to '89, you continued to he 18 responsible for all the brands? 19 A. No. Beginning in February of '88, I went 20 to a different division of the tobacco company, R JR Tobacco Development Company, and worked on the 22 Premier brand. 23 Q. Did you do that exclusively? 24 A, Yes, 25 Q. For how long? Page 20 1 A. Until July of '89. 2 Q. Can you describe for me the type of 3 duties and responsibilities you fulfilled? 4 A. I was responsible for marketing of that 5 brand, also had responsibility for external relations 6 and scientific affairs, coordination of scientific 7 affairs. S q. Do you have any scientific ~'aining? 9 A. I have a -- no. I have a technical 10 undergraduate degree. 11 Q. Did you leave Premier at some point? 12 A. Yes. 13 Q. Was that in the senior vice president, 14 marketing position? 15 &Yes. l returned to RJR Tobacco in July 16 of '89 and was seni~)r vice president of marketing, 17 held various positions for that five-year period in 18 terms of scope of responsibility. Initially, was 19 responsible for all of our brands, *hen all of our 20 full-price brands. 21 Q. Which would include Salem, Winston? 22 A. Winston, Salem, Camel, as well as new 23 brand development, I believe, during that period. !24 Q. Would that include Eclipse? 125 A. I subsequently was responsible for A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800:743-DEPO Page 17 - Page 20

IAUCO, DAVID CondcnscltTM MISSISSIPPI TOBACO LITIGATIOI Page 21 I Eclipse, yes. 2 Q. But that wasn't during this time frame or 3 was it during this? 4 A. Well, Eclipse -- work on Eclipse didn't begin until '93 or '94. I should say ~ mark~dng 6 working on Eclipse. 7 Q. When you w~re shifted or promoted, 8 whichever it waS, to senior vice president worldwide 9 business developrnent -- A. Uh-huh. Q.-- can you tell mc how your duties and 12 responsibilities changed at that point? A. Yes. During that point in time, my 1,1 responsibilities were primarily concerned with the development of Eclipse and we were also -- I should 16 say that our tobacco international subsidiary was 17 also interested in that product. And I shared some responsibility in coordinating, learning and the 19 development of marketing elements for Eclipse and 20 Hi-Q in Germany, which is an Eclipse type product, as 21 well as coordination for some -- development with some licensees. Q. Was-- A. Offshore. 25 Q. Were your duties and responsibilities in 1 2 3 4 5 6 7 8 9 10 11 12 13 14 t5 16 17 18 19 20 21 22 23 24 25 Page 22 the worldwide business development limited to the Eclipse? A. Yes. Q. And the Hi-Q? A. Yes. Q. Are there any other international brands that are s'nnilar to the Eclipse or the Hi-Q? A. Yes. Q. Could you tell me about those, please? A. Yes. In Sweden, we have licensed this product to Swedish Tobacco Company. The name of the brand is Inside, that they market. And Japan Tobacco has also lieensed the technology from us and is test marketing a product called Airs, A-i-r-s. Q. Do you know whether these products, Hi-Q, Inside or Airs ate now currently available in these Page 21 l market. In the case of Hi-Q, it's available in 2 Augsburg, Germany, which was a test -- their initial 3 test market. In the case of Sweden, my understanding 4 is that Inside is available in several different 5 cities within Sweden, but is -- has limited 6 distribution at present. The distribution is 7 building. And in lhe case of Japan, Airs was just 8 launched in one, I think they call it a prefecture. 9 It's like a slate within Japan, one area of Japan as 10 a test market. 11 Q. Was Premier available in Japan? 12 A. No. :13 Q. Does Reynolds assist in anylhing beyond 14 the licensing of those products in terms of 15 marketing? 16 A. Only in terms of sharing information, 17 sharing learning. 18 Q. And in your current position as senior 19 vice president of business development and market 20 research, can you tell me how that has changed, if it 21 has, from your previous position? 22 A. Yes. I no longer have responsibility for 23 worldwide coordination on Eclipse or the Eclipse typc 24 product. Really, there isn't ~ need that there was 25 when wc were in the early stages. So I have Page 24 1 responsibility for the business development, a 2 business unit called business development, which is 3 primarily eoncenlrating on the continued development 4 of Eclipse. 5 I also have responsibility for ~ market 6 research deparlment that provides market research 7 counsel and services across all of our brands within 8 uhe company. And just recently assumed 9 responsibility for our planning and business analysis 10 department. l l Q. This is a new department? 12 A. It's not a new department. 13 Q. Can you estimate for me how many 14 employees are in the market research department? 15 A. Estimate, about 20. 16 Q. Can you estimate for me how many were countries? A. Yes, they arc. Q. Arc they widely available? A. They're in -- each of them is in test market. Q. When you say test market, is that one city, two cities? How widely available? A. Well, in the case of Eclipse, it's available just in Chattanooga at present, in a test 17 there when you began with Reynolds in '757 18 A. No. 19 Q. Was it more or less? 20 A. It was more. 21 Q. There were more in the market research department in '75 than fl'~ere are now? 23 A. Yes. 24 Q. Can you describe for me the types of 25 market research that are conducted by R. J. Reynolds? A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 21 - Page 24

IAUCO, DAVID CondenseltTM MISSISSIPPI TOBACO LITIGAT]O~ Page 2~ l MR. MeDERMOTr: Let me consult for just a 2 moment. 3 (Off-the-record confercace.) 4 THE WrINgS: Yes. We rio advertising 5 research. 6 MR. McDERMOTI~: JUst for the record, I 7 was raising a question regarding trade secrets, which 8 we're permitted to do. ] want to make sure that we 9 are squared away. 10 THE WlTN~S: We do advertising research 11 in the marketing research department, trarking 12 atudies for -- for example, brands that are in test 13 market, we track their performance. Promotion 14 research, packaging research and product research, 15 product testing. 16 BY MS. FLOWERS: 17 Q. Could you list for me some of the outside 18 market research fu'ms that Reynolds has used since 19 you've been there.'? '20 A. l can list a few. ] don't -- ] don't 121 work directly with them. So I'm not totally familiar '22 with all of them; but we use Marc, for example. 23 Q. Asset? z4 A. (Shaking head.) 25 Q. Tracker? 1 2 3 4 5 6 9 10 II 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Page 26 A. Yes, but that's through Marc. Q. Okay. So Tracker is a... A. Tracker is a system that we've developed to track performance of our brands. Marc, to my understanding Marc administer~ that for Us. There are other firms, ]just can't recall offthe top of my head. Q. Since your tenure in '95, forward, has Reynolds always used outside marketing research fn-ms? A. Yes. Q. Can you give me an estimate of how much is done, say a percentage inside and outside the company? A. Almost ail of our market research is done Page 2' 1 advertising. And then the outside f'um would 2 administer, would actually administer the research, 3 the test. 4 Q. The objectives are set by R JR? 5 A. Yes. 6 Q. Do you tell them in advance what 7 demographic group you intend to target? 8 A. Sometimes. 9 Q, Do you understand the term integrated l0 marketing? II A. Generally. 12 Q, Is it something that's practiced at R, J, 13 Reynolds? 14 A. Yes, I'd have to say it is. 15 Q. Did you work on the Uptown campaign? 16 A. I did not work personally on it. I was 17 familiar with it and shared some responsibility for 18 Uptown as I recall. 19 Q. What happened to Uptown? 20 A. It was -- it began -- it was launched in 21 a test market, but there was a concerted effort to 22 mJscharacterize it and we ended up pulling it from 23 the market. 24 Q. Was that as a result of some of the 25 concerns of the public health community or the black Page 28 l community? 2 A. It was as a result of very negative 3 publicity that was mischaracterizing our intentions 4 and, frankly, we decided it wasn't worth the bad 5 publicity and we pulled it from the market. It was 6 not to be able -- it was not getting a fair hearing 7 by smokers in the market. 8 Q. What was the intention of the campaign? 9 A. The intention of the campaign was to -- 1o it was a new brand developed to appeal to black 11 smokers, particularly Newport smokers and hopefully 12 to switch Newport smokers to Uptown. 13 Q. Did you work on the Dakota campaign? 14 A. I had some responsibility for Dakota as 15 well. through outside suppliers. Q. Can you describe for me how this relationship operates? A. Yes. ~ we de~ide ~3at there is an issue to he researched, for example, a new advertising campaign, we would generally outline -- our market research departmcm would generally outline the objectives of the research and then they would work in concert with an outside firm to design a questionnaire and a method for evaluating the t6 Q. Were you proud of this work? 17 A. Sure. 18 Q. Do you think it's proper to target virile 19 females? 20 MR. McDERNIO'I']': rm sorry, I couldn't 21 hear yOU. 22 BY MS. FLOWERS; 23 Q, Do you think it's proper to target virile 24 females? 25 A. It's entirely appropriate to target A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 25 - Page 28

IAUCO, DAVID ! 2 4 CondcnscltTM 5 6 7 8 9 I0 II 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MISSISSIPPI TOBACO LITIGATIO, Page 2~ female Marlboro smokers and that's what Dakota was attempting to do. Q. You don't find the term virile female offensive? A. No. It was mischaracterizvd, again, as a pejorative term; but it can~ from an analysis of our market where we characterize brands as, quote, virile brands because of their masculine heritage. They tended to be Can~] and Marlboro and, therefore, ~c term came from simply a way of describing female Marlboro smokers. And there was nothing negative Page I A. That's correct. I would not want our -- 2 MR. McDERMOTT: Our CUlTent marketing 3 budget as opposed to historical budgets. 4 THE WITNESS: Well, even historically, 5 arc -- we're in an cxW~mcly competitive marketplace 6 and to -- we consider it very proprietary how much wc 7 spend marketing our products, both today and cv~n in 8 ~ near pasl, because it would give our competition 9 information that could bc dctrirnental to us. 10 BY MS. FLOWERS: 11 Q. Do you have the san~ position with regard about the term or our u,~ of it, Q. I assume you've reviewed the Tronv research, Tronc advertising ~epor~ Project VF? A. Not recently. Q. Have you ever seen it? A. I believe I saw it. Q. Do you think it's possible to segment the 18- to 20-year-old age group? A. Sure, Q. How do you ensure that it won't ai~'act some younger and son~ old,r? A. What wouldn't attract? Q. When you target 18 to 20, a wry lin'fited 12 ~o the figures fllat arf provicbd to the t~'c? 13 A. Y~. Wepro~&~W~ ~c, but~ 14 don't cx~ ~at ~y'~ going w ma~ public or 15 ~at it's going to ~ sh~d ~ o~ ~m~tifion. 16 Q. Do you ~ow ~ ~ount of mo~ ~t 17 Rc~olds h~ s~t on i~ m~ketlng promotion and 18 advc~sing for cigars for, say, ~ yc~ 1993 ~ 19 giv~ to ~C? ;20 ~. McDE~O~: ~ ~ in~pt ~. 21 ~ ~ ~nsult forj~t a ~nu~, J~. ,22 (Off-~-~rd ~fc~.) 23 MS. ~WERS: Want ~ to ~po~ ~ scope, how do you assure that it wouldn't spill over Page either way? A. I'm not sine what you mean by spill over. You mean have appeal or... Q. Yes. How do you assure it won't have appeal to other age segments? A. Youcan't. Itmay. If you dcsign a marketing approach for 18 to 20 year olds, there ~24 question? 25 MR. McDERMOTT: The budgets for at least Page 32 the last five years and maybe even farther back arc confidential and proprietary. The information thm's reported to the FTC is similarly confidential and is mainta'mcd as confidential. Only aggregate numbers are released. This is a matter that is tycated -- that is proprietary and highly confidential by the company. It could have substantial competitive 8 9 I0 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 chance that it may attract attvation or have some appeal to other age groups. Q. Do you know what ~ annual marketing budget for R. J. Reynolds is presently? A. I don't have a precise figure in my mind. Q. Do you have a range? A. This gets into -- MR. COLINGO: Hold on a second. MR. MCDERMOTT: I.~t m¢ consult on ~-adc (Off-the-record conference.) THE WITNESS: Ycah. This is an area where I feel that it is very proprietary and would not want it public for competitive reasons. BY MS. FLOWERS: Q. You don't want the - A. O1" marketing budget? O. Yes. significance even for recent history because the 9 companies could reverse engineer, as it were, the 10 planning and thinking of their competitors and 11 perhaps draw conclusions about what's going on now. 12 I'm prepared to discuss with you at some 13 oth~r point what information you legitimately require 14 and what relevance it may have to the lawsuit and see 15 if there isn't some way to accommodate your interests 16 and our concerns. But for thc time being, wc'renot 17 prepared to go forward. 18 I should also state for the record that 19 Mr. Ianco, and you can explore this with him, really 20 dces not have in his mind, you know, a comprehensive 2| and complete set of numbers that would respond to 22 your inquiry. You can ask any questions you wish of 23 me or of Dave. 24 MS. FLOWERS: Are you going to instruct 25 hi~m not to answer specific questions about how much WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 29 - Page 32

IAUCO, DAVID Page 33 the ad budgets are for at least the last five years? MR. McDERMOTT: For the lime being, at least until we come up with an appropriate arrangement for dealing with th~ information. We can CondenseltTM MISSISSIPPI TOBACO LITIGATIOh Page 35 1 MR. McDERMOTT: YO~ want the witness to 2 characterize the amount of money or ~souroes he has 3 available to him? 4MS. FLOWERS: Yes. 5 supply that later in an appropriate form 6 MS. FLOWERS: Is it a trade secret? I 7 Imow you said that -- 8 MR. McDERMOT'£: YeS, l~la'am. 9 MS. FLOWERS: - confidential and 10 proprietary, l just want to understand under the - 11 MR. MeDERMO'I~: Yes. Trade secret. 12 MS. FLOWERS: - case management order 13 which it is you're claiming. 14 MR. McDERMOTT: Trade s¢~ret. 15 MS. FLOWERS: SO you're -- 16 MR. McDERMOTT: I m~ght also add that n current marketing information would seem to have IS little to do with a case filed in the middle of 1994 19 dealing with events that supposedly go back to the 20 early '50s and deal by and large with evenis of many 21 decades. 22 MS. FLOWERS: I'm happy to ask him about 23 | 994 if he'll answer that question, but I suspect 24 you're not going to let him answer that either, 25 MR. McDERMOTT: I SttSpeet you're right 5 MR. McDERMOTT: If you can do that. 6 THE WI'EqESS: I fftink th~ amount that we 7 spend marketing our produeis is pretty mu~h in line S with, you know, as a percent of sales of other - of 9 other categories and it's sufficient, given the 10 competitive environment in which we market our I 1 products, which is intensively competitive. 12 BY MS. FLOWERS: 13 Q. In your opinion, is Reynolds' marketing 14 effective? Is A. Some of it is. 16 Q. Which brands have been the most 17 successful? 18 MR. McDERMOTT: During what time period? 19 BY MS. FLOWERS: 20 Q. Last ten years. 21 A. Doral and Camel. 22 Q. How often does Reynolds introduce a new 23 brand? 24 A. There is no set tin~ period. There have 25 been periods where we have had a lot of new brand Page 34 1 and that was also after the lawsuit was filed, I 2 might point out; but in any event, let's go forward. 3 BY MS. FLOWERS: 4 Q. How about 1977? Can you tell me what the 5 markeftng budgets were in 1977 approximately? 6 A. No. Imean, Ijust don'tknow, lwasan 7 assistant brand manager in 1977. Frankly, I doubt s that I had access to what the entire marketing 9 budgets were at that point in time. I certainly have 10 no recollection. 11 O. Let me ask it in a different way. In 12 your opinion, does R. J. Reynolds spend a lot of 13 money on its advertising, marketing and promotion? 14 h~R.. COLINGO: I object. Wait a minute. 15 Define what you mean by a lot Of money. 16 MS. FLOWERS: A lot of money relative to 17 the other things they spend money on in the course of 18 their business. 19 MR. COLINGO: Like what? That's not a 2o definition. You're asking him an amount? 21 MS. FLOWERS: NO. I'm asking if he 22 thinks it's a great deal, a lot, considerable amount, 23 not very muck Wonder if he has any opinion about 24 whether he's given enough to do -- enough resources 25 to do his job. Page 36 I activity and other periods where we have not. So I 2 really can't give you an answer, one answer. 3 Q. Do you know bow many brands are currently 4 on the market for P-dR? 5 A. I'd have to count them up. 6 Q. I bet you could do it on your fingers and 7 toes. 8 MR. McDERMOTT: Is this question directed 9 at brand families as opposed to brands and styles? 10 MS. FLOWERS: Yes. If he would give me 11 Salem, I would count all of the different brand 12 extensions under that. 13 THE WITNESS: Right. 14 BY MS. FLOWERS: 15 Q. Is it safe to say you don't know right 16 now? 17 A, I don't know offthetop myhead. I 18 think we have 16 different brand families. We also 19 have numerous -- we produce numerous private label 20 brands for retail customers. It's in that ball park. 21 Q. Okay. Are you familiar with the number 22 reported to the Frc for the entire industry? 23 A. I-" 24 MR. McDERMO'I-f: which numbers? 25 BY MS. FLOWERS: A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 33 - Page 36

IAUCO, DAVID CondenseltTM MISSISSIPPI TOBACO LITIGATIOn, 2 3 5 6 7 8 9 10 12 13 14 15 16 17 18 19 20 22 23 Q. The aggregate numbers for marketing, promotion and advertising. A. I hast a general familiarity with them. Q. Do you ]mow what ~ha't number was for, say, 19937 A. No. Q. 1994? A. (Shaking head.) I don't prepare or review *~at report. Q. Who at Reynolds assists in the preparation of that report? A. It comes out of our finance deparlmcnt and there arc - my understanding is tbere a~ Page 37 Page 3S I A. I'm not familiar with that. 2 Q. Do yeu plan on ~elying on the 1994 3 surgeon general's report in conjunction with your 4 testimony? 5 A. In part. 6 Q. Just page ] 30? 7 A. Yes. That's... S Q. That's the only page you're going to rely 9 on? I0 A. I have a general understanding of other II sections of the report. 12 Q. But do you intend to rely on any.-- the 13 rest oftbe report? I wasjust given that page in categories that the Frc requests that are unlike the way we categorize our expenditures. Q. Do you ]mow what CamcPs current market share is? A. It's about five percent of the market. Q. DO you know what percentage of minors, and we'll just define those here as people under 18, smoke Camel cigarc~s? A. I don't have -- no, I don't know precisely. Q. You never looked at those figures? A. What figures? Page 38 1 Q. The figures perhaps that have bccn done 2 by the Centers for Disease Control. 3 A. There have bccn some estimates that I 4 have read that estimate that among youth that Camel 5 has about an eight share. I don't know wbether -- l 6 can't -- I don't know whether those am correct or 7 not. g Q. I think the CDC estimates were eight 9 before Joe Camel was repositioned and, now, they're l0 approximately thirteen. Does that surprise you at l~ all? 12 MR. McDERMO'FI': Ale yOU offering that as t3 testimony. I object to ~e form of the question. 14 MS. FLOWERS: Yes, I'd be happy to put ~5 that MblV~ in if you like. 16 MR. MCDERMO'I~': AS you wish. I object to 17 the form of the question. 18 BY MS. FLOWERS: ! 9 Q. Can you go ahead and answer it? 20 A. What's the question again? 21 Q. Arc you familiar with -- I'I1 find it and 22 put it in. Am you familiar with the data from CDC 23 that indicates that since Joe Camel was brought out 24 in '88 the market sham of among minors has jumped 25 from eight percent to thirteen percent? 14 conjunction with your testimony. I wondered ff that 15 WaS the only page you were going to rely on? 16 A. At this time, yes. 17 Q. Has PJR or any of its agents ever tracked 18 cigarette consumption among minors? Wben I say 19 tracking, I mean engage in the tracking that you 20 described earlier. 21 A. I don't know. 22 Q. I'd like to ask you a little bit more 23 about your cxpcn disclosure statement. Did you draft this yourself?. 25 A. No. Page 40 l Q. Do you know who did? 2 A. No, I don't know. I don't know who did 3 it. I helped in putting it together. 4 Q. You helped in putting it together, but 5 you don't know with whom? 6 A. I don't know who drafted it per se. 7 Q. Was it given to you and then -- 8 A. Yes. 9 Q. -" you made changes -- 10 A. Yes. 1 ~ Q. -- and sent it back to somebody? Who did 12 you give it back to? 13 A..Someone in our law departmcnt. 14 Q. Do you know who it was? ~5 A. Sharon Yoc. 16 Q. That's internal to R. 2. Reynolds7 17 A. Yes. 18 Q. I like to direct your attention down to 19 the last sentence oftbe second full paragraph which 20 states: "Mr. Iauco may also testify about specific 21 advertising campaigns, marketing and promotional 22 practices." Did I read that correctly? 23 A. Yes. 24 Q. What specific ad campaigns do you 25 anticipate testifying about, if you know? A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 37 - Page 40

IAUCO, DAVID CondenseltTM MISSISSIPPI TOBACO LITIGATIO} Page 41 1 A. The Camel campaign. 2 Q. Any others? 3 A. Premier. And I have a general knowledge 4 of all of our recent advertising campaigns. 5 MR. MeDERMO'FI': Let me interject here, to 6 same extent, we must of necessity be reactive to the 7 extent that the plaintiffs challenge specific 8 campaigns or marketing practices or promotional 9 practices. We may call upon Mr. lauco and others to 10 opine and defend what was done. To some extent, the I I scope of our response and his testimony depends upon 12 tbe scope of the attack. 13 MS. FLOWERS: I can certainly appreciate Page 1 A. As I recall, it was -- the plaintiffs had 2 called me to testify. I don't know what the legal 3 term is for that. 4 MR. McDERMOTT: ~ me intellect here 5 that while some general discussion on this topic may 6 well be appropriate, to the extent that when you get 7 into Mr. Iauco's conversation with counsel, whether s inside or outside, that raises a host of different 9 issues. So I would ask that counsel opposite be 10 sensitive to that. And, Mr. lauco, if your answer 1 ! might entail privileged communications, we can 12 interrupt and discuss it. 13 MS. FLOWERS: I can certainly understand 14 that. 15 Q. Did you produce any specific 16 advertisements in conjunction with this case? 17 MR. McDERMOTT: Did he personally? 18 MS. FLOWERS: Did counsel for tbe 14 that and l'mjust trying to get at who, what, wbere, 15 when, and how. 16 MR. MCDERMOTT: I understand. 17 BY MS. FLOWERS: 18 Q. Do you know generally what ~D' asked you 19 defendants produce any specific advertisements in 20 conjunction with the documents produced? 21 MR. McDERMOTT: well, the document 22 production issue is a little bit complicated, as you 23 probably know. We have tendered the Minnesota 24 Depository and Index. We've produced the Minnesota 25 Selected -- Page 42 1 MS. FLOWERS: Wait. I'm sorry. Maybe 2 We're misenmmunicating. I meant in conjunction with 3 this deposition. 4 MR. McDERMOTT: In conjunction with this 19 to do initially? Perhaps that's too far along. 20 A. Who asked me -- 21 Q. Let's forget the Keuper ease for a 22 IP.~nute. Let's go to say -- when was the next time 23 you were approached by lawyers, internal or external, 24 to act as an expert witness? 25 A. I believe it was the Mangini case. Page 44 1 Q. Do you recall generally what you were 2 asked to do in that regard? 3 A. I think that there was a question as to 4 what the makeup of the company was regarding that 5 deposition? No, we hqve not. 6 BY MS~ FLOWERS: 7 Q. When was the first time you were 8 contacted by R, J, Reynolds' lawyers to testify in 9 any case? A. It was for the Keuper case and I don't II recall when that was. '92, '91, I don't -- I don't 12 remember. 13 Q. Do you remember who spoke with you about 5 case, some kind of jurisdictional issue, and I was 6 asked to testify as to how we went about getting 7 approval for marketing campaigns and that kind of 8 thing. 9 Q. What about for the Conner ease? When was 10 the first time you were approached for that one? 11 A. I just don't remember. 12 Q. And for the State of Mississippi case 13 that we're berc about today, do you recall when you 14 the possibility of testifying? 15 A. In that ease? 16 Q. Yes. 17 A. No, I don't recall who did. 18 Q. Do you recall whether it was an internal 19 R.J. Reynolds counsel or an outside law firm? 20 A. I believe it was probably -- I don't 21 know. 22 MR. McDERMOTT: If you don't know. 23 THE WITNESS: ~ don't know. 24 BY MS. FLOWERS: 25 Q. Do you recall what you were asked to do? 14 were first approached to be an expert witness in this 15 case? A. (Shaking he~d.) Several months ago. 17 Q. Do you recall who approached you? 18 A. No, I don't. 19 Q. Is there no one in particular you have 20 been working with on this case in preparing for your 21 expert testimony? 22 A. I've worked with outside counsel. 23 Q. Could you identify these outside counsel 24 for me? 25 A. Mr. McDermott, Mr. Beach. A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800~743-DEPO Page 41 - Page 44

IAUCO, DAVID Condens~ItTM MISSISSIPPI TOBACO LITIGATIO 5 6 ? 8 9 10 II 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. COLINGO: NO~ ttle. 2 THE WITNF_~S: KJm. 3 MR. McDERMO"~: Bicksenstein. 4 THE WITNESS: Thank you. BY ~. FLOWEKS: Page 45 Q. Have you had meetings with one or all or any of these counsel in preparation for your expert ~stimony in th~ State of Mississippi? A. ¥~so Q. Can you tell me approximately how many times you've had meetings with these counselors? Page 4 l Q. Is this fairly typical at Reynolds? 2 A. It has become. 3 Q. Do you know how many lawsuits are 4 currently pending against R. J. Reynolds alleging 5 injury duc to cigaretm smoking? 6 A. No. 7 Q. Are you familiar with the allegations 8 that the State of Mississippi has made in this case? 9 A. Somewhat. 10 Q. Have you read the complaint? I 1 A. Yes. A. I think three times. Q. And wl~ was this? A. Over the past -- I think, it's been over the past two or three weeks. Q. How long typically have the meetings lasted? A. Seems like the first two lasted two or 12 Q. Have you read the answer of R. J. 13 Reynolds? 14 A. I don't remember. I've lead s~veral of 15 these complaints and several answers and I can't 16 recall if I've read specifically Mississippi's 17 answer. IS Q. Do you know whether R. J. Reynolds 19 carries product liability insurance? Q. Are you given any additional compensation by R. J. Reynolds for this service? A. No. Q. How much are you charging the State today for your testimony? MR. McDERMOTT: I'm sorry. What's that 20 A. I don't know. 21 Q. Have you ever received any inquiry from 22 R JR accountants or executives regarding this lawsuit 23 for your company's annual statements, annual reports? 24 MR. McDERMOTT: I'm sorry, Would you 25 repeat that question? Page 1 question? 2 BY MS. FLOWERS: 3 Q. How much are you charging today for your 4 testimony? 5 A. Today? 6 Q. Yes. 7 A. I don't charge anything for my testimony. 8 Q. You're not going to bill the State for 9 your testimony. 10 MR. COLINGO: Under the ease management 11 order is what she's talking about. 12 MR. McDERMOTT: YeS, Mr. lauce is not 13 involved in that. We have not made a determination 14 at this point. We'll confer with you later. The 15 witness is not going to play a hand in that. 16 MS. FLOWERS: I See. 17 Q. So when you've testified in the past for 18 R.J. Reynolds, they haven't given you any extra 19 compensation for your testimony? 20 A. NO. 21 Q. Is it considered pan of your job 22 description to testify on various matters before 23 courts and depositions and the l'~e? 24 A. It's not part of my job description. 25 It's part of my job responsibility. Page 48 l BY MS. FLOWERS: 2 Q. Certainly. Have you ever received any 3 inquiry from KIR executives or aecoontants regarding 4 this lawsuit for the company's annual statements or 5 reports? 6 A. No. 7 Q. Have you received any inquiry from R JR 8 accountants or executives regarding any reporting 9 requirements to the SEC, the Securities and Exchange 10 Commission? I l A. No. Can I take a short break and just 12 run to the rest room? 13 MS. FLOWERS: Certainly. 14 (A recess transpired.) 15 BY MS. PLOWERS: 16 Q. Mr. Iauco, are there any lawyers involved 17 with the marketing decisions made by R. J. Reynolds? 18 A. Yes. 19 Q. Can you tell me a little bit about that 20 involvement? 121 A. Yes, Whenever we develop marketing :22 programs, part of our normal review process involves !22~ our law department reviewing advertising or promotional programs to ensure that we're in full 125 compliance with the law. A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 45 - Page 48

IAUCO, DAVID CondenseltTM Page 49 1 Q. Have you ever known anyone who's died of 2 a smoking-related disease?. 2 3 MR. McDERMOIT: Are you asking for 3 4 whether he knows people personally? 4 5 MS. FLOWERS: uh-huh. 5 e THE WITNESS: I know people personally 6 7 that have died of diseases that are - have been 7 S associated with smoking. 9 BY MS. FLOWERS: 9 10 Q. Have you ever had any friends or family 10 II members die from a smoking-related disease? I l 12 A. Again, I know -- I have friends and 12 13 family members that have died of diseases that are 13 14 associated with smoking. 14 15 Q. How about exyworkers? How about 15 16 co-workers at P.dR? 16 17 A. ] know people that ] have worked with IS that have died of diseases that are associated with 18 19 smoking, 19 20 Q. Have you ever been asked to render any 20 21 opinions on non-PUg campaigns? By that I mean 21 22 campaigns of the other cigarette companies. 22 23 A. NO. 23 24 Q. Do you consider yourself as having any 24 25 expertise in the marketing campaigns of the other tobacco companies7 2 A. ] have general expertise. 3 Q. And what is the basis of that? 4 A. My knowledge of the category and 5 knowledge of marketing in gene~'al. 6 Q. Have you reviewed any of the marketing Page 50 MISSISSIPPI TOBACO LITIGATIO" Page 5 Q. Do you any expertise in pharmacology? A. Q. Do you have any expertise in toxicology? A~ No. Q, Do you have any expertise in pa~ology? A. No. Q. Do you have any expertise in epidcmiology? A. No. Q. Do you have any expertise in psychology? A. No. Q. Any expertise in adolescent psychology? A, No. Q. Do you have any expertise in economics? A. Yes. Q. Could you explain what that expertise is, please? A. Just general expertise. Some schooling as a part of my graduate schooling. Q. In the marketing management? A. ] would not hold -- yes. I would not hold myself out to be an expert cconomist~ but I've had courses in economics. Q. I didn't notice anything in your expert disclosure that directly related to economics. But Page 52 do you anticipate giving any opinions on economics in conjunction with this case? A. No, I don't anticipate that. Q Do you have any expertise in ethics? A. No. Q. Am I correct, were you born in 1951 ? 7 research plans for, say, some of the -- say, Philip $ Morris? 9 MR. McDERMOI"r: DO you mean in 10 preparation for his testimony here? 11 MS. FLOWERS: NO, | mean -- 12 MR. McDERMOTT: Or just ever, in the 13 course of his work? 14 MS. FLOWERS: - in his tenu~ at PUR. 15 THE WITNESS: I wouldn't be privy to 16 marketing research plans by our -- of our 17 competition. 18 BY MS. FLOWERS: 19 Q. Have you been privy to any information 2o from internal files of your competition? 21 A. Only what I've read in the press. 22 Q. Do you have any expertise in psychiatry? 23 A. ]~O. 24 Q. Do you have any expertise in history? 25 A. No. 7 A. 10 Q. 11 A. 13 there? 14 A. 15 Q. 16 A. 17 Q. 18 A. 19 Q. 20 A. 21 Q. 22 A. 23 Q. 24 A. 25 ~. That* s COITe~t. Where were you born? Syracuse, New York. Is that where you grew up? Yes. And did you attend elementary school Yes. Middle school? High school? Middle school and junior high school. Did you then move? I moved to Indianapolis. And thus Purdue? Yes. Are you married? Yes. How long have you been married? Twenty-one years. Do you smoke? A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 49 - Page 52

IAUCO, DAVID A. Yes. Q. Does your spouse smoke? A. Yes. Q. How old were you wl~n you started smoking? A. About 19. CondenseltTM MISSISSIPPI TOBACO LITIGATIO1, Page 52 Page 55 ff none of them am smoking. A. I'm sony? Q. I said you must bc doing sorac~adng fight if none of them arc smoking. MR. McDERMOTt: That not a question. It doesn't call for an answer. 7 8 9 10 II 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. Is that when you were in or rather at Purdue? A. Yes. Q. And your spouse, do you know how old she was when she began smoking? A. No, I don't. Q. So you both smoke Reynolds brands? 7 BY MS. PLOWERS: 8 Q. I want to talk for just a momcmt about 9 preparation specifically for this deposition. Can l0 you tell who you conferred with in getting ready to 11 come here today, if anyone? !12 A. ] think ] ah-cady did. 13 Q. So the meetings you described over the A. Absolutely. Q. Do you have any childivn? A. Yes. Q. What are their ages? A. They're all going to -- they all have 14 last tWO, thr~ weeks were in preparation for this 15 deposition? 16 A. Yes. 17 Q. Were you given at that time the documents 18 that we talked about earlier that were provided to birthdays in the next month, but right now they arc 20, 17 and 12. Q. Do any of them smoke? A. No. Q. Do you know your 12-ycar-old's shoe size? A. Is this a test? Q. (Nodding head.) Page 19 counsel for the State? 20 A. ] had some documents and others were 21 p~ovidcd. 22 Q. What's your current salary at R. J. 23 Reynolds? 24 NIP,. MoDERMO'I~r: I ob'~t. You don't ~d 25 to answer that question. That's not relevant to this Page 561 1 A. ] believe she wears a siz~ seven. 2 Q. She's a tall girl. How about yonr 17 3 year old? Do you know his or her shoc size? 4 A. He wears a size 12. 5 Q. Do you have any nicoes or nephews? 6 A. Yes. 7 Q. Have you ever had any discussions with S children about smoking? 9 A. Yes. 10 Q. Do you support the freedom to smoke? I l A. Among adults, yeS. 12 Q. How do you define an adult? 13 A. As it relates to smoking, age i 8 and 14 above. 15 Q. If the smoking age were lowered to say 16 age 15, would you market to that segment, 15, 16 and 17 177 18 A. You're talking about tbe legal age? 19 Q. Oh-huh. 20 A. Probably not. 21 Q. In your cxpericoce, is parental scolding 22 effective in preventing youth smoking? 23 A. ] don't know. I'm not an expert in 24 prevention of youth smoking. 25 Q. Well, you must bc doing something right 1 proceeding. We're not going to g~t into information 2 like that. He's not a retained expert. That's got 3 nothing to do with his expert testimony here. 4 MS. FLOWERS: I'm sure counsel is aware 5 that under the case management order, there has to be 6 a claim of attorney/client privilege or work product 7 prJvilagc to ins~'uct a witness not to answer. 8 MR. MCDERMOTT: NO. There's also -- 9 MS. PLOWERS: Arc you claiming some sort I0 of a privilege here? I 1 MR. McDERMOTT:. There's also harassment. 12 MS. FLOWERS: You're claiming that my 13 asking him how much his salary is is harassment? 14 MR. McDERMOTT: YOU're invading IS iodividual -- his personal privacy. 16 MS. FLOWERS: I asSUre you it wasn't 17 intended as harassment. 18 MR. MCDERMOTT: I don't think that has 19 any relevance to this lawsuit. If the judge 20 oven'ules my objection, we'll supply that 21 information; but for the time being, for today, we're 22 not going to supply any personal information on Mr. 23 laueo's compensation. He's not a retained expert. 24 He's not getting any*.hing in particular to testify in 25 this case. And his business arrangements with the A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 53 - Page 56

IAUCO, DAVID ~ondeas~ltTM Page company a~ not relevant. MS. F1.OWERS: SO you're instructing him n~ot tO answer on the grounds of relevance? MR. McDERMO'~I': On th~ grounds of harassn~nt. MR. COLINGO: R may he also ~ade ~cr~. I~R. McDERMOTT: what we pay oux emp]oy~s 9 I0 II 12 13 14 15 16 17 MISSISSIPPI TOBACO LITIGATIO~ Page 5S we'll make that decision. Q. Do you have a confidentiality agreement with R. J. Reynolds? A. Yes. Q. Do you know what its terms are? A. ] don't recall. Q. Do you periodically renegotiate this agreement? is not anybody else's business. MS. FLOWERS: But what you pay your employees is a tratk secret? MR. COLINOO: That's right. MS. FLOWERS: That's inleresting. MR. COLINGO: R'S confidential. MS. FLOWERS: I think confidential is a little differem than trade secret. MR. COLINOO: well, don't argue with me. 9 A. No. 10 Q. Did you negotiate it at all? Did you ever negotiale it? 12 A. No. It was contingent. 13 Q. Do all employees have similar 14 confidentiality agreements? 15 A. ] don't know. 16 Q. Is smoking encouraged at R. J. Reynolds? 17 A. No. We're not going to answer the question. Go ahead and ask your questions. MS. FLOWERS: JuSt a'ying to understand on what basis you're instructing him not to answer. First, l heard harassment, then I heard relevance, then I heard trade secret. I think we've got them all in there and we can move on. MR. COLINOO: ff there's any more, we'll Page 58 I get the others in there. 2 MR. McDEKMOTT: P~h 17 of ~ c~ 3 man~t or~r, ~ ~ in~d ex~ptions m ~ 4 g~ral pro~sion ~m a ~s s~d answer all 5 q~sfions. ~o~ ex~ption ~la~ ~ pfi~legc and 6 ~a~ ~c~. However, ~ p~aph g~s on to say 7 ~at ~ deposition may ~ m~namd on ~ ~ounds 8 ~t it's ~nd~md in bad fM~ or in such a manner 9 m m um~onably annoy, ~b~s, oppress -- or 10 opp~ss ~ p~ or ~ deport. We t~e ~ 11 ~sition ~at inqu~ into ~at mawr is ~rsonal. 12 It's an inv~ion of ~rsonM pfiv~y. It's got 13 no~ng ~ do ~ ~s lawsuit. And you can go on 14 in ~rd~ ~ ~ c~ man~t or~r and 15 ~qu~ into o~r ma~ ~ ~ ~an ~mplem ~ 16 ~sifion. 17 ~. ~WERS: SO if I un~rsmnd yo~ ~sition ~fly, j~t so ~at I do, ~ pro~sion 12~ ~at you ~ insetting ~ not ~ answer on is ~ pro~sion of ~sm~t? 21 ~. MCDE~O~: T~t is ~t. We z2 ~ it's h~sm~t to inqu~ in~ ~s. It is 23 ~ss~. It is ~levant. 24 ~. ~RS: App~ia~ yo~ ~5 ~. ~ you'~ w~ng ~ bl~k ro~, 18 Q. Are non-smokers osU'acized? 19 A. No. 20 Q. Does R. J. Reynolds give away free 21 cigarettes to its employees? 22 A. Not generally. 23 Q. What do you mean by not generally? Are 24 they given away sometimes? 25 A. There arc free cigarettes available to Page 60 1 some employees at some times, but it is not a -- not :2 every employee has access to free cigarettes. 3 Q. Is it a matter of position? 4 A. It's a matter of availability and 5 position. At times, there are cigarettes that are 6 used for development purposes for -- and in that 7 case, the cigarettes are free; but not all employees 8 engage in development processes and, therefore, they 9 wouldn't have access to those free cigarettes. 10 Q. Are either Premier or Eclipse available 11 to R JR employees? 12 A. Eclipse is. 13 Q. Could you describe for me the work 14 atmosphere at R. J. Reynolds? Is it a pleasant place 15 to work? 16 A. Yes, I think so. 17 Q. Have good health insurance? 18 A. Yes. 19 Q. Arc there any non-smoker discounts in 20 your health plans? 21 A. Not that I know of. 22 Q. Are there any non-smoking areas at R JR? 23 A. Yes. 24 Q. Do you know where they arc? 25 A. 1 can't tell you specifically, but there A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 57 - Page 60

IAUCO, DAVID Conde~seltTM 1 2 me non-smoking areas in ocr production, R&D 3 facilities and so on. 4 Q. So employees are allowed to smoke at 5 their desks? ~ don't go outside to smoke? 6 A. No. 7 Q. Have there ever been any complaints by S non-smokers about passive smoking exposure? 9 A. Not that I'm aware of. t0 Q. In your opinion, is passiw smoking II po~ntially hazardous? 12 A. Potentially7 13 Q. Uh-huh. 14 A. I don't really know. 15 Q. Have you ever conducted any research on 16 non-cigarette product marketing? I think we touched 17 on this earlier, but -- 18 A. Yes. 19 Q. -- I just want to clarify. 20 A. Yes. 21 Q. We talked about Kubcrnan. We talked 22 about Kubcrnan and -- 23 A. Yes, but you -- I'm sorry. Your qnestion 24 again? 25 Q. Have you conduced any market research on Page 61 are areas wl~re smoking would be dangerous and there MISSISSIPPI TOBACO LITIGATIO Page 6 I Q. What do you mean by full distribution? 2 A. We at~mptod toget disa'ibution in every 3 re~ai] outlet of significance in tbe tvst markets. 4 Q. That would include, for example, 5 convenience stores, supermarkets, drug s~ores? 6 A. (Nodding head.) 7 MR. McDERMOTT: A~swgr audibly. Answer 8 verbally. 9 THE VCI'IWESS: Yes. All outlets that sell 10 cigarettes, except for vending. We're not in II vending. 12 BY MS. FLOWERS: 13 Q. And when you describe lucrative trial 14 incentives, can you explain for mc what those were? IS A. We had promotions at retail. For 16 example, if you bought two packs, you would get two 17 fr~. I believe we had coupons that were also 18 available to adult smokers. 19 Q. It was marketed as the cleaner smoke; 2o isn't that correct? 21 A. Yes. 22 Q, What did you base that on? What did you 23 base that marketing claim on? 24 A. It was cleaner in a number of respects. 25 It had virtually no sidesUoeam smoke, smoke off the Page 62 I non-cigar¢~ consumer products? 2 A. Yes. I also worked on pipe tobaccos, 3 chewing tobaccos, little cigars. 4 Q. How about cookies or crackers or any of 5 the other products hhcre are made by R JR and Nabisco? 6 A. NO. 7 Q. Your Rule 26(B)(4) expert statement 8 states that you're going to testify about the Premier 9 cigarette; is that correct? l0 A. Yes. l I Q. Can you ell mc where th~ Premier 12 cigarette was available? 13 A. Yes. II was t~st marketed in two 14 markets, St. Louis and Phnenix, Arizona. IS Q. Do you recall the da~s? 16 A. August of ] 988 through March of 1989, on ~7 both. 18 Q. Was it aggmssively market~d? 19 A, 20 Q. Can you describe that marketing for me? 21 What made is aggressive? 22 A. We ran high profile advertising. We got 23 full distribution on Premier. We bad lucrative trial 24 incentives. We had a fairly significant program for 25 sampling IWemier among adult smokers. Page 64 l lit end, which meant that it left the air cleaner, 2 clearer. The smoke dissipated very rapidly and the 3 smoke had a composition that was simpler than the 4 composition of cigaretle smoke from cigarettes that 5 burn tobacco. 6 Q. Was it safe? 7 A. I don't know what you mean by safe. 8 Q. Do you know what I mean by less 9 biologically active? 10 A. Generally, I do. I l Q. Can you tell me what t/mr means to you? !12 A. It means, on some standardized t~sts that 13 measure biological activity based on exposure to !14 smoke, the smoke from Premier measured much lower 15 biological activity. I 16 Q. Lower than what? 17 A. Than tobacco-burning cigarettes. 18 Q. Was the Premier available to 19 Mississippians? 20 A. No, we never were able to make it 21 available in the State of Mississippi. 22 Q. Was it available to Floridians? 23 A. No. 24 Q. Where is the Eclipse cigarette currently 25 available? A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 61 - Page 64

IAUCO, DAVID CondenseltTM MISSISSIPPI TOBACO LITIGATIOI Page 65 { A. Chattanooga, Tennessee. 2 Q. That's it? 3 A. It's also available in Winston-Salem in 4 company outl~s. 5 Q. And internally at Reynolds? 6 A. Yes. Where cigarettes a~ sold on 7 company pre~nises. $ Q. When did you first bc~z~m~ aware that R~R 9 was developing this smokeless cigaret~? I0 A. Which smokeless cigarette? {I Q. Tha Premier. 112 A. Premier. It's not a smokeless cigarette. 13 Q. Wh~ did you first becon~ aware that ~14 was developing th/s cleaner cigar~tc, less 15 biologically ac~ve cigarette that eventually bccan~ 16 test markc~d as Pren~cr? 17 A. I had some awareness of it in the {$ n~d-'80s. 19 Q. Do you know when they began working on 20 it? Do you know when the research and development 21 depar~me~nt began working on it? 22 A. They began working on Premier per se, I 23 believe, in the early '80s, around 1981 or so. 24 Q. In your opinion, does a manufacturer have 25 a responsibility to know its product prior to Page 66. manufacCaring it - excuse me, marketing it? MR. McDERMOTT: I objoct to the extent you're calling for a legal conclusion. This witness Page 6 1 product. 2 Q. Test its product. 3 A. Test. 4 Q. Similar to what was done in the Premier 5 monograph site. 6 A. We did extensive testing on Premior. 7 Q. Did you have a responsibility to do so? 8 A. On Premier? 9 Q. Yes, to A. I think that we did a tremendous amount 11 of research on Premier, And to suggest that a 12 manufacturer do *hat amount of testing and evaluation 13 as a matter of course for every product that's J4 marketed, I don't think that that is necessary. 15 Q. So for some products, you don't think 16 that testing is necessary prior to marketing? 17 MR. McDERMOTT: I object. 18 MR. COLnqOO: That's not what he said. 19 MR. McDERMOTT: You're naJseharacterizing 20 the testimony. That's not what he said at all. 21 THE WITNESS: What I'm saying is that 22 Premier was a different kind of a cigarette and its 23 smoke was very different than the smoke of other 24 cigarettes. Its composition, how it was made, how it 25 worked was very different than other cigarettes. And Page 68 1 we decided to do a great deal of testing on that 2 cigarette to -- and by the way, we published all of 3 the testing that we did -- in order to demonsu'ate 4 is being offered for advertising and marketing 5 expertise, not for legal obligations or anything 6 else. You can answer the question if you want. 7 THE WITNESS: sounds like a legal term, $ responsibility. 9 BY MS. FLOWERS: tO Q. I Chink the legal term is duty, but can I1 you answer the question? 12 A. I don't know. {13 Q. Do you think the manufacturer has a 14 responsibility to know its product prior to 15 marketing? !16 MR. McDERMOTT: You're asking for his 17 personal views? !18 MS. FLOWERS: I'm asking for his opinion, 19 ffhe has one. 20 MR. MCDERMOTT: Well, again, he's not 21 being offered as an expert in anything outside of 22 advertising and marketing and l~¢micr. 23 BY MS. FLOWERS: 24 Q. Do you have an opinion? 125 A. I not sure what you mean by know your A. 4 how it was similar and how it was diffe~rnt from 5 tobacco-burning cigarettes. 6 BY MS. FLOWERS: 7 Q. So you feel you fulfilled your 8 responsibility with regard to Premier? 9 A. I didn't say anything about 10 responsibility. I was just characterizing why we did ~ ~ the testing that we did on Premier. 12 Q. Have you reviewed any of the reports, 13 publicly available reports on the health effects of 14 smoking your company's products? l 5 A. I've reviewed some. 16 Q. Any of the surgeon general's reports? 17 A. I've reviewed some of the surgeon 18 general's reports. Not in detail, not all of them. 19 Q. Are you familiar with any of the 20 estimates by the surgeon general regarding how many 21 Americans will die each year from using your 22 products? 23 A. I've seen the estimates. 24 Q. Did you appear on national television to 25 discuss Premier? WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-.743-DEPO Page 65 - Page 68

IAUCO, DAVID CondcnseltTM Pag~ 6~ i A. I ~ink some of - some of ~hc interviews 2 ~t I gave ~d up on nafion~ mlcdsion. 3 Q. ~t ~s~c ~ you ~ you wc~ ~ 4 W ~u~? ~ do w~ ~f~d ~ar ~t ~~6~s 7 ~t had ~ ma~ a~ut ~ br~& ~ut ~ 9 Q. ~d ~ ~h~fi~s ~ yo~ ~0 ~w ~? II A. 12 ma~ a~ut ~cr ~at -- ~ng, for vx~plc, ~3 ~t ~ ~d so~w ~ ~m~d ~ ~liv~ ~4 c~k ~ ~d it would ~ ~d for &at p~o~. I~ ~t we ~ ~g ~ s~t ~at ~cr w~ ~ ~ly s~ ~d ~at -- &at ~ w~ ~ng m 17 m~kct ~cr to chil~. ~ ~ a few. ~m 18 ~ o~. ~9 Q. You ~o~d ~. Wo~d a ~ 20 ~v~ ~d~ ~ a b~ ~ng? 21 ~. McD~O~: I'm ~. Wo~d you 22 ~a~ ~ q~s~on? I ~ you ]o~ ~ abou~ 2~ ~ay ~ound ~ corr. Ms. ~RS: I ~ked ~ w~r ~ 2~ ~u~t a ~ ~livc~ ~ wo~d ~ a bad ~ng. MISSISSIPPI TOBACO LITIGATIO~ 1 2 3 4 5 6 7 9 10 II 12 13 14 15 16 17 18 19 20 21 22 23 24 Page 7( MR. McDERMOTt: with reference to cocaine or in general or -- MS. FLOWERS: In general. MR. McDERMO'I'f: Are you ~Lking about pharmaceuticals? Arc you talking about a hypodermic needle for a doctor to give you insulin? MS. FLOWERS: Let's talk about nicotine. Q. Would a nicotine delivery device bca bad thing or a good thing? A. It depends. What? I don't know. I can't answer that question, what's good or bad. For what purpose? Q. Perhaps to fulfill a need. MR. McDERMOTT: I object to the form of the question. That's awfully vagne. Good Lord. Page 71 l Q. Why was PAR opposed to FDA oversight of 2 l~'~nicr ? 3 A. Bccau,~ it would have rneant Premier being 4 removed from the market and not available for the 5 choice of adult smokers. 6 Q. You don't think it could have been licensed under tha FDA? A. I have no idea. I'm not a lawyer; but 9 the ]cga~ advice ~hat wc got is tha~ if it came under F~Ajudsdiction, it would not he available for II adult smokers to choose it. Q. Are you familiar with the design of fl~ 13 Premier? 14 A. Yes. 15 Q. And ~ Eclipse? 16 A. Yes. Q. Are they substantially similar? A. No. They're very different. 19 Q. Can you explain ~o mc how? 20 A. Well, Premier had a metal capsule inside 21 of it that was filled with alumina heads, upon which 22 sprayed -- died tobacco was applied. Tha heat 23 source, which was of a different composition than the haat source for Eclipse, was inserted into the metal 25 capsule. Around the metal capsule was tobacco. Page 72 l There was a different kind of a filter than is on the 2 Eclipse product. And there was also tobacco sheet 3 material that was used in Frcmicr. On Eclipse, there 4 is a heat source on the end. Heat that, again, is a 5 different composition than the Premier heat source. 6 It's followed by a roll of tobacco. There's no 7 capsule and there's a different kind of a filter. ~ Q. Do they both have the common 9 characteristic of not actually burning the tobacco? I0 A. There is sornc tobacco that is burned in l I Eclipse. It primarily hea~s the tobacco; whereas, in 12 Premier, the ~obacco was only heated. 13 Q. Do you know where PAR fh'st came up with 14 the idea of this revolutionary, if you will, 15 cigarette? BY MS. FLOWERS: Q. Can you answer it? A. No, I can't answer it. Q. Was PAR anxious to make Premier a success? MR. McDERMOTT: Is or was? THE WITNESS: We wanted Premier to he a success. We had spent a great deal of effort in developing it. BY MS. FLOWERS: 16 A. I think I mentioned that it was in the ,7 very early '80s. 18 Q. You've never seen any documentation that 19 indicated plans for such a cigarette perhaps earlier 20 on? 21 A. No, I've never seen documentation to that 22 effect. 23 Q. Were you provided any documents on the 24 Premier plan when it was being developed? :25 A. I worked on the Premier plan. A. W-ILLI/dVI ROBERTS, YR. & ASSOCIATES 1-800-743-DEPO Page 69 - Page 72

IAUCO, DAVID CondenseltTM MISSISSIPPI TOBACO LITIGATION 1 5 6 7 8 9 10 II 12 13 14 15 16 17 19 2O 21 22 23 24 25 Page 73 Q. On ~ ~ development of the cigarette itself or the marketing aspect? A. The marketing aspect. Also worked on the product when I assumed responsibility. Q. You have to know what kind of product you're marketing -- A. SUm. Q. -- before you can market it? When you Page 75 Q. You've testified that you're basically familiar with the Eclipse and the Premier and how tJ~y work, Does this look to you anything like either of those two cigarettes? MR, McDERMOTT: ~ me just object for just a moment. No foundation. You have not -- you're assuming some sort of relationship which is not in evidenc~ and which is not in fact correct. were hired in '75, at that time were you given any internal R JR documents to review on new products such as technologically different products than the ones we're discussing? A. No. Q. Were you provided access to any library that might have contained this ~pe of p6or research or development? MR. McDERMOTT: ObjeCt. Calls for speculation, Might have oontained. I'm not sure anybody would know what's in a library without looking ~ro~h everything in BY MS. PLOWERS: Q. Did you look through any libraries to see if there were any sort of new products like the ones we're discussing? A. No. Page 74 1 MS. FLOWERS: I'd like to mark as lauco 2 Exhibit 3 the 196g new business opportunities arising 3 from long-range research planning, tobacco and health 4 problem. 5 (EXH. 3, New Business Opportunities 6 Arising from Long-Range Research 7 Planning, Tobacco - Health Problem, was 8 marked for identification.) 9 BY MS. FLOWEgS: 10 Q. Have you ever seen this document before? ! 1 A. I'm sorry. You mentioned a date? 12 Q. Yes. It's 11/2/68. It's on the last 13 page. 14 A. 1968. 15 Q. My question was just whether you had ever 16 seen this document before? 17 A. No, I've never seen this before. 18 Q. If I could direct your attention, please, 19 to page 8, in which "preliminary, tentative product 20 models and prototypes" are discussed. And if you'll 21 look at it, Number 1 discusses the ~'ansitional 22 cigarette, ~he tobacco-burning cigarette, and Number 23 2, the l~ansifional, no tobacco cigarette. Could you 24 take a moment and review that, please? 25 A. Uh-huh. 9 You haven't established this witness' expertise in l0 anything-- I I MS. FLOWERS: Is this a formal objection? 12 MR. MCDERMOTT: YeS, ma'am. No 13 foundation. 14 BY MS. FLOWERS: 15 Q. Can you answer the question? 16 A. It does not appear to be similar to 17 Eclipse or Premier. 18 Q. There's nothing in Number 2 that's 19 similar to Eclipse or Premier? 20 MR. McDERMOTT: objection. That's not 21 his testimony. 22 MS. ~LOWERS: I think that's what he just 23 said. 24 Q. Can you go ahead and try to answer the 25 question? Page 76 1 MR. McDERMOTT: No. He said there -- 2 MR.. COLINC~O: Doesn't appear to be. 3 MR. McDERMOTT: He said it doesn't appear 4 to be similar. He did not say there's nothing. 5 BY MS. FLOWEI~S: 6 Q. Is there anything in Number 2 that is 7 similar to Eclipse or Premier? Let's take for 8 example the coal-ash simulated. Did Eclipse or 9 Premier have a simulated cold-ash? 10 A. I don't really know what simulated 11 cold-ash means. 12 Q. When you smoke a Premier -- excuse me, an 13 Eclipse, since you.can't get Premier anymore, does it 14 burn all the way down? 15 A. No. 16 Q. Does this appear to describe a similar 17 type of process? IS A. No, it does not. There's no pressurized 19 aerosol generator in Premier or Eclipse. There's no 20 control valve giving measured dosage activated by lip 21 pressure, drawing, et cetera. Premier and Eclipse do 22 produce nicotine flavor. There's -- I know the 23 water, the amount of water in the smoke is higher 24 than in tobacco-burning cigarettes, so I guess those 25 are -- there's some similarity there. A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 73 - Page 76

IAUCO, DAVID Cond~nseltTM MISSISSIPPI TOBACO LITIGATIOt Page 77 1 I'm not su~ what they mean by simulated ~ cold-ash. There is -- tlgre are ~hes wi~ 3 tobaoco-buming cigaret~s and there's the appearance 4 of ash with Premier and Eclipse. But most of what l 5 sc¢ in this diagram relates to some kind of a process 6 lhat is very different than th~ process or ~ design 7 of P~mier or Eclipse. $ Q. Okay. Well, tim would you pkase look 9 at page 3 for m~? l0 MR. McDEILMOTT: Page 3? I l BY MS. FLOWERS: 12 Q. Three. In discussing this n~w product 13 that was being looked at in '68, under Task Number 1, 14 eliminate alleged health hazard - no inhalation of 15 products of combustion or organic mater. Is that 16 consistent with thv goals of Premier and Eclipse? 17 A. No. 18 Q. Premier didn't s~k to eliminate 19 combustion of tobacco? 20 A. That's not what this says. 21 Q. It says combustion of organic matter. 22 A. Organic matter. 23 Q. Is tobacco an organic matter? 24 A. Tobacco is, but so is carbon and we 25 combust c~rbon in P~mier and Eclipse. Page 78 l Q. Well, if you go back to page 8, they talk 2 about tobacco and non-tobacco. And if we had time, 3 wc could read the entire document and I think you'd 4 see that d~ey are talking about organic matter being 5 tobacco in this case. If you could assume that the 6 organic matter was tobacco -- 7 MR. McDERMO'I-/': I object. This is a 8 tlfirty-ycar old document drafted by somebody else 9 ~hat be hasn't seen before today and you want him to 10 assume a definition of what somebody 30 years ago 11 said. Organic matter is organic matter. And there 12 arc a lot of things besides tobacco that are organic 13 matter. I'm not going to ask him to assumc anyttfing, 14 and I don't think it's proper for you to either. 15 BY MS. FLOWERS: 16 Q. Can you answer the question? 17 A. And the question was? 18 Q. Under Task Number 1, no inhalation of products of combustion of organic matter. If we 20 assume ',hat that's tobacco, is that sh',nilar to 21 Premicr's goals? 22 MR. McDERMOTT: I object to ~ form of 23 the question. 24 BY MS. FLOWERS: 25 Q. Yo'a can answer. Page 7~ l A. I'm sorry. You're going to have to 2 repeat ttmt question again. If we assume, start with 3 that. 4 Q. That the organic matter referred to right 5 here is tobacco and the goal task is no inhalation of 6 products of combustion of organic matter. Is that 7 similar to what lhcmier tried to do? 8 MR. McDERMOTT: object to tl~ form of the 9 question. 10 THE WITNESS: Premier was based on the 11 concept of heating tobacco in order to provide 12 smoking pleasure and tha~, in that respect, it did 13 not combust the tobacco. So I suppose there's some 14 similarity. 15 BY MS. FLOWERS: 16 Q. Could you just look for me one more time J7 at page 9 under schedule? 18 A. (Complying.) 19 Q And I'm quoting from the document: 20 "C.omplcte preliminary planning and specification by 21 Januaryl, 1969." D0y0uhavcanyidcawhcthcrthis 22 goal was met? 23 A. I don't know that this was a goal. 24 Q. Do you have any knowledge about whether 25 this prototype described above was ever tried? Yes Page 80 J or no? 2 A. No, I have no knowlcdgc. 3 Q. I'm going to shift now for a minute. 4 Does P,2R engage in blind product testing? 5 A. Yes, we do. 6 Q. Is this done internally at the R&D 7 department? 8 A. No. It's done by the marketing research 9 department. 10 Q. Can you explain to me what is done? 11 A. Yes. We identify.adult smokers and 12 usually -- it's done different ways, but usually what J3 we do is provide cigarettes to adult smokers who wish 14 to participate in these tests on unbranded product. 15 That's wl~at it means by blind. They don't know wbach 16 brand these products, the cigarettes are. And they 17 try, typically, two packs of cigarettes and fill out 18 a ballot on answering various questions about how 19 they rate those cigarettes and questions about the 20 attributes of the cigarettes. Such as mild, strong, 21 harsh, mild, you know, different -- they rate it on 22 different bipolar scales. 23 Q. When you say unbranded product, does this 24 mean a new product or perhaps is it an existing 25 product - A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 77 - Page 80

IAUCO, DAVID CondenseltTM MISSISSIPPI TOBACO LITIGATIO1 Page 1 A. Could be. 2 Q. -- which isn't marked? 3 A. Could be either. 4 Q. Have you ever participated in blind 5 product testing? 6 MR. MCDERMOTr: You mean as a panelist? 7 MS. FLOWERS: Yes. 8 MR. MCDERMOTT: AS a smoker? 9 MS. FLOWERS: Yes. 10 THE WITNESS: I don't believe so. I l BY MS. FLOWERS: 12 Q. To your lmowlodge, is any of this type of 13 testing done outside the company? 14 A. What do you mean by -- 15 Q. Do you contract it out? 16 A. Oh, yes. 17 Q. Could you give me an idea how much is 15 done internally versus how much is done externally? 19 A. I'm thinking. I really can't quantify 20 it. We do both. The internal testing that we 21 administer here is smaller sample sizes, meaning 22 fewer smokers rating our cigarettes. And involves a 23 lot of company panelists, but we do what we call 24 sensory testing, blind product test'rag internally 25 here in Winston-Salem. And then usually, when we do Page 821 1 the blind product testing using outside resources, 2 it's usually a geographically disbursed sample. We 3 do it all around the country, I can't tell you what 4 the proportions are between the two. 5 Q. Do you know any of the names of any of 6 the companies that assist you with that? 7 A. I think we've used several. Currently, s you're talking about? 9 Q. Sure. 10 A. ] fffink Marc helps us with that. We've I 1 done some testing through a company called Dennis and 12 Company. I don't recall others right offtho top of 13 my head. 14 Q. Let's go back to the internal testing for 15 a moment. Your volunteers come from PJR employees~. 16 A. Some do. 17 Q. Do you do recruitment in the area as lg well? 19 A. I believe there's some local recruitment 20 as well for some panelists. 21 Q. When the panelists are given the 22 products, do they have any warnings on them? 23 A. Yes. When they're given packs, the packs 24 have warnings on them. 25 Q. If it's a bYmd test, tell me how that -- Page 8 A. It's a white pack, but it has warnings on 1 2 it. 3 Q. On the side? 4 A. Yes. 5 Q. Do they sign any type of consent form? 6 A. I don't know. 7 Q. Do you know if they are told anything? 8 A. Yes, they are told something. 9 Q. Who in your market research department -- 10 is this done through the market research department? 11 A. Yes. 12 Q. Who would bc the most knowledgeable on 13 this particular issue? 14 A. Doug Webber. He heads market research. 15 Q. Do you l~ow anything about the blind 16 testing that's done by contract organizations, 17 whether these products have warnings on them? A. Yes, they do. 19 Q. Do you know whether they sign any consent 20 forms or-- 21 A. Who signs consent forms? 22 Q. The people that are tested externally. 23 A. I don't know. 24 Q. Would this also be Doug Webber who would 25 have that information? Page 84 ] A. He would know. 2 Q. Does ILIR do any tests on non-smokers? 3 MR. McDERMO'I'I': what sort of tests? 4 Again, we're talking about blind product testing or 5 some other kind of tests? 6 MS. FLOWERS: /f they did a blind product 7 test, any kind of test. 8 THE WITNESS: Any kind of test? 9 BY MS. FLOWERS; 10 Q. Uh-huh. For example, a passive smoke 11 exposure test? 12 A. Not that I'm aware of. 13 Q. Go back to your Rule 26 for just a 14 minute. 15 A. (Complying.) 16 Q. Down at the bottom of the first page, and 17 I'm going to paraphrase, just stop me if you think 18 I've done it incorrectly. Basically, it says that 19 you are going to testify that peer influence has been 20 determined to he among the primary reasons why 21 non-smokers including minors initiate cigarette 22 smoking. Did I read or paraphrase that correctly? 23 A. That's correct. Yes. 24 Q. What is a peer in your opinion? 25 A. Someone of like age, sex, social A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 81 - Page 84

IAUCO, DAVID Condens~ItTM MISSISSIPPI TOBACO LITIGATIO~ standing. Q. Does pc~r pressu~ cause adolescents to begin smoking? A. I believe ~at peer influence is one of Page 85 and off the mark. BY M~. PLOWERS: O. Can you answer the -- 5 the primary reasons why adolescents experiment with 6 smoking. 7 Q. Do you think it's a causal relationship S or influ~ce? 9 A. Yes. 10 Q. Does parental influence cause kids to ll begin smoking? 12 A. | 0rink it has an impact on whether kids 13 will hegin to smoke. 14 Q. Does smoking cause disea..~? |5 A. Don't know, 16 Q. Docs sex cause pregnancy? 17 MR. McDERMO'FT: Whal was that question 18 again? 19 MR, COLINGO: DOeS sex cause pregnancy? 2O It depends. II MR. McDERMOTt: I object to the form of 22 the question. That's really sort of a silly question 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Page 86 A. It can. Q. I'd like to show you now a copy of an advertisement for Joc Caracl that appeared in an April 1997 issue of Hunting Magazine. I believe I've got copies for you, but I'm just going to hand you this one. MR. McDERMO'Fr: Is this marked as an exhibit or going to he marked as an exhibit? MS. FLOWERS: Yes. Actually, I'm not going to mark that one. I'm going to mark a photocopy of it. MR. McDERMO'I'r: And you say the reference Page 8 1 Q. Do you know the other camels' names? 2 A. I don't recall them. 3 Q. Do you know who might? I mean, I assume 4 they have names. 5 A. You mean who within the company might? 6 Q. Yes. 7 A. I'm sure the ad agency would he able to, s the people that work on this campaign. 9 Q. A~ they about the same age as Joe? I0 A. I have no idea. 11 Q. They're not his parents arc they? 12 A. Doesn't look like it. They appear both 13 to bc males. 14 Q. Do they appear to hang out together? 15 A. Sure. 16 Q. Smoke together? ~7 A. Uh-huh. 18 Q. Do you know which one of those peers 19 started smoking first? 20 A. (Shaking head.) 21 Q. Do you know which ad agency designed the 22 ad? 23 24 25 A. Yes. Zena Brown. Q. Do you know who approved the ad? A. No, ] don't know specifically. I'm sure Page 88 the business unit head did. Q. The business unit head? A. Yes. Q. Is that like the brand manager for Camel or is that a different position? A. Well, we organized the marketing department into business units and there's a vice president in charge of each business unit. So, typically, the decision to run a particular ad would fall with that -- the head of the division. Q. Does Reynolds have approval authority over the content of the .l'oc Camel campaign? is April '97 Hunting? MS. FLOWERS: Hunting Magazine. (EXrL 4, Advertisement in the April 1997 Issue of Hunting Magazine, was marked for identification.) BY MS. FLOWERS: Q. Could you lake a look at lauco Deposition 13 A..Sure. 14 MR.. MCDERMOTT: Can We go off the record 15 and take a break for about two minutes to let rue run ~6 down ~c hall? 17 MS. FLOWERS: Sure. 18 (A recess transpired.) 19 BY MS. FLOWERS: Exhibit 4 for me, please, and could you tell me who these camels are? A. Well, there appears to he Joe Camel and a couple of his buddies. Q. Are those his friends? A. I think so. 20 Q. Do you have any idea what percentage of 21 smokers begin smoking after age 18? 22 A. 1 don't really know. I've seen figures 23 in the popular press that suggested it's around 10 24 percent, but I don't know that that's accurate. 25 Q. Have you looked at the 1994 surgeon A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800o743-DEPO Page 85 - Page 88

IAUCO, DAVID CondenseltTM MISSISSIPPI TOBACO LITIGATIO~ Page 89 general's report on that particular issue? 2 A. I have, but I haven't review~l it 3 recently. 4 Q. Do you know what percentage start after 5 217 6 A. No. 7 Q, Twenty-five? 8 A. No. 9 Q. Does marketing have any influence on 10 initiation of smoking? 11 A. I think it has minimal, ff any. 12 Q. Minimal, ffany? So it might have none? 13 A. It may have none. It's not designed to 14 initiate smoking. 15 Q. We~ you with Reynolds when the FTC was looking at the issue of Joe Camel? 17 A. Yes. Q. Were you involved in any of the 19 production of documents to the Irfc in conjunction 20 with that investigation? 21 A. NO. 22 Q. Do you know who was? 23 A. Not really, no. 24 q. Did ~R conduct focus groups prior to the 25 launching or the repositioning of Joe Camel? 1 2 3 4 5 6 7 8 9 10 II 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Yes. Q. Do you know whetber ~esc were txu'ned over to tbe FI'C? A. Whether what was turned over? Q. The focus groups. A. Focus groups? Q. Focus group reports. A. Reports? If we -- if we had them, I'm sum they were if they were asked for. Q. Are you aware that the F'rc has reopened its investigation of Joe Camel? A. No. Page 91 1 MR. MoDERMOTr: Are you representing that 2 it has reopened the investigation? 3 MS. FLOWERS: I'm not representing 4 anything, l just want to know if he was aware of it, 5 of anything related to that. There was a report in 6 Business Week. I wanted to know if he had any 7 knowledge of that. 8 THE WrI'NESS: I'm not aware that the FTC 9 has reopened any investigation on Joe Camel. 10 BY MS. FLOWERS: I I Q. Have you read the FDA proposed rule? 12 A. Yes. 13 Q. Do you understand that the FDA is trying 14 to limit youth smoking? 15 A. I understand that's what they've -- 16 that's what their intent is. What their stated 17 intent is in issuing the proposed regs. 18 Q. Would you support such a goal? 19 A. Sure. 20 Q. Does R. J. Reynolds support such a goal? 21 A. Yes. 22 Q Can you tell rue then, if you know, why 23 the industry issuing the FDA? 24 A. Yes. Number 1, we don't believe that all 25 of the regulations will be cffeetive and, secondly -- Q. Have you received any document requests from the FTC in that regard? A. No. MR. MCDERMO'I'F: You're saying that the Frc has reopened it's investigation? Page Page 92 l in terms of meeting that goal. And, secondly, it 2 severely hampers our ability to compete for adult 3 smokers. 4 Q. In what way? 5 A. In our ability to communicate with adult 6 smokers in many ways. 7 Q. Do you helicve that banning of vending 8 machines would hamper your ability to communicate 9 with adult smokers? 10 A. It would hamper our ability to make our 11 product available to adult smokers. 12 Q. Would you agree children have accoss to MS. FLOWERS: I asked him if he was aware whether the FTC had reopened the investigation of Joe Camel. MR. McDERMOTt: oh, ] thought you asked if he was aware that it had. THE WrrNESS: That's what you asked me. MS. FLOWERS: rm asking for his awareness on that issue. 13 vending machines? 14 A. In some cases. 15 Q. Do you kno.w whether R. J. Reynolds uses 16 the National Smokers Alliance database for anyof its marketing activities? A. WILLIAM ROBERTS, JR. & ASSOCIATES 18 A. I don't -- I don't believe so. 19 Q. Are you a member of the National Smokers 20 Alliance? 21 A. Personally? 22 Q. Uh-huh. :23 A. No, l don't believe so. I don't believe !25 Q. Were you aware tha'~ National Smokers 1-800~743-DEPO Page 89 - Page 92

IAUCO, DAVID CondenseltTM MISSISSIPPI TOBACO LITIGATIO]~ Page 93 I Alliance gave away lighters and fr~ cigare~lcs in 2 exchange for petition signatures against tl~ OSHA ~ rule at a Grateful Dead concert? 4 A. I'm not aware of that. 5 Q. Do you see anything wrong with that? 6 A. Wrong with what, giving lighters away? 7 Q. Lighters and cigarettes away at a S Grateful Dead concert. 9 A. If they were given to adult smokers, no, 10 I don't sc¢ anything wrong with that 11 Q. What if they were given to non-adult 12 smokers, if we define them as under 187 13 A. To kids? Yeah, ] have -- that's a -- I 14 have problems with that. 15 Q. Do you know anything about ~ Grateful I~ Dead? ]7 A. Ycah. 18 Q. Do you think they have the potential to 19 attract a fairly young audience? 20 A. They have potential to attract a fairly 21 old audience. They've been around for 20 years. 22 They have many old adult followers. 23 Q. Do they have any young followers? Did 24 ~cy have any young followers? 25 A. I don't know. I suppose so. 1 2 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Page 94 Q. Do you know what the Tobacco Action Nclwork is? A. Yes. Q. ~ you a member? A. I r~ally don't know. Q. Do you know whether RJR requires its c~nployces to bc a member of the TAN? A. I'm stu¢ that it does not. Q. Do you know what the IUR Tobacco College is? A. R JR Tobacco College? Q. Also referred to as ~c College of Knowledge? A. No. Q. Did R JR encourage its employees to write the ~A and oppose ~ rule? Q, The proposed rule? A. Yes. Q. Did you write any ]ct~rs? A. Yes. Q. Do you have any idea how many? A. One, I believe. Q. Did you pen it yourself or was it a form letter? Page 95 1 A. No. I penned it myself. 2 Q. Did you also write to OSHA to oppose that 3 rule? 4 A. I believe I did. 5 Q. Was that also your own creative writing 6 or a -- 7 A. Yes it was. 8 Q. -- a form letter? I'd l/k¢ to go to 9 public relations now. In '75, whan you star~d, do 10 yOU knOW what PR firms Reynolds was using? II A. No. 12 Q. Do you have any knowledge of the firms 13 they've used over the years? 14 A. More recently, yes. 15 Q. Could you narnc some of ~osc fray.s, 16 please? 17 A. Powell Tate. ]8 Q. I'm sorry? 19 A, Powcll Tate. 20 Q. How about John Scanlon? 21 A. Pardon me? 22 Q. John Scanlon? 23 A. Not that I know of. 24 Q. Leonard Zahn? 25 MR, McDERMOTT: B¢ sure that his last Page 96 answer re.corded. 2 THE WITNESS: NO, not that I'm aware of. 3 BY MS. FLOWERS: 4 Q. And that was the answer to Scanlon, l'm 5 sorry, or the answer to Leonard Zahn? 6 A. Both. 7 Q. Other than Powcll Tate? 8 A. I just can't recall the names. 9 Q, Dces Prig engage in public relations? l0 A. Yes. 11 Q. Do they have a public relations 12 department within the company? 13 A. Yes. 14 Q. Do you have any idea of the size of that 15 department? 16 A. I don't really know. 17 Q. Have you ever designed any marketing 18 plans or advertising plans for the public relations 19 department? 20 A. No. 21 Q. Have you ever worked with them? 22 A. Yes. 23 Q. Does Reynolds use public relations to try 24 to reassure the public? 25 A. Reassure the public of what? A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 93 - Page 96

IAUCO, DAVID CondenseltTM MISSISSIPPI TOBACO LITIGATIO] Q. About the health consequences of smoking. Page 9~ 1 2 3 4 5 is? 6 A. A psychological crutch? 7 MR. MCDERMOTT: Let me interject here 8 that the witness has already disclaimed knowledge of 9 psychology and psychiatry and expertise in that. If 10 you're asking for some other information, you're free t t to pursue it, but... 12 THE WITNESS: I guess I have a general 13 understanding of what a psychological crutch is, but 14 I couldn't give you a definition. 15 BY MS. FLOWERS: 16 Q. Not asking for a definition, just 17 wondered if you had any idea what it might mean. IS I'd like to mark as lauco Exhibit 5, 19 January 29, 1964 raemorandum to Mr. Joseph F. Cullman, 20 m. 21 MR. McDERMOTT: What was the date on that 22 again? I'm sorry. 23 MS. FLOWERS: January 29, 1964. 24 (EXH. 5, Memorandum to Joseph F. Culiman, 25 1~ Dated January 29, 1994, Bates 1 2 3 4 5 6 8 9 l0 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. I don't know what you mean by that. Q. Do you know what a psychological crutch Page 9~ Numbers 1005038559 to 1005038561, was Page 9! t A. Uh-huh. 2 " Q. Do you have any idea what the 3 psychological crutch might be? Does this give you 4 any more guidance about what the psychological crutcl 5 could be? 6 MR. COLINGO: wait a minute. 7 MR. McDERMOTT: object to the form of the 8 question. Calls for speculation and endless 9 possibilities. And I'm not sure there's a foundation I0 for this since this is a 30-year old document he II hasn't seen before, that I believe was produced by 12 another company. I just don't think you've ]aid any 13 foundation at all for use of this document. 14 THE WITNESS: I don't -- [:56 MR. COLINGO: ,oldon. I further object on the grounds that until he reads the whole document 17 and see how the words are being used in the context, 18 with relation to the whole document, I think it'd be 19 Shear speculation on any answer that he may or may ]20 not give. Go ahead and read the whole document. '21 MS. FLOWERS: I would remind counsel 22 about ~e speaking objections limitations within ~e 23 Case management order. 24 MR. COL~NO3'. You don't need to remind me 25 of anything, Lady. I've been doing tiffs a long Pagc 10(1 time. And I'm not speaking, I'm making my objection. You don't need to remind me of nothing. Been doing this since before you were horn probably. MS. FLOWERS: I'm so proud of you. marked for identification.) BY MS. FLOWERS: Q. Mr. lauco, is it safe to assume you've never seen tl~s document before? A. No, I've never seen this before. Q. I'd like to a ff~rect your attention to the first page, please, the last paragraph under B. And I apologize, this is a terrible copy, but it's the best one we have. A. U-h-huh. Q. And I would ask you to pl~ase read or, if you prefer, I'll read it if you can't, beginning 2 3 4 5 MR. COI~INGO: You need to be proud of 6 me. You'llscealotmoreofme, teo. 7 BY MS. FLOWERS: 8 Q. I'd like to direct the witness again, 9 just want to ask him ff he has an opinion about 10 providing smokers a psychological crutch and a 11 self-rationale to continue smoking. Is that 12 consistent with anything you've ever experienced at 13 R.J. Reynolds? under B with the second line, which is discussing the 1964 surgeon general's report. MR. MCDERMOTt: If you can read it, why don't you because I'm having ~'ouble reading it. It sounds like you're familiar with it or at least more familiar with this than wc are. BY MS. FLOWERS: Q. Okay. It reads: Wc must in the near future provide some answer with which -- excuse me, some answers which give smokers a psychological crutch and self-rationale to continue smoking. Do you see that? 14 A. NO. 15 MS. FLOWERS: I'd like to mark as Iaueo 16 Exhibit Nurnber 6 an ad from R. J, Reynolds Tobacco 17 Company entitled: Can we have an open debate about 18 smoking? 19 (EXH. 6, Ad: Can we have an open debate 20 about smoking, The New York Times, 21 January 30, 1984, was marked for 22 identification.) 23 BY MS. FLOWERS: 24 " Q. I assume that you're a little more 25 familiar with that document. A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 97 - Page 100

IAUCO, DAVID 5 6 7 8 9 10 II 12 13 14 15 16 17 18 19 20 21 23 1 5 6 7 9 10 II 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 CondenseltTM Page 101 1 MR, MeDERMOTr: Let him take a look at 1 2 it, please. 2 3 THE WITNESS: Yes. 3 4 BY MS. FLOWERS: 4 Q. Was that intended to create doubt? 5 A. I don't believe so. 6 Q. Was it intended to promote the idea that 7 there's still a controversy? 8 A. I think it was intended to provide our 9 point of view on the smoking issues since they 10 weren't being covered in any other form. 11 Q. Can you express that point of view? 12 A. Relative to this? 13 Q. Yes. A. Not really. I mean, I'd have to -- this 15 was back in time and there were different 16 circumstances at dais point in time. Q. This was in 1984; correct? 18 A. (Nodding head.) 19 Q. ~ you were with the company? 20 A. Yes. 21 Q. Did you have anything to do with this ad? 22 A. No. I don't believe it's an ad, Q. How would you characterize it? 24 A. It's an opinion piece that we paid to 25 Page 102 have placed in media. Q. Arc people justified in relying on your opinion pieces? A. I don't know that anybody relics on our opinion pieces. Q Would someone be justified in doing so? A. I don't know what you mean by justified. MISSISSIPPI TOBACO L1TIGATIOI Page 103 open debate, give smokers any rationale, psychological crutch, however you want to put it, to keep smoking? A. I don't believe so. Q. And you don't now know whether you -- whether Reynolds would have wanted anybody to helievc this. MR. MCDERMOTT: I'm sorry. Vdhat was the end of your qnestion, read this? MS. FLOWERS: Believe this. MR. McDERMOTT: Believe this. THE WITNESS: We don't make any statements of fact that I can see in here. We simply -- this was the fu'st in a series of pieces that we developed in order to provide our point of BY MS. P'LOWERS: Q. Has it or has it not been a long-term strategy of the tobacco industry to maintain the ca~c -- excuse me, to maintain that the case against smoking is not a closed one? NIP,. McDERMOTT: I object to ~e form of the question to the extent you're asking about the tobacco industry. If you want to ask about R. J. Reynolds Tobacco Company, that's fine. Page 104 1 MS. FLOWERS: I think this would be a 2 good time to have some clarification. 3 Q. Are you anticipating testifying at trial 4 about any other tobacco companies beside Rig? 5 A. No. 6 MS. FLOWERS: ts he being lLmited? 7 MR. MCDERMOTT: Well, perhaps you need Q. Did you want people to read this? MR. McDERMOT'I': Did he want people to read this? He's already testified he didn't have anything to do with this. MS. FLOWERS: He's being offered as an expert on R JR marketing. MR. MCDERMO'I~: This isn't marketing. BY MS. FLOWERS: Q. Do you have any idea whether Reynolds wanted people to believe this? A. I don't know. This wasn't part of any 8 some clarification. To the extent that his testimony 9 addresses the competitive atmosphere, I'm sure he'll 10 discuss the people be's competing against and so 11 forth; but we're not offering opinions on their 12 marketing programs and the like. 13 MS. FLOWERS: Or on their positions over 14 t]~ years? 15 MR. MCDERMOTT: (shaking head.) 16 BY MS. FLOWERS: 17 Q. Do you know whether it's been a s~a'ategy 18 for R. J. Reynolds to maintain that the case against marketing program that I was involved in. I really can't give you any opinions about this. Q. Do you remember your testimony in the Keuper case about this document? A. No. Q. You offered an opinion at lhat t'tmc. Do public relations messages, such as R. J. Reynolds' 19 cigarettes is aot a closed one? 20 A. What do you mean case? 21 Q. Whether smoking causes disease. 22 MR. MCDERMOTT: I guess I'm having a 23 little bit of trouble with your question because this 24 witness is a marketing expert and an advertising 25 expert and we're veering off into things ",hat don't A. WILLIAM ROBERTS, JK. & ASSOCIATES 1-800-743-DEPO Page 101 - Page 104

IAUCO, DAVID Cond~nseltTM MISSISSIPPI TOBACO LITIGATIO} l 2 3 4 5 6 7 8 9 I0 l! 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1 2 3 4 5 7 8 9 I0 II 12 13 14 16 17 18 19 ~3 Page 105 have much to do with that. I'm not sure you've lald a foundation and I'm not quite sure what this has to do with this witness' area of exI~rtise. MS. FLOWERS', I understand your objections and those are just fine. ] don't think ] Page 10~ Q. You think it's unusual that ev~yone has the same script? A. No. ]think=- MR. McDERMOTT: I object to tl~ form of the question, I'm not no sure who everyone is and have to lay a foundation fight now during this deposition. I think that can all come later. MR. McDERMOTT: MI right. BY MS. FLOWERS: Q. And I just want to know about tiffs particular whatever you're going to call it, it 6 your question is a little bit -- 7 THE WITNESS: I don't know what you mean s by script. 9 MS. FLOWERS: I'll mark as laueo Exhibit 10 Number 7 another advertiscmcmt or position statement 11 by RJR. ~ppcareM in the New York Timtm. We consider it an ad. You say it's a position paper, l just want to know if it's a long-term strategy, at least since you've b~n there in '75? Is this the position of R. J. Reynolds? Has it 12 13 14 15 16 (EXH. 7, Page Entitled: We don't advertise to children, from R. J. Reynolds Tobacco Company, was marked for identification.) MR. McDERMOTT: while the witness is A. If you're talking about this in its entirety, then you're going to have to let me read every single line and decide whether this is the position that we hold today and have held in the time that I've been with the company. Q. All right, A. Is that what you're asking? Q. The message of this, I guess neither of us need to sit here and interpret today, so let me rephrase the question. MR. McDERMOTI': okay. THE WITNESS: All right. BY MS. FLOWERS: Page 10~ Q. Has it been a strategy of R. J. Reynolds since you've joined the company in 1975 to maintain the case against smoking is not closed and that there is a continuing controversy? It's a simple question. A. I don't know. I don't know what the strategy of the company was in all the time that I've worked for the company. I've not been privy to every 17 looking at this stuff, it's about noon. Do you have 18 any idea when you're going to break for lunch and the 19 like? Have you thought about that or -- 20 MS. FLOWERS: We can break right after 21 this. 22 MR. McDERMOTt: rm just inquiring. 23 We're flexible at this point. 24 MS. FLOWERS: why don't I just do my line 25 of questioning on this and then we'll break and come 1 back? 2 MR. McDERMOTT: That']l be fine. 3 BY MS. FLOWERS: 4 Q. DO you recognize this? 5 A. Yes. 6 Q. Did you have anything to do with the 7 publication of this? 8 A. No. 9 Q. You have any idea who did? 10 A. People in our public affairs area. Page 108 11 Q. Do you know what advertising company they used for these types of ads? company s~ategy. Q. Does smoking cause lung cancer? A. I don't know. Q. Does anybody know? A. Some people think they know. Q. Do you know what R. J. -- A. I believe that's there a risk of contracting lung cancer if you're a smoker that is increased. I don't know if it causes it. Q. Is that an opinion you've come to on your oven or was that provided to you by your company? A. It's an opinion that I've come to on my own. 13 MR. McDERMOTT: object to the form of the 14 question. You're asserting it's an ad. That is not 15 established. 16 THE WITNESS: what ad agency, is that 17 what you're asking? 18 MS. FLOWERS: Yes. 19 THE W/TNESS: I don't remember. 20 BY MS. FLOWERS: 21 Q. 1 believe this ad is '84, but I could be 22 wrong. Do you have any information about when it 23 ran? 24 MR. McDERMO'I'I': object to the form of the 25 question, characterizing this document. A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 105 - Page 108

IAUCO, DAVID THE WITNESS: I know that these pieces ran somewhere in the '84, '85 time range. BY MS. FLOWERS: ~. Do you believe that children would be attrac~l to this ad? CondenseItTM Page 109 1 2 3 4 5 MR. M~DERMOTr: object to th~ form of the 6 qnestion, characterizing tbe document. Sp~ks for 7 it~lf. 8 MISSISSIPPI TOBACO LITIGATIOt Page 111 ask, Mr. lauco, if you f~l harassed or threatened in any way during this deposition? A. Have I felt? Q. Yes. A. Not yet. MR. McDERMOTT: For t~ record, let me state that ] regard that as an invasion of privacy, which is a form of harassment. 9 THE WlTNESS: DO I believe that children 10 would be... 11 BY MS. FLOWERS: 12 Q. Afo'acted to this particular ad. 13 A. A~'a~ed to g~is. I don't know why. 14 No. 15 Q, Do you know why R. J. P,o~olds places 9 MS. FLOWERS: I was talldng more about 10 the demeanor of the d~position. 11 MR. McDERMOTT: oh, w~ have no -- we have • 12 no complaint in that regard. 13 MS. FLOWERS: Thank you. 14 MR. McDERMOTT: SO far. I think we have 15 one correction as well to the testimony earlier this this type of ad? 16 16 17 MR. McDERMOTT: object to the form of the 18 qnestion, characterizing the dneument. 19 THE WITNESS: My recollection is that we 20 placed these pieces in the media because our position 21 was being mischaracterized on a number of these ~2 issues and we wanted to make it clear to the American 23 public what our position was on, in this case, youth 24 smoking. 25 BY MS. FLOWERS: Page 110 1 Q. Make it clear to the America public? 2 A. Yes. 3 Q. Would you expect the American public to 4 believe the contents of this? 5 A. ] don't know. 6 Q. Whatever you want to call it? 7 A. I don't know. 8 Q. Do you think it was Reynolds' intent that 9 they would? I0 A. Yes. 11 Q. Do you know ~e types of magazines that 12 these ads typically run in? 13 MR. McDERMOTT: object to the form of the 14 question, miseharacterizing the document. You can 15 answer. 16 THE WITNESS: NO, I dotl't. 17 MS. FLOWERS: That's all I have on that. 18 Want to break for lunch and come back in an hour? 19 MR. MCDERMOTT: Fine. 2o (A luncheon recess transpired.) 21 MS. FLOWERS: Just as a point of a 22 clarification before we get started. I understand 23 counsel has to make his objections as to the question 24 about his salary. 2:5 Q. But I, just for the record, would like to moming. 17 MS. FLOWERS: okay. 18 THE Wl'I'IqESS: Yes. You asked me about 19 depositions that I've given and I said three. 20 Actually, there have been four. 1 was also deposed in Allgood. 22 BY MS. FLOWERS: 23 Q. The case in Texas? 24 A. Yes. 25 Q. Do you have any idea when that was? Page 112 1 A. When? Three, four years ago it seems 2 like. 3 Q. Did you testify at trial? 4 A. There wasn't a triM, I don't believe. 5 Q. Okay. Was it a one-day deposition? 6 A. It was a one-day deposition. 7 Q. Was it on the issues for which you'~e 8 being tendered here today? 9 A. I don't recall whether ] was, you know, 10 an expert witness or fact witness or what, how I 11 testified in that ease. 12 Q. Okay. Let mego backtoyour cvforjust 13 a moment. Have you ever published any articles on 14 marketing? 15 A. No. I had some work that I did in 16 graduate school that was published in a book by one 17 of my professors. 18 Q. Do you recall the subject matter of that 19 work? 20 A. Yes. It was some work that we did on 21 forecasting using the Delphi Method, which is a 22 forecasting method. It's a consensus-based 23 forecasting method. 24 Q. Was it a theoretical article about 25 forecasting in general or -- A. ~rlLLIAIvl ROBERTS, YR. & ASSOCIATES 1-800-743-DEPO Page 109 - Page 112

IAUCO, DAVID CondcnsvltTM MISSISSIPPI TOBACO LITIGATIO~ Page 113 1 A. No, no. It was forecasting heavy ~'uck 2 sales. 3 Q. Is this work published in -- 4 A. Cases in Marketing Research, Schultz is 5 the author. 6 Q. And the year would hav~ been in the '70s? ? A. Early 8 Q. Other than thai, have you ever published 9 any additional articles on mark~q.ing? 10 A. No. II Q. Have you cvcr published any articles on 12 advertising? 13 A, No. 14 Q. Have you ever published any articles on 15 promotion? 16 A. No. I'm not an acadc~nic. !7 Q. Your Rule 26, under Number 2 on the 18 second page, says that you're going to base your 19 opinions on your review of the literature concerning 20 advertising, marketing, promotion, and consumer 21 behavior. Can you tell me what you have reviewed in 22 conjunction with your preparation for this case? 23 A. Yes. A number of articles, some 24 published, some that haven't been published, l 25 believe, concerning Joc Camel, the Franza Pierce Page 1 A. In large part. 2 Q. You feel you're able to give an unbiased 3 opinion? 4 A. Yes. 5 Q. I also note that on page I of your Rule 6 26 disclosure, the third paragraph discusses 7 voluntary restrictions. 8 A. Yes. 9 Q. I'm curious, first, in the fh-st 10 paragraph where you're expected to testify 11 regarding -- excuse me, concerning Reynolds 12 adherence to statutory, regulatory or other 13 requirements. Do you know at this time what that 14 refers to? 15 A. The cigarette advertising promotion code 16 would be included. 17 Q. And, finally, in the last sentence, he 18 may also testify concerning other voluntary t9 restrictions on cigarette advertising. Do you know 20 at this time what that refers to? 21 A. I think the code would apply to both 22 statements. 23 Q. Arc there any other requirements or 24 voluntary restrictions that you know of that you may 25 offer an opinion about at trial? Page 114 I Fisher articles and critiques of those by Martin 2 DuBeau, others. Some published treatise on 3 advertising, Hinkcy, Krumski. 4 Some studies that have been done, 5 independent studies that have been done on the effect 6 of advertising or the effect of ad bans to cigarette 7 consumption. Study done in OECD countries, I can't 8 recall the authors off the top of my head. We've 9 produced it here. A study that was done for the 10 American Cancer Society and I believe NCI also 11 supported that study. Both of which concluded that 12 ad bans for cigarettes had no effect on cigarette 13 consumption in counties that were studied. 14 There are some other studies that have 15 been done concerning the cffecl of advertising. One 16 Canadian study that I recall. Again, I httink we've t? produced it for you. 18 Q On the issue of ad bans, have you ever 19 looked at the Smca report? 20 A. Smca report? 21 Q. Uh-huh. 22 A. No, I'm not familiar with that. 23 Q. Would it be fair to say that you base 24 yollr expertise on your experience while working at 25 R.J. Reynolds? Page 116 1 A. Yes. 2 Q. Could you delineate those for me? 3 A. There are certain practices that we have 4 started at Reynolds concerning, for example, the use 5 of our database in our marketing activities, where we 6 are strengthening the verification of adult smokers 7 on our database beyond, you know, provisions in the 8 code. Particularly for any mailing of cigarettes 9 products. 10 Q. And how are you doing that? 11 A. We're seeking out third-party data 12 sources where we can verify that, when we have a 13 smoker on the database, we can verify that that 14 smoker is over the age of 21 by matching up their 15 name, address. I don't know exactly how, you know, 16 what matches we make. And any person that we've 17 identified that is -- does not match up, in other 18 words, is obviously under the age of 21, we can kick 19 that data off our database. 20 And when we can affirmatively match up a 21 name, then wc -- and wc also have the other necessary 22 requircmcnt of a signed certification indicating that 23 this person is a smokcr, that they dcsirc to receivc 24 promotional materials from us, then wc use that 25 name. And particularly as it relates to mailing A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800~743-DEPO Page 113 o Page 116

IAUCO, DAVID I 2 3 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 2l 22 23 24 25 CondenseltTM MISSISSIPPI TOBACO LITIGATIO1 Page 11~ Page product through the mail. Unless we know that that l Q. And this ad code is still in effect; is person, and it's been verified, third-party verified 2 that correct.'? that this person is over the age of the 21, we will 3 A. Yes, w¢ still use it. not mail product to them even ff they request it. Q. So Reynolds adheres to the 21-year-old cutoff in the code? A. For use of our database, yes. Database marketing. Q. How about for demographic targeting gemrally? A. For demographic targeting, as of 1992, we use -- any of yoar targeting, any of oar marketing research, oar positioning statements, and so on, we use adult smokers, 21 plus, as the minimum cut off. We didn't always -- that wasn't always the case. In the past, we've used 18 as the cutoff. Q. Can you describe for me what led to this change? A. Yes. Because of tic increasing negative environment and the charges that have been made accusing us of trying to get youth to smoke, we decided that we wanted to strengthen oar requirements and minimize the possibility that we would be corresponding, for example, with anyone under the age of -- under the legal age. And while, you know, th~s 4 Q. I want to go back for just a moment to 5 the 1964 code, and ] apologize, that's not in front 6 of yOU. I could get it, but I've just got a quick 7 question. Do you know whcfl~r Reynolds received 8 anything in exchange for adopting the 1964 code? 9 A. I don't know. 10 Q. The 1990 code that you have in front of Page 113 I put -- this put somewhat of a buffer, gave us a 2 three-year buffer. 3 Q. By the code, I presume we're talking 4 about the, I tmlieve, the 1990 code? 5 A. That's correct. 6 MS. FLOWERS: Which we'll mark as Iauco 7 Exhibit Number 8. 8 (EXH. 8, Cigarette Advertising and 9 Promotion Code, was marked for m identification.) l I BY MS. FLOWERS: 12 Q. I trust you're familiar with this 13 document? 14 A. Yes, 15 Q. Did you have anything to do with its 16 ~rafting? 17 A. NO. J$ Q. There have been other advertising codes 19 over ~ years, haven't ",Jilcre? 20 A. Yes. 21 Q. Are you familiar with them as well? 22 A. Somewhat familiar. 23 Q. Would it be safe to say you're more 24 familiar with the current code? 25 A. Yes. 11 you, do you know whether it has any enforcement 112 provisions7 13 A. Enforcement provisions? 14 Q. Uh-huh. 115 A. No. To my imowledge, it's a voluntary 16 code. 17 Q. So it has no enforcement provisions? 18 A. I don't know of any enforcement 19 provisions. 2o Q. Do you know whether there have ever been 21 any reported violations of this code back when it did 22 have enforcement provisions? 23 A. I didn't know that it had enforcement 24 provisions. 25 MR. McDERMOTt: I think she's referring Page 120 1 to predecessor codes. 2 THE WITNESS: And your question again 3 was? 4 BY MS. FLOWERS: 5 Q. Whether you're aware of any reported 6 violations or fines against R. J. Reynolds for 7 violating any codes? 8 h. No, I'm not aware of any. 9 Q. Are you aware of any violations reported I0 or enforced against any of the other tobacco II companies? 12 A. No, I don't have any awareness of them. 13 Q. If you would, please take a look at page 14 2 under advertising. Number 4 reads: Cigarette 15 advertising shall not suggest that smoking is 16 essential to social prominence, distinction, success 17 or sexual attraction, nor shall it picture a person 18 smoking in an exaggerated manner. Did I read that 19 corrcetly? 20 A. Yes. 21 Q. I believe you testified previously that 22 you worked on the Salem campaign? 23 (The proceedings were interrupted.) 24 BY MS. FLOWERS: 125 Q. Did you work on the Salem campaign? A. W-ILLIAIVI ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 117- Page 120

IAUCO, DAVID 5 6 7 8 9 I0 II 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 CondenseltTM MISSISSIPPI TOBACO LITIGATIO Page 121 Q. Did you work on the Salem Spirit campaign? A. I believe so. Q. Did you work with the - work on the alive with pleasure campaign for Salem? I'm sorry. A. That's a Newport campaign. Q. Forgive me. That's Newport. Sorry. In your opinion, did the Salem Spirit campaign comply with Provision Number 4 of the Cigarette Industry Page settings by and large. I seem to recall a -- they're having a snowball fight, building snowmen and things like that. I don't recall any kind of overly sexual connotation in any of those ads. Q. I'd like to direct your attention now, please, to Number 6 on ~c same. I'll read it. Cigarette adve~sing shall not depict as a smoker anyone who iS or has been well known as an athlete, nor shall it show any smoker participating in, or obviously just having participated in, a physical Voluntary Ad Code? A. Yes. Q. Can you explain to me the basis of lhat opinion? A. As I recall the campaign, it was a -- it consisted of pictures of groups of adult smokers together in social situations, having a good time. 11 activity requiring stamina or athletic conditioning 12 beyond that of normal recreation. 13 Did I read that correctly? 14 A. Yes. 15 Q. Arc you familiar with the Vantage 16 performance accounts campaign? 17 A. Somewhat. And I don't see anything in Ibis Number 4 that would suggest that it was in -- that that campaign was in conflict with this element of the code. Did not suggest that smoking was essential to social prominence or distinction or to suecoss or sexual attraction. And I don't believe there was anyone smoking in an exaggerated manner, whatever that mighl Page 12~ 1 Q. What does that mean? Do you know? 2 A. That apparently came from the first code 3 and there's never been a real clear description of 4 what that means. 5 Q. Do you remember any o( the models that 6 were used in the Salem Spirit campaign? Were they 7 atlxaetive? $ A. I believe they were, yeah. 9 Q. Did you use couples in the campaign? 10 A. I think there were couples. Usually, I II believe, if I recollect, there were more than two 12 people in most of the ads. 13 Q. Do you recall any of ~ as having 14 displayed obvious sexual attraction? 15 A. Not really. I think they were good 16 looking people that were having a good time. And to 17 suggest that somehow, because they were smoking, they 18 were -- that smoking was essential to their sexual 19 attraction, if there was any, I flank would be 20 miseharacterizing that campaign. 21 Q. I guess I wasn't referring really to the 22 smoking, but to some of the positions that those 23 models were in during the campaign, lifting each 24 other up in the air. Do you recall any of those ads? 25 A. I remember that they were in outdoor 18 Q. Do you recall the advertisements of the 19 windsurfers racing through the water? 20 A. Yes, I recall windsurfing execution. 21 Q. And in your opinion, were any of those 22 advertisements in violation of the code? 23 A. No. Windsurfing is a activity that many 24 people participate in, not just athletes or experts. 25 And it'd be my opinion that it doos not require Page 124i 1 stamina or athletic conditioning beyond that of 2 normal recreation. It's a normal recreational 3 activity. 4 Q. Have you ever lried it? 5 A. Yes. 6 Q. Did you find it normal recreation? 7 A. I didn't find it requiring any kind of 8 particular stamina. I found it difficult to get the 9 hang of it. 10 Q. I will agree with you there. I'm going 11 to mark. and I apologize for this bad copy, lauco 12 Exhibit Number 9, which is an advertisement for 13 Vantage cigarettes with the performance counts 14 campaign. 15 (EXH. 9, Advertisement for Vantage 16 Cigare~es, Performance Counts Campaign, 17 was marked for identification.) 18 BY MS. FLOWERS: 19 Q. Does this guy look like hc's going pretly 20 fast? 21 A. You go fast, I guess, when you're 22 windsurfing. 23 Q. If you're good. Does that appear to be 24 normal recreation to you? 25 A. Windsurfing, I believe, is. I've been to A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 121 - Page 124

IAUCO, DAVID CondenseltTM MISSISSIPPI TOBACO LITIGATIO! I 2 3 5 7 8 9 IO II 12 13 14 15 16 17 I$ 19 20 21 22 23 24 25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Page 125 several resorts wbere they offer windsurfmg to any taker if you're willing to give it a fly. And they don't require a license or particular conditioning or anything like htmt. It's not an easy activity, but it's not easy from a skills standpoint. Q. Would you agree there are different degrees of windsurfing, floating around with a nice breeze and then perhaps what's expressed -- at least what I see in this ad, the guy seems to be hanging on pretty hard and, in fact, he's leaving a big wake? You can't really s¢¢ it in this. A. I don't know. I think that -- my knowledge, a~d it's limited on windsm'Fmg, is that it has more to do with lho condition of the surf than Page 12' I little Irouble hearing you, Jodi. 2 MR. COLINGO: Can you smoke while you 3 windsurf?. 4 MS. FLOWERS: strike that. You don't 5 have to answer that. 6 THE wrrNESS: Thank you. 7 MR. COLINOO: Depends on how good you S windsurf. 9 BY MS. FLOWERS: 10 Q. Have to bc really good. I 1 A. As long as you don't fall. 12 Q. In your opinion, did the -- this maybe 13 predates you, ] don't know. Did the Virginia Slims 14 Tennis Tournament violate the code? it does the spoed. And this appears to be a fairly -- there doesn't appear to be many large waves, pretty flat. Q. This looks like flat windsurfing to you? A. I don't see any big waves. I mean, I can't tell -- MR. McDERMO~/': I think the record ought to reflect that this is a -- this photograph is not particularly sharp. MS. FLOWERS: It's a bad copy. 15 A. I've never been to a Virginia Slims 16 Tennis Tournament. 17 Q. Do you have any knowledge about them? 18 A. All I know is that there was a tennis 19 tournament sponsored by Virginia Slims. 20 Q. Would that constitute a sport or 21 celebrity testimonial as described in Number 7 of the 22 voluntary ad code? 23 A. No, because it wasn't advertising. It 24 was simply a sponsorship of a lifestyle event that THE WITNESS: Ycah. 25 Page ] 26 MR. McDERMOTT: It's a little bit hard to tell exactly what the condition of the water is. THE W1TNESS: The fact of the matter is that, you know, what this ad is simply trying to do is draw an analogy between, you know, the taste of the cigarette and the fact that, you know, the statement performance counts. The cigarette tastes good. It's a low tar cigarette that tastes good and that's how this cigarette performs. And, you know, talks about the thrill of real cigarette taste. And it's a visual that is designed, I think, to get your attention and suggests that Vantage is, you know, a apparently was something that smokers -- that smokers Page 128 likcd to attend. Q. What do you base your statement on that smokers liked to attend tennis tournaments? A. I said presumably. Q, The ad code has been in effect in one form or another since 1964; correct? A. That's correct. Q. Are you familiar with the F'rE repon of 1981? A. No. Q. Never came to your attention while you were at Reynolds? good lasting cigarette that performs well. Q. ls there some reason why the print just didn't say that rather than -- A. Yeab., llmt would be boring. Q. -- showing the image? A. I mean, one of the fast challenges in any advertising is to get people's attention. In lifts case, to get adult smoker attention on this ad so that they will consider the cigarette, what it has to offer. Q. Do you think you can smoke while you windsurf?. MR, McDERMOTT: I'm sorry. I'm having a 13 A. It may have. I don't remember. 14 Q. Let me read you what the FTC said about 15 the voluntary ad code in 1981 after it concluded its investigation and it's -- I can give you a copy if 17 you like. This is actually not the full report ;18 because it's lengthy. It's just the excerpt from the 19 1994 surgeon's general report, which we will mark as 20 ]auco Exhibit Number 10. !21 (EXH. 10, Preventing Tobaeoo Use Among 22 Young People, A Report of the Surgeon 23 General, was marked for identification.) 24 THE WITNESS: This is the surgeon 15 general's report? A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 125 - Page 128

IAUCO, DAVID CondenseltTM MISSISSIPPI TOBACO LrrlGATIOI 1 2 3 4 5 6 7 8 9 apologi.ze. TMv've copied the wrong page. So I'd 10 like, if there's no objection, to substitute page 169 11 at a later point or simply read you the quote and 12 give it to - 13 MR. McDI~RMOT'f: I don't mind substituting ]4 the page, but I'm rascrving any objections I may have 15 because I'd like the witness to be able to see what 16 is read. 17 MS. FLOWERS: Why don't I hand him the 19 MR. MeDERMOT'f: That'd be fit~. 2o MS. FLOWERS: - and he can look at page 21 169. It's the only one I've got. 22 MR. McDERMOTt: That'll be fine. Okay. 23 And then we can substitute, if you'll get the court 2,t reporter and us a copy, that'll bc fine. 25 MS. FLOWERS: okay. Page 125 MS. FLOWERS: Yes, the 1994 report of the surgeon general. MR. McDERMOTT: Have you got another copy? Ms. FLOWERS: oh, su~. MR. McDERMOTt: Thank you. MS. FLOWERS: And I think this is the wrong page. Excuse me for a moment. Yes, I Page 13: MS. FLOWERS: oh, great. I think you're right. Well, I apologize. I'm not going to waste any more of our time trying to find the page. Q. If you can assume with me that's it's in there, if it's not, we can reserve all objections, do you agree or disagree with that statement by the FTC? MR. MCDERMOTr: why don't you read it 1 2 3 4 5 6 7 8 9 l0 II 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Page 9 again because I don't have it in my -- can you read 10 again what you're asking him to comment on? 11 BY MS. PLOWERS: 12 Q. Certainly. This was after analyzing the 13 changes in cigaret~ advertising as a result of the 14 voluntary code. There's boon little change. The ads 15 have continued to at~mpt to allay anxieties about 16 the hazards of smoking and to associate smoking with 17 good health, youthful vigor, social and professional success. The ads arc filled with rugged, vigorous, t9 attractive, healthy-looking people, living energetic 20 lives, full of success and athletic achievement, frce from any health hazard. 22 Do you agree or disagree with the V'TC in 23 its commcnts about the advertisements? A. I don't know what years they're talking 25 about. Page 132 MR. McDERMOTT: IS that going to be -- excuse me. Is that going to be substitute Exhibit 10, we'll just delete this? MS. FLOWERS: Yes. THE WITNESS: I'm sorry. BY MS. FLOWERS: Q. Should be page 169. A. Do you want me to read the entire page? Q. I'll read it. I'll be happy to read it for you, the excerpt I wanted to ask you about in 1 Q. They're looking at the late '70s, just . 2 about the time you had started with Reynolds. 3 A. And they're talking about that period 4 since 1964? 5 Q. I mean, I'd just ask you to commcnt from 6 '75 until '81. 7 A. No, I wouldn't agree with that. 1 8 think -- you know, I don't know who wrote that or 9 what context or what they were referring to in terms tO of campaigns. But, no, I would not agree. 1981, the FTC report: "Ads have continued to attempt to allay anxieties about the hazards of smoking and to associate smoking with good health, youthful vigor, social and professional success, ellipses, (the ads are) filled with rugged, "~ignrous, attractive, healthy-looking people living energetic lives, full of success and athletic achievement, frcc from any health hazard." MR. McDERMOTT: I think you have the advantage on us. THE WITNESS: Yeah. MR. MCDERMOTT: I don't find that. Maybe you could point out where -- MS. FLOWERS: okay. THE wrrNEss: Might be another page. 11 Q. It was the staff report of the FTC after looking at the ads to see whether, in fact, the ad 13 code had made any difference. 14 A. I would not agree. ]5 Q. Do you know whether the 1964 code 16 prohibited cigarette advertising on shows whose 17 audiences wcrc primarily, and I think they define 18 that as 45 percent or more under 21 -- excuse me, shows who primarily had audiences under 21? 20 A. I'd have to look at the 1964 version of 21 the code. 22 Q. Okay. 23 A. Obviously, when I started with the 24 company, we were off of electronic media, so there was, I think, special provisions that I never A. WqLLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 129 - Page 132

IAUCO, DAVID Page 133 concerned myself with that dealt with electronic media. Q. I believe, and, again, I'm sorry, this is my only copy. It's, in fact, the one you gave me in conjunction with the deposition, that this is the 1904 code? A. Yeah. MR. MCDERMOTF: Can I take a look at it? CondenseltTM MISSISSIPPI TOBACO LITIGATIO. Page 13! witness, by the time hc came to the company, there was no elecaonic media advertising and hc simply did not concern himself with that advertising medium as a part of bJs duties. BY MS. FLOWERS: Q. I've actually found the quote this time. It is on page 169, it's a different quote though. If I could direct your attention to the right column, up 9 Okay, I0 BY MS. FLOWERS: 11 Q. Were you able to find that section in there? 13 A. Yes. Q. Would you a/Fee that if a television 9 at the top, my question to you is -- l0 MR. McDERMOTt: Which paragraph? II MS. FLOWERS: I've have to come over and 12 identify it. It's reallyjus~ the first sentence. 13 Q. Are you aware that Senator Nurenberger 14 called the entire self-regulatory process an exercise 15 program was continued or sponsorship was continued of a television program that had a younger audience than 17 is required in the code, that would be a violation of ~e code? 19 A. Depends on how you interpret the younger 2o audience. I ~ink when -- what we have -- how we 21 have interpreted that is a readership greater lhan 50 22 p~rceltt, that that would constitute a publication, for example, that would be directed primarily to 24 thoscundcr2l ycars of age. So... 25 Q. You're talldng in terms of the 1990 code? Page 134 1 A. That's how we've -- yes. That's how 2 we've interpreted it during the time that I've been 3 with the company. 4 Q. But if ~e rule is less than or more than 5 45 percent are undcr 21 and a show was still 6 sponsored that had audience rates higher than that~ 7 would that be a violation of the code? 8 A. Well, that's what I'm saying. It depends 9 on how you define primarily. And what I'm saying, I 10 don't know about the 45 percent figure. We've 11 used - we used 50 percent. There's a fairly minor 12 difference there in our definition of primarily. So 13 it depends on at the time what the definition of 14 primarily was as w whether or not it violated the 15 code. 16 Q. I see. I thought the 45 percent was the 17 definition of primarily. 18 A. It may have bccn back then. 19 Q. Have you looked at any of that in 2o conjunction with your testimony on the State case, 21 what is defined under the '64 code? 22 A. No, I haven't gone into detail. I did 23 read i~, but I've not gone into -- delved into the 24 details of the '64codcpersc. 25 MR. MCDEKMOT'f: Again, in fairness to the 15 in futility, motivated by a desire to head off 16 government regulation? 17 A. I wasn't aware of it. 18 Q. Do you agree or disagrce with lhis 19 statement? 20 A. I disagree. It also says that he was a 21 leading congressional critic of tobacco marketing 22 practices. 23 Q. I think it's she, but... 24 A. Oh, she. Excuse me. Yes, Maurcen. 25 Q. Are you aware whether R. J. Reynolds Page 136 A. V~ILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 133 - Page 136 funded any motivational research through the 2 organization Social Research., Inc.? 3 A. No, I've never -- l'm not aware of any 4 research by them. 5 Q. Have you reviewed any of their reports? 6 A. Not that I know of. 7 Q. Do you agree or disagree with *,he 8 conclusion that advertising makes cigarettes 9 respectable and is thus reassuring? 10 A. 1 can't agree or disagree. I don't know 11 what context that's in. I don't know what 12 advertising they're talking about. ] don't know what they mean by reassuring. I can't -- I can't agree or disagree with it. /just don't know what is being 15 talked about there. It's a phrase out of context. 16 Q. Do you think that cigarette advertising 17 serves to allay any of the health concerns a smoker might have about using the product? !19 A. NO. 20 Q. I'll lay to find it in the 1990 code, cigarelles shall not be distributed by mail without 22 written signed certification that the addressee is 21 23 years of age or older. 24 A. I believe it's towards -- 14, 15, 16, one 25 of those. No. Number 5.

IAUCO, DAVID CondenseltTM MISSISSIPPI TOBACO LITIGATIOI~ 1 2 3 4 5 7 8 9 10 11 12 13 14 16 17 15 19 20 21 22 23 24 25 I 2 3 4 5 6 7 8 9 I0 II 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. Are you aware of any violations of this code, of this section of the code, I'm sorry? A. Of speeitic violations? Q. Uh-huh. Page 137 MS. bLOWERS: I'm sure she can. Q. Can I tta'n for a minute to the other forms of promotion, say, the Camel cash? A. Uh-huh. A. No. 5 MS. Ft,OWERS: I'd like ~o mark the transcript of a Current Affair program entitled race 7 smokes as lauco Exlfibit 1 1. 8 (EXH. I1, Ourent Affair Transcript 9 Entitled: Race Smokes, was marked for 10 identification.) BY MS. FLOWERS: 12 Q. Did you see this television program? A. No, but I've heard about this. 14 Q. I'd direot you to page 1 of the transcript where Christine C-o-l-t-e-l-l-a-r-o, a 16 high school student, Northern Virginia, accepts 17 cigarettes from a cigarette marketer, asking: Do I keep fffis? Marketer: Yeah. Christine Coltellaro: 19 Thanks. 20 Would this he a violation of the code? A. Sure would. Q. In fact, Lynn Beasley, who I believe is 23 under your supervision? 24 A. NO. She's one of my colleagues. 25 Page 138 Q. Spoke to the Current Affair reporters, 1 did she not? 2 A. Yes. Yeah. This was clearly a mistake. 3 We're not perfect. Our suppliers make mistakes. And 4 we do everything that we can to correct them. 5 Q. Can you tell me what you've done to 6 correct this, besides the "thing that you described 7 earlier, in terms of these specific kids? 8 A. I can't tell you the specifics of what 9 we've done in terms of our sampling practices. I'm 10 sure Lynn could, just because I have not been involved in this kind of sampling recently. But I am sure we have tightened up on this kind of activity to 13 ensure that this kind of thing doesn't happen. 14 Q. But it does happen? A. It's working with -- occasionally. And ~6 this is one instance where it did. And all we can do 17 is react to it and tighten our requirements and press even harder with our suppliers, the need to ensure that our ciga~tte samples are not given to anyone 20 under the age of 21. MR.. McDERMOTT: Let n~ oot~ that Ms. 22 Beasley is scheduled for deposition, I think, eight 23 days from now and I'm sure can address this with more 24 detail and specific knowledge. 25 MR. McDERMO'I'f: Excuse me just a second. Did we mark "dais as an exhibit? MS. FLOWERS: Yes. It's Number I I. MR. McDERMOTT: Number l 1. Okay. Sorry. MR. BEACH: MS. Flowers, do you ki~ow who prepared this transcript? MS. FLOWERS: It game from a Current Affair. Q. Before we move on to the Camel cash stuff, are you aware of any studies that have looked at high school students being given samples of cigarettes, percentage rates? A. No. Q Camel cash, do you know whether leather jackets appeal to adolescents? A. I wouldn't know. They have adult appeal. I do k~ow that. Q. How aboul T-shirts? A. They have adult appeal and probably would havc some appeal to adolescents as well. Q. How about concert tickets? Page 13g Page 140 A. Again, depends on the concert. Q. Movie tickets? Do they depend on the movie? A. Everyone goes to the movies. Q. Can you tell me what steps are currently being taken by Reynolds to ensure that Camel cash objects amn"i distributed to minors? A. I can give you a general feel. Again, Lynn can provide more specifics because she isn't under my supervision currently. Anyone that tries to redeem Camel cash has to provide us with a signed certification that they are a smoker, that they're 21 years of age or older, and that they desire to have these promotional materials. Any time we find that someone has falsifi.ed ~eir certification, we ensure that that person does not -- is not mailed anything from us in the future. Q. Is there anything other than signing your name on the cash reward, the thing that you mail in? A. Yes. We are attempting now to third-party verify as many smokers as we possibly can. And when we have, we record that on the data file as well. Q. Is that currently being done for all the Camel cash awards? A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800"743-DEPO Page 137 - Page 140

IAUCO, DAVID CondenseltTM MISSISSIPPI TOBACO L1TIGATIO~ Page 141 1 A. I don't believe it is yet because the 2 third-party verification is a process that, frankly, 3 is not perfect yet. It's not -- it's not all 4 encompassing. We are limited in terms of third-party 5 records. 6 Q. In your understanding, do they make phone v calls to tbe people to ask them their age, s third-party verification? 9 A. No, no, no. These are drivers' license I0 records, loan applications, things like that that are 11 public. I'm sorry. They're lists ofautbenticated, 12 verified age, where wc can get authenticated, 13 verified age. Such as state drivers' licenses and 14 the like. 15 MR. MCDERMO'I'r: Let's take a short break. 16 MS. FLOWERS: okay. 17 (A recess ~'anspired.) 18 BY MS. FLOWERS: 19 Q. Mr. Iauco, have you ever seen a kid in a 20 Marlboro T-shirt? 21 A. Yes. 22 Q. How about a Newport T-shirt? 23 A. I don't know that I've ever seen a kid in 24 a Newport T-shirt. 25 Q. Have you ever seen a kid in a Camel 2 3 4 5 6 '7 9 10 II 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 Page 142 T-shirt? A. Yes. Q. A~ you familiar with the 1992 Gallup rascarch poll which found that of 1,125 teenagers surveyed nationwide, about half of them had received promotional items from the cigarette companies? A. Yes. Q. How does this square with the code provisions about -- the testimony you previously gave about Camel cash gear -- it's not gear, Camel cash items and the code provisions? A. Well, there are various ways in which kids can get a hold of those items. They get them from older siblings. They can get them from other people. We make every attempt that we can to ensure Page 14.'. 1 Q. Have you ever thought about doing away 2 with the T-shirts end jackets and gadgets and stuff?. 3 A. We've thought about it. It would put us 4 in a competitively disadvantaged position. These are 5 promotions that work among adult smokers. And 6 despite the fact that kids might occasionally get 7 their hands on them, wc don't believe that's going to $ cause kids to start smoking. 9 Q. Do you have any empirical data to base I0 that on? I 1 A. No. Also, I have no empirical data to 12 suggest otherwise. 13 Q. Has R. J. Reynolds ever done any research 14 on what campaigns arc appealing to kids? 15 A. Only research that we've done or 16 sponsored, in a defensive manner. 17 Q. What do you mean in a defensive manner? IS A. Well, for example, the Mezsrski study 19 that we paid for to -- to repeat, but under more 20 valid conditions, tbe Fisher study and to take it one 21 step beyond, to demonstrate that even though there 22 was an awareness of tbe Joe Camel campaign among 23 youth that their attitudes toward smoking indicated 24 that, the more aware that kids were of the cempaign, 25 the more negative they were about smoking. Page 144 1 Q. Do you think that the attitudes of three 2 to six year olds or three to eight year olds, as 3 Hinkey studied, are an appropriate measure to look at 4 future smoking behavior? 5 A. Not neoessarily. 6 Q. Have you done any research on what images 7 might not appeal to kids? 8 A. Not that I'm aware of. 9 Q Have you done any research to assure that 10 younger people are not influenced or attracted by 11 your cigarette campaigns? 12 MR. McDERMO~I': I'm sorry. Would you 13 read that question again, read it back or restate it? 14 BY MS. FLOWERS: 15 Q. Have you done any research to assure that that our promotional items go only to adults, but we're not perfect. We can't guarantee that they wouldn't find their ways into the hands of kids. Q. Does that trouble you at all? A. Yeah, it does because we don't want kids to receive our items and we didn't want kids to smoke, so it does. It troubles me. I think it's bad. It brings a lot of beat down on this company and dais industry and it threatens our ability to promote our brands. 16 young people are not influenced or attracted by 17 cigarette campaigns? 18 A. No, not that I'm aware of. 19 Q. Do you have any idea what percentage of 20 the marketing budget, if that's where it's handled, 21 is devoted to stopping kids from smoking? 22 A. /t's not part of the marketing budget. 23 Q. What department, if any, is devoted to 24 that? 25 A. External relations. A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 14l - Page 144

IAUCO, DAVID CondcnscltTM MISSISSIPPI TOBACO LITIGATION Page 145 Page 147 Q. External relations? I deal of the information you're seeking here. 2 A. (Noddillg head.) 2 BY MS. FLOWERS: 3 Q. Do you have any idea how many people they 3 Q. Kcvin Vcrner was under your supervision , have devoted to ~is project? 5 A. I really don't know how many. 6 Q. Have you ever worked with them on it? 7 A. I've never worked directly on those S projects, no. 9 Q. Are you familiar with the helping youth I0 decide program? l ! A. The tobacco institute pamphlet? 12 Q. Uh-huh. 13 A. I have limited familiarity with it. 14 Q. Do you know if any research was done 15 before these programs were initialed, to judge their 16 effectiveness? 17 A. I really don't know. 18 Q. Are you familiar with the right decisions 19 right now program? 20 A. Yes. 21 Q. Do you know if any market research was 4 until recently? 5 A. Yes, but not during the time that he 6 worked on these external affairs programs. 7 Q. Was he in the market research department? 8 A. He was in the market -- he started in the 9 market research department, ~ worked in the 10 marketing department on brand marketing, and then I I moved to external relations for approximately two 12 years where he worked on these youth non-smoking 13 programs, then he came back to the marketing 14 department, and recently worked for mc on Eclipse. 15 Q. So ff the external affairs had done this 16 type of research, you probably would have known about 17 it because they would have asked you to do it? 18 A. No. 19 Q. Do you know whether they contracted 20 any-- 21 A. I really don't know, but it wouldn't have 22 done before this program was initiated, to determlnc 23 its effectiveness? 24 A. I don't believe there was any marketing 25 research that was done. I am aware that we worked 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Page 146 with experts on youth psychology, peer pressure and, in concert with them, developed that program. Q. Can you identify them for? A. I can't. ! did not work with them. Q. That would have been the external affairs 22 been done as part of the marketing research 23 department because the marketing research -- our 24 market research department has no expertise in the 25 area of youth, doing research among youth. Page 148 Q. And no expertise in the area of trying to prevent kids from smoking? A. No, wc have no expertise in that. Q. Are you intending to offer any opinions at ~al about these types of programs? department again? A. Yes. External relations. Q. External relations? A. (Nodding head.) Q. Do you know who's head of external relations at R JR? A. Tom Griseom. Q. Grlston? A. Griscom, G-r-i-s-c-o-m. 6 A. Only to the extent that they exist, that 7 we've made an effort in this area. I can generally S describe the programs, but I can't testify to the 9 specifics of them. 10 Q. And can you tell me, to the extent they l I exist and their efforts, what you will base your 12 opinion on? Is it just your general knowledge? 13 A. Just my general knowledge of them 14 existing, you know,, in the company. Q. Do you know whether any research was done after the right decisions right now program was in place to determine or measure its effectiveness, if any? A. No, l'm not aware of it. May have been. Q. Do you know -- MR. McDERMOTT: Perhaps I can help you here. I think we have the deposition scheduled in the near future for Kevin Verner and he is the person who's knowledgeable about right decisions right now and similar programs. I'm sure he can supply a good 15 MR. McDERMO'I'I': Again, I don't want 16 mislead you or anybody else. Mr. Iauco, in addition 17 to being an expert witness, is a fact witness on many 18 things and he is not a retained expert. Hc's a 19 company employee and he has factual information that 20 we would not offer necessarily as part of an expert 21 opinion depending upon what factual events or 22 circumstances arise in the trial that he may have 23 within his knowledge. 24 MS. FLOWERS: SO this may Ix: one area 25 where he'll offer factual testimony? A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 145 - Page 148

1AUCO, DAVID 5 6 7 9 10 II 12 13 14 16 17 15 19 20 21 22 25 ! 2 3 4 6 7 9 l0 II 12 13 14 16 15 19 20 21 22 23 24 25 CondenseltTM Page 149 MR. McDERMO3"r: It may be. I mean, we, as I indica~od, have the deposition of Mr. Verner scheduled. He is the person who was an actor or firsthand participant in most of these events. And as long as he is available, we'll try to look to him ~o supply information which may be relevant; but others in the company are aware of some of the events and circumstances that are relevant. BY MS. FLOWERS: Q. Do you have any understanding or anticipation at this time about what types of factual information you may be offered for at trial? Do you have any indicafon what kind of factual story you might tell, other than what's in your Rule 26 statement? A. No, not at ~h~s time. Q. Do you know whether RJR has ever been involved with the National School Superintendent MISSISSIPPI TOBACO LITIGATIO1 Association? A. ] don't know. Q. Do you know whether ~dR has ever been involved with the DAR~ program? A. I have some recollection that either the Page 151 right decisions right now or it's the law program had some connection with the DAR~ program; but, again, I Page 150 don't know any of the specifics. Q. Would that be Kevin Verncr again who would know more specifically about involvcraent with 1l~ DARE program or is there someone else? A. I believe it would be Kevin. Q. Who is the current brand manager for Camel? A. There are several brand managers, marketing manager wc call tham now. There is one person that's head of the Camel business unit. That's Fran Crcighton. Q. So she's bead of the Camel department? A. Yes. She has single-point accountability for the Camel brand in the marketing department. ! ~positioning? 2 A. What was? 3 Q.R.J. Reynolds was in the process -- 4 A. No, no. What was? You said, as I 5 recall, that was the period. What was the -- 6 Q. The period when you were Camel brand 7 manager. 8 A. No, no, This was back '82 to '84, when I 9 was senior brand manager on Camel. 10 Q. What involvement, if any, did you have I I during tho period '87 to '88 with repositioning and 12 bringing out of Old Joe? 13 A. I was vice president of brand managenxrnt 14 back in '87 -- let mc look at my Cv. 15 Q. All right. 16 MR. COLINGO: '87, '88. 17 TSEwrr~ESS: Right. '87 to early '88. I$ And so I did have some oversight during the 19 development of the Joe Camel campaign and the 20 development of the Camel 75th anniversary campaign, 21 which was the start of Joe -- the use of Joe Camel 22 Again, in February of '88, l left the 23 established brands and went to the development Q. Did Lynn Beaslcy previously occupy this position? A. Yes. Q. Have you previously occupied this position? 24 company working on Premier. So that campaign was 25 actually started after I had already left or as I was A. Actually, I was a senior brand manager on Camel back in the early '80s. We had a different -- the marketing deparUncnt had a different structure back then than we have today. Q. And as I recall, that was about the period '87, '88, when I presume you were locking at Page 152 1 leaving. 2 BY MS. FLOWERS: 3 Q. Do you have any idea how g~g selected 4 car[oon camel? 5 A. Yes. 6 Q. Could you explain that, please? 7 A. We were in the process of trying to 8 reposition Camel because it suffered from some 9 negative perceptions among smokers, young adult 10 smokers. It was seen as a brand for very old I l smokers, a brand that was very hot and harsh. There 12 was low awareness of filtered styles. It was 13 associated only with the Camel regular non-filtered 14 cigarette primarily. It was basically a brand that 15 lacked relevance among the majority of adult smokers 16 in the marketplace. 17 At that time, we were using what we 18 called the Camel world campaign, the Bob Beck 19 campaign, with the lone adventurer in ~'avcls around 20 the world, isolated areas of the jungle and so on. 21 And we started, probably in the '85, '86 time frame 22 to explore different campaigns that would help us 23 address our perceptual deficiencies. 24 And we employed a number of different 25 agencies to offer ideas to us. And we evaluated A. WILLIAM ROBERTS,/R. & ASSOCIATES 1-800-743-DEPO Page 149 - Page 152

IAUCO, DAVID CondenseltTM MISSISSIPPI TOBACO LITIGATIO Page 153 I different campaigns ~sing both qualitative and I 2 believe quantitative research as well, searching for 3 a campaign that would be more effective, again, at 4 addressing our perceptual deficiencies. 5 The Tmne Advertising Agency came up with 6 the use of an illustrated camel. Actually, during 7 this same period of time when we were exploring 8 campaigns, we reoognized that Camel was about to 9 celebrate its 75th anniversary on the market. And we 10 said that while we're still looking for a campaign, l I we ought to do something special because of this 12 milestone, ffyou will, in the brand's life. 13 And we asked several agencies to give us 14 ideas on how we might promotionally celebrate the 15 brand's 75di anniversary. It was Trone that came up 16 with the use of an illustrated camel borrowing on 17 some -- a promotional piece that was done in Europe. 18 And they developed a theme around Camel's 75th 19 birthday, which was the creation, if you will, of 20 Joe, although we didn't name him in the early ads. 21 And other camels, as well, celebrating a birthday. 22 And we had high impact advertising pieces 23 that we used in -- I believe it was the beginning of 24 1988. It may have been in late1987 when we started 25 this effort. To get there, wc used, I know, a lot of 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Page 154 Page 15 I ~ continued to track all adult smokers to see ff 2 there would be any change in the profile &the 3 brand. 4 Q. When you talk about the qualitative and 5 the quantitative, could you just give me a brief 6 description of the two different kinds of research 7 that were done? 8 A. Yes. Can I just drab a Diet Pepsi real 9 quick? 10 MR. McDERMOTT: Surely. 11 THE WrrNESS: Qualitative research is 12 used to get reactions among small groups of smokers, 13 usually eight to ten. It is qualitative because, you 14 know, it's again the small group rather than large 15 groups and it's not typically used to validate the 16 effectiveness of any marketing element, but rather to 17 explore attitudes towards it in an effort to sharpen 18 it, refine it and then possibly prepare it for 19 quantitative research. 20 BY MS. FLOWERS: 21 Q. So it's sort of a first step? 22 A. It's a first step. 23 Q To see where you going? 24 A. Yes. And it's exploratory and it's 25 probably the closest to having a one-on-one Page 156 qualitative research. We were la~ing to appeal particularly to 18- to 24-year-old adult smokers. And we found that the use of the illustrated camels in that campaign got people's attention, got out target audience's attention and they found it interesting, very appealing and it suggested that Camel wasn't this tired old harsh brand that was their perception. So we went forward with that campaign. We also were very concerned because Camel had a fairly old franchise, a lot of loyal older conversation in this case with smokers. Quantitative 2 usually encompasses 100, 200 or more smokers and it's 3 usually done using a very tight questionnaire and it's used to make decisions on the effectiveness of, 5 in this case, campaigns or advertising executions. 6 Q. You said Trone came up with the 7 illustrated camel Did they get the account? 8 A. No, they did not. 9 Q. Did Zena Brown get it first or Young and 10 Rubicon got it first? 11 A. McCann. smokers smoking the brand. We wanted to make sure that we didn't alienate them. So we checked the campaign among Camel's older franchise and found that it was very appealing to them aswell. So we went forward with that campaign and the results were very positive as I recall. We got such positive feedback from the marketplace that we decided to turn this promotional event into an ongoing campaign. Q. In looking at the older smokers, did you do any tracking afterwards to see whether you lost any of them after the introduction of Joe? A. I wasn't with the company at that time. Again, I was in the development enmpany, so I'm not sure exactly what they did. My guess would be, yes, 12 Q. MeCann? A. McCann had the account and they 14 maintained it. 15 Q. You also mentioned borrowing on a promotional piece in Europe. Is that the French 17 camel? is A. It's -- yeah. I think they refer to 19 it -- some refer to it as the French camel because 20 apparently it was used in Franoe. It was an 21 illustrated camel that was used on a poster or 22 something in France. 23 Q. With a spike haircut or something? 24 A. No, no, no. No. It was not unlike what 25 was ultimately used for Joe Camel. If you're A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 153 - Page 156

IAUCO, DAVID CondenseltTM MISSISSIPPI TOBACO LITIGATIO} I 3 4 5 6 7 9 10 11 13 1`1 t7 18 ]9 20 21 22 23 2,1 Page 157 referring to a focus group mpon where a spike haircut was used, that was, to my knowledge, very different. In fact, my moollection is, during the period of that development, is that agencies came in with lots of different illuslrations and some of which -- when we found that we got a pretty good initial reaction to using the illustrated camel, several different agencies began to work in this arena. And some produced illustrated camels that were ~anldy rather adolescent and we rejected those. That wasn't what we were trying to -- who we were Uying to appeal to. In fact, it would have -- Page 15~ ~ frequently. 2 Q. I believe that yot;'ve previously 3 testified in the Conner and the Keuper eases that ~g 4 is not attempting to induce anyone, young or old, to 5 begin smoking; is that correct? 6 A. That's correct. 7 Q. Would you say the same is true in the S international market? 9 A. I don't really know. I'm not responsible l0 for lhe international marketing. I I Q. When you were senior vice president of 12 worldwide business development, wasn'.t that one of it had the wrong connotation associated with it. Q. Just for my understanding, is Old Joe the old dromedary? A. Yes. Q. Does Joe Camel and his hard pack, do they appear on billboards? Q. Are any of them placed within 500 feet of schools? A. We've had some instances where they were. Q. Would this be a violation oftbe voluntary code? A. Yes, it would. 13 your concerns? A. No. I had no direct responsibility for 15 the international marketing of any product. I was simply part of an organization to help coordinate the development of the Eclipse proposition internationally, which meant coordinate product 19 development, coordinate advertising development for 2o that particular brand, that particular product. Q. Who would be the person most 22 knowledgeable about PdR's marketing efforts 23 worldwide? 24 A. I don't really know who would be the most 25 knowledgeable. Page 158 1 Q. Can you tell me what action, if any, was 2 taken by Reynolds to remedy that? 3 A. Any time that we've been made aware of ,1 billboards that were out of compliance, we have 5 immediately removed them and we've reinforced with 6 the outdoor suppliers that these are the provisions 7 of the code and we hold them accountable to abide by 8 them. There are literally thousands of billboards 9 around the company -- the country, excuse me. And it 10 just would be physically impossible for us to monitor 11 every one that goes up every month. So we have to 12 make it clear to the outdoor suppliers what our 13 criteria are and then we monitor what we can and ~,1 we're not perfect in this regard. Sometimes we have ~5 one that is within the 500 feet restriction. All we 16 can do is remove it. 17 Q. But does Reynolds have control over where IS it places its billboards? Do you buy that space? 19 A. We do not go and pick specific locations 20 in every market. We buy a showing from the outdoor 21 suppliers, coverage of the market. And then they go 22 out and pick the locations. 23 Q. And there's just too many for you to 24 monitor them? 25 A. That's correct. They change, too, Page 160 1 Q. Have you observed anything tha~ would 2 lead you to believe that Reynolds marketing worldwide 3 has been somewhat more aggressive than perhaps, say, 4 in the United States? 5 A. Aggressive? Aggressive in which way? 6 Q. Aggressive, let's take toward the 7 underage segment, 8 A. No. But ] don't -- I haven't observed a 9 lot of their activities. 10 Q. Are you aware of any breaches of tbe ad 11 code outside the United States? 12 A. I don't believe that they subscribe to ~3 the U.S. Ad Code internationally. They have, I'm ~4 sure, their own provisions and their own codes. 15 Q. Do you know whether RJR self-regulates ~6 outside the U.S.? 17 A. Yes, I believe they do. ~z Q. What do you base that on? 19 A. I've seen position statements from 20 Tobacco International relating to marketing 21 practices..I can't quote them because I, you know, 22 haven't studied them. 23 Q. Have you ever seen any company documents 24 or attended any company meetings where the expansion 25 of the global market was discussed? A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 157 - Page 160

IAUCO, DAVID CondensoltTM MISSISSIPPI TOBACO LITIGATIO~ P~e 161 l A. Expansion of the global market? I don't 2 know what you mean by that. 3 Q. DO you know what I moan by expansion of 4 markets? ~ A. With/n the context of international? 6 Q. Within any context, first, and then we'll 7 go to international. 8 A. Well, no, I'm not su~ what you mean. 9 Q. Have you ever seen any company documents tO or been to any meetings where they discussed trying 11 to expand their markets, get more smokers, get a [I2 bigger chunk of the smokers worldwide? 13 A. I have been in meetings where we have 14 discussed increasing our market share of the adult 15 smoker market worldwide, yes. 16 Q. How about the adolescent market t7 worldwide? IS A. No. No. And I -- 19 Q. How about the pre -- the adult non-smoker z0 worldwide? 21 A. No. Never. Z2 Q. I want to show you a book that actually ~3 came out the year you started with R. J. Reynolds. 24 At the risk of violating copyright laws, I'd like to 25 place it the - as an exhibit, Exhibit Number 12. 1 2 3 6 7 $ 11 12 13 1,4 15 16 17 19 20 21 22 23 25 Page 162 Pag~ 163 l domand for cigarettes is growing. And I read this as 2 we intend to compete in that marketplace and get a 3 sham of it. 4 Q. Arc you aware of ~c inercascs in 5 cigarette consumption worldwide? 6 A. Yes. 7 Q. Have you seen any figures on the S increases in adolcscem smoking worldwide? 9 A. No. I0 {~. If Reynolds was Uying to stimulate new 11 markets or induce people to smoke in other countries, 12 would that b~ consistent with the positions you've 13 previously expressed? 14 MR. MCDERMOTT: I object to the form of ]5 tho question, but you can answer. It's hypothetical 16 and calls for speculation. 17 THEW1TNESS: NO. Itwould be IS inconsistent and I've not seen any indication that 19 that's what we're doing worldwide at all. 20 BY MS. FLOWERS: 21 Q. Do you know if RJR cigarettes am 22 available in Argentina? 23 A. I really don't know. 24 Q. Are you familiar with the mature market 25 hypothesis? Page 164 MR. MCDERMOTT: off the record. (Off-the-record conference.) (EXH. 12, R. I. Reynolds, Our 100th Anniversary, was marked for identification.) BY MS. FLOWERS: Q This is a book entitled: Our 100th A. You'll have to explain that to me. Q. Just yes or no? A. No. MR. McDERMOTT: Did you say mature market hypothesis or mature product? MS. FLOWERS: Mature market hypothesis. Q. In your opinion, has Nascar promotions Anniversary, 1875 to 1975. You'r~ welcome to look at fl~ whole book if you like; bu~, for the moment, I would just direct you to page 24, right-hand colarnn, all tha way down. "PJR brands arc now available in more than 140 countries. Although accurate figures arc hard to come by, cigarette consumption outside tha United States is estimated to be 2,000 billion annually -- four times tl~ U.S. figure -- and this growing international market is on~ Reynolds plans to make tha most of." Did I read ",hat con'~etly? A. Yes. Q. Do you have any knowledge about whether ~R executed tha plan that's mention bere, tha plan to make the most of the growing market? A. Well, there's no plan indicated here. What they're -- what this simply says is that the market outside tha U.S. is growing. It's huge. And 8 been a success? 9 A. Yes. 1o Q. For which brands? 1] A. First of all, it's Nascar sponsorship. 12 For the Winston and, more recently, for Camol. 13 Q. In fact, you guys bring a camel sometimes 14 out to the race tyack, don't you? 15 A. I don't know if we've done that. 16 Q. That wasn't ~our idea? 17 A. No. Q. Do you believe that there w~s any 19 violation of the ad code when Nascar promotions am 20 aired on television? A. Nascar promotions? 22 Q. I'm sorry. The Nascar races with the 23 Winston emblazoned on the stickers and caps and 24 billboards. 25 A. No. When the Nascar races am aired on A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800=743-DEPO Page 161 - Page 164

IAUCO, DAVID 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 CondenseltTM Page 165 television, that's beeanse there is a demand. 1 There's a huge following for these stock ear races 2 and they're aired on television because people want 3 to watoh the race. We do not make any effort -- in 4 fact, we make efforts to try to lr~Vent any signage 5 that we have from appearing on television during the 6 MISSISSIPPI TOBACO LITIGATION Page 167 ~ng to ~ac.h. Q. When they'.re wearing the caps with Winston on iS, you don't think 1hat's sponsorship? A. When who is wearing the caps? Q. The race ear drivers. A. When they're wearing Winston Cup caps? course of those races. Q. None of that was calculated? A. It's euleulated to decrease the chances of our logos being eovered on television. Q. l'm sorry. Is it your testimony that Reynolds has lried to decreased exposure to the Winston brand in the Nasear sponsorships? A. Yes. Q. When did this occur? A. It's occurred over the time that I've been associated with these sponsorships. During the course of -- when they were a part of my responsibility, I recall having a number of meetings 7 Q. Uh-huh. 8 A. That's the name of the evont. Doesn't 9 say Winston ciga~tes. 1o Q. So the distinguishing factor is because 11 it says cup after Winston? 12 A. It's not an advertisement for Winston 13 cigarettes, lt's the narne of the event. 14 Q. Do you think brand image is affected by 15 sponsorship? 16 A. Brand image is expected? 17 Q. No. I'm sorry. Affected. 18 A. Affected? I think that there's a rub-off 19 to the attendees and the enthusiasts that is where, because there were charges that we were trying to get "iv coverage of our brand names, we purposely looked at every aspect of our signage and removed signag¢ that we believed was going to be in camera angle if it was being covered, if it was a televised event. So, you know, wc have attempted to minimize Page 16~ 1 it. That's not why we sponsor those activities. 2 Q. But it was changed after it was 3 criticized? 4 A. It was changed when we became aware that 5 it was being criticized, yes. That someone was 6 claiming that the reason that we sponsored these 7 events was to get on television, which was never our 8 intent. 9 Q. Is race ear driving a sport? I0 A. Sure. II Q. Do you believe that race car driving 12 would consistent a sports or celebrity testimonial 13 with an appeal to persons under age 21 as defined in !14 the code? '15 A. No, I don't believe it violates the code 16 at all. 17 Q. What do you base that on? You don't 18 think kids like race ears? 19 A. The attendfes at these events are very 20 much primarily over the age of 21. I don't recall 21 the exact figures, but there's no question that the 22 majority of them are over the age of 21. Andwe 23 don't have our brands endorsed by the drivers. We're 24 simply sponsoring an event that is a lifestyle 25 activity of the audience of adult smokes that we are 20 positive. That Winston supports a lifestyle activity 21 that they like. And it enhances their opinion of 22 Winston as a brand. 23 Q. What about the Winston Rodeo? Would that 24 enhance the brand image? 25 A. I doesn't know. It was kind of before my Page 168 l time. I never dealt with it directly. 2 Q. Do you think video simulators, l'tkc the 3 one that was described in Race Smokes, enhance your 4 brand image? 5 A. Not really. They're just an activity 6 lhat we have at the -- are you talking about 7 simulator that we have at the races? 8 Q. Uh-huh. You simulate driving a car, a 9 race car; right? 10 A. No, no. You sit in a theater actually 11 that moves. Adults can come to our simulator. Maybe 12 we ought to check and see what you're referring to. 13 Q. Yes. Maybe we're talking about two 14 different things. 15 A. You're talking about Race Smokes, this 16 document? 17 Q. Yes. I was talking about this, quote, 18 exciting ear race video, jam packed with cigarette 19 ]ogos. It's a simulator. You start out on a roller 20 coaster and you go, like, different rides." Does 21 that affect brand image? 22 A. I don't think so. It's an activity that 23 we have at the events where adult smokers can come 24 and experience this and it's just part of the -- part 25 of the event and our presence at the event. A. WILLIAM ROBERTS, JR. & ASSOCIATES I-g00-743-DEPO Page 165 - Page 168

IAUCO, DAVID Con& ~seltTM MISSISSIPPI TOBACO LITIGATIO~ Page 169 1 Q. Are you saying kids aren't allowed to 2 engage in this race car video? 3 A. I believe that -- I believe it's 4 restricted to adults. I am not sure, again, because 5 this isn't reader my supervision fight now. I'm not 6 sure as to whether or not we totally restrict it. 7 For example, if a paint has a child with them. Lynn 8 Beasley would know. That's part of her 9 responsibilities. 10 MR. McDERMOTT: Mr. Colingo has to leave. II Can we break for one minute? I need to talk with him 12 about one thing before he goes. 13 MS. FLOWERS: Okay. 14 (A rec~s ~'anspired.) 15 BY MS. bLOWERS: 16 Q. Mr. Iauco, in your view, ere video 17 games -- is playing video games an activity that tS ehild~n enjoy? 19 A. Yes. 20 Q. Are you aware that certain of R. J. 21 Reynolds brands appear in video games? 22 A. I'm aware that they have in the past. 23 We've made every attempt to eliminate them. We have 24 never made any oven attempt for the appearance of 25 our brands in any video games that I'm aware of. Page 170 Page 171 1 Q. Are you fantiliar with the video game 2 Chase HQ? 3 A. No. 4 Q. It has Winston in it. What about the 5 video game Final Lap? 6 A. No. 7 Q. So you weren't aware that it has Camel in $ the game? 9 A. No, I'm not familiar with that game. 10 Q. Who at Reynolds would be responsible for l I following up on this type of thing? 12 A. Our legal department. Our law 13 department. 14 Q. To your knowledge, has any inquiry been 15 made with respect to the two games l just mentioned? 16 A. I don't know specifically for these 17 games. I am familiar that, in the past, when wc have Is found out that our trademarks or loges are being used 19 in video game programming, wc have turned that over 20 to our law department and they have vigorously 21 pursued correcting that situation because wc have no 22 interest in the use of our trademarks in that manner. 23 Q. And why is that? 24 A. Because we don't like our trademarks 25 being used unless authorization is given and we have I Q. How did they get in there? 2 A. Whoever designed the game put them in. 3 Q. Have you ever played one or do any of 4 your kids play them? 5 A. Sure. 6 Q. You know how they advance in levels and 7 get more difficult as you go on? 8 A. Depends on the game, I suppose, but, 9 yeah. ~0 Q. Some of them have different levels? 11 A. Yes. 12 Q. Have you noticed with some of the games 13 that the farther you get into it, the more cigarette ~4 ads there appear to be? 15 A. No. Pve never played any games with 16 eigaret~ ads in lhcm. 17 Q. So to the extent that they've been ~s brought to Reynolds' attention, is it your testimony 19 tlmt they've -- that it's been remedied? 20 A. The ones that we're aware of, we have 2t tried to remedy them. There's been unauthorized use 22 of our trademarks. 23 Q. Have you brought any actions against the 24 video game companies? 25 A. I'm not sure. Page 172 no interest in having those trademarks being -- being 2 in a setting where they're not geared to adults. It 3 brings down a great deal of criticism and we have no 4 interest in that. 5 Q. Other than the State of Mississippi case, 6 are them any other cigarette litigation cases that 7 you presently anticipate testifying at? 8 A. Yes. 9 Q. Could you list those for me, please? 10 A. I can't -- I can't give you a 11 comprehensive list, but I know that in the State of New York, in Florida and I think there are a couple 13 others. 14 Q. Are they all Medicaid reimbursement actions like the one we're here for today? 16 A. Some are and also some individual smoking and health cases, such as Conner. 18 Q. Do you anticipate testifying in the 19 Conner case? 20 A. Yes. 2| Q. What have you reviewed in conjunction 22 with that testimony? 23 A. I believe that I reviewed the complaint 24 and I reviewed some old advertising and documents, 25 but it was some time ago when I gave a deposition in A. WILLIAM ROBERTS, YR. & ASSOCIATES 1-800-743-DEPO Page 169 - Page 172

IAUCO, DAVID CondgnsgltTM MISSISSIPPI TOBACO LITIGATION 2 3 4 6 7 8 9 l0 11 12 13 14 16 17 18 19 2O 21 22 23 24 25 1 2 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Page 173 that ease. Q. Have you re:viewed anything since you gave the deposition in that case -- A. Not for that case. Q. -- relative to that cas~? A. Not for that case. MS. FLOWERS: Give nm just a minute. MR. McDERMOTF: We didn't take a real broak. Do you want to take a real break or is this is just a pause? MS. FLOWERS: This is just a pause. MR. McDERMOTT: I was trying to ask a Page 175 couple of follow-ups on Conner, but I can come back to it later. Q. Dces P.2R segn~=nt tbe market? A. Yes. Q. Is there a youth segment? A. No. Q. Arc you familiar with -- you know Ed Horegon is? A. Yes. l A. Yes. 2 Q. Do you anticipate a change in this in 3 light of your revised policy? 4 A. No. One of the -- from a tracking 5 perspective, we continue to track 18 and above 6 smokers, 18-plus years of age, in order to track our 7 business. From the standpoint of marketing research s that we do on campaigns, on promotions, positioning 9 our brands, we start at age 21 and above. But we do lO track all legal adult smokers. 11 Q. But no one younger than 18? 12 A. No. We don't currently track anyone Q. He testified before Congress in 1983: "We segment the market and the segmentation we use in our market to develop marketing strategies. I will make the point very clearly here that not one of those Page 174 markets, and there are many, is the youth segment." That's consistent with what you've testified; right? There is no youth segment? A. I didn't say that. I said that -- I believe you asked me wbether tbere was a youth segment within the context of our marketing segments. Q. Uh-huh. A. And I said, no, wc don't consider that a segment that wc target or market to. That's what I meant anyway. There arc many different ways to segment the market. You can segment by age. We only look at the adult age segments in the market. You 13 below the age of 18, to my knowledge, except if it's 14 in regard to some, you know, charge that's been 15 leveled against us that we need to respond to. 16 Q. The works you referred to earlier? 17 A. Non-marketing. Yes. 18 Q. Do you know whether the camel dromedary 19 appears on yellow caution lights in Eastern European 20 countries? 21 A. I don't know for a fact, no. 22 Q. I'd like to read ybu the statement of 23 Walker Merryman from the Tobacco Institute and ask 24 you if you agree with what h¢ said. Let me get the 25 exact quote. Transcript of Live Five News Center can segment by brand choice, by psyebographics, by geography. All of which we do among adult smoker segments for marketing purposes. Q. What is a YAS? A. Young adult smoker. Q. You don't consider that a youth segment? A. No. Young adult. Typically refers to 1 g- to 24-year-old smokers. Q. Do any of the contract companies who look at your demographics for you, like Marc, do they look at any 18- to 24-year-old segments? A. I'm sorry. Do they look at? Q. Do they track the 18 to 24 year olds? Page 176 1 Report with Diane Atwood. Don't find the date of 2 this. I'm sorry. It's not dated. Be Iaueo Exhibit 3 Number 13. 4 (EXH. 13, Transcript of Live Five New 5 Center Report with Diane Atwood, was 6 marked for identification.) 7 MR. McDERMOTT: Do you have an 8 approximate date on this, Jodi? 9 MS. FLOWERS: I think it's in the '80s, 10 but I would have to get back with you on the exact 11 date. If you'd like, we can supplement it for the 12 record. 13 Q. I wondered if you agreed with the 14 statement on page 3 by Walker Merryman. If it was 15 legal to sell to them, I would be glad to. Do you 16 think that's a morally sound position? A. Sell to who? Hold on. 18 Q. He's talking about kids. You see the top 19 of page 3? 20 A. Yeah. But I'd like to know who he's 21 referring to. 22 Q. Okay. 23 A. I don't know who he's referring to. 24 Q. He's referring to minors on the page 25 before. You can -- A. WILLIAM ROBERTS, JR. & ASSOCIATES I-g00-743-DEPO Page 173 - Page 176

IAUCO, DAVID CondenseltTM MISSISSIPPI TOBACO LITIGATION A. So below 18, I suspect? Q. Yes. A. If I read this as he's referring to below 18? Q. I think that would probably be a safe Page 177 Page 179 1 Worst '96 PR Gaffes, Dated December 30, 2 1996, was marked for identification.) 3 BY MS. FLOWERS: 4 Q. Can I direct your attention to Number 2 5 on page 1, which reports a quote from, I believe, 2 3 4 5 6 assumption, although it's unclear. They just say 7 minors and then they say the ages of 12 and 17,just S prior to his statement. 9 A. And your question is? l0 Q. My question is if it's a morally sound 11 position in your view, "if it was legal to sell to 12 them, I would be glad to. But it's not." 13 A. I've got a problem with that. I think 14 that -- I got both an issu~ from an ethical 15 standpoint as well as a business problem with that, 16 business standpoint. I think it would be wrong to 17 sell to kids because I don't believe that they're 18 capable of making an informed decision regarding 19 cigarelle smoking. And in this society, we've zo determined that 18 is an age where they're more Zl capable of making that decision. So I've got a 22 problem with that statement. 23 From a business standpoint, I think it's 24 wrong, too. Because I think that it would bring down 25 more of the kind of restrictions that are being 6 former RJR chairman, Charles Harper. Who was asked 7 about the effects of secondhand smoke. "He said that S if children don't like to be a in smoky room, they'll 9 leave. Told that infants can't leave, he said, at 10 some point they will learn to crawl." 11 My question is whether this is a morally 12 sound position in your view? 13 A. He apologized for that statement. I was 14 there and it was a very, very contentious meeting. 15 And, frankly, tempers were flaring at that meeting. 16 And later on, he got -- he went to the microphone and 17 apologized for making that statement the way he did. ! 8 But he was trying to make a point, a different 19 point. 20 Q. But he did make the statement? 21 A. He made the statement, yes. And it was 22 unfortunate and he agreed that it was unfortunate. 23 Q. Would you agree with Helmut Waken of 24 Philip Morris when he said, anything can kill you, 25 even too much apple sauce, when asked about Page 178 1 proposed for tiffs industry, that would get in the way 2 of our ability to market our products to adult 3 smokers, which is our intent. I also think that it 4 would be very difficull, ffnot impossible. I'm 5 assuming by this he's suggesting that we would -- 6 he's talking about legal to sell to them. Anyway, 7 I've got a problem with it. S Q. Okay. 9 A. I do not agree with it. l0 MR. BEACH: MS. Flowers, is this a II transcript of the entire segment? 12 MS. FLOWERS: uh-huh. 13 MR. BEACH: ~rom beginning to end? 14 MS. FLOWERS: oh-huh. 15 MR. BEACH: Thank you. " 16 MR. MCDERMOTT: You're going to try to 17 gc~ us a date on that, though? IS MS. FLOWERS: Yes, I will. 19 MR, McDERMOTT: okay. 20 MS. FLOWERS: Next, I'd like to enter 21 an "Airline, Tobacco Pusher, Bmcaucrats, Baseball 22 Top List of Worst '96 PR Gaffes. It appears to be a 23 PR news wire. This will be lauco Exhibit Number 14. 24 (EXH. 14, Airline, Tobacco Pusher, 25 Bureaucrats, Baseball Top List of 10 Page 180 1 cigaretles and disease? Do you think that's a fair 2 comparison? 3 A. I don't know. 4 Q. What about twinkles? 5 A. What about them? 6 Q. Do you agree with PJR's Jan~s W. 7 Johnston, who told Congress that nicotine was only as 8 addictive as twirddes? 9 MR. McDERMOTT: well, let me object to 10 the form of the question. I don't ~hink that's a 11 precise or accurate quote, but you may answer. 12 THE WITNESS: My understanding is that 13 IVil'. Johnston was talking about how the definition of 14 addiction had changed and was no longer precise, to 15 the point that people say that they're addicted now 16 to all kinds of products and activities. And my 17 understanding is that within the context of his 18 remarks, he suggested that some people claim to he 19 addicted to twinkies. And that it was in this 20 respect that how the definition of addiction was no 21 longer a medical definition, that it has been 22 distorted and that it's -- it's very difficult to 23 answer the question as to whether cigarettes are 24 addictive when there's no longer a clear definition ,25 of what constitutes addition. A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 177 - Page 180

IAUCO, DAVID CondenseltTM MISSISSIPPI TOBACO LITIGATION P~ BY MS. FLOWERS: Q. Are you familiar with the 1955 report of the surgeon general? A. I have some fam/liarity with it. Page 183 Q. Yes. I'm sorry. A. First column. Q. I'm sorry. A. I don't think we've breached any social l 2 3 4 5 Q. Have you read the report or its 6 conclusions? 7 A. I've read portions of the report, but not 8 ~oently. 9 MS. FLOWERS: Make this Wall Sffoet 10 Journal article, Big Spender Finds anew Place to I I Spend, lauco Exhibit Number 15. 12 (EXH. 15, Article Titled: Big Spender 13 Finds a New Place to Spend, was marked 14 for identification.) 15 BY MS. FLOWERS: 16 Q. I would direct you to the third column, 17 filet paragraph, quote -- excuse me just a minute. 18 Do you know who F. Ross Johnson is? 19 A. Yes. 20 Q. Can tell me briefly who he is? 21 A. He was a previous CEO of RJR Nabisco. 22 Q. Quote, Mr. Johnson says flatly, "Of 23 co~xrse it's addictive. That's why you smoke the 24 stuff." DO you agree or disag~e with the statement 25 of Mr. Johnson? Page 18] 5 responsibility with the Joe Camel campaign. 6 Q. So you do have a social responsibility? 7 A. Again, it sounds like some kind of a 8 legal term. 9 Q. I assure you I didn't mean it as one. So IO you disagree with the -- 11 A. I disagree with Ranoe Crain's point of 12 view. I think this is written from the viewpoint of 13 someone that doesn't understand this industry and 14 someone that does not want to bring heat onto the 15 entire advertising industry. And that I think he is 16 misguided in his point of view. 17 Q. Is Ad Age a fairly well-respected 18 publication? 19 A. Respected? It's a general -- it's a 2o general publication. 2] Q. Do you subscribe to it? 22 A. No. 23 Q. Is it something that Reynolds' marketing 24 or advertising departments look at regularly? 25 A. Occasionally, we do. A. Depends on what the definition of addiction is. Q. Ax~ you aware of any criticisms of Joe Camel? A. Sure. MS. FLOWERS: rd like to mark as Iauco Page 184 2 3 4 5 6 7 Exhibit Number 16 an editorial from Ad Age called Old 8 Joe must go. 9 (EXH. 16, Editorial, Old Joe must go, was I0 marked for identification.) II BY MS. FLOWERS: 12 Q. I'd like to read to you from the first 13 column, at the hottom, last paragraph: RJR is wrong 14 and is courting disaster with these ads. 15 DO you agree or disagree with this 16 editorial? 17 A. I disagr~ with it. 18 Q. How about in the next column where they 19 say, the company has crossed the divider between its 20 legal right to advertise and its unique social 21 responsibility to the general public? Do you feel a 22 social responsibility to the general public? 23 A. I'm sorry. Where is this? 24 Q. It's-- 25 A. The same paragraph. 1 Q. Did P, JR respond to this urging from Ad 2 Age to drop Joe Camel? 3 A. No. We disagreed with it. 4 Q. Would it be acceptable to advertise 5 cigarettes in comic books? 6 A. Today? No. 7 Q. Ever? 8 A. I don't know ever. 9 Q. Okay. Well, let's take today first. 10 Today is no. 11 A. No. 12 Q. What about 1975? 13 A..1 don't know. Perhaps if you had adult 14 comic books. Depends on who the readers are. 15 Q. Do you know many adults that subscribe to 16 comic books? 17 A. That read comic books? 18 Q. Or buy? You don't subscribe to them. 19 A. Ycah. Not currently. I've known adults 20 that read adult comic books in the past. 21 Q. Are comic books aimed at adults, do you 22 think? 23 A. I think some are. The majority of them 24 are not. 25 Q. Can you tell me what the phrase emerging A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 181 - Page 184

IAUCO, DAVID CondenseltTM MISSISSIPPI TOBACO LITIGATION 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Page 185 adult means to you? A. Sounds like adolescence. Q. Have you ever seen any internal Reynolds' documents that refer to teenagers as replacement smokers? A. I don't -- I can't ~¢~11 seeing documents referring to replacement smokers. Q. Would you have been shocked ff you had? A. Shocked? No, not shocked. I would say -- well, it depends on the context. Q. Is the 18-ycar-old cutoff an arbitrary one? A. I don't know what you mean by arbitrary. There's nothing scientific about it. But 18 is the Page 187 1 tape, so I would suspect that if we don't have the 2 whole thing, we may need to uy to track it down. 3 But we'll be happy to provide you with a copy of the 4 tape if you like. But we will check with the court 5 reporter. 6 MR. BEACH: I would appreciate that. 7 Thank you very much. S (Off-the-record conference.) 9 BY MS. FLOWERS: 10 Q. Mr. Iauco, do you have any knowledge that l ~ your competition, Philip Morris, has studied 12 hyperactive third graders to try to determine wheU~r 13 they would appreciate "the advantages of ]4 self-stimulation via nicotine"? age at which our society has deemed the public as being old enough to vote for the pmsidont of the United States and for Congress and congressmen, to be able to make informed choices such as that. And, therefore, I think it has some relevance in terms of being able to make choices regarding cigarette smoking. Anyway, it seems as though there's general agreement to that. So in that respect, it's not arbitrary. I think it's the majority of -- our public seems to believe that 18 is an age where people can make decisions regarding smoking. Page 186 Q. Would you agree that some 18 year olds are mor~ mature than other 18 year olds? A. Sure. Some 45 year olds are more mature than others. MR. McDERMOT'f: Dave, you want to take a five-minute before we enter the gun lap? We've been 15 A. No. 16 Q. Would this shock you? 17 A. It would surprise me. 18 Q. In your view, are children vulnerable? 19 MR. McDERMO'Fr: TO what? 20 THE wrrNESS: TO what? Ycah. 2] BY MS. FLOWERS: 22 Q. Are they more vulnerable generally than 23 adults? We'll take cigarette advertising if you 24 like. I was trying to get a general question. Are 25 children more vuluerablc to cigarette advertising Page 188 than adults? A. You mean in terms of somehow it's inciting them to Uy smoking? Q. No. I mean in terms of just liking bright colors and liking cartoons, being am'acted to certain images. 1 2 3 4 5 6 7 at it a long time. 8 THE wrrNESS: okay. ] think I will. 9 MS. FLOWERS: MI right. l0 (A recess transpired.) I l MR. BEACH: Jodi, excus~ me, Ms. ]2 Flowers. As I look at Exhibit 13, it appears to me 13 to perhaps not be a complete transcript of ~ news 14 segn3~nt from which it is taken. SO I would simply 15 ask on the record that you go back and/or have 16 someone under you check the transcript against the 17 tape oftho segment and verify whether in fact it's a ]8 complete transcription of that segment. And if it's 19 BOt, have the complete segment transcrihed and 20 deliver it to the court reporter so that it can bc 21 included in place of the current Exhibit 13 that's 22 been marked. 23 MS. FLOWERS: I have no problem with 24 that. To the best of my recollection, we had the 25 court reporter transcribe everything that was on the 7 A. ] don't really know. 8 Q. Have you or any other POR employees that 9 you know of referred to adolescents as vulnerables in I0 any written memoranda that you've seen? II A. I don't -- not that I know of. 12 Q. Have you ever seen any other documents, 13 perhaps from other companies, in which adolescents 14 are referred to as vulnerables? 15 A. I don't recal! ever seeing any documents 16 to that extent. 17 Q. What would you think the purpose of a " ]8 document entitled "young smokers, prevalence, ucnds, 19 implications, and related demographic trends" would 20 be? 21 A. ] don't know. 22 MS. FLOWERS: I'll mark as ]auco Exhibit 23 17 the document I just referenced. 24 (EXH. 17, Report Titled: Young Smokers, 25 Prevalence, Trends, Implications, and A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800~743-DEPO Page 185 - Page 188

IAUCO, DAVID CondenseltTM MISSISSIPPI TOBACO LITIGATION 1 2 3 4 5 6 7 8 9 10 II 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Page Related Demographic Trends, Philip Morris, Dated March 31, 1981, was marked for identification.) MS. FLOWERS: Got an exWa one if you want it. MR, BEACH: Thank you. BY MS. FLOWERS: Q. Have you ever seen this document before, Mr. lauco? A. No. Q. Would you be surprised to learn that Page 191 A. No. Q. Would you.be shocked to learn that Lorillard, who was the manufactur~ of Newport, wrote in 1978, third paragraph, "the base of our business is the high school student"? A. No, I'm not shocked by it. It's obviously one person's - it's one memo from one person, and I don't know what the context of this is. Out of the thousands of pages of documents that are produced in any company, thcr~ is always the chance that someone is going to be misinformed about Philip Morris, in tiffs document, laments the decline of teenage smokers? A. I didn't know. I don't know what the document is all about, in what context they may have -- may or may not have stated that. Q. Would it surprise you -- A. I would really have to read the whole document. Q. ] understand that. I know we don't have time for that today. Just a couple of quick questions. Would you be surprised if you read in the docament that Philip Morris claimed it would suffer from the lack of new teenage smokers? A. Would I be surprised? Page 190 1 Q. Uh-huh. 2 A. If they're referring to under 18, I think 3 that would be a mistake. 4 Q. Can you tell mc what you ~ink the 5 purpose of a memo entitled: Smoking among high 6 achcol seniors might be? 7 A. I have no idea. 8 Q. Can you render a guess what the contents 9 might discuss? 10 MR. McDERMOTT: object. Calls for II speculation. We're getting pretty far afield here. 12 BY MS. FLOWERS: 13 Q. Have you ever seen any documents from the 14 Lorillard Corporation? 15 A. No. We don't normally share documents in 16 this competitive industry. 17 MS. FLOWERS: l'd like to mark as lauco 15 Exhibit 18 the memorandum of August 30, 1978 from 19 T.L. Acbey, A-c-h-e-y, to Mr. Curtis Judge. 20 (EXH. 18, Mcmorandom to Curtis Judge from 21 T.L. Ache3', Dated August 30, 1978, was 22 marked for identification.) 23 BY MS. FLOWERS: 24 Q. I take it you've never seen this document 25 before? 12 policy or insensitive to ~c company's policy and put 13 things down on paper that are contrary td policy. This may be one casc of that. So l can't say that 15 I'm shocked by it. It appears to be insensitive to 16 the youth issue in our business. 17 Q. If you saw other similar references about 18 the samc brand, Newport, would that change your opinion at all that it may be some mistake? 20 MR. McDERMOTT: well, if you're asking 21 him to speculate about Lorillard policy, I'm not sure 22 thal this witness or any Reynolds witness is in a 23 position to do that. If you can answer the question, 24 go ahead; but, you know, this is -- it's real hard 25 for him to talk about a document hc hasn't seen and a Page 192 1 company hc doesn't work for. 2 MR. BEACH: In addition, I'd like to 3 object to the form of the question to the extent that 4 it misstates Mr. ]auco's prior testimony. 5 BY MS. FLOWERS: 6 Q. Is it offensive to refer to high school 7 students as the base of your business? 8 A. They're not talking about my business, 9 about my company, about -- 10 Q. I realize that. 11 A. -- our brand. And I don't know whether 12 ~is reflects their company's policy or procedures. 13 Q. If it did, would it be a violation of the 14 code? 15 A. Would what be a violation of the code? 16 The code does not set policy. It sets advertising 17 and promotional criteria for the industry. 18 Q. Isn't one of the messages of the code 19 that wc wouldn't target people under 217 2o A. Yes. That we don't want youth to smoke. 21 So it is contrary to that statement within the code. 22 But one statcmcnt like this, again, out of tbe, I'm 23 surc, the thousands of pieces of correspondence, I 24 don~t know what to make of it. 25 Q. 1 assure you there arc more, but time A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 189 - Page 192

IAUCO, DAVID CondenseltTM MISSISSIPPI TOBACO LITIGATION 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Page 193 dnesn't permit. We talked earlier about promotional programs in terms of the ciga~tte code and the giveaways, the gadgets, the T-shirts, the goodies. And I believe, and cor~ct me if I miss~te it, but I believe your ~stimony was that it's against Reynolds' policy to ~y and get *hose types of things in kids' hands? A. That's correct. Q. Do you know whether the other companies adhere to a similar policy? A. I don't really know. I would expect that they would. Q. Beg my indulgenee. I'm going to ask you about one more. lauco Exhibit 19, Malboro Resort Program for 1982, Daytona Beach, Florida, March 8 Page 195 ! and moving. It was a nice item for the children who 2 were too young to participate in the contest. 3 This author is talking Marlboro 4 footballs. In your view would the use of Marlboro 5 footballs given to children to play with, would that 6 be a violation of the cigarette industry,s 7 advertising code? 8 MR. MeDERMO'ffI': Let me just interpose an 9 objection that he's not had an opportunity to read l0 the entire document and, of course, it's another I 1 company's document. So I'm not sure ~at -- I'm not 12 sure what basis he has to render any opinions; but if 13 you can do so, feel free. 14 THE WITNESS: I don't know what to make 15 ofthis. I don't know who wrote it. It appears to thru April I0, 1982. (EXH. 19, Malboro Resort Program for 1982, Daytona Beach, Florida, March 8 thru April 10, 1982, was marked for identification.) BY MS. FLOWERS: Q. This do~t cl/s~usses the promotional activities of Marlboro at Daytona Beach during this period. And I'd ask you to look at -- well, the 16 be -- ff when ~ey refer to children, they're talking 17 about under the legal age to purchase cigarettes, then it appears to be in violation of the promotion 19 code. Although this is when, 1982? 20 BY MS. FLOWERS: 21 Q. Uh-huh. My question is just the quote, 22 it was a nice item for the children who were too 23 young to participate in the contest. Is ~hat, in 24 your view, first, a violation of the code, which I pages aren't numbered. So Bates Number 2045385465. Page 194 l It's about six pages. Are you with me? 2 A. (Nodding head.) 3 MR. McDERMOTT: I note incidentally that 4 this is stamped confidential, presumably by the 5 company that produced this document. I assume that's 6 Philip Morris. It's seem to me we need to designate 7 this portion of the lranscript and this exhibit as s confidential for purposes of preparing the record of 9 this deposition. There's nobody from Philip Morris l0 present, but absent further instructions, I think II that's what we need to do. 12 MS. FLOWERS: I have no problem with 13 that. It's my understanding that ~ confidentiality 14 claim has been withdrawn on this document. But if 15 you want to wait until we can verify that - ,16 MR. McDERMOTT: Let me verify that. 17 We'll let you and the court reporter know in time to 18 get the -- meet the three-day rule. 19 BY MS. FLOWERS: 20 Q. I would ask you to look at the third full 21 paragraph on this page. They're discussing suggested 22 improvements for the program. Someone, I don't kno~ 23 who it is, has circled the word an and I'll begin 24 there. An item that we missed this year were the 25 footballs. We used this item to get the crowds up 25 think you've already told me. And, second, is that a Page 196 l morally responsible thing to do? 2 MR. McDERMOTT: We're not offering Mr. 3 Iauco as an arbiter of morals, l'm not sure that 4 we're going to pass judgment on other people. If you 5 want to ask about Reynolds' policies and our 6 position, that's fine. 7 MS. FLOWERS: Okay. lauco Exhibit Number 8 20, A Frank Statement to Cigarette Smokers. 9 (EXH. 20, A Frank Statement to Cigarette 10 Smokers, The Clarion-Ledger, January 4, 11 1954, was marked for identification.) 12 BY MS. FLOWERS: 13 Q. Are you familiar with this document? 14 A. I'm familiar.that this -- yes, that this 15 ran in the early '50s. 16 Q. Do you know whether this is still your 17 company's position? iS A. (No response.) 19 Q. Do you see R. J. Reynolds' name at the 2o bottom of that document? 21 A. Yes. 22 Q. Do you know whether that's currently 23 still their policy? 24 A. In it's entirety? 25 Q. All right. We can break it down. How A. WILLIAM ROBERTS, JR. & ASSOCIATES I-g00-743-DEPO Page 193 - Page 196

IAUCO, DAVID CondenseltTM MISSISSIPPI TOBACO LITIGATION 2 3 5 6 7 8 9 |0 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 2O 21 22 23 24 25 Page 193 about where they say that they're going to make public health their paramount concern? Do you think that's still the policy of R JR? MR. McDERMOTT: Let me state for the record you're not quoting exactly. We should read into the record what it says. MS. FLOWERS: okay. MR. McDERMOTT: Alld I quote: *'We accept Page 199 witness' testimony. He said he wasn't responsible. He was discussing in general his view of how these things work. BY MS. FLOWERS: Q. Was that your understanding of how it worked, that they would uT to -- A. 1 can't be certain, but it would -- I would guess that that's what we would have done. an interest in people's health as a basic responsibility, paramount to every other consideration in our business." MS. FLOWERS: Thank you for the clarif'~cation. THE WITNESS: YeS, I would say that that's our - that's our policy today. BY MS. FLOWERS: Q. Okay. Has R JR ever sponsored rock concerts? A. Yes. Q. Which groups have you sponsored? A. I don't recall all of them, but Alabama. 9 MS. FLOWERS: One more. Iauco 21. l0 (EXH. 21, LiSt of Entertainers, Concert II Goers and Record Byers, was marked for 12 identification.) 13 BY MS. FLOWERS: 14 Q. It's a list of concert goers and rc*ord 15 buyers broken down by age, produced by R. J. Reynolds 16 Tobacco Company in the Mike Moor~ case. Would you 17 please take a look at the first line which spells out 18 the concert-going age for the Alabama group? Could 19 you read for me what that says? 20 A. Thirtcen to 45. 21 Q. And the record buyers? I think we sponsored an Eric Clapton tour. Those arc the ones that I recall. Q. Alabama, are they a fairly popular group? A. They were when wc sponsored them. Page 198 Q. Do you have any idea what time frame that 22 A. Twelve to 49. 23 Q. And if you'll notice, some of these other 24 groups that are referenced, Michael Jackson, Billy 25 Joel, Elton John, Steve Miller, Bob Seger, Bruce Page 200 1 Springsteen, and Rod Stewart, they have an older was? A. Early '80s. Q. Was that part of ~he Salem County Gold Tour? A. I believe so. Q. And was ~his a nationwide tour? A. I don't recall. Q. DO you know whether children or adolescents attend Alabama concerts? A. There may have been some there. Q. Do you recall whether you looked at that specifically prior to sponsoring that particular group? A. I'm sure we did. I did not -- I wasn't 2 concert-going range, don't they? 3 MR. McDERMOTT: object. Mischaracterizes 4 the contents of the document. It is both older and 5 younger. 6 BY MS. FLOWERS: 7 Q. I left out Men at Work. Wtfieh one is 8 younger? 9 a. Well, all the -- 10 MR. McDERMOTT: The age range is -- the 11 age range in Alabama is just a broader span of years 12 than that covered by the others. 13 MS. FLOWERS: I don't think that was my 14 question. 15 THE WITNESS: This just gives a range. responsible for Salem at the time. But one of the first things we always looked at when we -- when a sponsorship opportunity was presented to us was what the primary age of attendees was and who the group would primarily attract and we wanted to ensure that is was primarily adults. Q. So prior to sponsoring the Alabama concert series, you ensured that it was primarily adults that would he attending the concerts? MR. McDERMOTt: That mischaragt~rizcs th~ 16 it does not demonstrate a distribution. Alabama 17 extends all the way to 45 year olds and several of 18 these other artists don't. I don't know, you know. 19 This was derived from radio and records. It could be 20 that there was no data for some of these other 21 artists that begin at age lS. I don't know what to 22 make of this. 23 I do know that there's a very wide age 24 band for Alabama and it doesn't indicate what the 25 distribution of the concert goers was. And I'd be A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 197 - Page 200

IAUCO, DAVID CondenseltTM MISSISSIPPI TOBACO LITIGATION Page 201 1 very surprised if the majority were not over the age 2 of 18 or 21. 3 BY MS. FLOWERS: 4 Q But this says 13 to 45. Would that 5 include 13 to 17 year olds? 6 A. Could. 7 Q. And it's still your testimony that -- let 8 me rephrase. Strike that. 9 Did ~R intentionally pick this age 10 group? 1 ! A. We we~ interested in reaching adult !2 smokers. And ff the majority of at~ndees at the 13 Alabama concerts were adult smokers, then we were 14 interested - then it would be a group that we would 15 consider sponsoring. And it would appear from this, 16 given ~ wide age span, all the way to 45, assuming 17 ~hat these statistics axe valid, that there would be 15 a large proportion of adult smokers. 19 Q. But there also would potentially be some 20 kids, wouldn't there? 21 A. May be some kids, yes. 22 23 24 25 Do you know whether this was followed up In what way? To see if it was correct? Page 20~ 1 A. I don't know. 2 Q. Was it acted on? 3 A. I don't know. 4 Q. Do you find it odd that the group with 5 the youngest demographics was the group that was 6 sponsored by RJR? 7 A. I don't agree that these are the youngest s demographics. The age range is all the way to 45. 9 Q. You conveniently neglect the bottom age 10 which is 13. 11 MR. McDERMOTT: And you conveniently 12 neglect the top age which is 45, again. 13 THE WITNESS: Th~ under 18 could be five 14 percem of the concert goers. I don'tknow. 15 BY MS. FLOWERS: 16 Q Have you ever seen any other documents 17 discussing these particular groups and the analysis? 18 A. No. 19 Q. Deciding who to sponsor and who not to 20 sponsor? 21 A. No. 22 Q. Final question. Would it be proper to 23 largc~ 13 year olds? 24 A. Targc~ 13 year olds? 25 Q. Uh-huh. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 20 21 22 23 24 25 Page 203 A. NO. MS. FLOWERS: I don't have anything furtber. MR. McDERMO'F]': NO questions. (The witness, after having been advised of his fight to read and sign this transcript, does not waive that fight.) (The deposition was concluded at 4:23 p.m.) 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 SIGNATURE OF DEPONENT Page 204 l, the undersigned, DAVID IAUCO, do hereby certify that I have read the foregoing deposition and find it to be a true and accurate txanscription of my testimony, with the following corrections, if any: PAGE LINE CHANGE REASON A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 201 - Page 204

IAUCO, DAVID Cond~nseltTM MISSISSIPPI TOBACO LITIGATION CERTIFICATE OF REPORTER Page 205 2 4 I, Wanda IC Cecil, Court Reporter and Notary 5 Public for the State of North Carolina~ do bereby certify: 7 That the foregoing deposition was taken befor~ $ me on tbe date and at the time and location stated on 9 page 1 of this transcript; that fl~ witness was duly 10 sworn to testify to the u~th, tbe whole truth, and nothing but the truhh; that th~ testimony of 12 witness and all objections made at the time of the 13 examination were recorded stenographically by me and 14 were thereafter transcribed by computer-aided 15 transcription; that the foregoing deposition as typed is a true, accurate, and complete record of the 17 testimony of the witness and of all objections made !$ at the time of the examination. 19 I further certify that ] am neither related to 2o nor counsel for any party to the cause pending or 21 interested in lh~ events thereof. 22 23 24 25 Page 20~ Witness my hand, I have hereunto affixed my official seal this 20th day of March, 1997. 1 2 4 5 6 7 9 10 II 12 13 14 16 17 19 2O 21 22 23 24 25 1 2 4 5 6 7 9 10 II 12 13 14 15 16 17 18 19 20 21 22 23 24 25 INDEX Page DAVID IAUCO EXAMINATION BY MS. FLOWERS ..................................... 3 SIGNATURE OF DEFONENT ............................ 204 CERTIFICATE OF REPORTER .......................... 205 REQUESTED INFORI~TION INDEX (No Information Requested) EXHIBITS Page EXH. 1, Plaintiff's Notice of Deposition ........... 4 EXH. 2, Rule 26(B)(4) Expert Statement and Curriculum Vitae of David N. Iauco ................. 7 EXH. 3, New Business Opportunities Arising from Long-Range Research Planning, Tobacco - Health Problem .................................... 74 Page 207 Page 201] 1 EXHIBITS 2 Page 3 EXH. 4, Advertisement in the April 1997 Issue 4 of Hunting Magazine ............................... 86 5 EXH. 5, Memorandum to Joseph F. Cullman, llL 6 Dated January 29, 1994, Bates Numbers 7 1005038559 to 1005038561 .......................... 97 8 EXH. 6, Ad: Can wc have an open debate about 9 smoking, The New York Times, January 30, 1984.... 100 10 EXH. 7, Page Entitled: We don't advertise to l I children, from R. J. Reynolds Tobacco Company.... 107 12 EXH. 8, cigarette Advertising and Promotion 13 Code.... .......................................... 118 14 EXH. 9, Advertisement for Vantage Cigarettes, 15 Performance Counts Campaign ........... ~ .......... 124 16 EXH. 10, Preventing Tobacco Use Among Young 17 People, A Report of the Surgeon C~neral .......... 128 18 EXH. I l, Current Affair Transcript Entitled: 19 Race Smokes ...................................... 137 20 EXH. 12, R. J. Reynolds, Our 100th Anniversary... 162 21 EXH. 13, Transcript of Live Five New Center 22 Report with Diane Atwood ......................... 176 23 EXH. 14, Airline, Tobacco Pusher, Bureaucrats, 24 Baseball Top List of 10 Worst '96 PR Gaffes, 25 Dated December30, 1996 .......................... 178 A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 205 - Page 208

IAUCO, DAVID CondenseltTM MISSISSIPPI TOBACO LITIGATION 1 2 3 4 5 6 7 8 9 10 II t2 13 14 15 16 17 18 19 20 21 22 23 24 25 Page 209 EXHIBITS P~ge EXB. 15, Article Titled: Big Spender Finds a New Place to Spend ............................... 181 EXJ-I. 16, Editorial, Old Joe must go .............. 182 EXH. 17, Rfport Titled: Young Smokers, Prevalence, Trends, Implications, and Related Demographic Trends, Philip Morris, Dated March 31, 1981 ......................................... 188 EXH. 18, Memorandum to Curtis Judge from T. L. Achey, Dated August 30, 1978 ..................... 190 EXH. 19, Malboro Resort Program for 1982, Daytona Beach, Florida, March 8 thru April 10, 1982 ............................................. 193 EXH. 20, A V'rank Statement to Cigarette Smokers, The Clarion-Ledger, January 4, 1954..... 196 EXH. 21, List of Entertainers, Concert Goers and Record Byers ................................. 199 A. WILLIAM ROBERTS, JR. & ASSOCIATES 1-800-743-DEPO Page 209 - Page 209

vzPosrrloN oF: OAVm IA,CO ~ ~ ~RY CO~T OF ~A~ON CO~, ~S~S~I CAVSZ NO. ~ ~: ~ MOO~, A~O~Y GE~ ~ ~ STA~ OF ~S~S~PI TOBACCO L~GA~ON DA~ T~N: ~ 17, 1997 App~nc~: Iodi Howers on ~of~e S~t¢ of MS. Robert F. McD¢~o~ ~r., ~ K. B~c~ I~ R. Co~go on ~h~of~. D~cl W. ~ue, S~or V-~es. & DepuW ~ Cou~el Litigation PAGEiS) SUMMARY 3-4 Direct Examination by Jodi W. Flowers. Mr. Iauco is currently employed at 1UR. He was deposed previously in Kueper in 1992, Mangini in 1995, and in Connor. 4 Ex.1, Notice of Depo. 5 McDermott & Beach helped in putting documents requested together. McDermott stated they produced what defense felt the State was entitled to. 6 Mstrs in Mkting Mgmt & went to work for IUR right after college. 7 Ex.2, CV & Rule 26 Stmt. 8 June '75 started work w/KJR. Currently Serfior V-Pres. of Business Development and Market Research. 9 Some problems with dates on CV. Defense will submit an updated CV. 10 Mr. Iauco left RJR in 1979 to go to Kubernan to develop a time, accounting, and biffing system. When this didn't work, he returned to KJR after about a year. 11 Mr. Iauco reports to the CEO, Andrew Schindler ofRJR. Schindler reports to the Board. Mr. Iauco supervises about 60 or 70 people. 12 Market Research is a subdivision of the Marketing Department. O~her consumer products worked on besides software are pipe and chewing tobaccos. No non- tobacco products. 14 He was assigned the Moore brand at the entry level position of Marketing Assistant. When he was promoted to Assistant Brand Manager in 1977, he switched to the Salem brand. Positioning means understanding what particular consumers' wants are,

15-16 16 18 18-19 19 20 21 22 23 both in terms of product and image and then develop the product that meets those wants. Reposifioning means changing how a consurner views the brand, both f~om a product and an image standpoint. Mr. Iauco was promoted to Brand Manager in 1978 and worked on specialty tobacco products which was sold off. In 1980 Mr. Iauco came back as Brand Manager and worked on new brands. Not recall specific brands. In 1982 to 1984, he was Senior Brand Mgr and worked on the Camel brand. In 1984 to 1985, he was Crroup Mgr of New Brands. He worked on the Magna brand. In 1985 to 1987 Mr. Ianco moved to Mlaing Director, responsible for Camel, Salem, Coral and Century. In 1987 to 1988, Mr. Iauco was promoted to V-Pres. of Brand Mgmt, responsible for all established brands. In February 1988, he went to RJR Tobacco Development Company and worked on the Premier brand until July of 1989. Mr. Iauco was responsible for the marketing of Premier & external relations and coordination of scientific affairs. He has no scientific training. He has a technical undergraduate degree. He left Premier when he became Senior V-Pres. of Mkting in .July of 1989. Initially, he was responsible for all brands, then all full-price brands, which included Salem, Winston, and Camel as well as new brand development. Subsequently, this included Ecfipse. Eclipse mkting work started in 1993 or 1994. This was during Senior V-Pres. of Worldwide Business Development. His primary responsibility was Eclipse only at that time. He shared some responsibility in coordinating learning and the development of marketing elements of Eclipse and Hi-Q in Germany, as well as with some licensees offshore. Hi-Q is an Eclipse-type product. Duties were limited to Eclipse and the Hi-Q. Other international brands similar to Eclipse are Inside in Sweden, Airs in Japan. Each is available in these countries in test market aseas. Eclipse is available in Chattanooga only. Hi-Q is available in Augsburg, Germany. Inside is in several different cities within Sweden. Distribution is building. Airs was just launched in Prefecture, it's like a state within Japan. Premier is not available in Japan. RJR assists in the licensing of those products and in terms of marketing, shares information and shares learning. In Mr. Iauco's current position as Senior V-Pres. of Business Development and Market Research, he no longer has responsibility of worldwide coordination on Eclipse or the Eclipse-type product. There isn't the need that there was in the early stages. 2

24 25 25-26 26-27 27 28 28-29 29 29-30 30-33 34 Mr. Iauco has the responsibility of the business development, which is primarily concentrating on the continued development of Eclipse. Also responsible for the Market Research Department which provides market research counsel and services across all of the brands within the company, Recently assumed responsibility for the planning and business analysis department. About 20 people are in the Market Research Department. There were more people in this department in 1975. RJR does advertising research in the Marketing Research Department, tracking studies for brands in test market - track their performance. Promotion research and product research and product testing. Question ~M re: trade secrets. RJR used an outside firm, Marc and Tracker through Marc, which is a system developed to track performance of brands. Since 1995, RJR always used outside marketing research firms. Almost all market research is done outside R JR. This relationship operates when we decide that there is an issue to be researched, for example, a new advertising campaign, we would generally outline the objectives of the research and then they would work in c~ncert with an outside firm to design a questionnaire and a method for evaluating the advertising and then the outside firm would administer the research, test, etc. Objectives are set by RJR. RJR tells them what demographic group they intend to target. Integrated marketing is practices at RJR. Uptown was launched in a test market, but there was a concerted effort to mischaracterize it and KJR ended up pulling it from the market. The intention ofthe campaign was a new brand developed to appeal to black smokers, particularly Newport smokers and hopefully to switch Newport smokers to Uptown. Mr. Iauco was proud of the Dakota work. Mr. Iauco feels it is entirely appropriate to target female Marlboro smokers and that's what Dakota was attempting to do. Does not find the term virile female offensive. It was mischaracterized, again, as a pejorative term, but it came from an analysis of their market where they characterize brands as, virile brands because of their masculine heritage. Simply the term came from a way of describing female Marlboro smokers. Recalls the Trone advertising report. He believes it is possible to segraent the 18-20 year old age group. You can't assure it won't attract younger or older groups. Discussions re: mkting budgets, etc.. Directed not to answer questions re: this topic at this time. In 1977, as Assistant Brand Mgr., not recall what the rakting budgets were.

35 36 37 38 39 4O 41 41 42 43 45-46 Believes the smt. IUR spends mkting their products is pretty much in line with, as a percent of sales of other categories and it's sufficient given the competitive environment in which ILIR markets their products, which is intensively competitive. Some ofP, JR mkting is effective. Dotal and Camel have been the most successful in the last I0 years. There is no set time period ofwhen they introduce new brands. Approx. 16 different brand fmnilies. They also have numerous private label brands for retail customers. General familiarity w/aggregate numbers for mkting, promotion and advertising reported to the FTC for the entire industry. He does not know what that number was for 1993 or 1994. The Finance Depart. assists in preparing that report. Camel's current market share is about five percent of the market. Not recall percentage of people under 18 that smoke Camel cigarettes. Read the ~ figures, among youth Camel had an eight share. Will submit MMWR. Not familiar with the jump in the CDC data that show since Joe Camel came out in 1988 the market share of youth jumped fi'om 8% to 13%. Relying on page 130 of the 1994 SO's Report only. Not familiar with any tracking described earlier that ILIR or its agents do for cigarette consumption among minors. Given a prepared disclosure s'ant. & reviewed it and returned it to Sharon Yoe of the Law Department of RJR. Plans to testify re: Camel & Premier campaigns & has general knowledge of all the recent advertising campaigns. They may call upon witness & others to opine and defend what was done. To some extent, the scope of our response and his testimony depends upon the scope of the a.tta~k Defense did not produce any specific advertisements in conjunction with this deposition. First contacted to testify in the Keuper case in 1991 or 1992, not sure. Does not recall who he spoke with re: testifying in that case. The nex~t case approached w/: Mangini case. Asked to testify re: how 1LIR went about getting approval for mkting campaigns, etc. Does not recall when approached for the Connor case. Believes contacted several mths ago re: MS case. Worked w/outside counsel, Mr. McDermott and Mr. Beach and Kim Bickenstine. Met w/one or all of these counsel at least three times over the past 2-3 wks for prep of his expert testimony in the State of MS & does not receive e~ra compensation f~om 1UR for same.

47 48 49 5O 50-51 51 52 52-53 53 54 55 56-58 Read several Complaints and Answers, but does not recall reading the MS one specifically. He does not know ifPJR has liability insurance. Not received inquiry from PJR executives or acctants re: this lawsuit for the company's annual stmts or reports nor has he for any reporting requirements to the SEC. RJR lawyers are involved w/mkting derisions. They are a normal part of the review process to be sure PJR is in full compliance with the law. Recalls family, ~ends and PJ-R co-works who have dies of disease associated w/ smoking. Not asked to render opinions on other cigarette company's campaigns. He has a general expertise in mkting campaigns. He has not been privy to research plans oflLlR's competition. Only what he has read in the press. He has no expertise in psychiatry, history, pharmacology, toxicology, pathology, epidemiology, psychology, adolescent psychology, but does have expertise in economics. He has had courses in economics but does not feel he is an expert economist. He does not expect to testif3, on economics and he has no expertise in ethics. Born in 1951 in Syracuse, NY & grew up there until after junior high school and then moved to Indianapolis and then went to Purdue. Married for 21yrs. Both Mr. Iauco & his spouse smoke. Mr. Iauco started smoking at about 19 while ~ Purdue. Not recall when spouse started smoking. Both smoke PJR brands. He has three children, ages 20, 17, & 12. None of his children smoke. Has nieces and nephews. Had discussions with children re: smoking. Supports the freedom to smoke among adult. He defines an adult as it relates to smoldng~ age 18 and above. If the smoking age were lowered to 15 and above, he would probably not market that segment. Does not know if parental scolding is effective in preventing youth smoking. Given some does @ his mtgs w/counsel & other does were provided to him in prep. of his depo. Discussions re: witness' salary b/n McDermoR, Flowers, & Colingo. Instructed not to answer re: his salary, based on grounds of harassment, trade secret, confidential, relevance. Mr. McDermott read from paragraph 17 ofthe case management order. According to the case management order, "the defense's position for Mr. Iauco not to answer is that it is the provision of harassment.

59 6O 61 62 63 65 65-68 Mr. Ianco has a confidentiality agreement with RJR and has never renegotiated it. It was contingent. Not familiar w/other employees' confidentiality agreements. Does not believe smoking is encouraged by R JR and non-smokers are not ostracized. RJR gives away free cigarettes sometimes. There are flee cigarettes used for development purposes, but not all employees engage in development processes and, therefore, they don't receive fi'ee cigarettes. Eclipse is av~lable to the employees st RJR. I believe RJR has a pleasant atmosphere to work in. He believes he has good health insurance with 17o'R and he is not aware of any discounts for non-smokers. RJR has non-smoking areas where smoking would be dangerous and there are non- smoking areas in our production, R&D facilities. Employees are allowed to smoke at their desks. Not aware of any non-smokers complaining of passive smoking exposure. Does not know if passive smoking is potentially hazardous. W'dl testify re: Premier cigarette. It was aggressively test marketed in St. Louis and Phoenix, AZ in Aug.'S8 - Mar.'89. It was aggressive because of the high profile advertising, full distribution on Premier. Full distribution means we attempted to get distribution in every retail outlet of significance in the test markets which would include convenience stores, supermarkets, and drug stores. We are not in vending. Lucrative trial incentives are promotions at retail. It was marketed as the cleaner smoke. This mkting claim ofcieaner smoke meant no side stream smoke, smoke offthe lit end, which meant that it left the air cleaner, clearer. The smoke dissipated very rapidly & it had a simpler composition ~om cigarettes that burn tobacco. The smoke from Premier measured much lower biological activity than tobacco-burning cigarettes. Premier was not available in MS or FL. Eclipse is available in Chattanooga, TN, & also available in Winston-Salem in company outlets and internally at RJR where sold on the premises. I became aware of the Premier brand becoming test marketed in the mid-1980's. The Research and Development Depart. began working on Premier, I believe in the early 1980's or 1981. We had a responsibility to know the product (Premier) prior to. marketing it. We did a a'emendous amount of research on Premier, not necessary for every product that's marketed. Premier's composition, how it was made, how it worked was very different than other cigarettes. And we decided to do a great deal of testing on that cigarette to - and by the way, we published all of the testing that we did - in order to demonstrate how it was similar and how it was different from tobacco-burning cigarettes.

68 68-69 69 70 71 71-72 72 73 74 74-77 Cluu'acterizing why they did the testing that they did on Premier. Reviewed some of the publicly available reports re: health effects of smoking his company's products. Also reviewed some of the SG reports. Recall some estimates of the SG re: how many Americans will die each yr. from us'rag their products. Believe soma oftbe interviews he gave ended up on national television. Defended Premier & the mischaracterizations of Premier. There were a number of charges that were made about Premier that, for example, Premier could somehow be altered to deliver crack cocaine and it would be used for that purpose. That we were trying to suggest that Premier was entirely safe and that we were trying to market Premier to children, etc. Not able to answer question re: whether a nicotine delivery device would be a bad or good. 1UR wanted Premier to be a success. They had spent a great deal of effort in developing it. IUR was opposed to FDA oversight of Premier because it would have meant Premier being removed from the market mad not available for the choice of adult smokers. The legal advice we go as far as it being licensed under the FDA, it would not be available for adult smokers to choose it. Familiar w/design of Premier & Eclipse, which are very different from each other. Premier had a metal capsule inside of it that was filled with alumina beads, upon which sprayed - died tohac~ was applied. The heat source, which was of a different composition than the heat source for Eclipse, was inserted into the metal capsule. Around the metal capsule was tobacco. There was a different kind of a filter than is on the Eclipse product. Also tobacco sheet material that was used in Premier. On Eclipse, there is a heat source on the end. Heat that, again, is a different composition than the Premiex heat source. It's followed by a roll of tobacco. There's no capsule and there's a different kind of a filter. In the Eclipse cigarette, there is some tobacco that is burned. It primarily heats the tobacco; whereas, in Premier, the tobacco was only heated. The idea came up in the early 1980's. He worked on the Premier plan when it was being developed. Worked on the mkting aspect of the cigarette. You have to know what kind of product you are market'mg. Never looked through any libraries to see if there were any son of new products like the ones we have been discussing. Ex.3, New Business Opportunities Arising from Long-Range Research Planning, Tobacco-Health Problem. Never saw doc. before. Asked to review page 8 in which "preliminary, tentative product models and prototypes" are discussed. No. 1 Discusses the transitional cigarette, the tobacco-burning cigarette, & No. 2, the transitional, no tobacco 7

77 78-79 79 8O 80-81 81 81-82 82 cigarette. Mr. Iauco states that it does not appear to be similar to EcLipse or Premier. An Eclipse it does not bum down all the way. No. 2 does not appear to be a similar process, There is no pressurized aerosol generator in Premier or EcLipse, no control valve giving measured dosage activated by Lip pressure, drawing, e~ cetera. Premier ~d Eclipse produce nicotine flavor. Amt. of water in the smoke is higher than in tobacco-burning cigarettes, so I guess there is some simiJadty there. Not recall what cold-ash means, There are ashes with tobacco-burning cigarettes and there is the appearance ofan ash with Premier and EcLipse. The diagram relates to some kind of a process that is very different than the process or the design of Premier or EcLipse. Page 3 of doc. is not consistent w/goals of Premier or Eclipse. This does not say Premier didn't seek to eliminate combustion of tobacco. Tobacco is an organic matter, but so is cattmn and we combust carbon in Premier and Eclipse. Refer to page 8, Premier was based on the concept of heating tobacco in order to provide smoking pleasure and that, in that respect, it did combust the tobacco. I suppose there's some similarity. Refer to page 9, did not know if"Complete preliminary planning & specification by January 1, 1969" was a goal. No knowledge re: this prototype described ever being POR engages in blind produa testing done by Ivlkting Research Depart. We identify adult smokers and usually - it's done different ways, but usually what we do is provide cigarette to adult smokes who wish to participate in these tests on unbranded product. That's what it means by blind. They don't know which brand these products, the cigarettes are. And they try, typically, two packs of cignrettes and fili out a ballot on answering various questions about how they rate those cigarettes and questions about the attributes of the cigarettes. Such as mild, strong, harsh, rnild, you know, different - they rate it on different bipolar scales. Unbranded product means a new product or an existing product which isn't marketed. Never participated in blind product testing either as a panelist or as a smoker. This type of testing is contracted outside the company. Not able to quantify how much is done intemally v. externaLiyl but they do both. The internal testing administered here is smaller sample sizes, meaning fewer smokers rating our cigarettes. And involves a lot of co. panefists, but sensory testing blind product testing is done internally here in grmston-Salem. Usually the blind product testing is done w/outside resources, it's usually a geographically disbursed sample. Marc, Dennis & Co. are a couple that help do some of this testing. Some of the vohnteers for internal testing are IUR employees. There are some local recruitment for some paneLists. When panelists are given packs w/warnings on them.

83 84-85 86 86-87 87 88 89 90-91 92-93 W/blind testing, they give them a white pack w/warnings on the side of them. Not recall ira consent form is signed, but told something by the Market Research Depart. Doug Webber, head of Market Research & most knowledgeable re: this issue. The contract organizations also have warnings on the products they use. Not recall if the people tested externally sign consent forms. Doug Webber would know this also. Not aware of any kind of a passive smoke exposure test. Refer to Rule 26, believe a peer is someone of like age, sex social, standing. Believes that peer influence is one ofthe primary reasons why adolescents experiment smoking, it is a causal relationship or influence. Also parental influence has an impact on whether kids will begin to smoke. Not know if smoking causes disease. EL4, Advertisement in the April 1997 Issue of Hunting Magazine. Advertisement appeared to be Joe Camel and a couple of his buddies. I believe they are his friends. Does not recall the other Camel's names and believes the ad agency that works on this campaign would be able to identify them. They appear to be males and do not appear to be Joe Camel's parents. They do appear to hang out together and smoke together, but unaware of who suu'ted smoking first. The Zena Brown ad agency designed this particular ad. Unaware of who approved this ed, but I'm sure the business unit head did. Organized the Mkting Dept. into business units, w/a v-pres, in charge of each business unit. The decision to run a particular ad would fall with the head of the division. Not reviewed SG's repott re: this issue. Not recall % that start after 21. Mkting. has minimal, if any, influence on initiation of smoking. W/RJR when FTC looking into Joe Camel. RJR conducted focus grps. prior to launching/repositioning of Joe Camel. Focus grps. reports handed over if asked for. Not aware FTC reopened investigation of Joe Camel. Read FDA proposed rule. Understand FDA stated intent is in issuing the proposed regs to limit youth smoking. Both he & ILIR would support goal. Industry is suing FDA because: 1. They don't believe that all of the regulations will be effective in terms of meeting that goal; 2. It severely hampers their ability to compete for adult smokers. Banning vending machines would hamper ability to make product available to adult smokers. Not believe RJR uses National Smokers Alliance database for any mkting activities. Not aware the NSA gave away lighters & fi-ee cigarettes in exchange for petition signatures against the OSHA rule @ Grateful Dead concert. Problem, if 9

94-95 99-100 giving materials to non-adult smokers, under 18. Grateful Dead around 20 yrs., attract both old & young followers. Recalls the Tobacco h,xtion Network. RJR not require employees to be a member of TAN. Not recall RJR Tobacco College. P, JR encourages its employees to write FDA & oppose the ~le. Wrote a ~ personally. Wrote to OSHA to oppose rule. In '75 not recall 1UR. PR firms. Recent PR finn: Powell Tate. R JR has PR dept. w/in co. Never designed any mkfing plans or advertis'mg plans for PR dept. Some understanding ofwhat a psychological crutch is. Ex.$, Memo to Joseph F. Culiman, II, 1/29/94, Bates #1005038559 - 1005038561. Not recall doc. Refer to first page, last ¶ under B re: '64 SG's report. Object to question re: what the psychological crutch is in the sentence. No opinion re: providing smokers a psychological crutch & a self-rationale to continue smoking. Ex.6, Ad: Can We Have an Open Debate about Smoking, The NY Times, 1/30/84. 101-102 103-105 106-108 109 110-111 112-113 Ad intended to provide their pt. of view re: smoking issues since they weren't being covered in any other form. The ad is an opinion piece RJR paid to have placed in media. Not believe anybody relies on RJR opinion pieces. Not involved w/ad. Not recall his testimony in Keuper case re: this ad. Not see any struts, of fact in ad. It was the first in a series of pieces that they developed in order to provide their pt. of view. Not testifying @ trial re: any other tobacco cos. besides 1UR. Need to read ad to decide if that is the position KYR holds today. Not recall what the co. strategy has been since he joined in '75. Believe there is a risk of contacting lung cancer if you're a smoker that is increased, not know if it causes it. Ex.7, Page entitled: We don't advertise to children, ~om KJR Tobacco Co. People in public affairs involved in publication of Ex.7. Not recall ad agency for ad. Recall these pieces, ads, running in '84, '85 time range. Not know why children would be attracted to this ad. They placed these pieces in media because their position was being mischaracterized on various issues & wanted to make clear to American public what RYR's position was re: youth smoking. Believe RYR intended for public to believe it. Not re~xll types of magazines these ads mn irt No complaint re: demeanor ofdepo. Re: earlier question of number ofdepos given, it has been 4 not 3, deposed in Allgood, case in TX TX case was a l-day depo, not trial testimony. Re: CV, never published any articles on mkting. Work published in '70s in Mkting. Research, Schultz is the author, @ graduate school re: forecasting using the Delphi Method (consensus-based). It was forecasting heavy truck sales. Refer to Rule 26, No2, on second page, reviewed I0

114-115 I16-117 118-119 120-121 122-123 124-125 126-127 arlicles re: Joe Can~ the Franza Pierce Fisher ~'fide~ & critiques by Martin DuBeau. Also some published treatise on advertising, I-rmkey, IOumski. Re: issue ofed bans, not look ~ Smea report. Base his experience in large while working ~ IUR. Able to give unbiased opinion. Refer to page 1 of Rule 26, 3rd ¶ re: voluntary restrictions. RJR adherence to statutory, regulatory or other requirements refers to cigarette advertising promotion code. Also offer opinion re: certain practices started ~ RJR. Seeking out third-party data sources to verify adult smokers matching up name, address & send promotional materials to them. For use of database, RJR adheres to 21 yr. old cutoffin the code. Any demographic targeting or mkting, as of 1992, use 21 yr. old cutoff. Change lead by increasing negative eevironment & wanted to strengthen their requirements. This gave RJR a 3 yr. buffer re: 1990 code. Ex.$, Cigarette Advertising & Promotion Code. Not involved in draiting of doc. There have been other advertising codes over the yrs. More familiar w/current code which is still in effect. Not recall ifR2R received anything in exchange for adopting 1964 code. 1990 is a voluntary code, no enforcement provisions. Not aware of any violations or fines against R JR or any other tobacco cos. for violating any codes. Refer to page 2 under advertising, No.4. Worked on the Salem campaign, including the Salem Spirit campaign which complied w/Provision No.4 of the Cigarette Industry Voluntary Ad Code. Campaign was not in conflict w/this element of the code. Used attractive models in Salem Spirit campaign. More than 2 people in the ads having a good time. Not recall any kind of overly sexual connotation in any of those ads. Refer to No.6. Somewhat familiar w/Vantage performance accts, campaign. Recall windmrfing execution. Believe none of those advertisements were in violation of the code. Believe windsurfing does not stamina or athletic conditioning beyond that of normal recreation. Ex.9, Advertisement for Vantage Cigarettes, Performance Counts Campaign. Windsurfacing is not easy from a skills stdpt. Believe windsurfing has more to do w/condition of surf then it does speed. Photo is a bad copy. The ed is simply trying to draw an analogy b/n the taste of the cigarette & the fact the s~mt. performance counts. One of the first challenges in any edvenising is to get people's attention. In this case, to get adult smoker attention on this ad so that they will consider the cigarette, what it has to offer. Never been to a Virginia Slims Tennis Tournament. Tennis Tournament did not constitute a sport or celebrity testimonial as described in No.7 of code because it wasn't advertising, simply a sponsorship of a lifestyle event. 11

128-132 133-134 135-136 137-138 139-140 141-142 143-144 Ad code in effect in some form since 1964. Not familiar w/F]'C repon of'81. Ex.10, Preventing Tobacco Use Among Young People, A '94 Repon of SG. Refer to page 169, ask about excerpt in '81 FTC report. Not sure about the exact page number. Strut. inciudes time period b/n '75 until '81. Not agree w/strut. Need to see the '64 version of the code. If the sponsorship was continued ofa TV program that had a younger audience than is required in the code, whether it is a violation of the code depends on how the younger audience is interpreted. If the ride is < or > 45% are under 21 & a show was still sponsored that had audience rates higher than that, a violation of code depends on how you define primly. Has not delved into the details of the '64 code per Refer to page 169, not aware Senator Nurenberger called entire self-regulatory process an exercise in futility, motivated by a dealre to head offgov't, regulation. Disagree w/strut. Not aware RYR funded any motivational research through the organization Social Research. Not believe cigarette advertising serves to allay any of the health concerns a smoker might have about using the product. Not aware of any specific violations of 1990 code re: distribution of mail w/out written signed certification addressee is 21 yrs. old. Ex.ll, Current Affair Transcript Entitled: Race Smokes. Refer to page 1, illustrating violation of the code. Lynn Beasley is a colleague. This transaction was clearly a mistake. Not able to tell specific corrections done in terms of sampling practices. Occasionally this mistake does happen & need to tighten requirements. Ms. Beasley scheduled for depo. 8 days from now. Not aware of any studies @ high school students being given samples of cigarettes, % rates. T-shirts, leather jackets have adolescent appeal Appeal of concert tickets depends on the concert. Ensure that Camel cash objects not distributed to minors: to redeem Camel cash need to provide signed certification that they're 21 yrs. ofnge or older. Attempting now to third-party verif3, as many smokers as possible. Limited to third-party records including rivers' license records, loan applications, etc. Recall a kid wearing a Marlboro T-shirt & a Camel T-shirt. Familiar w/'92 Crallup research poll finding 1,125 teenagers surveyed, half received promotional items from cigarette cos. There are various ways kids can get a hold of these items. Troubles them because they don't want kids to receive merchandise no.r smoke. Thought about doing away w/merchandise, but put in a competitively disadvantaged position. No empirical data to suggest otherwise. Only RJR research has done or sponsored, in a defensive manner. Not believe the H'mkey study is an appropriate measure to look ~ future smoking behavior. No research re: what images might appeal to kids or to assure young people are not influenced or attracted by cigarette campaigns. Stopping kids from smoking is not part ofthe mk'ting, budget, but it is part of external relations. 12

145-146 147-148 149-150 151 152-153 154 155-156 157-158 Limited familiarity w/helping youth decide program, the tobacco institute pamphlet. Familiar w/right decisions right now program. Not believe any nflcting, research done before program inifi"""~ to determine its effectiveness. F..xtemal relations dept. could identify who developed that program. Tom Griscom is head of external relations. Not recall if research done after right decisions right now program was in place to determine or measure its effectiveness. Kevin Verner was under his supervision while in mkt. research dept. not while in external affairs program. Not recall if contracted out, mkting research dept. has no expertise in the area of youth, doing research among the youth. Offer opinions @ trial re: types of programs, only that they exist. Base opinion on general knowledge. May be one area where he may offer factual testimony. @ this ~ not know factual info. he may be offered for @ trial. Not recall whether RIR ever involved w/National School Superintendent Association, but other programs might have been connected w/DARE program. There are several mkting mars., Fran Creighton head of Camel business unit, s'mgle-pt, acctability for Camel brand in ndcting dept. Lynn Beasley previously occupied position. W'mmss was senior brand mar. on Camel back in the early '80s specifically '82 to '84. V-pres. of brand mgmt. in '87, '88. Did some oversight during the development of the Joe Camel caml~gn & Camel 75th anniversary campaign. In Feb. '88 left brands & went to development co. working on Premier. How RJR selected the cartoon camel: process of repositioning Camel, it lacked relevance among the majority of edult smokers in the raktplc. (~ one time used the Camel world campaign. Used both quantitative & qualitative research. The Trone Advertising Agency came up w/use of an illustrated camel borrowing on a promotional piece that was done in Europe. Beginning of'88 used high impact advertising pieces. Trying to appeal to 18-24 yr. old adult smokers. Rlustrated camel suggested that Camel wasn't this tired old harsh brand that was their perception. Concern also because Camel had a fairly old fi'anchise, old smokers & did not want to alienate them. After positive feedback, decided to turn promotional event into an ongoing campaign. Guess that RJR continued to track all adult smokers to see if there could be any change in the profile of the brand. Qualitative research is used to get rxns. among small grps. of smokers, 8-10. Not typically used to validate the effectiveness of any mkting element, but rather to explore attitudes towards it in an effort to sharpen it, refine it for quantitative research. It is exploratory. Trone did not get the acct. McCann had the acct. & maintained it. The promotional piece in Europe is the French camel used in France. Old Joe is the old dromedary. Joe Camel & his hard pack appear on billboards, some placed w/in 500 ft. of schoois & a violation ofvoluntary code. Anylime R JR has been 13

159 160-161 152-163 164-165 166-167 168-169 170-171 made aware ofbillboar~ out of compliance, they have immediately removed them & reinforced w/outdoor suppliers the provisions of the code & hold them acctable to abide by them. ID'R does not go out & pick specific locations in every mkt., buy a showing ~om the outdoor suppliers. Too many for ILIR to monitor. Testiried in Connor & Keuper cases that R.IR is not attempting to induce anyone to begin smoking. Not recall if~ue in international mkt. As senior v-pres, of worldwide business development, no direct responsibility for the international mkting, of any product. Not recall who would be most knowledgeable re: R.FR' mk-ting, efforts worldwide. Does not believe they subscn'be to the U.S. Ad Code internationally. They have their own provisions & codes. ILIR self-regulates outside the U.S. based on position struts. f~om TI re: mkting practices. Recall mtgs. w/discussions re: increasing mkt. share of adult smoker mkl. worldwide, but not re: adolescent or adult non-smoker mkt. worldwide. Effi-12, RYR, Our 100th Anniversary, 1575~1975, a book. Refer to page 24, "R.IR brands ate now available in more than 140 countfies....U.S, is esthnated to be 2,000 billion mmuaily....." KIP, intends to compete in that mkt. & get a share of it. Aware of increases in cigarette consumption worldwide. Not see any indication that ~ was trying to stimulate new mkts. or induce people to smoke in other countries. Not recall if ]UP, cigarettes are available in Argentina. Not familiar w/mature mkt. hypothesis. Nascar sponsorship has been a success for W'mston & more recently, for Camel. When Nascar races are aired on TV, that's because there is a demand. It's calculated to decrease the chances of RJ'R logos being covered On TV. RYR has tried to decrease exposure in Nascar sponsorship over time. TV coverage is not why RYR sponsors those activities. It was changed when IUR became aware that it was being criticized. Do not believe race car driving appeal to persons under age 21 as defined in the code. The attendees @ these events are very much priman~ over the age of 21. When race car drivers are searing Winston Cup caps, that is the name of the event, not an ad for W'mston cigarettes. Believe sponsorship enhances attendees opinion of Winston as a brand. Video simulators need to be defined for questioning. Does not believe car race video simulators affect brand image. Believe the car race video is restricted to adults, Lynn Beasley would know. Aware that certain 1UR brands appear in video games in the past, making every attempt to eliminate them. Not noticed w/some of the games that the farther you get into it, the more cigarette ads there appear to be. The videos that IUR is aware of, they have tried to remedy them. Not sure iflUR brought action against the video game cos. The video game Chase HQ has Winston in it & the video game Final Lap has Camel in it. 1LIR legal 14

172-173 174-175 176-177 178-179 180-181 182-183 dept. responm'ble to follow up on this issue. 1LIR has no interest in the use of their trademarks in that manner unless authorization is given & they have no interest in being in a setting not geared to adults. Cases other than MS anticipate testifying (~: N'Y, FL & others. Some are Medicaid reimbursement actions, others are individual smoking & health cases. Anticipate testifying in Connor case, reviewed complaint, some old advertising & does. Not renew anything since he gave depo. Prig segments the mkt., but there is not a youth ink1. Ed Horegon testified before Congress in 1983. Witness reiterates what Horegon said. RYR does not consider the youth segment a segment that they target or mkt. to. Segment among adult smoker segments for mkfing, purposes. YAS is young adult smoker. Young adult typically refers to 18-24 yr. old smokers & they do track this grp. Do not anticipate a change in this in the light of the revised policy. Continue to track 18+ yrs. of age in order to track their business. Track all legal adult smokers. Not recall whether the camel dromedary appears on yellow caution lights in Eastern European countries. Ex.13, Transcript of Live Five News Center Report w/Diane Atwood in the '80s. Refer to page 3, sant. by Walker Merryman. Men3cnan is referring to minors on the page before, ages of 12 & 17. Problem w/ethical stdpt, re: runt., "if it was legal to sell to them, I would be glad to. But it's not." Believe it is wrong to sell to kids because does not believe they are capable of making an informed decision re: cigarette smoking. From a business stdpt., it would be wrong because it would bring down more restrictions. E=.I4, Airline, Tobacco Pusher, Bureaucrats, Baseball Top List of 10 worst '96 PR Gaffes, 12/30/96. Refer to No.2, on page 1. Later on PJR chairman, Charles Harper, apologized for making the following strut., "He said that if children don't like to be a in smoky roong they'll leave. Told that infants can't leave, he said, @ some pt. they will learn to crawl." Re: quote fi'om Helmut Waken of PM, "too much apple sauce can kill you," not know if fair comparison w/cigarettes. RJR's James W. Johnston, who told Congress that nicotine was only as addictive as twinkles was referring to the definition of addiction had changed & no longer precise. Definition of addiction is no longer a medical definition, it has been distorted. Somewhat familiar w/1988 SG's report. Ex.15, Article Titled: Big Spender Finds a New Place to Spend. Refer to third column, first ¶. F. Ross Johnson was previous CEO oflLrg Nabisco, "Of course it's addictive. That's why you smoke the stuff." Aware of criticisms of Joe Camel. Ex.16, Editorial, Old Joe must go. Refer to first column, last ¶: P,2R is wrong & is courting disaster w/these ads. Disagree w/editorial. Does not believe they have breached any social responsibility w/the Joe Camel campaign. Disagree w/Rance Crain's pt. of view. Ad Age is a general publication. Occasionally, R.rR's mkting, dept. looks @ it. 15

184 185-186 187-188 189-190 191-192 193-194 195-197 198-199 200.201 IUR disagreed w/urging from Ad Age to drop Joe Camel. Today not acceptable to advertise cigarettes in comic books, not know about 1975, depends on who the readers are. Recall adults who read adult comic books in the past. Majority of comic books not aimed ~ adults. The phrase 'emerging adult' sounds like adolescence. Not recall see~n8 any POR docs re: teenagers as replacement smokers. 18 is what our society has deemed the public as being old enough to vote for the pres. & make informed choices such as that re: cigarette smoking. Question re: whether Ex.l$ is a complete transcript or not. Not recall ifPM has studied hyperactive third graders to try to determine whether they would appreciate "the advantages of self-stimulation via nicotine." Not recall if children are more vulnerable to cigarette advertising w/bright colors & cartoons than adults. Not recall if RJR employees or other does referred to adolescents as vuinerables in written memo. Ex.17, Report: Young Smokers, Prevalence, Trends, Implications, & Related Demographic Trends, PM, 3/31/81. PM is this doc, laments the decline of teenage smokers. Would be surprised lfdoc referred to under 18, that would be a mistake. Not recall seeing any docs from Loriliard Corp. Ex.l$, Memo to Curtis Judge from T.L. Achey, 8/30/78. Not shocked to learn that Lorillard, manufacturer of Newpon, wrote in 1978, third ~, "the base of our business is the high school student." Appears to be insensitive to youth issue in their business. Not recall if strut, reflects their company's policy or procedures. The code does not set policy, but advertising & promotional criteria for the industry. Contrary to strut, w/'m code re: not to target people under 21. It is against RJR's policy to try & get those types of things in kids' hands. Not recall if other companies adhere to similar policy. Ex.19, Marlboro Resort Program for 1982, Daytona Beach, FL, Mar.8-Apr.10, 1982; Bates//2045385465, about 6 pgs. PM doc stamped confidential. Believe using Marlboro footballs w/childre~ is a violation of advertising code. Ex.20, A Frank Strut. to Cigarette Smokers, The Clarion-Ledger, 1/4/54. Familiar w/doc, which nm early '50s. RJR's policy today b ~tili making public health their paramount concern. IUR sponsored rock concerts (AL & Eric Clapton tour) in the early '80s. h was part of the Salem Country Gold Tour. Sure that 1UR looked ~ whether children or adolescents attend AL concerts prior to sponsoring that grp. Ex.21, Lis~ of Entertainers, Concert Goers & Record Byers. List of concert goers & record buyers broken down by age, produced by R.rR in Mike Moore case. Concert-going age for AL grp. is 13-45 & the record buyers are 12-49. The age range in AL is just a broader span of yrs. than that covered by the others. It gives a range, not a distribution. Not be surprised if majority were not over the age 16

202-203 of 18 or 21. R JR were imere~ed in reaching adult smokers. If majority of attendees {~ AL concerts were adult smokers, then it would be a grp. RYR interested in sponsorin~,~- May be some kids, not recall if that issue was followed up on. Not agree that these are the youngest demographics because the range is all the way to 45. The under 18 could be 5% of the concer~ goers, not recall. Not proper to target 13 yr. olds. (The deposition was concluded {~ 4:23 p.m.) p:~obace~exper ts~Iauco~-po317.97 Lynne Sherron 6/25/97 17