Conrad Black Trial - The Non-Compete Payments

Purchaser: What Happened was Wrong

March 26, 2007. "It just didn't seem like the right thing to do," said Mike Reed, the former CEO of Community Newspaper Holdings Inc. (CNHI). Reed was testifying March 26 in Chicago about CNHI paying Conrad Black and his associates millions of dollars in non-compete fees.

CNHI purchased several newspaper businesses from Hollinger International in two separate deals and for a total of about US$526 million. About $53 million of the purchase price was paid in non-compete fees.

On the subject of non-compete fees, two other witnesses provided testimony late on Thursday, March 22, 2007 and early on the 26th. They were Peter Laino of Prime Media, a company that had purchased several Hollinger newspapers, and Craig Holick, a senior manager of corporate finance with Hollinger International from 1997 to 2000.

Week two in the Conrad Black Trial started with the prosecution working to establish that Conrad Black and his associates illegally stole around US$80 million via non-compete fees when they sold over $3 billion in assets belonging to HII - assets such as newspaper businesses. According to the prosecution, this money belonged to all of HII's shareholders and Black breached his position of trust - his fiduciary responsibility - with HII's shareholders.

Conrad Black contends that the agreements in his area of responsibility were appropriate, that he was entitled to any money he received, and that he had the approval of HII's board of directors for transactions in his area of responsibility. While Black oversaw Hollinger International's eastern Canada and British operations, his partner David Radler looked after operations in western Canada and US. The allegations of improper dealings happened in David Radler's area of responsibility. David Radler has pleaded guilty and has struck a plea agreement with the prosecution.

Questions that may help to get answers that will help determine guilt or innocence, are:
1. Who asked for the non-compete agreements and payments to individuals or firms other than Hollinger international?
2. Did the purchasers of HII assets want an agreement with Hollinger Inc. or Black privately rather than, or in addition to, Hollinger International Inc.?
3. Who, if anyone, amongst Black and his associates received non-compete money, and who asked the monies be paid to these individuals, or their private organizations, rather than HII?

1. Who asked for the non-compete agreements and payments to individuals or firms other than Hollinger international?

Mike Reed, who was CEO when CNHI purchased several newspaper businesses from Hollinger International in two deals during 1998 and 2000, testified that CNHI had asked for a non-compete agreement from Hollinger International as part of the agreements to purchase newspaper businesses from HII.

Non-compete agreements, are said to be standard in the newspaper industry, as they provide the buyer with promises or guarantees that the selling company will not start or acquire a competing newspaper within the market area of the newspapers being purchased.

Asked who insisted on inserting non-compete payments for Black's private company, Hollinger Inc. (not to be confused with Hollinger International Inc.) agreement into the deal, Reed said Black's co-defendant attorney Mark Kipnis arranged the first deal and David Radler the second.

Kipnis worked in Hollinger International Inc.'s Chicago headquarters. Even though he is not accused of received any non-compete money personally, he is accused of drawing up the deals that sent the money to Black or Black's private company Hollinger Inc.

2. Did the purchasers of HII assets want an agreement with Hollinger Inc. or Black privately rather than, or in addition to, Hollinger International Inc.?

Reed went on to say that his company, CNHI, never asked for non-compete agreements from any Hollinger executives and that "We did not view them, individually, as potential competitors in these small towns in the United States."

3. Who, if anyone, amongst Black and his associates received non-compete money, and who asked the monies be paid to these individuals, or their private organizations, rather than HII?

In response to prosecution questions, Mike Reed told the jury, that he understood the non-compete fees would be going to Hollinger International. In the first deal, at the last minute, CNHI was asked to wire a portion of the non-compete payments of $4.5 million each to Conrad Black and David Radler, and $250,000 each to former Hollinger executives, Peter Atkinson and John Boultbee.

However, CNHI refused to send the payments directly to the executives' accounts, because, said Reed, "It just didn't seem like the right thing to do." "The asset purchase agreement in this transaction was with Hollinger International." "We felt that's where the assets from this transaction should be going."

Conrad Black's lawyer challenged this assertion.

Genson pointed out that the sale agreement stated that the non-compete clause was with both Hollinger International Inc. and Hollinger Inc. (a private company owned by Conrad Black, and separate from the publicly-owned Hollinger International Inc.). Conrad Black used Hollinger Inc. to control Hollinger International Inc.

"Tell me where it says in that agreement that it wasn't really a condition of closing and you guys were only playing?" Genson asked Reed referring to the latter's testimony that his company did not want a non-compete agreement with Hollinger Inc.

Reed's testimony was followed by that of CNHI's outside counsel Thomas Barnes Henson. Henson corroborated Reed's testimony that CNHI did not seek a non-compete agreement with Hollinger Inc. Together, they told the court that they made $12.75 million in non-compete payments to Hollinger Inc. (Black's private company) in order to conclude the deal. Henson will return to the stand on Tuesday, March 27.

Earlier on Thursday, March 22, HII's manager of corporate finance from 1997 and 2000, Craig Holick, said he had been asked to transfer part of the non-compete payments that had been paid to Hollinger International Inc. (HII) to Hollinger Inc., money that he felt belonged to HII. In addition, he had questioned the sale of HII to Horizon a company co-owned by Black and Black's business partner David Radler.

Peter Laino, of Prime Media, a company that had bought several Hollinger papers, also testified that he understood that the non-compete payments were supposed to go to Hollinger International Inc.

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Purchaser: What Happened was Wrong

1. Who asked for the non-compete agreements and payments to individuals or firms other than Hollinger international?

2. Did the purchasers of HII assets want an agreement with Hollinger Inc. or Black privately rather than, or in addition to, Hollinger International Inc.?

3. Who, if anyone, amongst Black and his associates received non-compete money, and who asked the monies be paid to these individuals, or their private organizations, rather than HII?

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