Case 1:20-cv-00393-LMB-TCB Document 1416-5 Filed 08/19/22 Page 1 of 15 PageID# 35752
`Case 1:20-cv-00393-LMB-TCB Document 1416-5 Filed 08/19/22 Page 1 of 15 PagelD# 35752
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`EXHIBIT E
`EXHIBIT E
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`

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`Case 1:20-cv-00393-LMB-TCB Document 1416-5 Filed 08/19/22 Page 2 of 15 PageID# 35753
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`Case Clip(s) Detailed Report
`Wednesday, June 08, 2022, 7:48:58 PM
`
`PMI v. RJR EDVa Trial
`
`Gilley, Nicholas (Vol. 01) - 12/03/2020
`1 CLIP (RUNNING 00:14:42.481)
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`Gilley,N_120320_ALL_TRIMMED
`
`78 SEGMENTS (RUNNING 00:14:42.481)
`NG-ALL3-FINAL
`1. PAGE 9:14 TO 9:15 (RUNNING 00:00:02.310)
` 14 Would you go ahead and please state your
` 15 full name and address for the record?
`2. PAGE 9:16 TO 9:17 (RUNNING 00:00:02.865)
` 16 A Sure.
` 17 My name is Nicholas Ray Gilley. My address
`3. PAGE 9:20 TO 9:23 (RUNNING 00:00:12.225)
` 20 Q Who is your current employer?
` 21 A R.J. Reynolds Tobacco Company.
` 22 Q And what's your current job at RJRTC?
` 23 A Vice president of marketing performance.
`4. PAGE 9:24 TO 10:03 (RUNNING 00:00:09.559)
` 24 Q And do you understand you're being deposed
` 25 here today both in your personal capacity and as a
` 00010:01 corporate witness on behalf of the plaintiffs in
` 02 this case?
` 03 A I do.
`5. PAGE 22:17 TO 22:23 (RUNNING 00:00:22.482)
` 17 Q What are your responsibilities in your role
` 18 as vice president of marketing performance?
` 19 A Along with my team, we track, measure, and
` 20 analyze brand performance for R.J. Reynolds and
` 21 Reynolds American, Inc., in terms of their business
` 22 objectives, goals, strategies, as well as consumer
` 23 trends within the market.
`6. PAGE 23:03 TO 23:06 (RUNNING 00:00:08.020)
` 03 Q Okay. And in your role, in your current
` 04 role, do you support the Vuse brand among other
` 05 products?
` 06 A My team does, yes.
`7. PAGE 23:09 TO 23:11 (RUNNING 00:00:07.659)
` 09 Do you personally have any responsibilities
` 10 related to the Vuse brand of e-vapor products?
` 11 A Yes.
`8. PAGE 72:04 TO 72:06 (RUNNING 00:00:06.581)
` 04 Q Now, the consumables for each Vuse product
` 05 are intended only for use with the power unit for
` 06 the specific Vuse product, right?
`9. PAGE 72:09 TO 72:09 (RUNNING 00:00:01.142)
` 09 THE WITNESS: Correct.
`10. PAGE 72:22 TO 72:24 (RUNNING 00:00:08.632)
` 22 Q The consumables for each Vuse product can
` 23 only be used with the power unit for the -- their
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`Case Clip(s) Detailed Report
`Wednesday, June 08, 2022, 7:48:58 PM
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`PMI v. RJR EDVa Trial
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` 24 corresponding Vuse product, right?
`11. PAGE 73:01 TO 73:01 (RUNNING 00:00:01.305)
` 00073:01 THE WITNESS: To my understanding, correct.
`12. PAGE 73:03 TO 73:04 (RUNNING 00:00:05.436)
` 03 Q So, for example, the Alto pods can only be
` 04 used with the Alto power unit, right?
`13. PAGE 73:06 TO 73:07 (RUNNING 00:00:01.389)
` 06 THE WITNESS: That's my understanding,
` 07 correct.
`14. PAGE 73:15 TO 73:17 (RUNNING 00:00:05.964)
` 15 Q And without the cartridges, the power units
` 16 in the Vuse products won't function for their
` 17 intended purpose, correct?
`15. PAGE 73:19 TO 73:19 (RUNNING 00:00:00.936)
` 19 THE WITNESS: I believe that's correct.
`16. PAGE 73:21 TO 73:23 (RUNNING 00:00:05.478)
` 21 Q You need both the cartridge and the power
` 22 unit for each Vuse product to have a commercially
` 23 viable product, correct?
`17. PAGE 73:25 TO 74:02 (RUNNING 00:00:07.986)
` 25 THE WITNESS: You need both the power unit
` 00074:01 and the cartridge for a consumer to be able to use
` 02 the liquid and consume the product, correct.
`18. PAGE 75:16 TO 75:18 (RUNNING 00:00:08.018)
` 16 Q I asked in terms of sales and market share,
` 17 do you consider the Vuse products to be successful
` 18 from that perspective?
`19. PAGE 75:20 TO 75:21 (RUNNING 00:00:02.987)
` 20 THE WITNESS: Yes, I believe we have a
` 21 successful product portfolio.
`20. PAGE 107:17 TO 107:23 (RUNNING 00:00:27.739)
` 17 Q Why were there -- starting with the power
` 18 unit, why were there negative sales of the Vuse Alto
` 19 power unit kit from Q1 to Q3 2020?
` 20 A There -- it's driven by consumer
` 21 discounting to try to entice consumers to purchase
` 22 the Alto kit so that you can make money through
` 23 selling the consumables over time.
`21. PAGE 107:24 TO 108:02 (RUNNING 00:00:10.160)
` 24 Q And you're referring to the -- the
` 25 discounting of the Alto power unit kit down to
` 00108:01 $0.99?
` 02 A That is one promotion, yes.
`22. PAGE 108:16 TO 108:22 (RUNNING 00:00:25.640)
` 16 Q So for the power unit kits only, RJRV, in
` 17 2020, has actually lost money on those sales in
` 18 order to drive the sales of the consumables that are
` 19 used with the power units; is that right?
` 20 A Yes, we've invested in the power unit
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`Case Clip(s) Detailed Report
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`PMI v. RJR EDVa Trial
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` 21 devices in order to try and hopefully make a return
` 22 on the consumables.
`23. PAGE 116:02 TO 116:05 (RUNNING 00:00:11.340)
` 02 Q When -- when RJRV made the decision to drop
` 03 the price of the Vuse Alto power units to $0.99, did
` 04 it expect to have negative net sales on the sales of
` 05 those power units?
`24. PAGE 116:08 TO 116:10 (RUNNING 00:00:05.672)
` 08 THE WITNESS: Yes, we knew that the impact
` 09 of the discount would result, most likely, in a
` 10 negative net sales number.
`25. PAGE 116:15 TO 116:20 (RUNNING 00:00:20.830)
` 15 Q Now, Reynolds American and Philip Morris
` 16 have traditionally been direct competitors in the
` 17 U.S. market for combustible cigarettes, correct?
` 18 A R.J. Reynolds Tobacco Company and
` 19 Philip Morris USA are direct competitors in the U.S.
` 20 cigarette combustible market.
`26. PAGE 121:15 TO 121:18 (RUNNING 00:00:15.605)
` 15 Q So it's fair to say that RJRV and NuMark
` 16 were direct competitors up -- from 2013 until NuMark
` 17 exited the e-vapor market, correct?
` 18 A That's fair to say, correct.
`27. PAGE 121:19 TO 121:23 (RUNNING 00:00:15.901)
` 19 Q And the Vuse product line specifically
` 20 directly competed with NuMark's MarkTen vaping
` 21 product in the United States while the MarkTen was
` 22 on the market, correct?
` 23 A That is correct.
`28. PAGE 128:23 TO 129:01 (RUNNING 00:00:10.634)
` 23 RJRV believes that the Vuse products are
` 24 directly competitive with iQOS in the United States,
` 25 correct?
` 00129:01 A That is correct.
`29. PAGE 129:19 TO 129:24 (RUNNING 00:00:19.708)
` 19 Q And which heat-not-burn products are
` 20 currently offered for sale in the United States by
` 21 RJRTC?
` 22 A R.J. Reynolds Tobacco Company currently has
` 23 an Eclipse-branded heat-not-burn product available
` 24 for sale in the United States.
`30. PAGE 131:14 TO 131:18 (RUNNING 00:00:12.835)
` 14 A The RJR -- I'm sorry, the R.J. Reynolds
` 15 Tobacco Company Eclipse product is a heat-not-burn
` 16 product which is similar in nature to the iQOS
` 17 product in the United States, and so it would be a
` 18 competitive product.
`31. PAGE 131:19 TO 131:21 (RUNNING 00:00:07.773)
` 19 Q RJRTC's heat-not-burn Eclipse product
` 20 competes directly with iQOS in the United States,
` 21 right?
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`PMI v. RJR EDVa Trial
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`32. PAGE 131:23 TO 131:24 (RUNNING 00:00:01.664)
` 23 THE WITNESS: Correct, it would be a
` 24 competitive product.
`33. PAGE 156:07 TO 156:11 (RUNNING 00:00:20.885)
` 07 Now, I think, as you mentioned, Exhibit 18
` 08 is an internal RAI Innovations presentation titled
` 09 "Alternate Nicotine Platforms Strategic
` 10 Implications" dated January 2017, right?
` 11 A Yes, that is the title.
`34. PAGE 156:22 TO 156:24 (RUNNING 00:00:10.559)
` 22 Q And as part of the presentation here,
` 23 Reynolds was analyzing PMI and doing a deep dive on
` 24 iQOS, correct?
`35. PAGE 157:02 TO 157:03 (RUNNING 00:00:04.301)
` 02 THE WITNESS: There is an agenda topic
` 03 title "PMI/iQOS Deep Dive."
`36. PAGE 157:05 TO 157:08 (RUNNING 00:00:09.557)
` 05 Q And in the third bullet, another aspect of
` 06 this presentation was analyzing the strategic
` 07 implications of HNB, which is heat-not-burn,
` 08 correct?
`37. PAGE 157:11 TO 157:12 (RUNNING 00:00:04.666)
` 11 THE WITNESS: There is an agenda line item
` 12 titled "HNB Strategic Implications."
`38. PAGE 160:13 TO 160:15 (RUNNING 00:00:06.849)
` 13 Q All right. Mr. Gilley, what do you
` 14 understand "leaking" to mean as used on this slide
` 15 of Exhibit 18?
`39. PAGE 160:18 TO 160:20 (RUNNING 00:00:07.887)
` 18 THE WITNESS: Based on this document, I
` 19 would -- I would understand "leaking" to mean
` 20 e-liquid leaking from the cartridge.
`40. PAGE 161:05 TO 161:07 (RUNNING 00:00:09.541)
` 05 Q I mean leaking of e-liquid from the
` 06 cartridge is something that is perceived negatively
` 07 by consumers, correct?
`41. PAGE 161:09 TO 161:10 (RUNNING 00:00:04.189)
` 09 THE WITNESS: Yes, consumers -- consumers
` 10 would prefer the cartridges not leak.
`42. PAGE 163:14 TO 163:22 (RUNNING 00:00:31.445)
` 14 Q And so the slide indicates that RJRT had
` 15 de-prioritized heat-not-burn between 2005 and 2016,
` 16 right?
` 17 A The title says "RJRT De-prioritization of
` 18 HNB."
` 19 Q I understand that's what the title says,
` 20 sir. I'm asking the slide indicates that RJRT had
` 21 de-prioritized heat-not-burn between 2005 and 2016,
` 22 correct?
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`Case Clip(s) Detailed Report
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`PMI v. RJR EDVa Trial
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`43. PAGE 163:25 TO 164:03 (RUNNING 00:00:12.349)
` 25 THE WITNESS: Without the proper context,
` 00164:01 it's hard for me to determine that and -- because
` 02 the -- it appears in 2015 was when the Revo launch
` 03 occurred, another relaunch.
`44. PAGE 164:12 TO 164:14 (RUNNING 00:00:08.129)
` 12 Q And associated with the label of 2005 to
` 13 2016, it states RJRT has de-prioritized
` 14 heat-not-burn, right?
`45. PAGE 164:17 TO 164:18 (RUNNING 00:00:01.851)
` 17 THE WITNESS: That is what the slide says,
` 18 correct.
`46. PAGE 165:04 TO 165:06 (RUNNING 00:00:08.694)
` 04 Q Is it true that as of January 2017, RJRT
` 05 did not have a next-generation electronic
` 06 heat-not-burn system in development?
`47. PAGE 165:08 TO 165:09 (RUNNING 00:00:02.417)
` 08 THE WITNESS: That would be my
` 09 understanding based on the slide.
`48. PAGE 166:12 TO 166:15 (RUNNING 00:00:11.034)
` 12 Q My question was just that you stated the
` 13 title there, "Three Key Issues for RAII to Explore,"
` 14 and my question was issues to explore in the context
` 15 of heat-not-burn, correct?
`49. PAGE 166:18 TO 166:21 (RUNNING 00:00:13.722)
` 18 THE WITNESS: It appears that heat-not-burn
` 19 is part of Number 1 and Number 2, and for Number 3,
` 20 it appears to be a communication strategy for
` 21 alternative nicotine products.
`50. PAGE 166:23 TO 167:01 (RUNNING 00:00:13.511)
` 23 Q And with respect to Issue 3, the first
` 24 bullet point, RAII is asking "How can RAII get the
` 25 same recognition for alternative nicotine products
` 00167:01 as PMI?" right?
`51. PAGE 167:03 TO 167:03 (RUNNING 00:00:00.821)
` 03 THE WITNESS: Yes.
`52. PAGE 168:20 TO 168:24 (RUNNING 00:00:13.589)
` 20 Q And then the slide in the fourth bullet
` 21 continues, says "Because RAII does not have a
` 22 next-generation heat-not-burn product, it would take
` 23 significant time and investment to commercialize a
` 24 new product and catch up to competitors," correct?
`53. PAGE 169:02 TO 169:02 (RUNNING 00:00:00.627)
` 02 THE WITNESS: Correct.
`54. PAGE 169:04 TO 169:05 (RUNNING 00:00:02.772)
` 04 Q And those competitors would include
` 05 Philip Morris, correct?
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`Case Clip(s) Detailed Report
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`PMI v. RJR EDVa Trial
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`55. PAGE 169:07 TO 169:08 (RUNNING 00:00:02.567)
` 07 THE WITNESS: I assume Philip Morris would
` 08 be a competitor, correct.
`56. PAGE 169:15 TO 169:18 (RUNNING 00:00:12.596)
` 15 Q And the slide summarizes by saying "Should
` 16 the heat-not-burn market emerge in the
` 17 United States, RAII would be exposed given its
` 18 underinvestment relative to competitors," correct?
`57. PAGE 169:20 TO 169:20 (RUNNING 00:00:00.529)
` 20 THE WITNESS: Yes.
`58. PAGE 172:18 TO 172:21 (RUNNING 00:00:14.427)
` 18 Q So based on the heat-not-burn product
` 19 portfolio that RJRTC had in January 2017, it was at
` 20 a competitive disadvantage relative to its
` 21 competitors in the heat-not-burn market, correct?
`59. PAGE 172:24 TO 173:01 (RUNNING 00:00:07.099)
` 24 THE WITNESS: I would say more based on the
` 25 alternative nicotine product portfolio that RJRV had
` 00173:01 in its portfolio at that time.
`60. PAGE 210:24 TO 211:02 (RUNNING 00:00:15.143)
` 24 Q The agreement you referenced earlier is a
` 25 settlement and license agreement that RJRV entered
` 00211:01 into with Fontem in September 2018, correct?
` 02 A That is correct.
`61. PAGE 211:03 TO 211:13 (RUNNING 00:00:44.860)
` 03 Q And who is Fontem?
` 04 A Fontem is a -- I believe it's a subsidiary
` 05 of Imperial Brands that owns several global patents
` 06 in the e-cig category.
` 07 Q And when the settlement agreement with
` 08 Fontem was signed in September of 2018, Fontem was
` 09 selling vaping products in the United States in
` 10 competition with the Vuse products, correct?
` 11 A I believe they were marketing products
` 12 through a subsidiary under the Blu brand at that
` 13 time.
`62. PAGE 211:23 TO 212:03 (RUNNING 00:00:21.982)
` 23 Q Now, in addition to suing RJRV, Fontem also
` 24 sued many other companies in the e-vapor industry
` 25 asserting those patents, right?
` 00212:01 A It's my understanding they did pursue
` 02 other -- patent infringement against other
` 03 companies.
`63. PAGE 212:14 TO 212:18 (RUNNING 00:00:17.092)
` 14 Q Who was involved in the negotiations with
` 15 Fontem that led to the Fontem license agreement from
` 16 RJRV's side?
` 17 A It's my understanding it was a lawyer-led
` 18 negotiation with Reynolds' third-party counsel.
`64. PAGE 214:20 TO 215:01 (RUNNING 00:00:23.880)
` 20 Q And who was the third-party counsel that
` 21 led the negotiation that Mr. Lees identified for
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`PMI v. RJR EDVa Trial
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` 22 you?
` 23 A There was two attorneys with Haynes Boones,
` 24 Ralph Gabric and Laura Beth Miller.
` 25 Q Did you speak with either of them to
` 00215:01 prepare for your deposition today?
`65. PAGE 215:02 TO 215:02 (RUNNING 00:00:01.207)
` 02 A I spoke with both of them.
`66. PAGE 215:12 TO 215:16 (RUNNING 00:00:21.517)
` 12 Q So what did you discuss with Mr. Gabric and
` 13 Ms. Miller?
` 14 A Just general terms of the settlement as
` 15 well as the -- the cost and how, ultimately, the
` 16 $79 million was derived as a negotiated number.
`67. PAGE 215:17 TO 215:23 (RUNNING 00:00:14.705)
` 17 Q You said the terms of the settlement as
` 18 well as the cost.
` 19 What do you mean "the cost"?
` 20 A The payment.
` 21 Q The $79 million? Is that what you're
` 22 referencing?
` 23 A That's correct.
`68. PAGE 215:24 TO 216:02 (RUNNING 00:00:12.129)
` 24 Q Okay. Did you discuss anything other than
` 25 the general terms of the settlement, the ultimate
` 00216:01 $79 million cost and how that number was derived?
` 02 A No.
`69. PAGE 216:06 TO 216:14 (RUNNING 00:00:29.701)
` 06 The -- the -- in the agreement with Fontem,
` 07 RJRV agreed to pay a one-time lump sum amount of
` 08 $79 million, correct?
` 09 A That was my understanding, correct.
` 10 Q How was that $79 million lump sum payment
` 11 derived?
` 12 A Again, based on discussions with
` 13 Mr. Gabric, it was a lawyer-led negotiated amount
` 14 that both parties deemed to be fair and reasonable.
`70. PAGE 216:20 TO 217:04 (RUNNING 00:00:29.828)
` 20 Q What else did Mr. Gabric and Ms. Miller
` 21 tell you about how the $79 million lump sum payment
` 22 in the Fontem agreement was derived?
` 23 A That was the extent of the conversation.
` 24 Q Okay. Did they tell you anything else
` 25 about the $79 million lump sum payment in the Fontem
` 00217:01 agreement?
` 02 A No.
` 03 Again, that was the extent of the
` 04 conversation.
`71. PAGE 218:04 TO 218:06 (RUNNING 00:00:14.563)
` 04 Q And RJRV, in fact, did pay the entire
` 05 $79 million lump sum payment to Fontem, correct?
` 06 A Yes, I believe that is correct.
`72. PAGE 218:12 TO 218:16 (RUNNING 00:00:13.586)
` 12 Q Did RJRV make any other payments to Fontem
` 13 in connection with settling this -- these
` 14 litigations other than the $79 million lump sum
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`PMI v. RJR EDVa Trial
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` 15 payment?
` 16 A None that I'm aware of.
`73. PAGE 220:03 TO 220:07 (RUNNING 00:00:17.503)
` 03 Q Okay. And did RJRV prepare any analysis
` 04 determining the relative value of the different
` 05 patents that it obtained a license to in the Fontem
` 06 agreement?
` 07 A Not that I'm aware of.
`74. PAGE 221:18 TO 221:22 (RUNNING 00:00:15.097)
` 18 Q Do you have any other information other
` 19 than what you've already told me about how the
` 20 $79 million lump sum payment in the Fontem agreement
` 21 was derived?
` 22 A No, I do not.
`75. PAGE 224:05 TO 224:09 (RUNNING 00:00:14.541)
` 05 I'm just going to ask you is this -- is
` 06 Exhibit 24 the U.S. settlement and license and
` 07 assessment agreement between RJRV and Fontem that
` 08 you discussed earlier?
` 09 A Yes, it is.
`76. PAGE 225:15 TO 225:19 (RUNNING 00:00:10.542)
` 15 Q And -- and do you have knowledge about
` 16 anything else in Exhibit 24 as to how the terms --
` 17 A No.
` 18 Q -- were agreed upon?
` 19 A No.
`77. PAGE 272:22 TO 273:02 (RUNNING 00:00:17.873)
` 22 RJRV is still selling the Solo, Vibe, Ciro,
` 23 and Alto as of today -- right? -- in the
` 24 United States?
` 25 A Yes, we are.
` 00273:01 Q Okay. Are you aware of any plans to stop
` 02 selling those four products in the United States?
`78. PAGE 273:04 TO 273:06 (RUNNING 00:00:03.644)
` 04 THE WITNESS: No, I'm not aware of any
` 05 plans to stop selling those products in the
` 06 United States.
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`TOTAL: 1 CLIP FROM 1 DEPOSITION (RUNNING 00:14:42.481)
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`Case Clip(s) Detailed Report
`Wednesday, June 08, 2022, 7:55:23 PM
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`PMI v. RJR EDVa Trial
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`Gilley, Nicholas (Vol. 01) - 05/06/2021
`1 CLIP (RUNNING 00:13:03.389)
`
`Gilley,N_050621_ALL_TRIMMED
`
`52 SEGMENTS (RUNNING 00:13:03.389)
`NG-ALL2-FINAL
`1. PAGE 297:06 TO 297:11 (RUNNING 00:00:21.368)
` 06 You understand what I mean when I refer to net
` 07 present value analysis, right?
` 08 A. I do.
` 09 Q. And what does that term mean to you?
` 10 A. Well, I'm not an expert, but a net present
` 11 value is generally a discounted cash flow model.
`2. PAGE 297:12 TO 297:16 (RUNNING 00:00:18.279)
` 12 Q. And in your work at Reynolds, have you used net
` 13 present value rates to calculate the present value of
` 14 future sales?
` 15 A. In prior financial roles I did use net present
` 16 value calculations.
`3. PAGE 299:23 TO 300:04 (RUNNING 00:00:23.970)
` 23 -- are you familiar with the term weighted average
` 24 cost capital or WACC?
` 25 A. I am.
` 00300:01 Q. What is that?
` 02 A. It -- weighted average cost capital is the
` 03 expected return a company would use as a benchmark
` 04 for a typical financial analysis.
`4. PAGE 300:13 TO 300:14 (RUNNING 00:00:06.644)
` 13 Q. So RJRV follows the baseline WACC that Reynolds
` 14 American Incorporated uses. Is that right?
`5. PAGE 300:17 TO 300:19 (RUNNING 00:00:05.479)
` 17 THE WITNESS: It would have been based on the
` 18 time specific of its -- but, yes, generally speaking
` 19 that would be correct.
`6. PAGE 301:15 TO 301:16 (RUNNING 00:00:06.526)
` 15 Q. Do you recall the baseline WACC from when you
` 16 were working in your prior role at Reynolds?
`7. PAGE 301:18 TO 301:18 (RUNNING 00:00:02.167)
` 18 THE WITNESS: It varied from year to year.
`8. PAGE 301:20 TO 301:24 (RUNNING 00:00:12.998)
` 20 Q. And what was the range that it varied?
` 21 A. Based on recollection, somewhere in the
` 22 neighborhood of eight to eight and a half percent,
` 23 depending on the year. Could be higher; could be
` 24 lower.
`9. PAGE 301:25 TO 302:02 (RUNNING 00:00:13.149)
` 25 Q. So when performing present value analysis, that
` 00302:01 baseline WACC is then adjusted in -- in connection
` 02 with various risk factors. Is that right?
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`PMI v. RJR EDVa Trial
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`10. PAGE 302:04 TO 302:06 (RUNNING 00:00:06.031)
` 04 THE WITNESS: Under standard financial policy,
` 05 it would be adjusted based on the analyst's
` 06 assessment of risk.
`11. PAGE 302:08 TO 302:16 (RUNNING 00:00:31.453)
` 08 Q. And what type of factors would be considered
` 09 when adjusting the baseline WACC to a final adjusted
` 10 WACC?
` 11 A. There -- there were several different factors.
` 12 One example would be the industry growth versus
` 13 decline or stagnant. There could be risks associated
` 14 with competitive entrants, various entry, and there
` 15 were others that I don't recall off the top of my
` 16 head.
`12. PAGE 303:18 TO 304:04 (RUNNING 00:00:51.226)
` 18 Q. Sure. So let's say you're -- you're
` 19 calculating the present value of future sales for the
` 20 Vibe. Is any part of that analysis in terms of the
` 21 risk factors being considered different, for example,
` 22 than if you are calculating the present value of
` 23 future sales of the Alto?
` 24 A. Again, it would be case-by-case dependent based
` 25 on the analyst's assessment of risk at that time.
` 00304:01 Q. So, for example, calculating the present value
` 02 of sales for the Ciro in 2017 could be very different
` 03 than calculating the present value of future sales of
` 04 the Alto, correct?
`13. PAGE 304:06 TO 304:07 (RUNNING 00:00:02.413)
` 06 THE WITNESS: They could be different. That is
` 07 correct.
`14. PAGE 304:09 TO 304:15 (RUNNING 00:00:25.587)
` 09 Q. And why would they -- what would cause them to
` 10 be different?
` 11 A. It -- numerous risk factors would cause them to
` 12 be different. Obviously the market dynamics. The
` 13 changes in product format. They're -- it's -- each
` 14 one is case-by-case dependent, so it's very hard to
` 15 answer a question like that.
`15. PAGE 307:12 TO 307:16 (RUNNING 00:00:15.479)
` 12 Are you familiar with Dr. Ryan Sullivan?
` 13 A. I'm familiar with Dr. Ryan Sullivan.
` 14 Q. And he is Reynolds' damages expert in this
` 15 case. Is that your understanding?
` 16 A. I believe that is correct.
`16. PAGE 307:17 TO 307:20 (RUNNING 00:00:10.564)
` 17 Q. Did you speak with Dr. Sullivan in connection
` 18 with this case?
` 19 A. I do believe we had a brief meeting with
` 20 Dr. Sullivan.
`17. PAGE 308:05 TO 308:07 (RUNNING 00:00:06.540)
` 05 Q. How long was your conversation with
` 06 Dr. Sullivan?
` 07 A. Approximately 30 minutes.
`
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`18. PAGE 308:24 TO 309:04 (RUNNING 00:00:18.833)
` 24 Q. Did you and Dr. Sullivan discuss any documents?
` 25 A. Yes, we did.
` 00309:01 Q. Do you recall which documents you discussed
` 02 with Dr. Sullivan?
` 03 A. Specifically we reviewed a Ciro financial
` 04 Excel-based document.
`19. PAGE 309:05 TO 309:08 (RUNNING 00:00:12.457)
` 05 Q. And you and Dr. Sullivan discussed the net
` 06 present value rate contained in that Ciro financial
` 07 document, right?
` 08 A. Yes, we discussed the discount rate.
`20. PAGE 309:13 TO 309:15 (RUNNING 00:00:05.372)
` 13 Q. Present value rate and discount rate are
` 14 equivalent terms to you. Is that fair?
` 15 A. That is fair.
`21. PAGE 309:21 TO 309:23 (RUNNING 00:00:09.757)
` 21 Q. Now, the Ciro document you discussed with
` 22 Dr. Sullivan had a discount rate that pertained only
` 23 to the Ciro product, correct?
`22. PAGE 309:25 TO 310:01 (RUNNING 00:00:03.744)
` 25 THE WITNESS: It was used for the Ciro product
` 00310:01 analysis in that specific model.
`23. PAGE 310:03 TO 310:06 (RUNNING 00:00:14.286)
` 03 Q. And you did not discuss with Dr. Sullivan any
` 04 documents that contained present value at discount
` 05 rates that were used in connection with forecasting
` 06 sales of the Solo, Vibe, or Alto products, correct?
`24. PAGE 310:08 TO 310:09 (RUNNING 00:00:03.147)
` 08 THE WITNESS: I don't recall any -- discussing
` 09 any of those documents with Dr. Sullivan.
`25. PAGE 310:11 TO 310:16 (RUNNING 00:00:20.004)
` 11 Q. And you didn't discuss with Dr. Sullivan any
` 12 documents that contained present value or discount
` 13 rates for any Vuse products from the 2018 timeframe
` 14 or later, correct?
` 15 A. I do not recall discussing any documents from
` 16 that timeframe.
`26. PAGE 310:17 TO 310:20 (RUNNING 00:00:08.945)
` 17 Q. Did Dr. Sullivan ask you any questions during
` 18 that conversation?
` 19 A. Yes.
` 20 Q. And what did he ask you?
`27. PAGE 310:21 TO 310:23 (RUNNING 00:00:13.323)
` 21 A. Specifically related to the document, he asked
` 22 if the discount rate that we used was one that we
` 23 would use in the ordinary course of business.
`28. PAGE 311:06 TO 311:12 (RUNNING 00:00:27.266)
` 06 Q. Did you explain to Dr. Sullivan how the net
` 07 present value rates for the Ciro in the Ciro business
` 08 case document was derived?
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` 09 A. I explained to him that the normal methodology
` 10 typical would have been just begin with the weighted
` 11 average cost of capital and adjust for any risk
` 12 assessment based on circumstances at that time.
`29. PAGE 311:14 TO 312:03 (RUNNING 00:01:00.863)
` 14 Q. Did you tell Dr. Sullivan what risk assessments
` 15 were applied to arrive at the net present value rate
` 16 contained in the Ciro business documents?
` 17 A. I do not think I could specifically get to that
` 18 based on the document that we were looking at, but I
` 19 believe the number was around seven and a half
` 20 percent, which was in line, in my memory, of where we
` 21 were modeling at the time, based on the weighted
` 22 average cost of capital we discussed earlier, around
` 23 eight, eight and a half percent for the company.
` 24 Q. But you don't remember -- well, but you did not
` 25 tell Dr. Sullivan the specific risk adjustments that
` 00312:01 were applied to the baseline rate to arrive at the
` 02 7.5 percent present value rate in the Ciro business
` 03 document. Is that right?
`30. PAGE 312:05 TO 312:07 (RUNNING 00:00:08.049)
` 05 THE WITNESS: We discussed the possibility and
` 06 likelihood that it was adjusted down by around one
` 07 due to the growing category at that time.
`31. PAGE 318:05 TO 318:08 (RUNNING 00:00:15.653)
` 05 Q. And, Mr. Gilley, we have marked as Exhibit 1