Tobacco Documents Online

":"- 500-09-001297-9 i0 .X- :: ( our i 'App ! :: oV. Mon trial .:.:. :!.'i: ::::: .':. .v.'V"(~e Roge~ ~. Bake~, e. ~t. ] P~oeu~eu~ de l'Appelant .v."" • :-:-P~oeu~eu~,~ de l'Appelant Tour Lst ":':" .:"." 1155, boul. Ren4-L4vesque ouest 140, rue O'Connor :.'-:... :.:.: Bureau 2720 17e 6tage .v. .v... Montr6al (Qu6bec) Ottawa (Ontario) .'+'v" ::i:."H3B 2K8 KIA 0G5 "" • :.:. :.'. :':-"T61. : (514) 866-6674 T~I. : (613) 996-4425 .v. • :.:. :i:i: .....":" PAUL EVRAIRE, E6q. ~e CLAUDE JOVAL ..:.:" • ..':"" P~oeu~eu~ de l'Appelant P~oeu~eu~ de l'Appelant ::::: .v. 2, First Canadian Place Ministate de la Justice .V..v. .v. Bureau 3400 du Canada .v. :.:.: Exchange Tower, Box 36 Complexe Guy-Favreau .X. :.:.'. ::::: Toronto (Ontario) 200, boul. Ren4-L4vesque ouest ..'.::: +:. M5X 1K6 Tour est, 9e 4tage :.'. • i:i:i'" T61 : (416) 973-0927 Nontr6al (Quebec) :...:" • :'F H2Z iX4 :" .v. T~I : (514) 283-4040 • D .':. :':':.. Ide~4ASTFR, I~EIGHEN LERNFR t ASSOCI~S .v.:':': :... P~oeu~eu~6 de l'intimge P~oeu~eu~ de l'Zntimge "" :':': RJR-NaeDonald Inc. RJR-NaeDonald Inc.. :.:.: .v. 630, boul. Ren~-L6vesque ouest Scotia Plaza v.. v.. Bureau 700 40, rue King ouest :':': :vV" Nontr~al (Quebec) 19e ~tage, Box 210 v..::::: :.:.:'" H3B 4H7 Toronto (Ontario) -.v v.- T~I : (514) 954-3147 M5H 3Y2 .':.+ .'+" " "X" :~:i: T61. : (416) 867-3076 :::::... -X. :.:.: su,,,~L, ~00 INC. lelecop,eu, (514) 866-4861 :.:.: ..;. M{rtH, al Qc H2Y 187 .'.'.

::::: 500-09-001296-912 .v. .:.:. 500-09-001297-910 ' ( our i 'Apprl " :.'- ...%1" Montreal .v..:.:. :.:.: WaeKEIVZIE, GERIIAIS :.:-: ::::: (We George6 ~. ThLbaudeau} .:.:. v.. P~.oett~eu~.,~ de l'intimge +:. .v. RJR-WaePonald Inc. .:.:. :.:-: 770, rue Sherbrooke ouest .v. • """ Bureau 1300 .v. :<': Nontr4al (Qu4bec) "2:: • Z. :... • "."-" H3A IGI 2:: • :.:. ....:. ::::: TGI. : (514) 842-9831 .'.X :.:.: ..'.:. :.% :.'. • :':- .v. ":"" OGIL(IY RENMILT OSLER, HOSKIN /~ HARCO~IRT -:':" ":':" [We Simon {/. Pot£e~} (Lgndon ...:.: - . , - "" (We Pie~e 8ienuena) P~oea~ea~ de l'intimge ".':" • :.:-P~ocu~ea~a de l'i~tLmge Impe~ia~ Tobacco Ltd :"::. :':': Impe~iaZ Tobacco Ltd i, First Canadian Place :-'. :.:.: 1981, avenue McGill College Box 50 .v. ::::: Bureau ll00 Toronto (Ontario) :.:.: • :.:-Montr6al (Qu4bec) M5X IB8 .:.:. '" ::::: H3A 3CI Tdl. : (416) 362-2111 v.. T61 : (514) 847-4747 • H" : v X< :.'. ::::: BERNARI)~. ROY ( A880CI~3 • ....':':" (We lea~-Yue6 Be,zna~d) :v"':" :.:.: P~oea~eu~ du Wia e.n cause :... v.- Palais de Justice .v. :.:.: .:.:. ::::: i, rue Notre-Dame est .:.":.. .v. Bureau 8.00 .'.:-." • :.:- .:.:. :.:-: Montrdal (Qu4bec) :.:.: :.:.: H2Y :B6 :::i: :i:i: T41. : ( 514 ) 393-2336 .'-.'-: :.:.: :-:.. ~i.:.:.:.:.:.:.:.:.:.:.:~:....:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:. :.:.:.:.:.:....:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:....:.:.:.:.:.:.:.:.:.:.:.:.?:.:.:.:.:.:.: .:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:. ,v. 4, Notre-Dame Stroot Has: .v. '" i llrmi . ultifartum '" .v. Suil~ 100 Phone,: (614) 866-3565 .v. :.:.: Montreal. Oc H2Y IB7 INC. Fax: (514) 866-4861.v.'V"

i:i:! 500-09-001297-910 :..v ...-. .v. ;" Montr+al "X" :!:i: ::::: :.'... En appel de deux jugements rendus le 26 ju±liet 1.991., par .-...'v" :-:.: l'honorable juge Jean-Jude Chabot, de la Cour sup~rieure, .:.:. ::::: district de Nontc6al '"" ::. Nos : 500-09-001296-912 C.a.M. - 500-05-009755-883 C.s.M. "X" LE PROCUREUR GENERAL DU CANADA v.- APPELANT-Intim~ .v. c. RJR-MacDONALD INC :.'. INTIM~E-Requ4rante ~:::'v" - e t - LE PROCUREUR G~N~RAL DU QUEBEC :...:" MIS EN CAUSE-Mis en cause .v. .V..v. Nos: 500-05-001297-910 C.a.M. - 500-05-009760-883 C.s.M. LE PROCUREUR GENERAL DU CANADA .E- APPELANT-Intim6 IMPERIAL TOBACCO LTD .v.:"" INTIM~E-Requ6rante - e t - LE PROCUREUR GENERAL DU QUEBEC MIS EN CAUSE-Mis en cause X.: "2:: X': D O S S I E R C O N J O I N T .v. ":::: Volume VI: pages 762 ~ 891 v.- ( D4posit ions ) -X. :'X ":" ...:::::.. llemiz ultifad:um""'' I~,#ph0ne~ (5,4)866-3565 V." -'-'- link.,.., lei~,cop,eut (514) 866-4861 "-'." • V. Mo,-ureal. Qc h2Y 187 .~.[.

500-09-OO1296-912 500-O9-OO1297-910 Montreal Me CLAff~E JOYAL Minist6re de la Justice du Canada Complexe Guy-Favreau 200, boul. Ren@-Ldvesque ouest {Me Eaal A. Chgania~, P~oca~ea~ d~ ~J~-Mac~onald Inc. Scotia Plaza 40, rue Kin~ ouest 19e dtage, Box 210 Toronto (Ontario) M5H 3Y2 T~I.: (416) 867-3076 0o ::. ".:" • v-'..BAKER, ;#UI~L[MA~4 t, LAMONTAGNE Me _lAMES MABBUTT, c.tt. .v.:':': ...-.'v" {Me Roge~ ~. 8ake~t, c.~t. } Paocuaeu~ de l'Appglan£ .:"".:. .v. P~ocu~eu~ de l'Appelan~ Tour ~st v.. • ".'. ~ :'X ::::: i155, boul. Rend-L4vesque ouest 140, rue O'Connor .:.:- .:.:. :..'.:Bureau 2720 17e 6tage .:.:. • :':"Montr@al (Qudbec) Ottawa (Ontario) ":':" .-::::H3B 2K8 KIA 0G5 .v..:.:. v." T61 : (514) 866-6674 T~I : (613) 996-4425 :'X ::::: "X" • ".:" :-X :...""PAUL E|/RAIRE, E6q. .v. ":':" P~tocurect~t de l'Appelant :" :..v. .v. .v. 2, First Canadian Place :.'. :.:-: Bureau 3400 .E- ::::: Exchange Tower, Box 36 "..::i: :+" Toronto (Ontario) .:.:. M5X 1K6 Tour est, 9e 4tage :,:.: T61.: (416) 973-0927 Montr4al (Qu4bec) ::::: H 2 Z I X 4 :-'::: T61. : (514) 283-4040 ::::: McMAST[R, :i:!: {Me Colin K. I~tvin91 ... :':': P~oeu~eu~6 de. l' intimge ":" :.:.: RJR-Mael)onald Ine .. ::::: 630, boul. Ren4-L6vesque ouest ;':'; .:.:. .:.:. :-:-: B u r e a u 700 • :':"Montr@al (Qu6bec) :.':: :'>: H3B 4H7 ".v .v.'V" T~I . : ( 514 ) 954-3147 v..'E" • X. :.:.: ::::: ::..:: .:.:. .:.:. ::::: • .::.': 4. rue Notre-Dame Es, ::::: gurem~ 100 INC.;#lOcopleul: 1514) 866-4861 :-.;: ":':" M{ {~t #a Qc H2Y ] B 7;,%

.v. 500-09-001296-912 v.- • "- :i:i: :.'- 500-09-O01297-910 .v. :'2"2 :,:,:'":::'" .ur i '9,ppel :::::...""":: Z-: ":':" ::~; :':': i!!! Montreal ~:?:.v- -:.:- i:i:i :.:~.:~.:~.:~.:~.:~<~.:.:.:.:.:~.:.:.:.:.:<.:.:.:~.:~.:~.:.:.:~.:.:.:~.:<.:~.:~.:.:.:~.:~.:~.:~.:~.: .:~.:.:.:~.:.:.:.:.:.:.:.:~.:.:.:.:.:.:.:.:.:~.:.:.:.:.:.:~<~.:~.:.:~.:.:~.:~.:<.:~.:.:.:.:.: ::::: ::::: :!:i: ::..:: ~acKENZIE, GERI/AIS v.- .v. (Ne George,, R Thibaadeau) ::::: • :.:: RJR-~aeOo,ald I,e. .v. 770, rue Sherbrooke ouest .v. .v. Bureau 1300 .v. v." Montr4al (Qu6bec) v.- :'X H 3 A l G 1 .v. T@I : (514) 842-9831 .:.:. :.'. :':': OGILIlY RE,fAULT OSLER, ffOSKIN g HARCOURT -:':" ..:."" (~¢ Simon V. Potte~J (Lgndon A.3. 8a~tng6, E6q. ) .:.:. ....."" [Me Pie~e Bicnve,~) P~tocu~eu~ de l'intimge :::: • :.:.'v" Peoeuteue~ de l'iatim4e Imperial Tobacco Ltd ::::::" :':': Impe~ia£ Tobacco Ltd i, First Canadian Place -':. :+: 1981, avenue McGill College Box 50 .v.'V" "':" Bureau 1100 Toronto (Ontario) ":" 1.:.; .-... .:.:. :.'. ::-Montr6al (Quebec) M5X IB8 .'.'::: i!ii ~3~ 3Cl ~1. : (416) ~2-~111 .,...-... ::::'. T41 : (514) 847-4747 "':" ... " .:.:. :.'. v.. ;<.: ":':" BERNARIT, ROY g ASSOCIt-S :.:.: :.:.: v.. (lde Jean-Yu¢~ Be~,aad) .v. ":':" Palais de Justice .v. :':': i, rue Notre-Dame est .'.:. :+." v.. .v. Bureau 8.00 ".-:.: • :.:. .-..:. ::::: Montr6al (Qu6bec) :.:.: v.- H2Y IB6 --. • :.:. T41. : (514) 393-2336 :.'. i..i~i~~.~~~~~~:.~~~~~~~.~~~~~~~~~~~~~~~.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.~~~~~~~.~~~~~~~.~~~~~~~~~ ~~~~~~~~~~~~.~~~~~~~~~~~~~.~~~~~~~~~~~~~.~~~.~~~~~.~~~.~+~~~~~~~~~~~~~~~~~.~~~~~~~.~~~~~~~~~.~.~~~.~ .~~..~~~~~~~~~~~~~~~~~~~~.~~~~~+~~..~~~~~~~~~~~ • [.:. 4, Notre-Dame S~reet Eas: ~:~'~ ' ~hrmi~ .,'~ultifa~tum :-'. Suite 100 Phone: (514) 866-3565 :" "°"" Montreal Qc H2Y 187 ~NC, Fax: (514) 866-4861 .v. ~~~~~+~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.~~~~+~+~~~~~~~~~~~~~~X~~~~~~~;~ ~~;~?~~~~~~~~~~~~~~~~~~~~~~~~~~<~~~~~~~~~~~~~~~;~~~~

TABLE DES MATI~RES ¥oi. Page Le 26 septembre 1989 PREUVE DE LA REQUZRANTE RJR-MacDONALD INC. ~ L'ENQUZTE (SUITE) PETER HOULT (suite) Vo!. 3 - pp. 230 ~ 311 Vo!. 3 - pp. 311 ~ 355 En chef par Me Irving VI 762 Contre-int. par Me B~ker VI 847

762 CANADA PROVINCE DE QUt~BF.,C DISTRICT DE MONTREAL COUR SUPI[RIEURE SOUS LA PRt[SIDENCE DE L'HONORABLE JUGE JEAN-JUDE CHABOT, J.C.S. No : 500-05-009755-883 R JR-MACDONALD INC. Requ6rante LE PROCUREUR GI~Nt~tL-kL DU C,~NADA Intimd No: 500-05-009760-883 IMPERIAL TOBACCO LIMITt~E Requ~Lrante LE PROCU]tEUR G~Ni~K4L DU C~NADA Intimd 26 septembre 1989 - Vol. 3 COMPARUTIONS • Pour la requ6rante R JR-MACDONALD INC. Pour la requ~rante IMPERIAL TOBACCO LIMITt~E M° COLIN K. IRVING, M" GEORGES R. THIBAUDEAU, EARL A. CHERNIAK, Q,C., Mc MICHEL A. PINSONNAULT, Avocats SIMON V. POTTER. PIERRE BIENVENU. LYNDON A.J. BARNES. ESQ.. GREGORY BORDAN Avocats MACKENZIE GERV&IS Procureurs OGILVY, RENAULT Procureurs Pour l'intimd LE PROCUREUR GI~NI~RAL DU CANADA ROGER E. BAKER, Q.C., M¢ CLAUDE JOYAL, PAUL EVIL4,IRE, ESQ., Avocats COT£ & OUELLET Procureurs AUDIOTRANSCRIPT, - Division de Vilaire a Associ4s - St~nographes Officiels - Court reporters 4 est, Notre-Dame, Bureau 201, Montr6al H2Y 1B8-- T41.: 871-1219

763 227 INDEX PROOF OF PLAINTIFF PETER HOULT Examination (Contd) Cross-examination Paqes 230 311

764 228 RJR-4 RJR-5 RJR-6 RJR-7 RJR-8 RJR-9 RJR-10 RJR-I1 RJR-12 RJR-!3 RJR-14 LIST OF EXHIBITS Document de 6 pages multi-Brand Tracking En liasse, lettre du 30 janvier 1987 de RJR-Macdonald, a Creative Research letter du 20 janvier 1987 de Creative Research a RJR-Macdonald Document intitul6 "Youth 1987" prepared for RJR-Macdonald by Creative Research Group Ltd. Document intitul6 "Young Adult Study, July 1987" Document 403, questions provided to the Research Group by RJR-Macdona!d Advertisement for Tempo marked "New Time - New Taste," number 55 Tempo advertisement (one man on it, number 41) Tempo ad "New Tempo" (number 39) Copy of a "Macdonald Special" advertisement, "une cigarette sp6ciale, une attention sp6ciale," number 138 Copy of a "Macdonald Sp6cia!e" advertisement (number 154) RJR-Macdonald Exhibits (13 Tabs) 232 249 250 251 252 291 291 291 299 300 302

765 229 LIST OF OBJECTIONS Objection .................. Objection .................. 292 308 AUDIOTRANSCRIPT, D~','i6on ~, P~rr~ Vila~re & A,,o¢I~ L,4,

766 230 i0 15 2O 25 In the year of Our Lord nineteen hundred and eighty-nine (1989), on this twenty-sixth (26th) day of the month of September, PERSONALLY C.~E AND APPEARED: PETER HOULT, WHO, having been duly sworn on the Holy Bible, doth depose and say as follows: Me COLIN IRVING: My Lord, before continuing with Mr. Hoult, in the crowded room yesterday I omitted to introduce one member who'll be sitting at the table behind me, Mr. Doug Mitchell is a student at my office and is in fact the most important person here. runs our computer. THE COURT: Mr. Mitchell? Me IRVING: Mr. Douglas Mitchell. He runs on our side. He EXAMINED BY Me COLIN IRVING, for RJR-Macdonald Inc.: Q - Now, Mr. Hoult, we were !poking at Tab 3 of the green AUDIOTRANSCRIPT, Divi,lon ~e P~,~re V~loi,¢ & A,,o6~.

767 231 5 A - A - i0 Q- A - 15 Q - 20 A - Q- 25 book of exhibits yesterday at the adjournment. Before we go on with that, I'd like to step back just for a moment and ask you whether that study was prepared within RJR-Macdonald. This is a summary of a study which was written up in something like three hundred and fifty (350) pages, so yes, it's -- it was an in-house summary prepared. Prepared from some other study? From the major study and which, as I say, was some three hundred (300) pages. And was that other study done by your company itself or by an outside company? No. Like all our market research studies, it was commissioned with an outside agency. I want to show you, Mr. Hoult, a document marked "Multi-Brand Tracking, Brand Family and Smokers Segmentation" And on the title page, it's marked: "Prepared for RJR-Macdonald Inc. and prepared by ABM Research Limited". Is that the study from which Tab 3 came? It is. Now, in the document you now have in front of you, the Multi-Brand Tracking, there is an index page, then a section marked "Background and Objectives", then a section marked "Method". AUDIOTRANSCRIPT, DN'i~ion 8e Pierre Vilo;re & .A~,o~i~ Liege

768 232 i0 15 2O 25 THE COURT: Are we in Tab 3? Me IRVING: Not yet, My Lord. THE COURT: Ah, okay. Me IRVING: I'm going to hand in an additional document to go with Tab 3. THE COURT: Okay. Me IRVING: Q - It runs to six (6) pages. Is that an extract from the larger report you were speaking of, which shows the methodology followed? A - Yes, it is. Q - I would like to have the extract marked, please, as RJR-4. Me ROGER E. BAKER, Q.C.: This document, I see, excuse me, 57 marked on a copy of the extract that you've given me. Is that 57 from your original index, Mr. Irving? Me IRVING: Yes. were given is marked on the document. Yes, in each case, the number from the index you I didn't realize AUDIOTRANSCRIPT, Divi,ion de Pierre Vilaire & A,,o¢14, Lt~e

769 233 i0 15 2O 25 that yesterday, but that is true of all the documents. Me BAKER: Thank you. Me IRVING: My Lord, my friends have the complete survey which, as Mr. Hoult said, is three hundred and fifty (350) pages long. I do not intend to put it in and burden the record. If my friends wish it filed, of course, we will be happy to do so. Q -. Does this shorter document now, RJR-4, Mr. Hoult, explain the methodology which was followed in carrying out the larger report? A - Yes, it does. Q - Now, let us come back to Tab 3, Mr. Hoult, which you've now told us is taken from that larger report. And when we adjourned yesterday, I think we were looking at the... THE COURT: Mr. Irving, would you give me just a minute? Me IRVING: Yes, certainly, My Lord. THE COURT: Okay. Me IRVING: Q - I think we were looking at the pie-chart on page 2273 AUDIOTRANSCRIPT, Division de Pierre ViJolre & Associ~s tt~e

770 234 5 i0 15 20 25 Me BAKER : Excuse me, My Lord. which simply shows share of market by segment. Yes. Now, Mr. Hoult, without attempting to go through every page of this document, which is very long, would you just explain to the Court what it represents and the purpose for which it was put together? The total segmentation study was, as I say, a study of an enormous undertaking, something like three thousand (3,000) interviews in total, a study of a sort that we carry out once every couple of years. The objective of these studies, essentially, is to define your smokers, define your competitive smokers and thereby to target your brands more effectively than would otherwise be the case. It's also very important for fleshing out the needs, the beliefs, the wants of your smokers and it provides some creative guidance to the advertising agencies. Now, in doing those interviews you spoke of, Mr. Hoult, do you interview people who don't smoke? No, this is a segmentation study of... I don't know that it's established, when he says: "Do you interview", that it was done by RJR-Macdonald or an outside agency. I don't know whether it's appropriate for Mr. Hoult to be saying how AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ~s Ltge

771 235 5 i0 15 2O 25 the interviews were conducted, unless it's first established that his company did it or he has direct knowledge himself. Me IRVING: Would you turn... THE COURT: As far as I understand it, that research was conducted by ABM Research Ltd. and not... Me IRVING: Yes, that's right. THE COURT: ... RJR. Me IRVING: That's correct, My Lord. Q - To your knowledge, Mr. Hoult, and I refer you to RJR-4, methodology, are the interviews and are these surveys done on the instructions of RJR-Macdonald? A - Yes, they are. Q - And does RJR-Macdonald give any instructions as to whether non-smokers are to be interviewed? A - Yes, it's part of the overall planned brief, so-called, and this is checked in various ways that that brief has been followed. The most reliable method is that some ten percent (10%) of the samples are called back on by supervisors to insure that those instructions have been AUDIOTRANSCRIPT, Division 4e Pierre Vilaire & Associ~s Lt4e

772 236 i0 15 2O 25 Qu A - Yes, it is. Me IRVING: followed. Do you give instructions concerning interviews of smokers or non-smokers? Yes, as part of the overall brief. The instructions are this is a study of the cigarette smoking market and therefore cigarette smokers only. Is that reflected, Mr. Hoult, in exhibit RJR-4, at pages three (3) and four (4)? Yes, on page three (3). At the top of page four (4) of RJR-4, My Lord. THE COURT: Page four (4)? Me IRVING: You will see the passage to which Mr. Hoult is referring. Q- Does your company ever carry out surveys for purposes of preparing advertisements, Mr. Hoult, which involve non-smokers? A- Absolutely not. Q- Now, I'm sorry, I'd interrupted you. Could you go back to describing, in general terms, the purpose and nature of this report, which is Tab 3? A- Yes. This is a study which in some form or other is conducted at long but regular intervals, one (i) to two AUDIOTRANSCRIPT, Div~,~on de Pierre Viloire & Associ~s Lt~e

773 237 i0 15 2O 25 (2) years. It's a way of monitoring the market and how it evolves. It is a method whereby the market of cigarette smokers is divided into groups or segments and these segments form the basis of our market targeting of our brands versus competitive brands. Now, I see different kinds of segments in this report. If we look at the page immediately following the pie-chart, there is a page entitled, "RJR MI Representations Within Family Segments." Yes. What segments are those? These are segments which result from an analysis of consumer attitudes and beliefs about different brands, where they group the brands together in terms of some form of similarity that they see these brands have. And in this particular study, the brand families, Export family with all its line extensions, for example, were grouped with their competitive brands in the marketplace. Right. So when I see on that page, "Segment One"... Yes. ... is that a reference back to the segment one we looked at yesterday in the -- in tab i, Segment One Cigarettes? Yes.

774 238 i0 15 2O 25 Om Am Om Am Om Am All right. So that's one kind of segment, cigarettes themselves? Yes. And if we go two (2) pages further on, which would be page two two seven six (2276), My Lord. The heading there is "Tobacco Graphics." would you tell the Court what that is, please? Yes, this word is a summary word of people's attitudes towards cigarette smoking as reflected by their responses or answers to a large number of attitudinal statements, and typically the respondent will be asked to say whether he or she agreed or disagreed, strongly agreed, strongly disagreed or had no opinion at all. All right. And are some of those questions shown on the next page which is twenty-two seventy-seven (2277)? Yes. As a result of that particular exercise, their answers were grouped into like responses. In other words, are there any broad attitudinal areas that cluster together that tell us a little bit about how this market is fragmenting. Now, the first page under tobacco graphics shows that five (5) groups of smokers were identified. Are they the groups which begin at page twenty-two seventy-eight (2278)? These were the groups that the agency recognized emerged AUDIOTRANSCRIPT, Division de Pierre Vilolre & Associ6s Lt6e

775 239 l0 15 20 25 and, as such, the agency combined the answers to all those attitude statements to give rise to these five (5) consumer segments; cigarette smoking consumer segments. Q- Now, the first group on page twenty-two seventy-eight (2278) is called experimenters and so on. Whose words are those? A- All these descriptions are the descriptions of the specialists working in the market research agency. Q- Now, we go on to page twenty-two eighty-one (2281). Your Lordship is looking at ostriches, perhaps? THE COURT: Yes. Me IRVING: Q- At page twenty-two eighty-one (2281), there is number three (3) which is called, "Psychographics." And, again, could you just explain in general terms to His Lordship what that represents? A- Yes, in contrast to those attitudes I've just described, which were specifically related to smoking, these are more general attitudes to life and to lifestyle and describe the individuals rather more fully than specific interest in tobacco. Q- And if we go over then to the next page, which is twenty-two eighty-two (2282), do we find the six lifestyle segments which are referred to on the previous AUDIOTRANSCRIPT, Division de Pierre Vilaire & Asso¢i~, Lt~e

776 240 5 l0 15 20 25 Qm page? Yes. The first being status seekers? Yes. Again, Mr. Hoult, whose words are these: status seekers, affluent progressives, and so on? These are the market research specialists who work in the advertising agency and who put the original report together. You may find it difficult, My Lord, as some of us do, to find any one of these groups with an acceptable title. And then the report goes on, Mr. Hoult, after describing those groups, twenty-two eighty-five (2285), back to segment one (i). Yes. And would this then be a summary of the results as you obtained them from the ABM research study? Yes, segment one (i) goes back to that original cigarette segment made up of those two (2) brands or two (2) brand families, Players and Export. And it goes on to describe those attitudes that these people have or appear to have from the other aspects of the study. So each of these segments is now flushed out in terms of the smokers' attitudes both towards cigarette smoking and towards life in general. It also describes their AUDIOTRANSCRIPT, Division cle Pierre Vilaire & Associ~s Ltae

777 241 5 A- i0 15 20 25 leisure activities and their interests and their immediate reading habits. Now, Mr. Hoult, I'd like to ask you how you use this information, how do you target your advertising campaigns? It is perhaps a fuller answer than just advertising campaigns. Because when we target our brands, we're targeting the whole brand and the advertising campaign is but one manifestation of targeting. But a good example would be, if we take segment one, we have learned from this segmentation, for example, what their attitudes are in general, what their attitudes are to cigarette smoking, and we see that our brand, Export, is very well represented in there as is the known major competitor. And of course, we knew this before the segmentation study, that it was Players. But as a result of a study like this you will be able to refine your brand positioning, of the family overall, you are able to refine the positioning of the various line extensions within that family, and you are able to, with your advertising agency, to develop advertising which both supports the strong position of your brand in the market and, we hope, addresses weaknesses that he has specifically against a competitor. And everything we do in these segments is

778 242 10 15 2O 25 Qq AB to look at the competitor, what our strengths are, what their weaknesses are. So, in short, that is how we use the segmentation study. All right. Now, turning your attention for the moment to advertising and the planning of advertising campaign, are their particular target segments and, if so, what are they? In developing any advertising campaign, your most important consideration is the competitive brands in the marketplace. And if your segmentation is valid, your competitive brands are quite clearly indicated. And furthermore, you know an awful lot about how the smokers of the competitive brands regard their brands. And, therefore, in developing advertising campaigns for your brands, your brands that are going to compete against the brands of our major competitors, you would take the segmentation studies, you would review and discuss them with your advertising agency, you would agree on the basic positioning of your brand in the marketplace and the agency would then develop advertising campaigns which normally would then be tested very specifically. So this segmentation is a broad study to direct you and then you would develop market and advertising strategies which you would then test specifically. AUDIOTRANSCRIPT, Di',,is~on cJe Pierre Vilc~ire & As,oci~s Lt~e

779 243 l0 15 20 25 Am Qm Am Now, for example, Mr. Hoult, in preparing advertising campaigns, do you look at age categories or target group or do you simply target everybody? Well, one of the fundamentals about the competitive nature of brands is that each brand has its profile of age, each brand has a bias towards males or females. Many brands, indeed, have a regional bias, geographic bias. Now, your segmentation would produce all this information and it all would be a rather important and vital part of the advertising agency briefing initially and subsequently your brand positioning. Now, dealing first with age, what age categories, as segments, does your company recognize? We tackle the age profile of our brands, as in most other areas, in very broad strokes. I mean, we don't ever direct a brand specifically, for example, at a twenty-nine (29) year old or a thirty-five (35) year old, that's impossible. But what you do, you try to group your smokers in terms of age, in terms of like-minded interests. And the most useful categories that we've found are, broadly speaking, what we call young adults, age eighteen (18) to twenty-four (24), then twenty-five (25) to thirty-five (35)... THE COURT: Just a sec. Young adults: nineteen (19) to? AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associgs tt#e

780 244 i0 15 2O 25 A- Eighteen (18). Me IRVING: Eighteen (18), My Lord. THE COURT: Am Oe Ao QD Eighteen (18). Eighteen (18) to twenty-four (24). Twenty-five (25) to thirty-five (35). On occasion we have different groupings, but broadly these are the categories that we find the most useful, and then thirty-five (35) to fifty (50) and fifty (50) plus. Any more refined than that in terms of age would probably not be practical. Does your company have a policy, Mr. Hoult, about minimum ages for targeting advertising? Yes, we do. We advertise to the young adult group, aged eighteen (18) to twenty-four (24), and we never advertise or market to anybody aged under eighteen (18). Do you ever do any market research on people under the age of eighteen (18)? No, we do not. We have a corporate policy which is to carry out our market research among those -- those smokers in whom we are able to market, and we chose to market, and market research rulings apply in the same way as marketing rulings. We do not carry out market research on anybody under the age of eighteen (18). Are there ever any exceptions to that rule, Mr. Hoult? AUDIOTRANSCRIPT, Division de Pierre Vi~aire & Associ4s Lt4e

781 245 l0 15 20 25 A. There was only one (i) exception to that rule and that exception was when we subscribed to what is called, what has been called, the youth study. We were approached by a market research company that was interviewing young adults and young people aged between fifteen (15) and twenty-four (24), and our interest in that was in the young adults aged eighteen (18) to twenty-four (24), as I've said earlier. Q. For what purpose was this company interviewing people from fifteen (15) to twenty-four (24)? A. Well, this was a general study called, an omnibus study. And an omnibus study is a study carried out by essentially a market research agency who says "look, we're going to do a general study in the market and we are going to do this general study among a specific group of people." In this particular case, it was young adults. And they would go to several clients and try to sell this study that they'd developed. And we agreed to Purchase it, but it was a study that was subscribed to by many other marketing companies in many different product fields, not just tobacco. Me BAKER: Excuse me, My Lord, I don't want to make a particularly dramatic issue of it but my -- but the witness is clearly testifying about things to which he has no AUDIOTRANSCRIPT, Division de Pierre Viloire

782 246 10 15 20 25 personal knowledge. I mean it might be useful for him to tell the Court what their own purpose, R.J.'s purpose was in getting the study but what the promoters or the sellers of the study were telling other people and what other people were telling them, it's not appropriate for this witness to be telling that story. Me IRVING: My Lord, Mr. Hoult is testifying as the former President and Chief Executive Officer of the company. Obviously, in any large corporation there will be areas where the President has informed himself and can testify in front of the Court on that issue. If a technical objection like that is to be maintained, it would be necessary each time to parade before the Court seven (7) or eight (8) officers of the company. I think Mr. Hoult can testify as to what his company did and as we all know, the President of the company doesn't run every single detail every day. The business couldn't be carried on that way. I am coming to a letter which will explain the point... Me BAKER: But excuse me, My Lord... Me IRVING: Just a moment... AUDIOTRANSCRIPT, Division de Pierre Vilaire & A,,o~i4, Lt~e

783 247 5 i0 15 2O 25 Me BAKER: ... that doesn't respond. THE COURT: One at the time. Me IRVING: Are you finished Mr .... Well, I was just going to say I'm -- I'm coming to a letter which the company wrote concerning that study which I think will solve my friend's problem anyway. Me BAKER: I have no problem with Mr. Hoult as the former Chief Executive Officer of this company testifying to what went on within the body politic of R.J.R. Macdonald, but what my friend said doesn't respond to the objection. I'm talking about what the outside agency who was promoting this study did in respect of others, and that has nothing to do with what went on inside R.J.R. Macdonald. That, I don't think, he's competent to testify to. Me IRVING: Well, My Lord -- may I go on, My Lord? THE COURT: Well, obviously he cannot testify to what the research agency might have said to somebody else if he wasn't there or if the company wasn't privy to it. But he ... AUDIOTRANSCRIPT, Division ae Pierre Vilaire & Associ~s Ll4e

784 248 i0 15 2O 25 Me IRVING: No, but of course ... THE COURT: ... can say or can show his letters or exchange of communications which will ... A. May I just say, My Lord, I was, I was making an observation about an omnibus study with which I'm very familiar, and I was describing what an omnibus study was. And having carried out a number of them myself, I~ feel I am qualified to describe what an omnistudy indeed was, which I did. Me BAKER: I am not so sure that it's for the witness to argue the objection to tell you what he's qualified or not qualified to do. That's what you get paid for, My Lord. THE COURT: Proceed. Me IRVING: Thank you My Lord. Q. Now, Mr. Hoult, you say that you were approached by an outside agency in connection with this omnibus study and that you decided to take part in it. I want to show you a letter from RJR-Macdonald to the Creative Research Group Limited dated January thirtieth (30th), nineteen eighty-seven (1987) and a reply from the Creative AUDIOTRANSCRIPT, Division de Pierre Vilaire & AssociCs L~'~e

785 249 i0 15 20 25 to show you a document, Mr. Hoult ... THE COURT: Just a minute, just a minute. Me IRVING: I'm sorry, My Lord. Me BAKER: Is this an extra copy of it? Me IRVING: Yes. THE COURT: Research Group dated February twentieth (20th), nineteen eighty-seven (1987). My friend, I think has copies. And ask you if the letter of January thirtieth (30th), nineteen eighty-seven (1987) from the Director of market research of your company was the letter by which you agreed to participate in this particular study? It was. And is the second (2nd) letter a response confirming your participation? Yes, it is. I'd ask to have that marked as RJR-5 en liasse, i want And these letters pertain to the market survey that you -- that Mr. Hoult was testifying about just a few minutes ago?

786 250 i0 15 2O 25 Me IRVING: That is correct. Q - I want to show you, Mr. Hoult, a document entitled "Youth 1987", which is marked "Prepared for RJR-Macdonald Inc." by the creative research group. Now, is that the report you were discussing a-moment ago? A - Yes, it is. Q - And is that the report to which the letters you've just filed relate? A - Yes, it is. Q - The record should show that this is document number 414. Me IRVING: My friend has a copy of it. My Lord, I do not propose to file this, unless the Court wishes to see it. I don't think it relates to the issues and it's another very long study. If my friends wish to have it filed, I'd be very happy to do so. Me BAKER: I think you should. Me IRVING: Very well. file it as RJR-6. And if that is being done, then to complete the record -- My Lord, in view of Mr. Baker's request to file the original study, I'm now going to At the request of Mr. Baker, My Lord, I will AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ~s Lt~e

787 251 5 i0 15 2O 25 show Mr. Hoult a second document headed "Young Adults Study". The date is a little hard to read, July nineteen eighty-seven (1987). Q - And I would ask you, Mr. Hoult, if this is a company document which was prepared from the Youth Study which is now RJR-5 -- 6? A - Yes, it is. Q - Then I would ask you to produce that, please, as RJR-7. Me IRVING: My Lord, I am doing that only because my friend wanted the other one put in, and that should be with it because they go together. Q - And finally, Mr. Hou!t -- it's not a particu!ary flattering picture of Canadian youth, My Lord. Me BAKER: What is not? Me IRVING: The report. Q - Just to complete this series of documents, Mr. Hoult... THE COURT: When you describe the youth as big city independents, tomorrow's leaders, transitional adults, quiet conformers, insecure moralists, small town traditionalists. AUDIOTRANSCRIPT, Di,,~,io,~ ,~ P~e:r, ,,i~oi,, & A,,0:;~,

788 252 i0 15 2O 25 Me POTTER: I believe I'm all of those, My Lord. Me IRVING: I think Your Lordship missed "Thank God it's Friday", which I thought was Mr. Potter myself. Q - Mr. Hoult, when the research group approached your company, were you asked, in the event you wished to participate, to provide any questions to be asked by them and did you do so? A - Yes, the company was asked and we did indeed provide questions for the study. Q - Now, I'm showing you a single sheet of paper simply marked "RJR-Macdonald Inc.", document 403. Are those the questions which your company provided to the research group? A - Yes, they are. Q - May I have that marked, please, as RJR-8? Mr. Hoult, you've told the Court that all your research is conducted among smokers. Do you direct advertising at any time to non-smokers? A - All our advertising is directed against smokers and these are either smokers of our brands or smokers of brands that we identify as the major competitive brands. Q - When you refer to smokers of your own brands, what is your purpose in directing advertisements to them? AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ~s Lt@e

789 253 i0 15 20 25 Am This is a very aggressive market indeed and just as we, at all times, are trying to increase our market share by taking share away from the competition, they are doing the same thing towards us and, therefore, advertising has a very important role of defending your own brand and its franchise against such competitive ... All right. And insofar as advertisements are researched originally and then directed against smokers of other brands, what is the aim there? Could you repeat the question? Insofar as advertisements are directed to people smoking competitive brands, what is your aim in doing so? In directing and researching competitive brands and eventually directing our campaigns against the smokers of competitive brands, our objective is to gain market share. To persuade them to switch brands? Yes. Why don't you advertise to non-smokers? We do not have, as I said, I think yesterday, sufficient funds to effectively achieve the brand-switching that we would like to. That is the objective of our advertising. Directing advertising against non-smokers does not work. Advertising cannot, in my experience, persuade a non-smoker to smoke any more than it can't AUDIOTRANSCRIPT, Di,,i,io,', d, Pi,~ Viloi~ & A,,o~;~, Ltge

790 254 5 i0 15 2O 25 persuade a smoker to give up the habit. Q - In fact, Mr. Hoult... THE COURT: Q - I'm not clear on your answer. Why? Is that because of insufficient funds or what? A - No. As I tried to say yesterday morning and yesterday afternoon and today, all our advertising is developed on the basis, to the best of our ability, of knowledge of consumer wants and needs and beliefs. Our advertising is directed against the competitive brands. We do believe that if we have a good campaign and if we spend sufficiently against that campaign, we can achieve brand-switching. We do believe that we can achieve retention of our own smokers. If we advertise ineffectively, that is if the message is not relevant even to smokers, or if, by some chance, it is perceived as being directed at smokers who are not in our target, then we know that does not succeed. If, therefore, you don't succeed within the smoking population in achieving your goals, you cannot succeed in attempting -- which we don't -- to change somebody's behavior so radically from being a non-smoker to a smoker. All our advertising is brand advertising and what you've just asked, Mr. Irving, is to ask us why we don't AUDIOTRANSCRIPT, Division de Pierr, Vilalre & Associ~s Lt~e

791 255 10 15 20 25 advertise to non-smokers and persuade them to smoke. That is a much more fundamental change of behavior and advertising cannot affect that, given what I've said about its ineffectiveness, quite often, in achieving that which it sets out to do, which is a much more modest goal. Me IRVING: Q - Does your company produce any advertising which is not brand preference advertising? A - No. Q - Now, Mr. Hoult, we have been discussing the various target groups for advertisements and we've dealt with the age category. You mentioned several others and I'd like to just run over them with you. You said that there are regional differences. Is Canada a single market, from the point of view of your company? A - Well, a single market from the standpoint of how we are organized as a company. We have a group of people whose specific responsibility is to build a business in Canada. From the marketing standpoint, Canada is several markets. And I say this because the smoking behavior of the Canadian smoker varies considerably in different parts of Canada, his brand preference is different, and we direct our programs accordingly. Q - From a marketing point of view, is there some convenient AUDIOTRANSCRIPT, Division de Pierre Viloire

792 256 5 i0 15 2O 25 way that Canada can be divided up into areas? A - Well, we -- we divide our market geographically, that is broadly into five (5) major areas: the eastern part of Canada -- the Atlantic provinces that is; Quebec, which is a market in its own right; the large market of Ontario, in its own right; the Man/Sask provinces and finally the Western provinces. Me BAKER: Excuse me, what was it just before West? THE COURT: Man/Sask. Me IRVING: Q - Manitoba and Saskatchewan? A - Manitoba and.., sorry, I said Man/Sask. I meant Manitoba and Saskatchewan. THE COURT: Q - Alberta and C.B. are together? A - Yes. Q - B.C., should I say. A - There are also regional differences as manifested by urban versus suburban or rural smokers and our marketing efforts reflect that too. Me IRVING: Q - Now, looking first then at the Eastern provinces, let's take Export as an example, Mr. Hoult, as a major brand, AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ6s L'~e

793 257 A - 15 20 Q- 25 is that weaker or stronger in Eastern Canada than it is elsewhere or is it the same everywhere? No, the performance of Export, I think, is a very good barometer or indicator of what I've just said. Export enjoys its largest share by far in the Eastern provinces. That has been traditional, and as a result we put an awful lot of our marketing efforts towards defending that strong position that we have. It's also a very strong market for the Export fine cut brands, in fact the strongest. And is the weight of your advertising then targeted regionally, in accordance with the popularity of the brand in that region? Yes, you would -- you would certainly defend very heavily a strong brand because you know that your competitors are going to be putting very major efforts behind your strength in certain geographical areas, but also I would have to say it works the other way too. If you're particularly weak, you would increase your offensive efforts in order to strengthen your position in any particular geography. So both factors occur, one to defend and one to attack. Now, you mentioned that apart from straight geographical divisions like that, there are divisions to be made between urban areas and rural areas. Taking Vantage for AUDIOTRANSCRIPT, Division ~le ~erre Vilai~'e & Asso¢i4s Lt4e

794 258 Q- i0 A - 15 2O Q- A - 25 example, is that a product which is sold in both urban and rural areas or is it confined to one? Vantage is distributed all across Canada, but its brand share of market is markedly different between urban, suburban and rural areas. In fact, it is so strong in urban areas versus the rural areas that we restrict our advertising to the urban areas and we restrict our marketing efforts to the largest cities in Canada. Just to take one other of your brands, Macdonald Special, where is it primarily sold in Canada? Well, Macdonald Special was sold, when it was a value brand, right across Canada. After the price war, the price of Macdonald Special went up, as it did for all the competitive brands, and immediately we found that the brand could not sustain itself in the central and the western parts of Canada. And as a result of that, we focused on its areas of strength, again Eastern Canada, and all our advertising and promotional support, after a very short time, were devoted to that geographical area. Does the prevalence of smoking generally vary by region in Canada? That would not be a significant factor. It does vary somewhat but it's not as significant a factor as some others. The smoking incidence, I believe, certainly AUDIOTRANSCRIPT, Di'.'i,ion d, Pierre

795 259 10 15 2O 25 Om Om Am since I have left Canada, the incidence of smoking in Ontario, for example, is somewhat lower than in Quebec and in Western Canada too. But this is not something that I'm currently very familiar with. I think there have been a number of changes since I left the market. So we've dealt with age and we've dealt with regional differences. Are your brands, are some of them targeted more towards females than males or vice versa? Yes. Export, as a brand and a total brand family, has a very marked skew towards male smokers. And as a consequence, our advertising historically has always had a male tone, a male positioning in it. Is there any other brand in your -- in your company which is rather preferred by females? Vantage has a female skew and also a brand, a small brand of ours called Macdonald Select. You have mentioned, as well as some of those segments, that some brands seem to have a socio-economic bias. Could you explain that to the Court, please? Yes. Just as we -- as we measure the characteristics of our smokers and the competitive smokers on age dimension, for example, or regional strengths or weaknesses, there are socio-economic differences. And I think the most marked example, in our stable of brands at any rate, is Export, which is strongly skewed to the AUDIOTRANSCRIPT, Division de Pierre Vilaire & As,o¢i@s L,4e

796 260 5 i0 15 2O 25 A m blue collar socio-economic grouping, rather than white collar or professional. And what about Vantage, for example? Vantage is quite the opposite. Partially correlated with its urban strength, Vantage is very definitely a white-collar brand. Now, with that, Mr. Hoult, description of the segments and your general description of your research and advertising aims, I'd like to come back to the book of exhibits, which will all be marked this morning, My Lord, and ask you to look at Tab 2. Tab 2 is the nineteen eighty-five (1985) operating plan and I would like to go through it briefly with you, Mr. Hoult, to illustrate for the Court how a lot of these concepts you've been talking about are actually put into action in any given year. But let me ask you first, just so that we may understand what the document is, whether it is your company practice to have an operating plan for each year? Yes, it is. If I could elaborate? Hm, hm. It's a vital part of our planning which essentially has two (2) legs: the strategic plan, which is a long-term outlook of three (3) years, and I described that yesterday. AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ@s Ll4e

797 261 i0 15 2O 25 QM That's Tab i. That's Tab 1. Yes. And when the strategic plan is approved and agreed, you immediately move into Chapter 1 of that three (3) year plan which is called here the operating plan, and this is a very much more detailed document, laying down very specific goals, targets, budgets, in contrast to the broadstroke strategy of the earlier document. Now, first of all, would you just look at page one (!) of the operating plan, which is the mission statement? Yes. Does that contain -- and I'm thinking particularly of the last paragraph -- a general description of the marketing programs which you're going to be carrying out? Yes. The mission statement as such is intended to be the very essence of what the company is attempting to do. Now, I want to look at some specifics for that year on matters you've already referred to, Mr. Hoult. And I would refer you first to page seventeen (17), and particularly to the very first paragraph. Yes. Could you just explain to the Court the decision that ,4UDIOTRANSCRIPT, Division de P~erre Viloi,~ & Asso¢~s Lt~

798 262 i0 15 2O 25 am that paragraph reflects? That's a very short paragraph but it does reflect a considerable number of discussions. This is probably as important an operating plan decision as you will see. I described yesterday how individual brand managers would be making recommendations, very aggressive recommendations, and how I had to allocate resources that the company could afford, which meant inevitably that certain brand managers would be very disappointed. They're competing with each other for these scarce resources. In this particular case, in this year, the strategic decision was to focus almost entirely, as you will see, the major funds on Export, our major brand family which represented so much of our business -- that essentially was defensive spending, although we had some very aggressive targets -- and the third family which I think, as emerged very briefly in the segmentation discussion, represented a major opportunity for us in that middle tar segment where the competition was so strong. Now, going down the page from that opening paragraph, under "Resource requirements", does that reflect the actual -- the actual dollars which were to be allocated? Yes, it does, but these aren't planned. AUDIOTRANSCRIPT, Divisioo de Pierre Vilolre & AssociEs Lt4e

799 263 i0 15 2O 25 Yes. The actual performance would not necessarily be precisely... No no. ... this, but yes, that was the -- this is the proposed budget that was ultimately accepted. And that's expressed in thousands of dollars? That's expressed in millions... In millions of dollars. ... of dollars. In millions of U.S. dollars. So, for example, of our total marketing resources in U.S. dollars, which amounts to eighteen million dollars ($18,000,000.00) on advertising and promotion, thirteen and a half million dollars ($13,500,000.00) were put behind -- behind Export. Q - And two ($2,000,000.00) for third family? A - Yes, but that looks quite a modest figure, given what I was saying, but it reflects a late launch in the year, a late launch planned of two million dollars ($2,000,000.00). In subsequent years, the funds for third family will be considerably larger. THE COURT: Ow The planned results -- E.F.O., what is that... Earnings from operations, My Lord. E.F.O.N.O.A.? AUDIOTRANSCRIPT, Division de Pierre Vilalre & Associ~s Lt~e

800 264 I0 15 2O 25 A - That is a ratio. It's a measure of our company efficiency. The ratio of our earnings as a proportion of our net operating assets. Q - Corporate sum? A - Corporate share of market. Q- S.O.M.? A - S.O.M., share of market. And the final planned result there is earnings from operations as a proportion of our net sales. And those were -- they would be planned results that we would be expected to deliver, and it would be on that basis of commitment that the allocation would be agreed. Me IRVING: Q - If we turn to page nineteen (19), Mr. Hoult, does that show the actual and projected share of market for Export and the other brands? A - Yes, it does. In the center of this page, you see the planned results measured by our share of market, yes. Actual for eighty-three ('83), when this plan was written, it was the middle of eighty-four ('84), so we have L.E. for latest estimate. And then, this is a nineteen eighty-five (1985) plan, and that is so indicated. Q - So your objective was to try to grow the share of market of the Export family to fourteen point six percent AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associgs Lt4e

801 265 i0 15 2O 25 Om A m (14.6%)? Yes, a very substantial increase in market share in, as I say, a declining market. Hm, hm. If we go to page twenty-two (22), Mr. Hoult, at the bottom of that page, under "B", My Lord, you will see "Action Programs" Now, does that show the actual or the planned allocation for advertisement promotion for each of the brands again? Yes, it .does. And it shows that with the -- those aggressive objectives for Export would require seventy-five percent (75%), slightly more than seventy-five percent (75%), of our total resources. Now, I see three (3) items under "Action Programs". The first: "Concentrate Corporate Resources" in line with "Agreed Brand Family Priorities", and then there are the priorities. Yes. If we turn the page... Yes. ... numbers 2 and 3, do I take it that those reflect the general decision we were discussing a minute ago? Yes, you're referring to... Right at the top. In order to find these funds for Export... Yes. AUDIOTRANSCRIPT, D~v~,~o. de Pierre Vilalre 8, Associ4s Lf4e

802 266 5 i0 15 20 25 Om Am ... we had to minimize allocation for resources behind minor brands. In fact, that amounts to a sacrifice of the -- of the minor brands, in the sense of no support. But in order to get that share of voice up for Export, to achieve those goals, it had to be done. I'd like to come to share of voice, Mr. Hoult. I see, just under number 3 on that page, My Lord, some actual figures and some forecasts which are marked "1983 Actual Measured Media S.O.V." That's share of voice? Share of voice. Now what does that represent, Mr. Hoult, when I see the ten point nine (10.9) for nineteen eighty-three (1983)? It means, going back to our short account yesterday, that in nineteen eighty-three (1983) the Export family as a whole, with its expenditure, only accounted for ten point nine percent (10.9%) of all the advertising and promotional expenditure in the Canadian market. And if you look at the following year, that was increased to twelve point two (12.2). We were on this very aggressive program for Export, to try to grow the brand. And in full knowledge of the share of voice that Players was enjoying, it was very necessary to increase this substantially. And you can see that our plan for nineteen eighty-five (1985) is to continue doing this, in full knowledge, again, of what the competitive brand AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associgs Lt@e

803 267 i0 15 2O 25 family, Players in this case, was doing at the time of the writing of this plan, and our projections of what the Players share of voice would be in the following year. Q - All right. Now... THE COURT: Q - And the measured media dollar, is that in millions of dollars? A - The measured media dollar, yes, My Lord, it's... Q- U.S .... A - ... millions of dollars? Q - ... millions? A - Yes, U.S. millions of dollars. Me IRVING: Q - Now, you have already pointed out to the Court -- that's on page nineteen (19), My Lord -- that the planned results of the Export family, as far as share of market was concerned, may I take it then that this projected increase in share of voice was the means you were going to adopt in order to obtain that increased share of market? A - Yes, it was the most significant single action we would take to become more competitive with the competitor's share of voice, in order to achieve that rather aggressive share of market result. AUDIOTRANSCRIPT, Division de Pierre Vi{alre & Associ~s Ltee

804 268 i0 15 20 25 Qm Au Now, Mr. Hoult, if I wanted to -- if I wanted to measure the effectiveness of your brand advertising, and to compare it with actual results, would I have to look at your actual expenditure or would it be share of voice, which is the proper -- proper thing to look at? The share -- the actual expenditure in any market -- and this is true not just of cigarettes, it's true generally -- is not relevant. The actual expenditure is not relevant, you say? Except there is, obviously, a certain amount you have to spend in order to be noticed. But after that basic achievement is realized, the only measure of your advertising that a professional marketing man wouldbe -- would be focused upon is share of voice. If I want to grow my brand, am I investing in the brand? And in order to determine whether he's investing, he's Going to be looking at the competition. If you want to take share away from your competition, you look at your share of voice. Have I got more share of voice? Okay, it seems a reasonable objective. If you've got less share of voice, then you're pushing water uphill. It's very tough indeed. Even if you're spending more money? Well, as I say, the absolute sum of money is not relevant. What is relevant is the competitive AUDIOTRANSCRIPT, Division de P~erre Vii:~r~ & ,~,,;oc;_~s ~,4e

805 269 S l0 15 20 25 situation, and the best way of measuring how competitive you are is share of voice. It's, in the same way, your actual volume in terms of a measure of how you're performing in the market, is less relevant than share of market, because that's comparing yourself to the competition. Q - And then over to page twenty-four (24), but I think you've already seen this, there are your planned results in terms of share of market? A - Yes. Q- I'd like to come now to third family, Mr. Hoult, Tempo. THE COURT: To what? Me IRVING: To the third family which we've been hearing about, My Lord. I intend to take Mr. Hoult through the planning process and the execution of advertising, and for the third family cigarette, which ended up being called Tempo. In doing so, I will be using documents which are already in the book which you have before you. Q- Now, just as a preliminary matter though, Mr. Hoult, we have seen a good deal of third family in the business plans, would you just explain to the Court, in general terms first, the steps which would lead to a decision to AUDIOTRANSCRIPT, Division ae Pierre Vilaire & Associ~s Lt~e

806 270 i0 15 20 25 Am Au introduce a new brand into the market. The first decision would be a very simple one: does the company have a problem with its present brand line-up or does the company see an important opportunity that it should seize in order to continue to grow and gain market share. And our company, certainly since I was involved with it, was aware of what we considered to be a major vulnerability with so much of its corporate share of market and, for that matter, earnings, riding on a family called Export. And as we looked at our competition we could see the market moving fairly rapidly and fairly steadily into segments in which Export was not represented, the best example being that middle segment, middle tar and nicotine segment which, as we saw yesterday, duMaurier virtually dominated to the point of monopoly. So that was both a problem for our company and an opportunity. Now, it appears already from the documents that that opportunity was seen and the idea of introducing a third family was current by nineteen eighty-five (1985). In fact, Mr. Hoult, when was it that the company decided to explore very thoroughly the idea of bringing out a third family of cigarettes? Well, it was at the time when I was the Marketing Vice-President in the company. AUDIOTRANSCRIPT, Division de Pierre Vilalre & Associ~s Lt#e

807 271 5 i0 15 2O 25 Q- That was nineteen seventy-nine (1979) to nineteen eighty-three (1983)? A- Eighty-three ('83). And we started looking at this in the early eighties, and the first formal piece of research that we did to explore was in nineteen eighty-one (1981). Q- Now, is that first piece of research the report which is in Tab 4 of the book? A- Yes, it is. Q- It is entitled, "Third Family Qualitative Concept Tests?" A- Yes. Q- Was that a study done for your company by an outside group? A- Yes, it was. Q- Would you just explain, in general terms... Me BAKER: Excuse me, My Lord, I don't particularly like to interrupt my friend, but as I look at the document, I see that it's called, "A Final Report." So as he's put the question to the witness as it being the first piece of research, I'm wondering if there's something that we're missing. It's called, "A Final Report." I take it that it was preceded by something. AUDIOTRANSCRIPT, oi~i,io~ ~e Pierre Viloire & Associ~s Ll~e

8O8 272 i0 15 20 25 Me IRVING: Q- Mr. Hoult, was this preceded by something? A- There would be individual personal presentations of this research, and this was the final report, which was the formalized version presented to the company. I have no knowledge of any other document that preceded this, which would be called, "The First Segment," the third report. But it would be the summation of all their .research findings. Q- I should perhaps say, My Lord, for the benefit of my friends opposite, as well as for the benefit of the Court, that I do not by any means intend to burden this record with every single piece of paper which relates to Tempo, so. And we have tried to be selective so that the Court will be able to see at least one example of every different type of research that is carried out. Mr. Hoult, this one is entitled, "Qualitative Concept Test." Would you just explain in general terms what kind of test that is? A- Well, let me briefly first describe the word, "qualitative." Market research can be divided into two (2) very broad categories: qualitative research and quantitative research. Qualitative research by its very nature is not statistical. You would deal with a very small group of

8O9 273 i0 15 2O 25 people. Sometimes they'd be in a room together, sometimes there'd be individual interviews and the information that would come out would be conversational. They'd be allowed to express their views using their own language. And every so often this aualitative research is carried out by a trained experienced researcher who would do the interviews himself or herself, the group discussions himself or herself, and quite often it would be a psychologist. The results, therefore, are very much in depth. What you lose in terms of the reliability of a large sample, you gain in terms of field and depth to which the interviewing goes. The other type of research is called "Quantitative," and here this tends to be superficial: yes, no answers, making a tick on a battery of scales -- and what that loses in deoth, it gains in breadth and statistical reliability. And these are market research studies that might have two (2), three (3), four hundred (400) people, sometimes more involved. So this is a piece of qualitative research, probably carried out by a psychologist or a qualified social interviewer, to evaluate in discussion or discursive terms the concept of third family as we preliminarily saw it. And the concept would be written

810 274 i0 15 20 25 on a card or it would sometimes be illustrated by rough advertising visuals. Now, looking at Tab 4 at page two (2), is the concept being tested set out there? Yes. This is the written concept and it sums up... THE COURT: What page, I'm sorry? Me IRVING: That's on page two (2), My Lord, second paragraph. You see a brand positioning statement was developed for the third family and it reads as follows: "Canada's best tasting mild king size cigarette..." And so on. All right. So that was the concept you were putting to these people? That was the concept that every single respondent saw and the concept would be illustrated by, as it says at the bottom of this page, ten (i0) different advertising concepts. But they would all be dealing with this description. Sure. And they would typically be very rough and ready drawings. Now, page three (3) is headed "Methodology." Does that ,4UDIOTRANSCRIPT, Divi,lon de P;er:e V;Ich'e & As,oc;~s [,4,

811 275 i0 15 2O 25 Am AB show or identify the types of people who participated in the study? Yes, it does, and this falls into that category I described. This study was carried out among eight (8) groups of people. The groups would meet together and discuss under the leadership of that group discussion leader and in the early study the age range was twenty-five (25) years to forty-five (45) years. M'hm. Now, further down on that same page it says, "...the sample was structured as follows..." and there's a column for cities and smokers segment. Would you just explain please what is meant there by "smokers segment?" Well, you recall that yesterday that I described those very crude seven (7), I think it's seven (7) or eight (8) segments ranging from the very strong plain cigarettes all the way through to the very mild, and these Roman numerals here refer to the particular segment. And the groups represent there, as you can see, segment two (2), segment three (3), segment four (4), five (5) -- four (4) and five (5). So it's two through five (2-5) with the smokers segments represented in this study. And two of them have marked in brackets, "Competition." Yes. AUDIOTRANSCRIPT, Division de Pierre Vi~alre ~ Associ~, Lt~e

812 276 10 15 20 25 Q- Are those the people who smoked competitive cigarettes? A- Yes. And source means they were smokers of our brand. Q- Now, Mr. Hoult, I don't propose to take you through the whole of this document by any means, you've already described its purpose. Could I -- would it be a correct summary, if my friends will forgive me, that it's pretty well self-explanatory, and what you see in the remaining pages of the report is simply the reactions from the various people in the mini-groups to the various concepts that were put to them? A- Yes, it is. Q- Now, we'll go to the next Tab, which is Tab 5. THE COURT: Well, before we move to Tab 5, we will adjourn for fifteen (15) minutes. Me IRVING: Fifteen (15) minutes. Thank you, My Lord. SHORT RECESS THE COURT: Alors vule probl~me qui s'est lev~ ce matin, afin d'obvier ~ la difficult~ pratique, s'il yen a une, je vais ordonner que vous partiez l'enregistrement m~canique, monsieur le greffier. On avisera en temps et AUDIOTRANSCRIPT, oi,,i,~on de Pierre V;Iolre

813 277 5 i0 15 2O lieu, si besoin est. Me BIENVENU: Votre Seigneurie, avec votre permission, une autre question d'intendance. On s'~tait engag~ bier A vous donner une copie du Canada Evidence Act. Ce que nous avons fair pour faciliter votre t~che, c'est ajouter aux documents la r~f~rence que nous vous avions remis... cette loi-l~. Nous avons modifi~ l'index. Alors je sais pas sile v6tre est d~jA annot~; sinon, on peut simplement l'~changer. THE COURT: Sur les documents de r~f~rence? Me BIENVENU: Exact. THE COURT: Non, il n'est pas annot~, celui-l~. Me BIENVENU: Alors j'ai rajout~ le Canada Evidence Act et j'ai pour mes confreres une liste annot~e et des copies. S'ils veulent que je leur fasse la m~me courtoisie, qu'ils me remettent leur volume. AUDIOTRANSCRIPT, Division de

814 278 i0 15 2O 25 In the year of Our Lord nineteen hundred and eighty-nine (1989), on this twenty-sixth (26th) day of the month of September, PERSONALLY CAME AND APPEARED: PETER HOULT, WHO, being under the same oath, doth depose and say as follows: EXAMINED BY Me COLIN K. IRVING, for RJR-Macdonald Inc.: Q - Mr. Hoult, we were just turning, I think, to Tab... Me BAKER: Excuse me, Mr. Irving. My Lord, so we don't get into the kind of problem we were discussing in your chambers, not that I welcome it, but do you think it appropriate that we identify ourselves for the machine at the beginning of the session, as is normal? THE COURT: Yes. Me BAKER: Just to avoid problems later with the transcript. Me IRVING: Alors pour la requ~rante, RJR-Macdonald, Colin Irving et Georges Thibaudeau. AUDIOTRANSCRIPT, Division de Pierre Vilalre & Associ~s Ll4e

815 279 i0 15 2O 25 Me BIENVENU: Pour la requ~rante, Imperial Tobacco, Pierre Bienvenu, en remplacement de Simon Potter. Et nous sommes accompagn~s de Lyndon Barnes et de Greg Bordan. Me BAKER: Pour l'intim~ dans les deux (2) causes, Roger Baker, Claude Joyal et maitre Paul Evraire. Me IRVING: Q - • Now that we officially exist, Mr. Hoult, could we -- we had done Tab 4, which was the qualitative concept test, I believe, and I wanted to turn to Tab 5, which is entitled "Marketing Research Results Summary - Third Family, Quantitative Concept Research" And that's dated July nineteen eighty-two (1982). First of all, would you tell the Court, Mr. Hoult, in general terms, what a quantitative concept or what quantitative concept research is? A - Yes, I described this morning briefly the differences between qualitative research and quantitative. In Tab 4, we went through a fairly typical piece of qualitative research. The piece of qualitative research which this represents deals with large numbers of people, statistically reliable numbers, and essentially, written concepts supported by some illustrative material is presented to these four hundred (400) respondents and AUDIOTRANSCRIPT, o~,ioo de Pierre V~lolt'e & Asso¢i~s Lt~e

816 280 i0 15 2O 25 Om am Om they are --, and these.concepts.are-evaluated .in a quantitative way and the results for the different concepts compared and contrasted. Now, does the document indicate, on the first page, who the respondents were? Yes, it does. Is that the reference to the four hundred (400) in-home interviews? Yes, and it goes on to say where they took place geographically and that they. were all smokers, aged eighteen (18) to sixty-five (65) years, in certain specified segments. Now I see, as I turn the pages of this particular document, there are some examples of sample advertisements? These would not be advertisements but more visualizations of an idea. Hm, hm. And were those the ideas you were trying out on the individuals being interviewed? Yes, and they're'respectively called Malt, Success and Popular. And Popular. Now, the document largely speaks for itself, but I'd like you to turn to page 4285 and just explain what is found there under the title "Brand Positioning within the Current Market" AUDIOTRANSCRIPT, Division 4e Pierre Vilaire & Associ~s Lt~e

817 281 I0 15 2O 25 The bra{d positioning,.I.think.we'.re broadly..familiar with. We've gone through that. Thepositioning essentially is where you want your brand to be seen by the consumer, and you position it in many ways. One of the most important positions is what your advertising is saying about it. In this sense, we took the third family concept and evaluated it among this four hundred (400) sample of smokers relative to eleven (ii) major brands that are in the market clustering.around, this area, and we compared and contrasted our proposition, third family, with those brands in terms of taste and satisfaction, strength and masculinity, how they'd be seen in terms of younger or older smokers. Another dimension is social success which, as you saw, was one of the concepts, and for white-collar successful people or status dimension. We were trying to position the brand on these dimensions and we were comparing and contrasting where our brand fitted. Now, Mr. Hoult,.we have seen a lot of.documents now where research is done among smokers of particular brands in connection with your marketing plans. Could you get along without that kind of research? Could you do advertising addressed to groups if you didn't do this kind of research? AUDIOTRANSCRIPT, Division de Pierre Vilalre & Associ~s LtEe

818 282 i0 15 2O 25 Am Well, i.t has~been~done~.historically a long time ago. One of the characteristics of a market-driven-company is that -- what drives your company forward is your success in the marketing area. And as time has gone on, particularly since, say, the last war, the distance between managers or decision takers and the consumer has gradually widened, to the point now where people who are marketing products are quite often quite different people to the people to whom you are marketing. So I would say, particularly in our product field -- but I think it's a general statement too -- no, we would not. The risks would be too great and the costs involved too high to take those sorts of decisions individually or judgementally, without any help from the market. So from the point of view of your company, you consider this kind of research essential then? To some extent, essential, but in fact it's very standard. All right. Would you look at Tab 6 please, which is marked third family packaging brief 2, and this is dated July thirteenth (13th) nineteen eighty-three (1983). Then, without going through it all, Mr. Hoult, would you explain to the Court what this document represents? A brief is a directive, and therefore this is a AUDIOTRANSCRIPT, Division de Pierre Vilaire & Assoc;¢s Ltge

819 283 5 i0 15 20 25 directive~for~-the~development, of.one element in this project, that element.being-the packaging. The date nineteen eighty-three (1983), we've done quite a lot of background work and our views, our concepts on third family were becoming fairly refined. And, essentially, this document, as a brief, directs the development according to what we've learned so far and we want to achieve. So it's a summation of key points of research as well as the objectives of the whole third family project. And as you can see, accordingly, it covers the objectives, there's a very large section on background. There's a statement on the brand position and there are the guidelines for the packaging and certain executional considerations are also included. Q- Now who would this document be sent to? A- This would be sent to the group responsible for developing and designing the packaging outside of the company. Q- Looking just for a moment-at-page 0043, that document, a sort of crescent-shaped chart, My Lord. The numbers are on the bottom right corner, 0043. THE COURT: You're still in Tab 6 eh? AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ4s

820 284 i0 15 20 25 Me IRVING: Yes, still in. Tab 6, My. Lord. THE COURT: What's your page number? Me IRVING: 0043. The last four (4) digits. Q- Mr. Hoult, does that diagram show the cigarette segments we discussed earlier? A- Yes, this is the first segmentation that I mentioned, with the seven (7) segments and how the cigarettes are positioned essentially in terms of perceived strength, tar and nicotine. Q- On the very next page, 0044, is that a very brief statement sent out to the recipient of this document of the overall plan here or the basic reason for introducing this new brand? A- Yes, the first three (3) items describe our situation, and the fourth is probably the most important, which states: "Leaving very poor representation in the mid-strength segments of the market,segments 4 and 5. Q- And then on the next page, we see a larger version of segment 4. A- Yes, this is a blow-up of one of those segments. Q- It appeared earlier. A- It shows the relationship between the brands, which

821 285 i0 15 2O 25 brands are represented .there. And that is the segment you were aiming at? Yes. So now we have seen the first step towards the creation of packaging. I'd like to turn to Tab 7. This is called third family concept confirmation (quantitative) and we are now at November, nineteen eighty-four (1984). Would you again, please briefly explain to the Court the nature of this document? ~This is another piece of quantitative research that is large numbers of people, four hundred (400) smokers were involved. It describes that they were selected among segment four (4) smokers on this occasion, so we are, we are narrowing in, regular and king size. It states specifically the particular interest that we had in duMaurier, hence that would affect the selection of duMaurier smokers and it describes the eligible respondents here again, fairly wide age range at this stage, eighteen (18) to sixty-four (64). Smokers of all brands other than non-menthol in segments two (2) through seven (7). And what were you hoping to achieve with this? I think there may be a statement of it at page zero four two -- three (043)? Well, as it says here, the expected use of the results AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associgs tl4e

822 286 5 Q- i0 A- 15 Q- A- 20 Q- 25 A- in this case.were to.look, at-three .(3). concepts-that were being tested. Again,. they-are much more~ refined than in the earlier stages, and to determine not only the viability of the overall concept but in terms of these three (3) approaches, which would have the greatest promise, and its intent was also to assist creative advertising development. Now, looking at the findings, the summary begins at page zero four two five (0425) My Lord. Were you rating the -- the trial concepts here against duMaurier specifically? Specifically they were being rated as a concept, yes implicitly, but explicitly they were being rated against each other, these three (3) individual concepts. Am I right in thinking that duMaurier was really the target? DuMaurier was a target brand, the duMaurier smokers were represented and the comparisons, in terms of interest in the overall concept, was made against the market in general, the brands they were currently smoking, duMaurier in particular. Would you look at page zero four two six (0426), Mr. Hoult. Do you find there some results stated vis-A-vis duMaurier? Yes, at the bottom of that page pre-trial -- that is AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ~s

823 287 5 A- 15 2O Q- A- 25 pre-smoking --~trial-.referring to.a product, that. they were given to smoke. Tempo.was rated-quite closely-but there were differences between this brand and duMaurier, and it was perceived to be more for younger smokers and more modern people than duMaurier. Let me turn then to the next document, tab eight (8), which is the Marketing Research department report entitled third (3rd) family concept confirmation three (3). Is it, is it usual practice, Mr. Hoult, to do more than one.(1) .product confirmation study like that? For a new brand, yes, and in this particular case I recall that the -- the issues were somewhat difficult to tie down in creative terms. The agency was struggling as you -- if you look at some of those detailed findings, the results were rather disappointing. There wasn't a great deal of interest at the early stage in what we were trying to say. And the agency, therefore, was consistently coming up with new revised approaches based on the findings. So in this -- that was the reason for this additional study in this case. Now, in this second (2nd) concept confirmation study, were you trying different mock-ups? Yes, yes. As we evolved throughout, the agency was consistently refining, and dependent on the research findings, trying new approaches. AUDIOTRANSCRIPT, Division de P~erre Vilair, & Associ~s Lt~e

824 288 5 i0 15 2O 25 If you~look.then, at tab.nine (9)., ~which is entitled qualitative-campaign assessment two. (2). Could you explain to the Court what that document represents? This is, again, back to qualitative research. And the reason for that was that pretty consistently throughout that qualitative research I've been describing, there seemed to be significantly greater interest in our concepts among the young adults. So it was decided to go back, in this particular case, to the young adults and look at them specifically. And you'll see that this sample describes them as eighteen (18) to twenty-four (24) year olds. In the two (2) -- in the two (2) assessments, one (i) is among eighteen (18) to twenty-four (24) year olds, and in the latest study we look at the older age group. So that was the reason we went back to the qualitative research, because at this time we were starting to refine down the age target. When Tempo finally was launched, Mr. Hoult, to what age group was it directed specifically? When it was finally launched,~it was indeed targeted at the eighteen (18) to twenty-four (24) year old smokers. Was there a secondary target group as well? Yes, the secondary target group was, I recall, twenty-five (25) to thirty (30). Now, the next document in the book is a qualitative AUDIOTRANSCRIPT, Division de Pierre Vilaire & Asso¢i4s Lt4e

825 289 5 A- i0 15 Q- 20 A- Q- A- 25 post-launch evaluation...Let's, just look at.that briefly and then I'll~come back to the actual launching of Tempo. At tab ten (i0), January, nineteen eighty-six (1986), qualitative post-launch evaluation. What does that represent? This is fairly standard. After a launch, you evaluate what you did. It's much more meaningful when all the pieces are in place in the test market, and as the title again indicates, this was qualitative, depth research as opposed to large numbers. And we were looking particularly at the attitudes and knowledge of the brand Tempo among the target, as I say, seven (7) weeks after launch. The reasons for trying, if those people had tried and not stuck with the brand, why not. And, of course, reactions to the product, which is always important. Now, we've been looking at documents going back to nineteen eighty-one (1981), Mr. Hoult, for the third (3rd) family. When was Tempo, in fact, launched? Tempo was launched in the fall of nineteen -- September, nineteen eighty-five (1985). And what happened to that brand? Well, the launch was in test market. That means that it wasn't launched nationally across Canada, but as is normally the case, you would launch in one (i) area, AUDIOTRANSCRIPT, 0~,,~,io,~ d~ e~efr. Viloir, a Associ~s Lt~e

826 290 i0 15 20 25 monitor.-how.the..brand-performs-.and if. it'~s performing well, that you wilL:then expand it nationally~-:If the brand is not doing well, then you may take decisions to modify and then go national. Or as is frequently the case, you may decide to withdraw the brand. That despite your earlier research, the brand potential is not sufficient to justify the investment. Q- Excuse me, just one moment. Me IRVING: I have some actual, ads, My Lord, which I can't copy, of course, so. I just want my friend to see them before I... Me BAKER: If I mfght... Me IRVING: My Lord, I was just showing Mr. Baker the ads I wanted to show the Court. Of course, it's not possible to make copies exactly like these. Mr. Baker has seen them before. We will make identifiable copies and we will leave these with the Court. So we will... THE COURT: Maybe you have an extra set somewhere. Me IRVING: Well, they are very difficult to find, I'm afraid. We were not able to find very many. AUDIOTRANSCRIPT, Divlsb~ de Pierre Vilalre & A,,o¢~d, L,~

827 291 10 15 2O 25 Q- So, just -- I'm.~going to leave, those in front of you for a moment,. Mr,. Hoult.~ Before you go on, I~would like you to file with the Court as, first of all as RJR-9, an advertisement for Tempo, marked with the heading at the bottom, "New Time - New Taste." And there's a small sticker on the ad itself with the number fifty-five (55) on it. Secondly, as RJR-10, another Tempo ad which is marked number forty-one (41). Me BAKER: Could you describe it in words? Me IRVING: I'd rather not. Me BAKER: Well, then I'd like to have a look at it. Me IRVING: You've seen it. The number -- the number will identify it. Me BAKER: Well, I may have seen it, but... Me IRVING: And finally, as RJR-II, a larger ad numbered thirty-nine (39), called "New Tempo." It says there are four (4) people in number thirty-nine (39) and there's one man in document number forty-one (41). AUDIOTRANSCRIPT, Division de Pierre Vih~;re & A,sod#, l.,~e

828 292 i0 15 2O 25 Me JOYAL: What's the last. number? Me BAKER: What's the designation on the last one with the four (4) people? It's RJR-II, but what number is marked on your little Tab? Me IRVING: Thirty-nine (39). And just keep them handy, My Lord. Q- Mr. Hoult, now, we've now handed in three (3) Tempo advertisements, and I'd like you to tell the Court whether there was any reaction to the Tempo ads when the brand was launched? A- Yes, there was considerable controversy when the brand was launched. Essentially because it was perceived by certain government spokespeople and... Me BAKER: O My Lord, I think the witness is indulging in a little bit of hearsay. I mean, if there was a reaction to the ads, I don't know if it's reflected in a document or a series of-documents, but it sounds to me as though he is about to launch into a considerable story that involves hearsay testimony. Me IRVING: My Lord, as my friend knows perfectly well, it's not a matter of controversy. There was criticism of the Tempo AUDIOTRANSCRIPT, Division de Pierre Viloire & Associ~s Lt~e

829 293 5 15 Q- A- Q- 2O A- 25 advertising,and .if.the. Presidenb. of--.the.-company .which was criticized.cannot.say that they were criticized, I don't know who could. There would be the person who expresses criticism and there is somebody who receives it. Mr. Hoult is that person. Was your company criticized, Mr. Hoult? Well, it was very widely covered in the press. And I was going to go on to say certain anti-smoking groups and government figures were indeed quoted in the press as expressing their opinion. And what was that opinion? That this was advertising that was directed at adolescents or people undereighteen (18), and it was an incitement or an encouragement to smoke. Now, looking at the advertisement, were those among the advertisements which were the subject of criticism, Mr. Hoult? Yes, they were. Could I have any one of them back just for the moment, My Lord,-to. show to Mr. Hoult? Now, first of all, Mr. Hou!t, is there any company policy about the age of models who may appear in advertisements for your products? Yes, there is. We use models aged over twenty-five (25) years, and that is the company policy. Indeed, it was

83O 294 5 Q- A- i0 15 Q- 20 A- 25 .the agreement of-the Tobacco--Manufaeturers-Council as early as the mid-seventies in agreement reached with the Government, and we have adhered to that agreement ever since. Now, looking at those ads, Mr. Hoult, now, what is your response to the criticism that they appear to show people under the age of eighteen (18)? To -- I have exactly the same view that I had when we indeed launched this brand and that is, these people certainly don't, look eighteen (18)...They look what they were tested as, as people in their mid to late twenties. They were selected for that reason. However, I can certainly accept with the benefit of hindsight that there might be certain views that the approach, the whole advertising approach as apart from models, could appeal to people under eighteen (18). It's not a view that Ishare, but I can recognize the argument. Now, what happened to Tempo after its launch and after this criticism? Well, in the shortest sense, the brand was not successful. The brand failed, by a very large margin, to meet our own objectives for it and the brand was withdrawn from the market within a matter of two (2) or three (3) months. And it did not go into national

831 295 5 i0. 15 2O 25 launch,-obviously. THE COURT: I'm sorry, I missed -- it failed by a large margin and was withdrawn when? A- From the test market at the end of the year, My Lord. Me IRVING: Q- Did the existence of the price war, which broke out at about that time, have any bearing on that matter, Mr. Hoult? A- The price war broke out within a few short weeks of our launch. And the price war was of such strength, and such competitiveness, that at the time of this launch there were great bargains to be had, in price terms, among conventional brands, brands that were our targets, smokers' usual brands -- and, in my view, that was one of the major reasons for the brands not even getting off the ground. I think I had said earlier how difficult it is anyway, even when everything is working in your favour, to launch a successful new-brand. This was a stroke of very bad luck, in terms of timing, that we launched it at the same time there was a price war. Q- Now .... THE COURT: In your concept of preparation to your advertisement, do AUDIOTRANSCRIPT, Divi,ion de P;erre Vilc~ir, & A,$0~i~$ tl~e

832 296 5 I0 15 20 25 the colour, imagery enter into consideration? Yes, it did. ~ Very much so. In fact, we tested these ads among the target group and the whole appeal of this ad was very strong among the eighteen (18) to twenty-four (24) year olds versus older smokers. that, indeed, was our target. Me IRVING: Q- And Now, leaving Tempo for the moment, I'd like you to turn to Tab ii of the book, Mr. Hoult. As I say, My Lord, what I'm proposing.now to do is deal with a couple of other advertisements for different cigarettes and simply give the Court three (3) more documents which will relate to the advertisements we will finally file. And this is now for the cigarette "Macdonald Special." Tab ii is entitled, "A Summary of Creative Brief," and comes from J. Walter Thompson. Is that your advertising -- was your advertising agency at the time? Yes, it was and is still our advertising agency. M'hm. Could you just explain briefly tothe Court, Mr. Hoult, what the purpose of this document is? This document is intended to provide overall creative guidelines for the development of advertising for a brand that we were planning to launch called Macdonald Special. It was written by the advertising agency and AUDIOTRANSCRIPT, Division de Pierre Viloire & Assoc;~s Lt4e

833 297 5 i0 15 2O 25 was a summation of all-~the creative briefing~discussions the client had had with the agency in the preceding few days. Q- All right. Now, was Macdonald Special the value brand which you launched for the price war? A- Yes, I referred to the price war starting in the fall of nineteen eighty-five (1985). We immediately started to work on a brand of our own to compete in this segment and this was the brand: Macdonald Special. Q-. When the price war ended, did.you continue to market and sell Macdonald Special? A- Yes, we did. Q- And does this document refer to the advertising problems surrounding the turning of a value brand into a regular brand? A- Yes, it does. Q- Now, does this show the age group aimed at? A- Yes. In this case, eighteen (18) to thirty-four (34) year olds living in urban areas. Q- Does it also show the competitive brands on the first page? A- Yes, it does. Q- Which were they? A- DuMaurier and Players, whose large franchise appeared to us, at the time, most vulnerable. AUDIOTRANSCRIPT, Division de P;erre Viloire & Associgs L,~e

834 298 5 i0 15 2O 25 BY THE COURT: Q- DuMaurier and what? A- DuMaurier and Players. Q- Players. BY Me IRVING: Q- So what, in general terms, Mr. Hoult, was the problem in turning a value brand into a permanent brand? A- The problem as we saw it, was that having established, we hoped, a successful new brand, which from day one of its existence was associated with price discounting in the minds of its smokers -- the problem that we anticipated was when the price war ended, which we were sure it would, because of the enormous costs, the consumer would not continue with this brand because it was associated with value brands and we had to, therefore, add other qualities to it in terms of its imagery to enhance its likelihood of appeal when it didn't have a price advantage. Q- Now, we see on page 1930, the heading Prime Prospect. Would I understand that your company would.have provided J. Walter Thompson with that information that males and females, eighteen (18) to thirty-four (34) residing in urban centers were to be the prime prospect. A- That would have been our corporate direction to the agents. AUDIOTRANSCRIPT, Di,,~oo d~ ~i~ Vilo~ & A,,o:i¢, L,4,

835 299 10 15 2O 25 Am And without filing any more-paper~,-Mr~-,Hoult,.would you have obtained that information through the~kind of research we've been looking at? Yes, we would. Indeed, is that kind of research done on a continuous basis for all of your brands? Yes, it is. And is the methodology followed routinely the same as that we have seen in the documents which we've now put before the Court? What we put before the Court is a very typical cross-section of most of the types of research that our company does. Now, if you turn to Tab 12, which is again Macdonald Special, Creative Concept Research Number 2. Is that another example of concept research such as that we have been looking at in the past few minutes? Yes, and very similar to the others. And this too was qualitative, in-depth research among a very tightly specified group of smokers. And then finally Tab 13 -- and before we come to that I'd ask you to put in as exhibit RJR-12, copy of a Macdonald Special advertisement which is entitled: "Une cigarette sp~ciale, une attention sp~ciale." which is numbered 138. And the second one, which is numbered AUDIOTRANSCRIPT, Division de Pierre Vilaire & Assocles Lt~e

836 300 5 lO 15 20 25 154, and this will be RJR-13, a dif:ferent photograph, the same title: "Une cigarette sp~ciale,, une attention sp~ciale." I'll just hand those up to Your Lordship for a moment. THE COURT: Which one? Me IRVING: It's that second one you're now looking at, My Lord, which is of particular importance because it is the subject, of this report that I'm going to come to. The... THE COURT: Which one? Me IRVING: The one -- the "Safe", the one on the left. On your left. Q- Now, Mr. Hoult, looking at the Tab 13, which is a pre-test of two (2) advertising concepts, one of which is called "Safe" and the other "Museum Case". Again would you just briefly explain to the Court what that document represents? A- These pieces of advertising have been tested earlier, as a result of which there have been some refinements. And this piece of research was looking specifically at that advertisement which we call "Safe" to determine whether, AUDIOTRANSCRIPT, Division de Pierre Vilalre & Associ~s Lt~e

837 301 i0 15 20 25 in fact,~the refinements to the~advertising were-~having the achieved effect, the desired effect. And-it was an evaluation essentially, a final evaluation of the advertising before we went to market. Q- And were those two (2) advertisements which are now before the Court, were those advertisements which were used? A- Yes, they were. Q- And without going through the document, may I take it that consumer reaction to those advertisements, or at least the "Safe" one, is recorded in this particular piece of research? A- Yes, it is. Yes. Me BAKER: Meaning Tab 13, I presume? Me IRVING: Pardon? Me BAKER: Meaning Tab 13? Me IRVING: Yes. Tab 13. the documents included in this book given exhibit numbers. THE COURT: Are you filing the whole book en liasse? Now, before I go on, I would like to have AUDIOTRANSCRIPT, D;vislon de Pierre Vilalre & As,o¢i~s Ll~e

838 302 l0 15 20 25 Me IRVING: Yes -- well, My Lord -- yes, My Lord, although I think we'll file it, we'll simply give it a single exhibit number and then the tabs will serve to identify each of the documents. THE COURT: Excellent. Me IRVING: That would be the most convenient. So I would like to have the book marked RJR-Macdonald exhibits marked as exhibit RJR-14 with the note that it contains thirteen (13) tabs. Q- Now, Mr. Hoult, how do you evaluate the success of any particular advertising campaign or a particular advertisement? A- Preliminarily, you have to rely upon the research to indicate to you that the advertisement is communicating to the target groups specifically what you are intending to communicate. But at the end of the day... Q- Just let me stop you for a moment. Do you do that, then, through the kind of post-launch research which we have been looking at? Go and talk to people... A- You make predictions and you take decisions on certain ads based on that research, and after the ad has been in the market, that you would go back and monitor and see AUDIOTRANSCRIPT, Division de Pierre Vilalre & Associgs LtEe

839 303 i0 15 2O 25 Am if in fact it.-did achieve ~that goal. And would.you~actually talk~to people and ask them how they have seen the ad? Yes. And the reaction they had? Yes. Okay. I interrupted, you were going on to say something else. I was going on to say that at the end of the day, of course, the success of an ad -- or a campaign I should say -- can only be determined by the success of the brand in achieving its marketing goals in terms of market share. And you can have situations where an ad does achieve the desired objectives, communication objectives, and the brand is still a failure. When you say it's achieved the objectives, do you mean that when you interview people afterwards they tell you that they saw it the way you wished them to? "Yes, I saw the ad", for example, "It made an impact. I understand what the ad is~saying.'' And they understand clearly and, furthermore, their takeout from the ad is what you intended it to be. Yet the brand is not successful. When you say "their takeout from the ad is what you intended it to be," what do you mean by "takeout"? AUDIOTRANSCRIPT, Division de Pierre Viloire & A,socigs Lt~e

840 304 5 i0 15 20 25 Qm AB Their understanding of the ad. And yet nevertheless do. you sometimes find that even when the ad has achieved that kind of success, it doesn't work? About eight (8) to ten (10) new brand launches fail. And in most cases, the ads... Eight (8) out of ten (i0)? Eight (8) out of ten (i0) new brands fail. And in the main, these new brands are launched by companies doing market research of.the sort that we have done. And they have tested their ads. And their ads have worked and yet the brand has still failed. Now, just looking at the advertisements which you have put in and thinking of those which we haven't, Mr. Hoult, because there are a lot of advertisements, I just wanted to ask you whether, in your advertising, people are always the feature, people in some kind of social situation? Do you always use that kind of advertising? Clearly not. We have two (2) examples there where people did not figure. We have had current campaigns for Export where people didn't feature. Sometimes they do and sometimes they don't, it depends upon the objective that you are trying to achieve. In fact, sometimes people would be entirely inappropriate. AUDIOTRANSCRIPT, Division ~Je Pierre Viloire & Associ~s Lt~e

841 305 5 i0 15 20 25 BY THE COURT: Q- Like if you take R-12 and~R-13, what are you trying to convey? BY Me IRVING: Q- Take the "Safe", Mr. Hoult, and so His Lordship's question is: What are you trying to convey in those ads? And if you... A- If you recall, My Lord, my comments on the price war and the desirability or the need to develop for this brand something in addition ~to a price advantage, what we were trying to achieve in everything we did with this brand was value and quality. And that was reflected in the packaging which we tested to have that effect. Certainly the blend, which was very carefully selected as being a very high quality blend. The name itself, Macdonald Special, with the emphasis on that descriptive "Special". We were trying to build from Day i into this brand, the specialness. And, furthermore, we determined that we would like to communicate' that or the agency recommended that we communicate it, and we accepted the recommendation by means of exaggerated symbolism which would have some humour. So it would not normally be accepted in any serious way that cigarettes are so special they need protecting, but therefore we used the "Safe", and of AUDIOTRANSCRIPT, Division de Pierre Vilaire & A,,od~, Lt~e

842 306 i0 15 20 25 course the "Treasure Chest"i~and-the other example which we don't have in front of us, they"Museum Case" which was an object of art protected by laser beams and plate glass and so forth. So, with that objective, particulary, as I say, with the tongue and cheek hyperbole that we were -- or exaggeration we were trying to introduce, symbolism was far more effective than people would have been in this particular case. Q- ~You were trying to persuade people to pay the full price for something they were used to getting at a discount? A- Yes. Q- Now, just looking at those ads for a minute, you say you're trying to create the impression of value to overcome the perception people have that this is a cigarette they buy for less than the regular price, is there information, apart from symbolism, conveyed in that ad? A- There's a considerable amount of information in the ad. In this particular ad, we are, of course, communicating that this is a cigarette from a very well established company, a very well known company in Canada, which is Macdonald. BY Me BAKER: Q- Excuse me, which ad were you just referring to? I see AUDIOTRANSCRIPT, Divi,ion de Pierre Vilaire & As,o¢i~, Lt~e

843 307 i0 15 2O 25 you're shifting around. A- I was looking at "Safe" when I° was.making those;.. Q- Can you identify it, Mr. Irving, please, for the Court and the record? Me IRVING: In any event, the ad Mr. Hoult was referring to is the -- is that showing a Macdonald Special package in a "Safe"... THE COURT: RJ-12. Me IRVING: ...and it's RJ-12. THE COURT: Thank you. Me IRVING: RJR-12. We'll carry on using that one. A- The package is shown, it's obviously a boxed product. This is a king size product, and of course there is the health warning at the bottom of the advertisement too. Q- And does that also show the nicotine and tar content? A- Yes. Health warning and the tar and nicotine content. That's shown on all ads. Q- In fact, Mr. Hoult, do you produce any advertisements which do not convey information as well as whatever concept you may wish to convey? AUDIOTRANSCRIPT, oivl,lon de Pierre Vilaire & Associ~s Lt~e

844 308 i0 15 20 25 A- NO, we do not.- And-in many of our.~adver.tisements there's even more-information than I have described here, we would be, in certain cases, giving the information new, for a new brand. In fact, when this was introduced, the ads for this had that designation, as all our brands do. We would be indicating... Me BAKER: Excuse me, My Lord, the witness has available to him several hundred ads, I've seen them. He's just referred to two (2) of them specifically in respect of Macdonald Special. I don't know that it's appropriate for him to be talking about other ads in the series that may have gone out if they're here in the courtroom. Let him show those ads to the Court. THE COURT: Don't you think that's more of a remark that would be addressed to cross-examination rather than an objection. Me BAKER: I'm sorry, My Lord. Me IRVING: I would say that, with respect, My Lord, that if -- we can fill Your Lordship's table with ads, and I'm not going to do that. We have filled the room with documents provided in response to requests from my friend. I think the President of the company can AUDIOTRANSCRIPT, D~,,~,ioo de Pierre

845 309 5 I0 15 Q- A- 20 Q- 25 Qm discuss,..the.-.company's advertising in. general. .If my friend, wants..him to look at any particular ad, as he said, he has them, he can show them in cross-examination. Would you carry on, Mr. Hoult, unless you don't know where you were. Yes, I know where I was. Okay. Other information that an ad would communicate, depending on the objective, would be king size or regular size, filter or plain, soft pack or hard pack, twenties or twenty-fives, by means of illustration as well as words. And of course finally, as we've already pointed out, always the ads show the health warning and the tar and nicotine. Do you know, Mr. Hoult, when your company began to carry the Health and Welfare Canada warning on its cigarette packages and ads? I don't know the precise date, but it was, I believe, at the formation of the. Canadian Tobacco Manufacturers Council Organization in agreement with the Government in the early seventies. years. That's the warning which reads: franqais: So we've been carrying it for many Vous avez ici en "Sant~ et Bien-~tre social Canada consid~re AUDIOTRANSCRIPT, Div;sion de Pierre Vil~ire & Associ~s Lt~e

846 310 i0 15 2O 25 que le danger-.pour-{a~-sant~-cro~t avec l'usage - ~viter d'inhaler." A- Yes, it's that one. Q- Coming from Health and Welfare Canada? A- Yes. THE COURT: And in English: "Warning: Health and Welfare Canada advises that danger to health increases with amount smoked. Avoid inhaling." BY Me IRVING: Q- At any time, Mr. Hoult, had your company indicated to Health and Welfare Canada that it would no longer carry the Health and Welfare Canada warning? A- No. Q- But does your company in the Unites States carry the Surgeon-General's warning? A- Yes, it does. Q- My Lord, I see it's almost the moment you were going to take an adjournment, I am almost finished, if I could just have five (5) minutes to checkmy notes, I might only have a question or two (2) left for Mr. Hoult and I could probably finish more conveniently if you wouldn't mind taking the adjournment three (3) minutes early then... AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associgs

847 311 i0 15 20 25 THE COURT: Okay, we'll adjourn for ten (i0) minutes. SHORT RECESS Mr. Hoult, were you examined for discovery in this case? Yes, I was six (6) days in discovery. I'm sorry, how many days? Six (6). Six (6) days with Mr. Baker? Yes. Thank you. Those are all my questions, My Lord. THE COURT: For my own benefit, was the examination on discovery filed? Me BAKER: No, My Lord. No. CROSS-EXAMINATION BY Me ROGER BAKER: Mr. Hoult, who is the present Chairman of RJR-Macdonald? Mr. Edward Lang. And how long has he been the Chairman? I believe the official date was September the first (ist) of this year. AUDIOTRANSCRIPT, Division de Pierre Vilalre & Assod~s Ltge

848. 312 5 i0 15 20 25 THE COURT: Eighty-nine ('89)? A. Eighty-nine ('89). Me BAKER: Q- Has he worked for the company very long? A- Yes, he's worked for the company for in excess of fifteen (15) years and, in fact, he was my predecessor as C.E.O. Q- Who preceded -- wasn't there another Chairman after you left about a year or so ago to go back to Winston Salem? No, I was succeeded by a President and C.E.O. He was not the Chairman. I see. What is his name? Clyde Fitzgerald. Is Mr. Fitzgerald still the President and Chief Executive Officer? No, Mr. Fitzgerald left the company on or about September the first (ist) of this year, nineteen eighty-nine (1989). Q- You described yourself as a Vice-President of RJR-Macdonald, I believe? I'm actually a Vice-Chairman. Yes, that's what I thought. Do you have any duties currently at RJR-Macdonald other than that which a Vice-Chairman does? You're Vice-Chairman of the board I AUDIOTRANSCRIPT, Division de Pierre Vilo~re & Associ~s Lt~e

849 313 i0 15 2O 25 Am presume? I'm a Vice-Chairman as an.officer of the~company. I am not on the board of the company. My position as Vice-Chairman is specifically to maintain a contact liaison with the company with regard to this issue before us and to interact and liaise with our U.S. company. For what purpose to liaise with the U.S. company, Mr. Hoult? The issues before us here in Canada, as I think is well known, are issues that are issues in many tobacco markets of the world, including the United States. RJR-Macdonald is one hundred percent (100%) owned by what company? RJR-Nabisco. Would it be fair to say that some of the marketing decisions of RJR-Macdonald in the last ten (i0) or fifteen (15) years have been made in Winston Salem at the head office? It would be fair to say that over the course of fifteen (15) years, but not while I was C.E.O. I see. Is there anything special about your tenancy as C.E.O. or is it just your personal way of doing business that you wouldn't brook any outside interference? No, I certainly wouldn't say the latter, but in the AUDIOTRANSCRIPT, Division de Pierre Vilaire & AssociEs LtEe

85O 314 5 15 20 A- 25 former or the first (ist) part. of that--period.-when we took over the company, purchased, the company.in nineteen seventy-four (1974), there was considerable reorganization to be done and an immense amount of marketing reorganization too. One (i) of the reasons our company purchased RJR-Macdonald is that it was not doing terribly well in the marketplace in the mid -- in the early seventies, and at that time, in the early stages, there was quite a lot of imput from the head office which, incidentally, was not the United States, it was Geneva. And have there been occasions in the mid-nineteen eighties, Mr. Hoult, when this kind of input from the head office, be the head office in Winston Salem, RJR-Nabisco or the international operation in Geneva or London or wherever it was -- because I understand it moved. Was there some marketing decisions made -- or were there some marketing decisions made other than by the Canadian company alone? At that time I was theinternational marketing Vice-President and on certain issues I was involved with the marketing development in Canada. I would not say that the marketing decisions were taken anywhere except Canada. My input, as an international marketing Vice-President, was sometimes called for or called upon. AUDIOTRANSCRIPT, Division de Pierre Vilair~ & Associ~s Lt4e

851 315 5 i0 15 20 25 Is it still? Not in the marketing areas, it's no longer myfunction. What areas now? In the areas of, of smoking and health and this litigation. As I say that is the reason for my -- for my continued involvement. What kind of liaison do you, as a senior official of RJR-Nabisco, have with the Canadian subsidiary in connection with the smoking and health issue, can you tell the Court please? Well, in our company in Canada, there are a number of individuals who are involved in this case. Obviously it affects our marketing strategies. Obviously it affects our public affairs and public relations and we have our lawyers here in Canada. That's the nature of the liaison. Are you on the board of RJR-Nabisco? No, I'm not. Do any members of that board sit on the Canadian subsidiaries board? No, they do not. Do I take it from your testimony in chief, Mr. Hoult, that the primary function of advertising and marketing cigarettes is to maintain brand loyalty and to obtain customers from your rivals? AUDIOTRANSCRIPT, Division de Pierre Vilaire & Assoclgs

852 316 5 i0 Q- 15 A- Q- 2O A- 25 AD Yes. Commonly referred to as switchers? Yes. Is there any other purpose you can think of? Well, one of our major areas of focus, as I've said both in discoveries and today, is among eighteen (18) to twenty-four (24) year olds. Obviously we would want our fair share of these smokers in the market but they would obviously currently be smoking our brands or a competitor's brand. So the answer would be all our advertising would be devoted to maintaining brand loyalty or obtaining share from the competition. And in term -- in terms of initial strategy in respect of a particular campaign, Mr. Hoult, can the Court take it that the instructions invariably go from the company to the advertising agency or the outside agency, if we could call it that, rather than the reverse? Yes, the advertising agency would never instruct. So the seminal, the general instructions, the thrust of what is going to happen or what an ad campaign should look like, would go from the company to the agency? Well, it could be that an agency would, from time to time, initiate, recommend and we may or may not accept the recommendation. If we accepted the recommendation, the initial thrust would come from the agency. But it AUDIOTRANSCRIPT, Division cJe Pierre

853 317 QB 5 i0 15 Q- A- Q- 2O A- Q- 25 A- Am would always, be. clienb approval. Could you distinguish-for the Court, perhaps, brand positioning and brand imagery? Is there a distinction to be made? Yes, there is. to where a brand would be placed, where you intend to place a brand in the market. And this can be with respect to other brands in the market which, of course, is of fundamental importance, but it would include imagery. So,imagery would be one (i) aspect of brand positioning and imagery would be that which you were trying to develop for your brand in the mind of the smoker. Your position is your objective. The imagery is one (i) of the results of that objective if your strategies are successful. So is the brand positioning statement the road map of the company's intentions? Yes, a summary, yes. Not the road map? Essentially, it's a statement of where you want your brand to be. When you position a brand, it's always referenced or invariably -- invariably referenced to a target group, is it not? Yes. The brand positioning is a statement as AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ~s Lt~e

854 318 5 i0 15 20 25 Q- So it's~how-.the-company~wants..the..target to.perceive the brand? Is that fair to say? A- The brand position statement, yes. Now, I have to make one (i) thing clear, and that's that brands sometimes develop imagery that you may not like. The image that the consumer has of your brand may not be ideal, or it may sometimes work against you, and in that case, you would develop or try to develop advertising campaigns to correct imagery. Q- You change it, don't you? A- I'm sorry? Q- You change it if it doesn't work? A- You would attempt to change the imagery. Sometimes it doesn't work. Q- Okay. Sometimes a position in respect of health concerned people, is that a distinct target group? A- No, it's not a target group that we, as a company, at least while I was the C.E.O., would -- would regard as large enough or valuable enough for -- or even with sufficient potential for us to be successful in specifically directing our efforts to health concious smokers. Obviously we have our share of them. Q- Is it your testimony... THE COURT: Mr. Baker, would you mind speaking just a little bit AUDIOTRANSCRIPT, Division de Pierre ViJoire ~ Associ4s Lt~e

855 319 i0 15 2O 25 louderso that.I, understand-your-.question? Me BAKER: Yes. Q- Is it your testimony, Mr. Hoult, that your company does not target the health concerned people as a specific segment? A- Yes. Q- That is your testimony? A- Yes. Me BAKER: Q- I put it to you, Mr. Hoult... Me IRVING: Just a moment, would you tell me what you're reading from, please? Me BAKER: Yes, it's the second (2nd) of February, afternoon session. Me IRVING: Page? Me BAKER: Twenty-five (25) through twenty-seven (27). Q- I put it to you, Mr. Hoult, that on the second (2nd) of February, nineteen eighty-nine (1989), in the afternoon, when the question was put to you, your response was different, and I would like to read the question and AUDIOTRANSCRIPT, Division de Pierre Vilalr, & Asso¢I~s Lt~e