Daily Court Transcripts
May 04, 2000
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1 VOLUME 4
2 PAGES 669 - 824
3 UNITED STATES DISTRICT COURT
4 NORTHERN DISTRICT OF CALIFORNIA
5 BEFORE THE HONORABLE VAUGHN R. WALKER, JUDGE
6 CLINTON REILLY, )
)
7 PLAINTIFF, )
)
8 VS. ) NO. C 00-0119 VRW
)
9 THE HEARST CORPORATION, )
ET AL., )
10 )
DEFENDANTS. )
11 ____________________________)
SAN FRANCISCO, CALIFORNIA
12 THURSDAY, MAY 4, 2000
13 TRANSCRIPT OF PROCEEDINGS
APPEARANCES:
14 FOR PLAINTIFF: JOSEPH M. ALIOTO LAW FIRM
ONE EMBARCADERO CENTER, SUITE 4000
15 SAN FRANCISCO, CALIFORNIA 94111
BY: JOSEPH M. ALIOTO
16 ANGELINA ALIOTO-GRACE
ATTORNEYS AT LAW
17
SHULMAN, WALCOTT & SHULMAN, P.A.
18 121 WEST FRANKLIN AVENUE
MINNEAPOLIS, MINNESOTA 55404
19 BY: DANIEL R. SHULMAN
JAMES HILBERT
20 ATTORNEYS AT LAW
21 (APPEARANCES CONTINUED ON FOLLOWING PAGE)
22 REPORTED BY: JO ANN BRYCE, CSR, RMR, CRR, FCRR
JUDITH N. THOMSEN, CSR, RMR, FCRR
23 OFFICIAL REPORTERS, USDC
24 COMPUTERIZED TRANSCRIPTION BY ECLIPSE
25 670
1 APPEARANCES: (CONTINUED)
2 FOR DEFENDANT SHEPPARD, MULLIN, RICHTER & HAMPTON
HEARST CORPORATION: FOUR EMBARCADERO CENTER, 17TH FLOOR
3 SAN FRANCISCO, CALIFORNIA 94111
BY: GARY L. HALLING
4 THOMAS D. NEVINS
ATTORNEYS AT LAW
5
BAKER & HOSTETLER LLP
6 1050 CONNECTICUT AVE., N.W.
SUITE 1100
7 WASHINGTON, D.C. 20036
BY: GERALD A. CONNELL
8 ATTORNEY AT LAW
9 FOR DEFENDANT LATHAM & WATKINS
CHRONICLE PUBLISHING 505 MONTGOMERY STREET
10 COMPANY: SUITE 1900
SAN FRANCISCO, CALIFORNIA 94111
11 BY: PETER K. HUSTON
J. THOMAS ROSCH
12 GREGORY P. LINDSTROM
ATTORNEYS AT LAW
13
FOR INTERVENOR- MC CUTCHEN, DOYLE, BROWN & ENERSEN
14 DEFENDANT EXIN, LLC: THREE EMBARCADERO CENTER, SUITE 1800
SAN FRANCISCO, CALIFORNIA 94111
15 BY: DAVID M. BALABANIAN
CHRISTOPHER B. HOCKETT
16 ATTORNEYS AT LAW
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25 671
1 I N D E X
2
3 PLAINTIFF'S WITNESSES PAGE VOL.
4
ASHER, JAMES
5 DIRECT EXAMINATION BY MR. ALIOTO 800 4
6
DEFENDANTS' WITNESSES PAGE VOL.
7
8 GREENTHAL, JILL
DIRECT EXAMINATION BY MR. LINDSTROM 673 4
9 CROSS-EXAMINATION BY MR. ALIOTO 727 4
10
E X H I B I T S
11
12 PLAINTIFF'S EXHIBITS W/DRAWN IDEN EVID VOL.
13 134 775 4
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25 672
1 THURSDAY, MAY 3, 2000 8:40 A.M.
2 THE CLERK: CALLING CIVIL 2000-119, CLINTON REILLY
3 VS. THE HEARST CORPORATION, ET AL., FOR A CONTINUED BENCH
4 TRIAL.
5 COUNSEL, YOUR APPEARANCES FOR THE RECORD, PLEASE.
6 MR. HALLING: GARY HALLING FOR THE HEARST
7 CORPORATION.
8 MR. LINDSTROM: GREG LINDSTROM FOR CHRONICLE
9 PUBLISHING.
10 MR. HOCKETT: CHRISTOPHER HOCKETT FOR EXIN, LLC.
11 MR. ALIOTO: JOSEPH ALIOTO FOR THE PLAINTIFF.
12 THE COURT: VERY WELL. GOOD MORNING, COUNSEL.
13 MR. LINDSTROM: GOOD MORNING, YOUR HONOR.
14 THE COURT: WE ARE READY, OF COURSE, FOR THE NEXT
15 WITNESS. AND I UNDERSTAND THIS IS GOING TO BE A CHRONICLE
16 WITNESS OUT OF ORDER.
17 IN TERMS OF OUR SCHEDULE TODAY, I WOULD LIKE TO SEE
18 IF WE CAN ADJOURN IN THE NEIGHBORHOOD OF 12:30. I HAVE SOME
19 MATTERS ON THE CALENDAR THIS AFTERNOON THAT ARE IMPORTANT THAT
20 NEED TO BE ADDRESSED. I AM NOT GOING TO RING THE BELL RIGHT AT
21 THAT HOUR OR ANYTHING OF THAT KIND, AND I UNDERSTAND THAT WE
22 MAY NOT BE ABLE TO MEET THAT, BUT THAT'S MY OBJECTIVE FOR YOUR
23 THINKING ON THE PROCEEDINGS TODAY.
24 ALL RIGHT. YOUR WITNESS?
25 MR. LINDSTROM: GREG LINDSTROM, YOUR HONOR, FOR 673
1 CHRONICLE PUBLISHING.
2 THE COURT: YES, MR. LINDSTROM.
3 MR. LINDSTROM: MAY IT PLEASE THE COURT, AT THIS
4 TIME WE WOULD LIKE TO CALL TO THE STAND JILL GREENTHAL.
5 THE COURT: VERY WELL.
6 JILL GREENTHAL,
7 CALLED AS A WITNESS FOR THE DEFENDANT, HAVING BEEN DULY SWORN,
8 TESTIFIED AS FOLLOWS:
9 THE CLERK: THANK YOU. PLEASE BE SEATED.
10 PLEASE STATE YOUR FULL NAME AND SPELL YOUR LAST FOR
11 THE RECORD.
12 THE WITNESS: JILL ANN GREENTHAL, G-R-E-E-N-T-H-A-L.
13 MR. LINDSTROM: MAY I PROCEED, YOUR HONOR?
14 THE COURT: YOU MAY, INDEED.
15 DIRECT EXAMINATION
16 BY MR. LINDSTROM:
17 Q. WHERE DO YOU RESIDE?
18 A. IN BOSTON, MASSACHUSETTS.
19 Q. WHAT IS YOUR CURRENT OCCUPATION OR EMPLOYMENT?
20 A. INVESTMENT BANKER.
21 Q. WITH WHAT FIRM?
22 A. DONALDSON, LUFKIN & JENRETTE.
23 Q. IS THAT FIRM COMMONLY KNOWN AND REFERRED TO AS "DLJ"?
24 A. YES.
25 Q. WHAT IS YOUR POSITION? 674
GREENTHAL - DIRECT / LINDSTROM
1 A. I AM A MANAGING DIRECTOR AND I AM A CO-HEAD OF THE BOSTON
2 OFFICE FOR THE FIRM.
3 Q. FOR HOW LONG HAVE YOU BEEN IN THE INVESTMENT BANKING
4 FIELD?
5 A. FOR APPROXIMATELY 17 YEARS.
6 Q. AND PRIOR TO ENTERING THE INVESTMENT BANKING FIELD, DID
7 YOU ATTEND GRADUATE SCHOOL?
8 A. YES.
9 Q. WHERE?
10 A. HARVARD BUSINESS SCHOOL.
11 Q. DID YOU OBTAIN AN MBA DEGREE FROM HARVARD?
12 A. YES.
13 Q. IN WHAT YEAR?
14 A. 1983.
15 Q. AND HAVE YOU CONTINUOUSLY BEEN IN THE INVESTMENT BANKING
16 FIELD SINCE GRADUATING FROM HARVARD IN 1983?
17 A. YES.
18 Q. DO YOU SPECIALIZE IN ANY PARTICULAR AREA OF INVESTMENT
19 BANKING?
20 A. YES, I DO.
21 Q. AND WHAT IS THAT AREA?
22 A. IN MEDIA AND TELECOMMUNICATIONS.
23 Q. FOR HOW LONG HAVE YOU BEEN WORKING IN THIS AREA?
24 A. FORMALLY SINCE 1985 AND ABOUT HALF OF MY TIME PRIOR TO
25 THAT. 675
GREENTHAL - DIRECT / LINDSTROM
1 Q. CAN YOU GIVE THE COURT ANY KIND OF AN ESTIMATE OF THE
2 NUMBER OF MEDIA-RELATED TRANSACTIONS IN WHICH YOU'VE PERSONALLY
3 BEEN INVOLVED?
4 A. I DON'T KNOW WHAT THE NUMBER WOULD BE, BUT IT'S SEVERAL
5 HUNDRED.
6 Q. WHAT PERCENTAGE OF THOSE WOULD INVOLVE THE NEWSPAPER
7 INDUSTRY IN SOME CAPACITY?
8 A. AGAIN, THIS IS A GUESS ON MY PART, BUT IT WOULD BE
9 SOMEWHERE IN THE SORT OF TEN-PLUS PERCENTAGE AREA, 10 TO
10 20 PERCENT.
11 Q. AT SOME POINT WAS YOUR --
12 THE COURT: TEN TO 20 PERCENT OF A HUNDRED PLUS?
13 THE WITNESS: YES. I AM GIVING A ROUGH FEEL FOR IT.
14 IT HAS BEEN A 17-YEAR CAREER.
15 THE COURT: BUT A SUBSTANTIAL NUMBER.
16 THE WITNESS: A FAIR NUMBER.
17 THE COURT: FAIR NUMBER.
18 BY MR. LINDSTROM:
19 Q. AT SOME POINT WAS DLJ RETAINED BY CHRONICLE PUBLISHING?
20 A. YES.
21 Q. AND WERE YOU PERSONALLY THE LEAD PARTNER ON THIS
22 ENGAGEMENT?
23 A. YES, I WAS.
24 Q. AND WITHIN DLJ DID THIS ENGAGEMENT COME TO BE KNOWN AS
25 PROJECT GOLDEN? 676
GREENTHAL - DIRECT / LINDSTROM
1 A. YES.
2 Q. WHAT WAS YOUR INITIAL ASSIGNMENT?
3 A. WE WERE INITIALLY HIRED BY THE COMPANY TO HELP THEM
4 EVALUATE ALTERNATIVES WITH REGARD TO THE SHAREHOLDERS'
5 ALTERNATIVE, THEIR INVESTMENT IN THE COMPANY, WHAT THEY SHOULD
6 DO WITH THAT INVESTMENT.
7 Q. AT THAT PARTICULAR POINT WAS DLJ ASKED TO SELL OR ATTEMPT
8 TO SELL ANY PROPERTIES OWNED BY CHRONICLE PUBLISHING?
9 A. AT THAT POINT, NO, WE WERE NOT.
10 THE COURT: NOW, WHICH POINT WAS THIS? LET'S PIN IT
11 DOWN BY TIME.
12 THE WITNESS: IN THE INITIAL STAGE OF THE
13 ASSIGNMENT, WHICH --
14 THE COURT: WELL, WHEN WAS THE COMPANY RETAINED?
15 THE WITNESS: I DON'T KNOW THE EXACT DATE, BUT OUR
16 INITIAL ENGAGEMENT LETTER, I THINK, WAS DATED SOMETIME IN
17 FEBRUARY.
18 THE COURT: FEBRUARY?
19 THE WITNESS: YES.
20 BY MR. LINDSTROM:
21 Q. OF 1999?
22 A. CORRECT.
23 Q. NOW, DID YOUR EVALUATION INVOLVE ALL OF THE PROPERTIES OF
24 THE COMPANY OR JUST THE CHRONICLE?
25 A. ALL OF THEM. 677
GREENTHAL - DIRECT / LINDSTROM
1 Q. WHAT PROPERTIES DID THE CHRONICLE PUBLISHING OWN AT THAT
2 TIME?
3 A. CHRONICLE PUBLISHING OWNED THE CHRONICLE NEWSPAPER IN SAN
4 FRANCISCO, THE SF GATE, KRON, WHICH IS THE NBC AFFILIATE IN SAN
5 FRANCISCO, TWO TELEVISION STATIONS IN NEBRASKA, TWO OTHER
6 NEWSPAPERS, ONE IN WOOSTER, MASSACHUSETTS, THE OTHER ONE IN
7 BLOOMINGTON, ILLINOIS, AND TWO PUBLISH -- BOOK PUBLISHING
8 COMPANIES, PLUS BAY T.V. SO THERE ARE QUITE A NUMBER OF
9 PROPERTIES.
10 Q. YOU MENTIONED THAT YOUR ASSIGNMENT WAS TO EVALUATE THE
11 VARIOUS OPTIONS OPEN TO THE SHAREHOLDERS.
12 WHAT OPTIONS DID YOU EVALUATE?
13 A. WE LOOKED AT A NUMBER OF DIFFERENT ALTERNATIVES. AND I AM
14 NOT SURE I AM GOING TO GIVE YOU AN EXHAUSTIVE LIST. BUT WE
15 BASICALLY LOOKED AT ALTERNATIVES FROM A SALE OF ALL OF THE
16 COMPANIES TO PART OF THE COMPANY TO POTENTIALLY RECAPITALIZING
17 THE COMPANY, PAYING -- YOU KNOW, CHANGING THE DIVIDEND STREAM
18 TO THE SHAREHOLDERS. WE LOOKED AT POTENTIALLY TAKING THE
19 COMPANY PUBLIC. AND PART OF THE ANALYSIS -- PART OF WHAT WENT
20 THROUGH THE ANALYSIS WAS ALSO RENEGOTIATION OF THE JOA.
21 THE COURT: MAYBE IT WOULD BE HELPFUL BY WAY OF
22 FOUNDATION TO EXPLAIN WHY IT IS THAT THIS EVALUATION WAS
23 UNDERTAKEN IN THE FIRST INSTANCE.
24 THE WITNESS: I THINK THAT FROM THE SHAREHOLDER --
25 WE WERE INITIALLY CONTACTED BY THE SHAREHOLDER DIRECTORS, OF 678
GREENTHAL - DIRECT / LINDSTROM
1 WHICH THERE WERE FIVE, AND I BELIEVE THAT THEY HAD GOTTEN TO A
2 POINT WHERE THEIR INVOLVEMENT IN MANAGEMENT WAS MINIMAL. THE
3 COMPANY WAS -- HAD GONE THROUGH DIVESTING ITS CABLE OPERATIONS
4 A NUMBER OF YEARS EARLIER, AND THEY GOT TO A POINT WHERE, I
5 THINK, THAT THEY BELIEVED THAT THEY NEEDED TO LOOK AT THE
6 INVESTMENT IN THE COMPANY. I THINK UNDERLYING THAT WAS SOME
7 CONCERN ABOUT WHETHER IT WAS A GOOD IDEA TO HAVE THEIR FAMILY
8 INVESTMENT TIED UP IN THE TELEVISION AND NEWSPAPER INDUSTRY AND
9 WHETHER THOSE WERE GOOD INDUSTRIES TO BE INVESTED IN.
10 THE COURT: YOU SAY THERE WERE FIVE SHAREHOLDERS?
11 THE WITNESS: THERE WERE FIVE SHAREHOLDER DIRECTORS.
12 THE COURT: FIVE SHAREHOLDER DIRECTORS?
13 THE WITNESS: CORRECT. AND THEY REPRESENTED
14 DIFFERENT PARTS OF FAMILY. THERE WERE MANY MORE SHAREHOLDERS
15 THAN THAT.
16 BY MR. LINDSTROM:
17 Q. FOR THE RECORD, WHO WERE THE FIVE SHAREHOLDER DIRECTORS?
18 A. NION MCEVOY, TRISH KUBAL, HELEN SPALDING, PETER STENT AND
19 KIP THIERIOT.
20 Q. NOW, THE FAMILY HAD OWNED THIS BUSINESS FOR MORE THAN A
21 HUNDRED YEARS; ISN'T THAT RIGHT?
22 A. CORRECT.
23 Q. DURING THE COURSE OF YOUR INITIAL WORK ON THIS ASSIGNMENT,
24 DID YOU HAVE OCCASION TO TALK WITH THE FAMILY MEMBERS
25 CONCERNING THEIR DESIRES AND MOTIVATIONS? 679
GREENTHAL - DIRECT / LINDSTROM
1 A. YES.
2 Q. AT THAT POINT IN TIME DID ANYONE FROM THE FAMILY SUGGEST
3 TO YOU THAT THE REASON THEY WEREN'T INTERESTED IN SELLING WAS A
4 FEAR OF COMPETITION WITH HEARST FOLLOWING THE EXPIRATION OF THE
5 JOA?
6 A. NO.
7 MR. ALIOTO: I OBJECT, YOUR HONOR, ON THE GROUND
8 THAT IT'S CALLING FOR HEARSAY TESTIMONY.
9 THE COURT: OVERRULED.
10 THE WITNESS: NO.
11 BY MR. LINDSTROM:
12 Q. AT ANY POINT DURING YOUR ENGAGEMENT, DID ANYONE FROM THE
13 FAMILY SUGGEST ANY CONCERNS ABOUT POSSIBLE COMPETITION FROM
14 HEARST FOLLOWING THE EXPIRATION OF THE JOA?
15 MR. ALIOTO: OKAY. I OBJECT, YOUR HONOR. I AM
16 GOING -- I JUST WOULD LIKE TO HAVE AN OBJECTION ON ANY EFFORT
17 TO ELICIT FROM THIS WITNESS WHAT OTHER REPRESENTATIVES OF THE
18 CHRONICLE SAID TO HER.
19 THE COURT: I THINK IT --
20 MR. ALIOTO: AND I ALSO -- AND I ALSO OBJECT ON THE
21 GROUND THAT THE COUNSEL IS LEADING THE WITNESS INTO THESE
22 QUESTIONS.
23 THE COURT: WELL, ALL RIGHT. I THINK THE TESTIMONY
24 IS OFFERED FOR THE STATE OF MIND OF THE WITNESS RATHER THAN FOR
25 THE TRUTH OF THE STATEMENT BEING ASSERTED. 680
GREENTHAL - DIRECT / LINDSTROM
1 MR. LINDSTROM: THAT'S CORRECT.
2 MR. ALIOTO: AND I WOULD HAVE NO OBJECTION IF IT'S
3 OFFERED FOR THAT BASIS, BUT I DO HAVE AN OBJECTION TO LEADING,
4 YOUR HONOR.
5 THE COURT: AND THE COURT WILL RECEIVE IT ON THAT
6 BASIS.
7 WITH RESPECT TO THE LEADING NATURE OF THE QUESTIONS,
8 I WAS ABOUT READY TO TELL MR. LINDSTROM THAT I HOPED THAT WE
9 WERE AT THE END OF THE LEADING QUESTIONS, BUT HE IS LAYING A
10 FOUNDATION.
11 MR. LINDSTROM: THAT'S CORRECT, YOUR HONOR.
12 THE COURT: TRYING TO MOVE THROUGH THESE PRELIMINARY
13 MATTERS AND LEADING QUESTIONS FOR THAT PURPOSE ARE APPROPRIATE
14 SO . . .
15 MR. LINDSTROM: RIGHT. AND I HAVE NO INTENTION OF
16 LEADING THIS WITNESS, YOUR HONOR.
17 THE COURT: ALL RIGHT. LET'S JUST PROCEED.
18 BY MR. LINDSTROM:
19 Q. HOW DID YOU GO ABOUT PERFORMING THE EVALUATION THAT DLJ
20 WAS ASKED TO UNDERTAKE?
21 A. WE SPENT TIME WITH THE SENIOR MANAGEMENT AT CHRONICLE
22 PUBLISHING COMPANY, LEARNING MORE ABOUT THE BUSINESSES.
23 THERE -- AS I SAID BEFORE, THERE WERE DIFFERENT STAGES TO THIS
24 BUT AT LEAST IN THE INITIAL STAGE. WE WENT THROUGH, YOU KNOW,
25 DISCUSSIONS WITH SENIOR MANAGEMENT. WE GATHERED INFORMATION 681
GREENTHAL - DIRECT / LINDSTROM
1 ABOUT THE BUSINESSES AND THE COMPANIES. WE GOT TO KNOW THE
2 SHAREHOLDERS AND THE THINGS THAT, YOU KNOW, SEEMED TO BE
3 IMPORTANT FROM THEIR STANDPOINT. AND WE WENT ABOUT MODELING
4 AND ANALYZING A WHOLE HOST OF DIFFERENT ALTERNATIVES FOR THEM
5 TO TRY TO LAY OUT A FRAMEWORK FOR THEIR, YOU KNOW, DECISION
6 ABOUT WHAT THEY WANTED TO DO WITH THE COMPANY.
7 Q. DID YOU BECOME FAMILIAR WITH THE BUSINESS OF THE CHRONICLE
8 NEWSPAPER?
9 A. YES.
10 Q. AND DID YOU BECOME FAMILIAR WITH THE COMPETITIVE
11 ENVIRONMENT IN WHICH THE CHRONICLE NEWSPAPER OPERATED?
12 A. WELL, WE BECAME FAMILIAR WITH THE FACT THAT IT OPERATED
13 WITHIN THE JOA AND THAT THERE WERE OTHER PEOPLE AROUND THE SAN
14 FRANCISCO MARKET ALSO PUBLISHING NEWSPAPERS, YES.
15 Q. DID YOU REVIEW THE TERMS OF THE JOA?
16 A. YES.
17 Q. WERE YOU AWARE OF THE EXISTENCE WITHIN THE JOA OF WHAT
18 WE'VE COME TO REFER TO AS A "FIRST RIGHT OF REFUSAL"?
19 A. YES.
20 Q. WERE YOU AWARE OF THE SO-CALLED "60-MILE RADIUS" CLAUSE?
21 A. YES.
22 Q. WERE YOU AWARE THAT ONE-HALF OF THE ASSETS REQUIRED TO
23 PUBLISH THE CHRONICLE WERE OWNED BY HEARST?
24 A. WE WERE AWARE THAT THE CHRONICLE AND HEARST EACH OWNED
25 HALF THE ASSETS. 682
GREENTHAL - DIRECT / LINDSTROM
1 Q. DID YOU BECOME AWARE OF THE FACT THAT THE JOA WAS TO
2 EXPIRE IN 2005?
3 A. YES.
4 Q. AS PART OF THE INITIAL PHASE OF YOUR ASSIGNMENT, DID YOU
5 LOOK AT EXPERIENCES WITH JOA'S IN OTHER PARTS OF THE COUNTRY?
6 A. YES.
7 Q. AT SOME POINT IN TIME DID YOU MEET WITH THE SHAREHOLDER
8 DIRECTORS?
9 A. YES.
10 Q. DID YOU ALSO MEET WITH A FULL BOARD OF DIRECTORS?
11 A. YES.
12 Q. AT ANY POINT IN TIME DURING THIS ENGAGEMENT, DID YOU
13 EXPRESS AN OPINION AS TO WHAT YOU THOUGHT WOULD HAPPEN UPON THE
14 EXPIRATION OF THE JOA?
15 MR. ALIOTO: YOUR HONOR, I OBJECT TO THE NATURE OF
16 THESE LEADING QUESTIONS, YOUR HONOR.
17 MR. LINDSTROM: IT'S NOT A LEADING QUESTION.
18 MR. ALIOTO: WELL, I SUBMIT THAT THEY ARE.
19 THE COURT: ALL RIGHT, LET'S BACK UP A STEP.
20 THE FIVE SHAREHOLDER DIRECTORS, NION MCEVOY, KIP
21 THIERIOT, PETER STENT, HELEN --
22 THE WITNESS: SPALDING.
23 THE COURT: AND THE REMAINING ONE?
24 THE WITNESS: TRISH KUBAL.
25 THE COURT: TRISH? 683
GREENTHAL - DIRECT / LINDSTROM
1 THE WITNESS: KUBAL, K-U-B-A-L.
2 THE COURT: THANK YOU. ALL RIGHT.
3 NOW, WHY DON'T YOU START OVER WITH YOUR QUESTION,
4 MR. LINDSTROM, AND SEE IF WE CAN PROCEED A LITTLE MORE . . .
5 BY MR. LINDSTROM:
6 Q. DURING THE COURSE OF THE PRESENTATIONS THAT YOU MADE TO
7 THE SHAREHOLDER DIRECTORS AND THE BOARD OF DIRECTORS, DID YOU
8 EVER EXPRESS AN OPINION ON BEHALF OF DLJ AS TO WHAT YOU
9 BELIEVED MIGHT HAPPEN UPON EXPIRATION OF THE JOA?
10 A. YES.
11 Q. WHAT OPINION DID YOU EXPRESS ON BEHALF OF DLJ?
12 A. WE TOLD THEM THAT WE BELIEVED THE EXAMINER WAS A PAPER
13 THAT WAS NEARING EXTINCTION AT THE END OF THE JOA. IT WOULD GO
14 AWAY.
15 Q. ON WHAT DID YOU BASE THAT ASSESSMENT?
16 A. OUR ANALYSIS OF THE -- YOU KNOW, LOOKING AT THE MARKET,
17 LOOKING AT -- YOU KNOW, IT'S THE RELATIVE CIRCULATION OF THE
18 TWO NEWSPAPERS, OBVIOUS FINANCIAL PROSPECTS, YOU KNOW -- WHEN
19 WE LOOKED AT THE JOA AND WE LOOKED AT, YOU KNOW, HOW THE
20 PAYMENTS WERE GOING -- AS THEY WERE PARSED OUT THROUGH THE JOA
21 AND THE FACT THAT IT WAS IN A DECLINE THAT WAS OF SIGNIFICANCE,
22 AND WE BELIEVED THAT GIVEN THE RELATIVE CIRCULATION OF THE TWO
23 PAPERS, IT WAS NOT GOING TO BE IN EXISTENCE.
24 Q. WERE YOU AWARE PRIOR TO RENDERING THAT OPINION THAT HEARST
25 EXECUTIVES HAD STATED AN INTENTION TO REMAIN IN THE SAN 684
GREENTHAL - DIRECT / LINDSTROM
1 FRANCISCO MARKETPLACE FOLLOWING THE EXPIRATION OF THE JOA?
2 A. YOU KNOW, WE KNEW THERE WAS A LOT OF NOISE COMING OUT OF
3 HEARST IN TERMS OF, YOU KNOW, HOW THEY WERE TRYING TO POSITION
4 THEMSELVES FOR THE TERMINATION OF THE JOA. I DON'T REMEMBER
5 SPECIFICALLY WHAT WE WERE TOLD ONE WAY OR THE OTHER.
6 Q. FOR EXAMPLE, WERE YOU AWARE THAT THE PUBLISHER OF THE
7 EXAMINER HAD REQUESTED PERMISSION TO MOVE THAT PAPER TO THE
8 MORNING FIELD?
9 MR. ALIOTO: HE IS LEADING THE WITNESS.
10 THE COURT: SUSTAINED.
11 MR. ALIOTO: THANK YOU.
12 THE COURT: MR. LINDSTROM, I TOLD YOU I WAS GOING TO
13 CUT OFF THE LEADING QUESTIONS AFTER YOU MADE YOUR FOUNDATION.
14 BY MR. LINDSTROM:
15 Q. WHAT, IF ANYTHING, DID YOU KNOW ABOUT THE EXAMINER'S
16 INTENTIONS, STATED INTENTIONS, POST JOA?
17 A. WE KNEW THAT -- THERE HAD BEEN A LOT OF NOISE. THERE HAD
18 BEEN PRIOR CONVERSATIONS PRIOR TO OUR GETTING INVOLVED IN THE
19 DISCUSSIONS WITH THE CHRONICLE MANAGEMENT ABOUT, YOU KNOW,
20 RENEGOTIATING THE JOA AND HEARST MAKING A LOT OF NOISE ABOUT
21 THEIR WANTING TO STAY IN THE MARKET.
22 WE ALSO DID RECEIVE A LETTER -- A COPY OF THE LETTER
23 THAT ASKED TO BE MOVED -- YOU KNOW, ASKING THEM TO MOVE TO THE
24 MORNING FIELD.
25 Q. HOW DID THAT INFORMATION AFFECT YOUR THINKING, IF AT ALL? 685
GREENTHAL - DIRECT / LINDSTROM
1 A. IT DIDN'T AT ALL, REALLY, BECAUSE WE VIEWED IT -- WE PUT
2 IT IN THE CATEGORY OF MORE SABER RATTLING.
3 Q. AT ANY POINT IN TIME DURING YOUR DUE DILIGENCE, DID YOU
4 ATTEMPT TO ASCERTAIN THE VIEWS OF CHRONICLE MANAGEMENT ABOUT
5 WHAT THEY THOUGHT WOULD HAPPEN FOLLOWING THE EXPIRATION OF THE
6 JOA?
7 A. WE HAD A NUMBER OF CONVERSATIONS WITH THE CHRONICLE
8 MANAGEMENT, AND I BELIEVE THEY WERE OF THE SAME VIEW WE WERE.
9 THEY DID NOT BELIEVE THEY WOULD STAY IN -- IN BUSINESS WITH THE
10 JOA.
11 Q. DO YOU KNOW WHAT MR. SIAS' VIEW WAS?
12 MR. ALIOTO: I OBJECT ON THE GROUND THAT IT'S
13 CALLING FOR HEARSAY EVIDENCE.
14 THE COURT: SUSTAINED.
15 MR. LINDSTROM: IT'S STATE OF MIND, YOUR HONOR.
16 THE COURT: WELL, NUMBER ONE, MR. SIAS, OF COURSE,
17 WAS A WITNESS. YOU CAN ALWAYS RECALL HIM. BUT HOW IS
18 MR. SIAS' STATE OF MIND RELEVANT TO THIS WITNESS' TESTIMONY?
19 MR. LINDSTROM: BECAUSE I BELIEVE, YOUR HONOR,
20 DURING CROSS WE ARE GOING TO SEE THE DLJ PRESENTATION OF TWO
21 SCENARIOS THAT MR. ALIOTO EXAMINED MR. SIAS ON AT GREAT LENGTH.
22 AND THE QUESTION IS THEN GOING TO ARISE AS TO WHY THAT -- THOSE
23 SCENARIOS WERE BEING MODELED AND WHAT THE PERCEPTIONS WERE OF
24 MANAGEMENT AND THIS WITNESS ABOUT THE LIKELIHOOD THAT THAT
25 SCENARIO WOULD COME INTO PLAY. 686
GREENTHAL - DIRECT / LINDSTROM
1 THE COURT: WELL, BUT WHAT I UNDERSTAND YOU TO BE
2 ASKING IS WHAT THIS WITNESS' STATE OF MIND IS WITH RESPECT TO
3 WHAT SHE THOUGHT SIAS THOUGHT. ISN'T THAT WHAT YOU ARE ASKING?
4 MR. LINDSTROM: I WILL WITHDRAW THE QUESTION, YOUR
5 HONOR.
6 THE COURT: BUT THAT'S WHAT YOU ARE ASKING, ISN'T
7 IT?
8 BY MR. LINDSTROM:
9 Q. DURING THE COURSE OF THIS ENGAGEMENT, DID YOU HAVE
10 OCCASION TO TALK WITH OTHER PARTICIPANTS IN THE SAN FRANCISCO
11 NEWSPAPER MARKETPLACE?
12 A. YES.
13 Q. DID YOU LEARN ANYTHING -- ANY INFORMATION FROM THOSE
14 INDIVIDUALS THAT BORE ON YOUR THINKING AS TO WHAT HEARST MIGHT
15 DO UPON THE EXPIRATION OF THE JOA?
16 MR. ALIOTO: IS THIS -- I OBJECT, YOUR HONOR, ON THE
17 GROUND THAT THERE IS NO FOUNDATION THAT ANY SUPPOSED PERSON HAS
18 ANY KNOWLEDGE AS TO WHAT HEARST WOULD DO, AND, SECONDLY, IT'S
19 CALLING FOR HEARSAY EVIDENCE.
20 THE COURT: WELL, I THINK COUNSEL HAS ATTEMPTED TO
21 ELICIT STATE OF MIND TESTIMONY FROM THIS WITNESS AND IT IS
22 BEING OFFERED FOR THIS WITNESS' STATE OF MIND. SO --
23 MR. LINDSTROM: I WILL LAY THE FOUNDATION, YOUR
24 HONOR.
25 BY MR. LINDSTROM: 687
GREENTHAL - DIRECT / LINDSTROM
1 Q. DID YOU SPEAK WITH REPRESENTATIVES OF KNIGHT RIDDER AT ANY
2 POINT IN TIME?
3 A. YES.
4 Q. WITH WHOM DID YOU SPEAK AT THAT ORGANIZATION?
5 A. TONY RIDDER.
6 Q. TO YOUR KNOWLEDGE, IS KNIGHT RIDDER A PARTICIPANT IN THIS
7 MARKETPLACE?
8 A. THEY ARE TO THE EXTENT THAT THEIR PAPER IS CLEARLY COMING
9 INTO THE MARKET OVERALL, YES.
10 Q. DID MR. RIDDER EXPRESS ANY VIEWS TO YOU ABOUT THE FUTURE
11 OF THE EXAMINER THAT BORE ON YOUR THINKING IN CONNECTION WITH
12 THIS ENGAGEMENT?
13 A. YES. I HAD A CONVERSATION WITH HIM WHEREBY HE OFFERED HIS
14 VIEWS, QUITE FRANKLY, WITHOUT MY SOLICITING THEM, THAT HE
15 BELIEVED THAT THE EXAMINER WAS A DEAD ENTERPRISE, AND AT THE
16 END OF THE JOA IT WAS GOING TO GO AWAY AND THEY HAD NOWHERE TO
17 GO.
18 AND, YOU KNOW, IT CLEARLY CONFIRMED, YOU KNOW,
19 WHERE -- AT LEAST WHAT MY THINKING AND WHAT I BELIEVED WAS THE
20 THINKING OF MY CLIENT.
21 Q. AT SOME POINT DID YOU COMPLETE YOUR EVALUATION OF THE
22 VARIOUS ALTERNATIVES THAT WERE AVAILABLE TO CHRONICLE
23 PUBLISHING?
24 A. YES.
25 Q. AND DID YOU ULTIMATELY MAKE A RECOMMENDATION TO THE 688
GREENTHAL - DIRECT / LINDSTROM
1 COMPANY?
2 A. YES.
3 Q. WHEN DID YOU DO THAT?
4 A. I BELIEVE -- AGAIN, I GET THE DATES CONFUSED. I BELIEVE
5 IT WAS SOMETIME IN THE MAY TIME FRAME.
6 Q. WHAT WAS THE RECOMMENDATION THAT DLJ MADE AT THAT TIME?
7 A. WE MADE A RECOMMENDATION BASED ON FINANCIAL OUTCOMES THAT
8 THE COMPANY SHOULD PURSUE A SALE OF THE -- THAT THE
9 SHAREHOLDERS SHOULD PURSUE A SALE OF THE COMPANY.
10 Q. THE ENTIRE COMPANY?
11 A. YES.
12 Q. WOULD THAT INCLUDE THE CHRONICLE?
13 A. YES.
14 Q. AT THAT POINT IN TIME DID YOU EXPRESS ANY KIND OF VIEW AS
15 TO WHAT AMOUNTS MIGHT BE REALIZED FROM THE SALE OF THE COMPANY?
16 A. YES. WE ATTEMPTED TO DO A VALUATION OF THE COMPANY.
17 Q. AND WHAT VALUATION RANGE DID YOU PROVIDE THE SHAREHOLDERS?
18 A. WE PROVIDED THEM A VALUATION RANGE FOR EACH -- ARE YOU
19 ASKING FOR THE CHRONICLE OR FOR THE WHOLE COMPANY?
20 Q. FOR THE ENTIRE COMPANY.
21 A. FROM 2 TO $2.4 BILLION.
22 Q. WHAT VALUATION, IF ANY, DID YOU GIVE THE DIRECTORS AT THAT
23 TIME FOR THE CHRONICLE NEWSPAPER?
24 A. WE GAVE THEM A VALUATION FOR THE CHRONICLE ALONE, WHICH I
25 BELIEVE -- I DON'T HAVE THE DOCUMENT IN FRONT OF ME -- BUT I 689
GREENTHAL - DIRECT / LINDSTROM
1 BELIEVE RANGED FROM -- IN THE -- THE 400 MILLION AREA TO AROUND
2 610 MILLION.
3 Q. WHAT ACTION, IF ANY, DID THE BOARD TAKE IN RESPONSE TO
4 YOUR RECOMMENDATION?
5 A. THE BOARD TOOK OUR RECOMMENDATION INTO ACCOUNT IN -- IN
6 CONJUNCTION WITH THE OTHER OBJECTIVES, WHICH WERE NONFINANCIAL.
7 OUR -- OUR REVIEW WAS BASED ONLY ON REVIEW OF FINANCIAL
8 ALTERNATIVES, NOT TAKING INTO ACCOUNT OTHER ISSUES WHICH WE
9 LEARNED AND THAT WERE QUITE IMPORTANT TO THE SHAREHOLDERS, SUCH
10 AS THEIR FAMILY LEGACY AND RELATIONSHIP WITH THE CHRONICLE
11 NEWSPAPER, WHICH HAS BEEN VERY MUCH A PART OF THE FABRIC OF THE
12 FAMILY FOR -- FOR, YOU KNOW, A HUNDRED-PLUS YEARS, AND ALSO HOW
13 THEY FELT EMPLOYEES WERE GOING TO BE DEALT WITH AND THINGS LIKE
14 THAT. THERE WERE A LOT OF SORT OF SOFT ISSUES THAT WENT AROUND
15 DECISION MAKING. BUT THE BOARD IN CONJUNCTION WITH THE
16 SHAREHOLDERS BASICALLY MADE THE DECISION TO MOVE FORWARD TO
17 SELL THE COMPANY.
18 Q. AT THAT POINT IN TIME, WAS DLJ ENGAGED TO MARKET THE
19 PROPERTIES?
20 A. YES, WE WERE.
21 Q. AND HOW DID YOU GO ABOUT MARKETING THE PROPERTIES?
22 A. WE WENT INTO FURTHER DUE DILIGENCE, MEANING WE DID A
23 DEEPER EVALUATION OF EACH OF THE BUSINESSES. WE WERE ALLOWED
24 TO THEN GO AND TALK TO OPERATING MANAGEMENT OF EACH OF THE
25 VARIOUS COMPANIES. AND, AS I SAID, THERE WERE A NUMBER OF 690
GREENTHAL - DIRECT / LINDSTROM
1 DIFFERENT COMPANIES THAT WE SPENT TIME WITH -- ALL OF THE
2 COMPANIES BUT THERE WERE A NUMBER OF THEM -- AND WENT ABOUT
3 PREPARING AN INFORMATION MEMORANDUM ON EACH OF THE BUSINESSES
4 AND THEN WENT INTO A PROCESS OF CONTACTING BUYERS IN THE
5 MARKET, HAVING THEM SIGN CONFIDENTIALITY AGREEMENTS, MAILING
6 THEM INFORMATION AND FOLLOWING UP.
7 BECAUSE IT HAD BECOME PUBLIC EVEN PRIOR TO OUR
8 COMPLETING THE WORK OF GETTING READY TO GO INTO THE MARKET, WE
9 HAD GOTTEN A TON OF IN-BOUND PHONE CALLS FROM PEOPLE WHO WERE
10 INTERESTED IN THE PROPERTIES BECAUSE THEY WERE VERY DESIRABLE
11 PROPERTIES.
12 Q. YOU'VE MENTIONED THAT YOU WERE TO SELL ALL OF THE
13 PROPERTIES?
14 A. CORRECT.
15 Q. IS THAT CORRECT?
16 A. YES.
17 Q. LET ME FOCUS MY EXAMINATION ON THE NEWSPAPER PAPER -- THE
18 NEWSPAPER GROUP.
19 A. OKAY.
20 Q. WAS IT YOUR INTENTION IN APPROACHING THE MARKET TO SELL
21 ALL THREE NEWSPAPERS?
22 A. WELL, WE ALWAYS INTENDED TO SELL ALL THREE NEWSPAPERS.
23 THE WAY WE APPROACHED THE MARKET WAS TO HAVE -- TO PUT ALL
24 THREE OF THE NEWSPAPERS TOGETHER IN ONE PACKAGE, MEANING THAT
25 WE WERE LOOKING FOR BIDS ON ALL THREE NEWSPAPERS FROM THE SAME 691
GREENTHAL - DIRECT / LINDSTROM
1 BUYER.
2 Q. WERE THE NEWS --
3 A. OR BUYERS.
4 Q. I'M SORRY.
5 WERE THE NEWSPAPERS TO BE SOLD WITH THE COMPANY OR
6 SPUN OUT SEPARATELY?
7 A. THEY WERE TO BE SOLD IN THE CHRONICLE CORPORATION. WE
8 HAD -- THE INTERESTING THING -- ONE OF THE INTERESTING THINGS
9 ABOUT THE CHRONICLE PUBLISHING COMPANY WAS THAT BECAUSE OF --
10 IT WAS ORGANIZED AS AN S CORP., WE HAD AN ABILITY TO SELL THE
11 OTHER PAPERS -- THE OTHER PROPERTIES WITHOUT TRIGGERING A
12 COUPLE OF LAYERS OF TAXATION THAT HAD BEEN ORGANIZED AS AN S
13 CORP. TEN YEARS PRIOR. AND THEY BASICALLY ALLOWED US TO THEN
14 SELL THOSE PROPERTIES OUT SEPARATELY AND THEN TO TAKE THE
15 CHRONICLE CORPORATION AND TO FIND A HOME FOR THE CHRONICLE
16 CORPORATION.
17 THE CHRONICLE CORPORATION AT THAT POINT WOULD HAVE
18 INCLUDED THE THREE NEWSPAPERS. THAT WAS THE STRUCTURE WE WERE
19 PURSUING.
20 Q. WERE THERE ANY OTHER ADVANTAGES IN YOUR MIND TO SELLING
21 THE THREE NEWSPAPERS AS A GROUP WITH THE COMPANY?
22 A. THERE WERE SEVERAL ADVANTAGES -- ACTUALLY, PROBABLY THREE
23 OF THEM. ONE WAS WE NEEDED TO FIND A HOME FOR THE CHRONICLE
24 CORPORATION SO THAT THE -- YOU KNOW, THE HISTORICAL LEGACY,
25 ACTIVITIES OF THE BUSINESS WHICH -- YOU KNOW, WHICH MAY HAVE 692
GREENTHAL - DIRECT / LINDSTROM
1 RELATED TO CONTINGENT CLAIMS OF THE COMPANY WOULD EVENTUALLY
2 FIND A HOME WITH SOMEBODY ELSE AND THE AFFAIRS OF THE CHRONICLE
3 CORPORATION WOULD BE WRAPPED UP.
4 THE SECOND WAS THAT WE THOUGHT WE WERE IN A POSITION
5 WHERE WE MIGHT HAVE BEEN ABLE TO DO A TAX-FREE TRANSACTION FOR
6 THE CHRONICLE CORPORATION.
7 AND THE THIRD WAS THAT BY VIRTUE OF SELLING THE
8 THREE NEWSPAPERS TOGETHER IN THE CHRONICLE CORPORATION, WE
9 BELIEVED THAT WE WERE WITHIN THE CONFINES OF A CLEAR PASSAGEWAY
10 RELATIVE TO RIGHT OF FIRST REFUSAL, MEANING WE WEREN'T GOING TO
11 TRIGGER RIGHT OF FIRST REFUSAL IF WE SOLD THE CHRONICLE
12 CORPORATION WITH THE THREE BUSINESSES IN IT.
13 THE COURT: THE RIGHT OF FIRST REFUSAL UNDER THE
14 JOINT OPERATING AGREEMENT?
15 THE WITNESS: CORRECT, WHICH REALLY RELATED TO THE
16 CHRONICLE, THE ASSETS OF THE CHRONICLE.
17 THE COURT: NOW, THE WRAP-UP IDEA RELATED TO WHAT
18 CIRCUMSTANCES OF THE CHRONICLE CORPORATION?
19 THE WITNESS: WELL, EFFECTIVELY, YOU HAVE THE
20 CHRONICLE CORPORATION, WHICH HAS EXISTED FOR 140 YEARS. AND TO
21 THE EXTENT WE SOLD BUSINESSES OUT OF IT, THE SHAREHOLDERS WOULD
22 STILL OWN THE CHRONICLE CORPORATION, EVEN THOUGH THERE WOULD BE
23 NO ASSETS IN IT OTHER THAN CASH TO THE EXTENT IT HADN'T BEEN
24 DISTRIBUTED TO THE SHAREHOLDERS.
25 SO WHAT WE WANTED TO DO WAS TO HAVE -- AND INSTEAD 693
GREENTHAL - DIRECT / LINDSTROM
1 OF HAVING TO HAVE THE CHRONICLE CORPORATION IN EXISTENCE FOR A
2 NUMBER OF YEARS, THE POTENTIAL FOR CONTINGENT CLAIMS, WE WANTED
3 TO MERGE IT WITH ANOTHER COMPANY SO THAT BASICALLY THE AFFAIRS
4 OF THE CHRONICLE CORPORATION WOULD BE WOUND UP.
5 THERE WERE A LOT OF DIFFERENT THINGS WE WERE TRYING
6 TO BALANCE. IT WAS A LITTLE TRICKY.
7 THE COURT: THERE HAS BEEN SOME EVIDENCE IN THE CASE
8 ABOUT LOAN GUARANTEES WHICH THE CHRONICLE CORPORATION HAD.
9 THE WITNESS: UH-HUH.
10 THE COURT: DID THOSE FIGURE INTO THESE WRAP-UP
11 CONSIDERATIONS?
12 THE WITNESS: THERE WERE -- ONE OF THE ISSUES -- I
13 AM NOT SURE EXACTLY WHAT YOU ARE REFERRING TO. BUT ONE OF THE
14 ISSUES WAS IN RELATIONSHIP TO THE TCI ACQUISITION OF THE CABLE
15 BUSINESSES. THERE WAS A REPRESENTATION MADE ABOUT MAINTAINING
16 A CERTAIN AMOUNT OF NET WORTH IN THE CHRONICLE CORPORATION.
17 AND, AGAIN, TO THE EXTENT WE MERGED THE CHRONICLE CORPORATION
18 INTO SOMEBODY ELSE, THEY COULD MAINTAIN THAT NET WORTH AS
19 OPPOSED TO US HAVING TO LEAVE CASH BEHIND IN THE COMPANY.
20 LOAN GUARANTEES I DON'T REMEMBER AS BEING AN ISSUE
21 RELATED TO SELLING THE CHRONICLE CORPORATION.
22 THE COURT: WELL, THIS CAME UP IN CONNECTION WITH
23 THE BRIEFING AND THE PRELIMINARY INJUNCTION MOTION, A MOTION
24 WHICH NEVER WAS HEARD AT THE INSTANCE OF THE PARTIES. BUT THE
25 COURT'S UNDERSTANDING WAS THAT UNLESS THE SALE OF THE CHRONICLE 694
GREENTHAL - DIRECT / LINDSTROM
1 CORPORATION WERE TO OCCUR BEFORE SOME DATE THIS SUMMER, THAT
2 THAT WOULD HAVE AN EFFECT ON OTHER OF THE LIQUIDATION
3 TRANSACTIONS THAT WERE OUTSTANDING.
4 THE WITNESS: RIGHT. DO YOU WANT ME TO EXPLAIN HOW
5 THAT WORKS?
6 THE COURT: IF YOU WOULD.
7 THE WITNESS: ALL RIGHT. WE EFFECTIVELY WENT OUT --
8 AND WHAT ENDED UP HAPPENING BECAUSE WE -- YOU KNOW, THE REASON
9 WE ARE SITTING HERE IS WE WENT DOWN A SOMEWHAT DIFFERENT PATH
10 THAN WE STARTED OUT.
11 WE EFFECTIVELY ENDED UP SELLING THE ASSETS OF THE
12 BUSINESS IN SEVEN SEPARATE TRANSACTIONS. IT WAS A LOT OF WORK,
13 YES. WE ENDED UP NOW WITH ALL OF THE TRANSACTIONS EFFECTIVELY
14 HAVE CLOSED WITH THE EXCEPTION OF KRON AND THE SALE OF THE
15 CHRONICLE. RELATED TO THOSE ARE THE GATE AND BAY T.V. --
16 OBVIOUSLY, BECAUSE BAY T.V. IS GOING WITH THE CHRONICLE -- WITH
17 KRON AND THE GATE IS GOING WITH THE CHRONICLE.
18 EFFECTIVELY, WE ARE IN A POSITION WHEREBY WE CAN
19 CLOSE THE KRON TRANSACTION AS AN ASSET TRANSACTION THAT --
20 THERE ARE TWO ALTERNATIVES AVAILABLE TO US. TO THE EXTENT THAT
21 THE CHRONICLE HAS BEEN SOLD AND NOTHING IS LEFT IN THE COMPANY
22 EXCEPT FOR KRON, WE WOULD THEN MERGE THE CHRONICLE CORPORATION
23 INTO YOUNG BROADCASTING.
24 THE COURT: AND YOUNG BROADCASTING WOULD ASSUME
25 THESE? 695
GREENTHAL - DIRECT / LINDSTROM
1 THE WITNESS: CORPORATE LIABILITIES, RIGHT.
2 THE COURT: CORPORATE LIABILITIES, INCLUDING --
3 THE WITNESS: THE LOAN GUARANTEES ARE EFFECTIVELY
4 GONE. THEY WOULD HAVE THIS -- THE THING I WAS REFERRING TO
5 BEFORE, THE TCI REPRESENTATION ABOUT MAINTAINING A CERTAIN
6 AMOUNT OF NET WORTH IN THE COMPANY, WOULD STILL BE THERE.
7 THE COURT: I SEE.
8 THE WITNESS: THOSE GO AWAY AFTER A PERIOD OF TIME.
9 THE COURT: I SEE. SO AS LONG AS THE YOUNG
10 TRANSACTION COMPLETES BEFORE AUGUST OR IF THE YOUNG TRANSACTION
11 CLOSES BEFORE WHATEVER DATE IN AUGUST --
12 THE WITNESS: RIGHT, THEY WILL TAKE --
13 THE COURT: -- THEY WILL TAKE --
14 THE WITNESS: BUT THE YOUNG TRANSACTION CLOSING AS A
15 CORPORATE TRANSACTION CAN ONLY HAPPEN TO THE EXTENT THE
16 CHRONICLE HAS BEEN SOLD. OTHERWISE, IT REVERTS TO AN ASSET
17 TRANSACTION AND THE SHAREHOLDERS WOULD BE LEFT WITH THE
18 CHRONICLE CORPORATION.
19 THE COURT: INCLUDING THE OBLIGATION TO MAINTAIN --
20 THE WITNESS: CORRECT.
21 THE COURT: -- NET WORTH --
22 THE WITNESS: CORRECT.
23 THE COURT: -- SUFFICIENT TO MEET THE LOAN
24 COVENANTS?
25 THE WITNESS: CORRECT, ON THE TCI AGREEMENT. 696
GREENTHAL - DIRECT / LINDSTROM
1 THE COURT: TCI AGREEMENT.
2 THE WITNESS: IT'S VERY STRAIGHTFORWARD, DON'T YOU
3 THINK?
4 SORRY.
5 THE COURT: WHAT IS THAT TRIGGER DATE?
6 THE WITNESS: I'M NOT EXACTLY SURE. I BELIEVE IT'S
7 THE END OF AUGUST.
8 THE COURT: AUGUST 31?
9 THE WITNESS: I BELIEVE. I'M -- YOU KNOW, I AM
10 NOT --
11 THE COURT: ALL RIGHT.
12 THE WITNESS: -- CERTAIN OF THAT. I BELIEVE IT'S
13 SUBJECT TO AN EXTENSION AT A POINT IN TIME RELATED TO THE YOUNG
14 TRANSACTION.
15 (CONTINUED ON NEXT PAGE - NOTHING OMITTED.)
16
17
18
19
20
21
22
23
24
25 697
GREENTHAL - DIRECT / LINDSTROM
1 THE COURT: ALL RIGHT.
2 MR. LINDSTROM: THANK YOU, YOUR HONOR.
3 Q. YOU MENTIONED A MOMENT AGO THAT ONE OF THE ADVANTAGES OF
4 THIS DEAL STRUCTURE WAS RELATING TO TRIGGERING OF THE FIRST
5 RIGHT OF REFUSAL.
6 A. CORRECT.
7 Q. WAS THAT IMPORTANT TO YOU IN MARKETING THE PROPERTY IN
8 SOME WAY?
9 A. YEAH. I MEAN, WE BELIEVE THAT GOING INTO THE MARKET IN A
10 WAY WHERE PEOPLE BELIEVED THAT THEY WERE GOING TO HAVE ABSOLUTE
11 RIGHT TO BUY THE NEWSPAPER IF THEY WERE THE HIGHEST BIDDER
12 WITHOUT SOMEBODY HAVING AN ABILITY TO MEET THEIR BID WAS
13 IMPORTANT. WE WANTED TO GO INTO IT IN A WAY WHERE WE THOUGHT
14 THE BUYERS WOULD BELIEVE THEY WOULD HAVE AN ABSOLUTE CLEAR SHOT
15 OF BUYING IT WITHOUT HAVING SOMEBODY ELSE LOOKING OVER THEIR
16 SHOULDER; I.E., THE HEARST CORPORATION WITH A RIGHT TO BEAT
17 THEIR OFFER.
18 Q. WHAT SPECIFICALLY DID YOU DO TO MARKET THE THREE
19 NEWSPAPERS?
20 A. WE -- AS I SAID BEFORE, WE CALLED A NUMBER OF DIFFERENT
21 PEOPLE WHO WE THOUGHT WOULD BE INTERESTED BUYERS. WE ALSO HAD
22 FIELDED SOME INCOMING CALLS. WE SENT MATERIALS TO PEOPLE WHO
23 WE THOUGHT WERE QUALIFIED AS BUYERS OF THE NEWSPAPERS; AND, YOU
24 KNOW, STARTED ANSWERING QUESTIONS. TO THE EXTENT THEY REVIEWED
25 OUR MATERIALS AND WANTED FOLLOWUP INFORMATION, WE SENT IT TO 698
GREENTHAL - DIRECT / LINDSTROM
1 THEM.
2 Q. DID YOU PREPARE SOME KIND OF OFFERING, BOOK OR MEMORANDUM
3 THAT DESCRIBED THE PAPERS?
4 A. YES. I TESTIFIED TO THAT EARLIER.
5 MR. LINDSTROM: YOUR HONOR, MAY I APPROACH?
6 THE COURT: YOU MAY.
7 MR. LINDSTROM: LET ME PLACE BEFORE THE WITNESS
8 PLAINTIFF'S EXHIBIT 6 IN EVIDENCE.
9 Q. ARE YOU FAMILIAR WITH THIS DOCUMENT?
10 A. YES.
11 Q. WHAT IS IT?
12 A. IT IS THE CONFIDENTIAL INFORMATION MEMORANDUM RELATED TO
13 THE THREE NEWSPAPERS AND SF GATE.
14 Q. WAS THIS DOCUMENT PREPARED BY DLJ?
15 A. YES, IT WAS.
16 Q. TO WHOM DID YOU DISTRIBUTE THIS OFFERING MEMORANDUM OR
17 BROCHURE?
18 A. TO PEOPLE WHO WE VIEWED AS QUALIFIED INTERESTED BUYERS.
19 Q. AND HOW MANY QUALIFIED INTERESTED BUYERS DID YOU
20 DISTRIBUTE THIS PACKAGE TO?
21 A. THE NUMBER WAS OVER 40. I BELIEVE IT WAS 45.
22 Q. IN THIS DOCUMENT DID YOU ALERT PROSPECTIVE BUYERS TO THE
23 EXISTENCE OF THE JOA?
24 A. YES.
25 Q. DID YOU DO ANYTHING ELSE TO ALERT PROSPECTIVE BUYERS TO 699
GREENTHAL - DIRECT / LINDSTROM
1 THE PROVISIONS OF THE JOA?
2 A. YES. IN ADDITION TO SENDING THIS DOCUMENT OUT, WE ALSO
3 SENT A COPY OF THE JOA TO THE BUYERS.
4 Q. YOU MENTIONED THAT SOME 45 PROSPECTIVE PURCHASERS RECEIVED
5 THIS MATERIAL; IS THAT RIGHT?
6 A. CORRECT.
7 Q. DID YOU PERSONALLY HAVE ANY SUBSEQUENT DIALOGUE WITH
8 PURCHASERS THAT YOU REGARDED AS HAVING A SIGNIFICANT INTEREST
9 IN PURCHASING THE CHRONICLE?
10 A. YES, I DID.
11 Q. AND WITH WHOM DID YOU PERSONALLY SPEAK?
12 A. THERE WERE THREE COMPANIES IN ADDITION TO HEARST WHO WERE
13 SERIOUSLY INTERESTED IN PURSUING AN ACQUISITION OF THE
14 CHRONICLE AND ALSO THE REST OF THE PAPERS, BUT REALLY DRIVEN BY
15 THEIR INTEREST IN THE CHRONICLE. THEY WERE GANNETT,
16 KNIGHT-RIDDER AND TIMES MIRROR.
17 Q. AT ANY POINT IN TIME DID YOU TALK WITH DEAN SINGLETON?
18 A. YES.
19 Q. DID YOU SPEAK WITH HOLLINGER?
20 A. YES.
21 Q. WITH RESPECT TO THE THREE MEDIA COMPANIES THAT YOU'VE
22 IDENTIFIED, TAKING EACH IN TURN, WITH WHOM DID YOU SPEAK AT
23 GANNETT?
24 A. WITH DOUG MC CORKINDALE.
25 Q. AND WHO WAS MR. MC CORKINDALE? 700
GREENTHAL - DIRECT / LINDSTROM
1 A. AT THE TIME HE WAS THE PRESIDENT AND VICE-CHAIRMAN OF
2 GANNETT. HE WAS RECENTLY PROMOTED TO CEO OR IS IN THE PROCESS
3 OF BEING PROMOTED TO CEO.
4 Q. DOES GANNETT HAVE A PRESENCE IN THIS MARKET?
5 A. YES.
6 Q. AND WHAT PAPER DOES GANNETT OWN IN THIS MARKET?
7 A. I BELIEVE IT'S THE MARIN PAPER.
8 Q. THE MARIN INDEPENDENT JOURNAL?
9 A. UH-HUH.
10 Q. TO YOUR KNOWLEDGE WAS THAT PAPER WITHIN 60 MILES OF SAN
11 FRANCISCO?
12 A. I BELIEVE IT IS WITHIN 60 MILES.
13 Q. WOULD YOU DESCRIBE FOR THE COURT IN SUMMARY FORM THE
14 DISCUSSIONS THAT TOOK PLACE BETWEEN YOURSELF AND GANNETT?
15 A. DURING THE WHOLE PERIOD OF OUR CONVERSATION? AT WHAT
16 POINT?
17 Q. WELL, LET ME SEE IF I CAN GO DIRECTLY TO THE POINT. DID
18 GANNETT EXPRESS AN INTEREST IN PURSUING A POSSIBLE PURCHASE OF
19 THE CHRONICLE?
20 A. YES, THEY DID.
21 Q. AT ANY POINT IN TIME DID MR. MC CORKINDALE INDICATE WHAT
22 KIND OF A PRICE THAT GANNETT MIGHT BE WILLING TO PAY FOR THE
23 PAPER?
24 MR. ALIOTO: THIS IS OFFERED FOR THE FRAME OF MIND
25 OF THIS WITNESS AS I UNDERSTAND IT. 701
GREENTHAL - DIRECT / LINDSTROM
1 MR. LINDSTROM: YES.
2 THE COURT: YES.
3 THE WITNESS: YES, HE DID.
4 THE COURT: LET'S BE CLEAR. THIS IS THE WITNESS'
5 UNDERSTANDING OF WHETHER GANNETT HAD AN INTEREST IN THE
6 CHRONICLE ALONE OR IN ALL THREE PAPERS?
7 THE WITNESS: WAS THAT A QUESTION?
8 BY MR. LINDSTROM:
9 Q. WELL, LET ME POSE THE QUESTION. WAS GANNETT INTERESTED IN
10 ALL THREE PAPERS?
11 A. GANNETT WAS MOSTLY INTERESTED IN THE CHRONICLE. THEY WERE
12 WILLING TO BUY THE OTHER TWO NEWSPAPERS TO BUY IT. THEY
13 ACTUALLY INDEPENDENTLY PURSUED ONE OF THE OTHER PAPERS EVEN
14 AFTER THE CHRONICLE WAS SOLD.
15 Q. WHICH PAPER?
16 A. THE WORCESTER NEWSPAPER.
17 Q. IN MASSACHUSETTS?
18 A. UH-HUH.
19 Q. FOCUSING YOUR ATTENTION ON DISCUSSIONS THAT YOU HAD WITH
20 GANNETT ABOUT POSSIBLE INTEREST IN PURCHASING THE CHRONICLE,
21 DID THEY EVER GIVE YOU ANY KIND OF AN INDICATION OF WHAT THEY
22 MIGHT BE WILLING TO PAY FOR THAT PAPER?
23 A. YES.
24 Q. AND WHAT WERE YOU TOLD?
25 A. DOUG BASICALLY SAID TO ME THAT THEIR VALUATION WAS, AND, 702
GREENTHAL - DIRECT / LINDSTROM
1 AGAIN, I'M NOT SURE EXACTLY WHAT IT WAS, BUT MY IMPRESSION WAS
2 IT WAS IN THE HIGH 400'S, LOW 500 MILLION. THEY HAD BEEN
3 LOOKING AT IT AS A PACKAGE, AND I'D ASKED HIM TO TRY TO GET A
4 CLEARER UNDERSTANDING OF HOW HE WAS THINKING ABOUT THE VALUE OF
5 THE CHRONICLE AND THAT'S WHAT HE INDICATED TO ME.
6 Q. IN YOUR MIND WAS GANNETT A SERIOUS BUYER?
7 A. YES.
8 Q. YOU MENTIONED EARLIER YOU HAD DISCUSSIONS WITH
9 KNIGHT-RIDDER; IS THAT RIGHT?
10 A. YES.
11 Q. DID ANY OF THOSE DISCUSSIONS INCLUDE POSSIBLE INTEREST BY
12 THAT ORGANIZATION IN PURCHASING THE CHRONICLE?
13 A. YES.
14 Q. AND WITH WHOM DID YOU SPEAK?
15 A. TONY RIDDER.
16 Q. NOW, KNIGHT-RIDDER, I THINK YOU'VE TOLD US ALREADY,
17 OPERATES PAPERS WITHIN 60 MILES OF SAN FRANCISCO; IS THAT
18 RIGHT?
19 A. THAT'S RIGHT.
20 Q. WHICH PAPERS ARE THOSE?
21 A. THE SAN JOSE MERCURY NEWS AND THEY ALSO HAVE THE CONTRA
22 COSTA PAPER, I BELIEVE.
23 Q. WAS MR. RIDDER INTERESTED IN PURSUING A POSSIBLE PURCHASE
24 OF THE CHRONICLE?
25 A. YES. 703
GREENTHAL - DIRECT / LINDSTROM
1 Q. AND WHAT DID HE TELL YOU IN THAT REGARD?
2 A. HE -- WE HAD A NUMBER OF CONVERSATIONS, AND HE BASICALLY
3 TOLD ME THAT THEY REALLY WANTED TO BUY THE CHRONICLE. THEY
4 WERE QUITE INTERESTED IN IT, AND WERE PURSUING IT VERY
5 AGGRESSIVELY. THEY DID A LOT OF WORK ON IT. THEY HAD AN
6 INVESTMENT BANKER RETAINED TO HELP THEM EVALUATE IT, AND THEY
7 PURSUED IT VERY AGGRESSIVELY.
8 Q. TO YOUR KNOWLEDGE WAS MR. RIDDER AWARE OF THE 60-MILE
9 RADIUS CLAUSE RESTRICTION?
10 A. YES, HE WAS.
11 Q. WAS HE AWARE OF THE FIRST-RIGHT-OF-REFUSAL PROVISION TO
12 YOUR KNOWLEDGE?
13 A. YES.
14 Q. DID MR. RIDDER EVER GIVE YOU ANY KIND OF AN INDICATION OF
15 WHAT HE MIGHT BE WILLING TO PAY FOR THE CHRONICLE?
16 A. YES, HE DID.
17 Q. AND WHAT INDICATION DID HE GIVE YOU?
18 A. HE BASICALLY GAVE ME AN INDICATION THAT SUGGESTED THAT
19 THEY WERE IN THE LOW FOUR -- LOW TO MID-400'S, I BELIEVE IS
20 WHAT HE SAID, MILLION-DOLLAR NUMBER FOR THE CHRONICLE ALONE.
21 Q. WAS HE LIKEWISE INTERESTED IN ANY OF THE OTHER PAPERS?
22 A. HE WAS -- I WOULD DESCRIBE HIM AS LESS INTERESTED IN THE
23 OTHER TWO PAPERS BUT CLEARLY WILLING TO PURCHASE THEM TO BUY
24 THE CHRONICLE. AND KNIGHT-RIDDER IS A NEWSPAPER COMPANY
25 GENERALLY SO, YOU KNOW, IT WAS NOT INCONSISTENT WITH CORPORATE 704
GREENTHAL - DIRECT / LINDSTROM
1 STRATEGY TO BUY MORE NEWSPAPERS.
2 Q. YOU MENTIONED THAT YOU HAD DISCUSSIONS WITH TIMES MIRROR
3 AS WELL; IS THAT RIGHT?
4 A. YES.
5 Q. WITH WHOM DID YOU SPEAK AT THAT ORGANIZATION?
6 A. WITH TOM UNTERMAN.
7 Q. WHAT WAS HIS ROLE, AS YOU UNDERSTOOD IT?
8 A. AT THAT POINT HE WAS CHIEF FINANCIAL OFFICER OF TIMES
9 MIRROR.
10 Q. DID MR. UNTERMAN EXPRESS INTEREST IN A POSSIBLE
11 ACQUISITION BY TIMES MIRROR OF THE CHRONICLE?
12 A. YES, HE DID.
13 Q. WAS THERE ANY DISCUSSION WITH HIM ABOUT INTEREST IN THAT
14 ORGANIZATION IN EITHER OF THE OTHER PAPERS?
15 A. AGAIN, I THINK HE WAS SOMEWHAT IN KNIGHT-RIDDER'S CAMP,
16 WHICH IS HE WAS CLEARLY PREPARED TO BUY THEM, WAS NOT ADVERSE
17 TO BIDDING ON THEM.
18 AS A MATTER OF FACT, NOW THAT I'M THINKING ON IT, I
19 DO BELIEVE THEY BID ON AT LEAST ONE OF THE OTHER NEWSPAPERS
20 SEPARATELY, IF NOT BOTH OF THEM, EVEN AFTER THE CHRONICLE WAS
21 GONE. SO I GUESS IN SOME WAYS HE WAS WILLING -- HE WAS
22 INTERESTED IN BUYING THEM AS WELL.
23 Q. FOCUSING ON THE CHRONICLE, WHAT DISCUSSIONS DID YOU HAVE
24 WITH MR. UNTERMAN REGARDING A POSSIBLE PURCHASE BY TIMES
25 MIRROR? 705
GREENTHAL - DIRECT / LINDSTROM
1 A. WE TALKED ABOUT IT AT LENGTH. HE -- THEY WERE QUITE
2 INTERESTED IN THE SAN FRANCISCO MARKET AND IN THE PAPER
3 SPECIFICALLY. IT WAS A PRETTY NATURAL FIT GIVEN THEY WERE
4 THE -- THEY HAD THE LOS ANGELES PAPER.
5 Q. DID HE TELL YOU WHY IT WAS THEY THOUGHT IT WAS A NATURAL
6 FIT?
7 A. I THINK THEY, YOU KNOW, LOOKED AT THEIR POSITION WITHIN
8 THE CALIFORNIA -- THE GREATER SORT OF STATE OF CALIFORNIA
9 THINKING -- THEY THOUGHT THAT OWNING THE NEWSPAPERS IN THE TWO
10 LARGEST MARKETS WOULD GIVE THEM AN INTERESTING POSITION
11 STRATEGICALLY.
12 Q. DID TIMES MIRROR HAVE A PRESENCE IN THE SAN FRANCISCO BAY
13 AREA MARKETPLACE?
14 A. NOT THAT I KNEW OF.
15 Q. DID MR. UNTERMAN GIVE YOU ANY KIND OF INDICATION OF THE
16 PRICE THAT TIMES MIRROR MIGHT BE WILLING TO PAY FOR THE
17 CHRONICLE?
18 A. MY DISCUSSIONS WITH HIM ARE LESS -- I RECOLLECT LESS
19 CLEARLY; BUT, AGAIN, MY IMPRESSION WAS THAT HE WAS IN THE
20 NEIGHBORHOOD, WHICH WAS CONSISTENT WITH WHERE GANNETT WAS.
21 Q. 400'S TO LOW 500 MILLION?
22 A. YES.
23 Q. HOW, IF AT ALL, DID THE FIRST RIGHT OF REFUSAL IMPACT YOUR
24 ABILITY TO MARKET THE CHRONICLE TO THESE THREE PROSPECTIVE
25 PURCHASERS? 706
GREENTHAL - DIRECT / LINDSTROM
1 A. THE RIGHT OF FIRST REFUSAL MEANT THAT WE HAD TO SORT OF
2 STRUCTURALLY DEAL WITH THE FACT THAT IT EXISTS SO THAT WE
3 WEREN'T TRIGGERED IN GIVING HEARST AN UNFAIR, YOU KNOW, SHOT AT
4 THIS. BUT I THINK AT THE END OF THE DAY IN TERMS OF PEOPLE
5 BEING WILLING TO PURCHASE THE PAPER, IT REALLY DIDN'T PLAY A
6 BIG ROLE IN IT.
7 Q. HOW, IF AT ALL, DID THE EXISTENCE OF THE 60-MILE RADIUS
8 CLAUSE AFFECT YOUR ABILITY TO MARKET THE PAPER TO THESE THREE
9 PROSPECTIVE PURCHASERS?
10 A. IT DIDN'T.
11 Q. TO YOUR KNOWLEDGE, WERE THESE THREE BUYERS AWARE THAT THE
12 CHRONICLE ONLY POSSESSED HALF OF THE HARD ASSETS THAT WOULD BE
13 NECESSARY TO PUT THE PAPER OUT?
14 A. THEY WERE AWARE THAT THE JOA SAID THAT THEY OWNED
15 50 PERCENT OF THE ASSETS, ABSOLUTELY. THEY ALL HAD COPIES OF
16 THE JOA.
17 Q. HOW DID THAT FACT IMPACT YOUR ABILITY TO MARKET THIS
18 COMPANY, IF IT DID?
19 A. IT DIDN'T REALLY AFFECT OUR ABILITY TO MARKET IT. IT WAS
20 A VALUATION ISSUE. TO THE EXTENT THAT THERE ARE ASSETS THAT
21 YOU NEED TO OPERATE THE BUSINESS THAT YOU DON'T OWN, YOU HAVE
22 TO GO REASONABLY SECURE THOSE ASSETS, BUT IT CERTAINLY DIDN'T
23 AFFECT MARKETABILITY OF IT.
24 Q. HOW DID THE FACT THAT THE JOA WAS DUE TO EXPIRE IN 2005
25 AFFECT YOUR ABILITY TO MARKET THE PAPER, IF IT DID? 707
GREENTHAL - DIRECT / LINDSTROM
1 A. IT DIDN'T.
2 Q. HOW IF AT ALL DID IT RELATE TO THE VALUATION ISSUE AS
3 YOU'VE DESCRIBED IT?
4 A. WELL, HEARST WAS ENTITLED TO A CERTAIN STREAM OF PAYMENTS
5 RELATED TO THE REVENUE -- THE SHARING OF THE EXCESS -- THE NET
6 EXCESS AS OUTLINED IN THE JOA, AND SO A BUYER WOULD HAVE TO
7 LOOK AT THE STREAM OF CASH FLOW FROM -- YOU KNOW, THAT WAS
8 GOING TO HAVE TO BE PAID TO THE EXAMINER AND FACTOR THAT INTO
9 THEIR VALUATION THINKING. BUT IT WAS A VALUE -- IT WAS
10 LITERALLY A CALCULATION THE BUYER COULD MAKE AND GET THEIR ARMS
11 AROUND. THE FACT THAT THE PAYMENT WAS MADE WAS A FINANCIAL
12 ISSUE. IT WASN'T AN OBSTACLE TO SELLING THE PAPER.
13 Q. DID YOU AT DLJ MAKE ANY ATTEMPT TO VALUE THAT PAYMENT
14 STREAM THAT WAS OWED TO HEARST UNDER THE REMAINING TERM OF THE
15 JOA?
16 A. WE DID.
17 Q. AND WHAT DID YOU CONCLUDE?
18 A. THE CALCULATION, WHICH I DIDN'T PERSONALLY MAKE BUT WHICH
19 WAS ADVISED BY COLLEAGUES OF MINE WHO WENT THROUGH DOING MATH,
20 IT HAD A PRESENT VALUE OF JUST UNDER $90 MILLION.
21 THE COURT: JUST UNDER WHAT?
22 THE WITNESS: 90 MILLION. ON A PRESENT VALUE BASIS
23 IF YOU LOOKED AT THE FLOW OF PAYMENTS OVER THE NEXT SIX YEARS.
24 THE COURT: AND THAT WAS AS OF WHAT DATE?
25 THE WITNESS: AS OF THE SORT OF JUNE-JULY TIMEFRAME. 708
GREENTHAL - DIRECT / LINDSTROM
1 THE COURT: JUNE, '99?
2 THE WITNESS: YES.
3 THE COURT: PRESUMABLY THAT'S SUBSTANTIALLY LESS
4 NOW?
5 THE WITNESS: EVERY DAY, YES.
6 THE COURT: YES.
7 BY MR. LINDSTROM:
8 Q. HOW DID HEARST FIGURE INTO THIS AUCTION PROCESS THAT YOU
9 DESCRIBED?
10 A. AGAIN, WE WENT THROUGH A QUITE ELABORATE DISCUSSION WITH
11 THE BOARD, WITH THE LAWYERS, WITH EVERYBODY WHO WAS INVOLVED IN
12 THIS TO TRY TO CONSTRUCT A PROCESS THAT WOULD GIVE US THE
13 MAXIMUM MARKET TO SELL THE PROPERTY TO AND WOULD CREATE THE
14 BEST NEGOTIATING DYNAMICS AS IT RELATED TO HEARST.
15 HEARST TRIED TO PREEMPT OUR PROCESS, EFFECTIVELY
16 COMING IN AND MAKING A PROPOSAL TO US PRIOR TO THE TIME WE WENT
17 INTO THE MARKET; AND WE BASICALLY TOLD THEM WE WEREN'T
18 INTERESTED AND PROCEEDED INTO THE MARKET AND SOLD -- AND
19 SHIPPED MATERIALS OUT TO EVERYBODY WHO HAD EXPRESSED AN
20 INTEREST.
21 Q. LET ME GO BACK AND FOLLOW UP ON THAT POINT. YOU INDICATED
22 THAT YOU RECEIVED A BID FROM HEARST; IS THAT RIGHT?
23 A. CORRECT.
24 Q. HOW MUCH DID HEARST BID AT THAT TIME?
25 A. AGAIN, THIS IS PRIOR TO OUR MAILING INFORMATION TO OTHER 709
GREENTHAL - DIRECT / LINDSTROM
1 BUYERS. THEY SENT A LETTER TO JOHN SIAS, WHICH WAS DELIVERED
2 BY FRANK BENNACK, OFFERING NO LESS THAN $565 MILLION.
3 Q. WHAT WAS THE RESPONSE TO THAT BID BY HEARST OF NO LESS
4 THAN $565 MILLION?
5 A. WE BASICALLY COMMUNICATED TO THEM THAT WE DIDN'T BELIEVE
6 IT WAS A PREEMPTIVE OFFER AND WE WERE GOING FORWARD WITH OUR
7 PROCESS.
8 Q. WHAT DO YOU MEAN BY A "PREEMPTIVE OFFER," AS YOU'VE USED
9 THAT TERM HERE TODAY?
10 A. WELL, "PREEMPTIVE" MEANS AN OFFER THAT MAKES YOU STOP YOUR
11 PROCESS THAT YOU'RE ENGAGED IN, BASICALLY TAKES THE PROPERTY
12 OFF THE TABLE PRIOR TO THE CONCLUSION OF THE PROCESS THAT YOU
13 EXPECT TO GO THROUGH.
14 Q. AT THE TIME YOU RECEIVED THE NOT LESS THAN $565 MILLION
15 FROM HEARST, HAD YOU HAD THE DISCUSSIONS THAT YOU'VE TOLD US
16 ABOUT WITH GANNETT?
17 A. NO.
18 Q. KNIGHT-RIDDER?
19 A. AS RELATES TO WHERE THEY WERE IN VALUE, THE ANSWER IS NO.
20 WE HADN'T EVEN MAILED INFORMATION. WE KNEW ALL THOSE COMPANIES
21 WERE INTERESTED, THOUGH.
22 Q. WOULD IT BE FAIR TO SAY THAT INFORMATION CAME LATER?
23 A. CORRECT.
24 Q. AFTER THIS INITIAL OFFER FROM HEARST, WERE THERE FURTHER
25 NEGOTIATIONS WITH THAT ORGANIZATION? 710
GREENTHAL - DIRECT / LINDSTROM
1 A. YES. THOSE DEVELOPED OVER TIME.
2 Q. DID YOU CONDUCT THOSE YOURSELF?
3 A. YES, AS IT RELATES TO PRICE.
4 Q. HAD HEARST RETAINED THE SERVICES OF AN INVESTMENT BANKER
5 TO REPRESENT THEM?
6 A. YES, THEY DID. THEY DID.
7 Q. WHICH FIRM?
8 A. WASSERSTEIN PERELLA.
9 Q. WHO AT THAT FIRM?
10 A. BRUCE WASSERSTEIN.
11 Q. AT SOME POINT IN TIME DID YOU AND MR. WASSERSTEIN HAVE
12 DISCUSSIONS ABOUT THE PRICE THAT THE CHRONICLE MIGHT BE WILLING
13 TO SELL THE PAPER FOR?
14 A. YES.
15 Q. WOULD YOU DESCRIBE THOSE FOR THE COURT?
16 A. I'LL TRY TO GIVE YOU A SENSE OF HOW THE DISCUSSION WENT.
17 IT STARTED WITH THE 565 PRICE. WE TOLD THEM TO GO AWAY.
18 HE THEN WAS TRYING TO FIND THE NUMBER WHICH WE WOULD
19 BE WILLING TO SELL THE NEWSPAPER AND --
20 MR. ALIOTO: AGAIN, YOUR HONOR, I TAKE IT THAT THIS
21 IS INTRODUCED FOR THE FRAME OF MIND OF THIS WITNESS BECAUSE NOW
22 SHE'S NOT ONLY SAYING -- ATTEMPTING TO SAY WHAT THIS OTHER
23 PERSON SAID, BUT ALSO WHAT HE WAS THINKING.
24 MR. LINDSTROM: YOUR HONOR, MAY I MAKE A PROFFER?
25 THE COURT: VERY WELL. 711
GREENTHAL - DIRECT / LINDSTROM
1 MR. LINDSTROM: WHERE THIS EXAMINATION IS LEADING,
2 AS I THINK THE COURT SUSPECTS, IS A PRESENTATION TO THE BOARD
3 AND A FAIRNESS OPINION RENDERED BY THIS WITNESS REGARDING THE
4 PRICE THAT WAS OFFERED. THERE'S BEEN TESTIMONY DURING THE
5 COURSE OF THE TRIAL THAT THE PRICE THAT WAS ULTIMATELY PAID BY
6 HEARST WAS BOTH TOO LOW AND TOO HIGH, AND I BELIEVE THIS
7 WITNESS' STATE OF MIND, AS IT RELATES TO THE PRICE THAT WAS
8 ULTIMATELY AGREED TO AND THE FAIRNESS OPINION THAT WAS
9 RENDERED, IS HIGHLY RELEVANT TO THE COURT'S PROCEEDINGS AND IS
10 NOT BEING OFFERED FOR THE TRUTH OF THE MATTER ASSERTED BUT
11 MAINLY HER STATE OF MIND IN RENDERING THAT FAIRNESS OPINION.
12 THE COURT: WELL, IS THIS WITNESS ABLE TO TELL US
13 ABOUT HEARST'S STATE OF MIND? SHE CAN TESTIFY AS TO HER STATE
14 OF MIND, BUT CAN SHE READ THE MIND OF THE HEARST CORPORATION?
15 MR. LINDSTROM: NO. I THINK THAT SHE CAN TELL US
16 WHAT HEARST SAID, AND I'M NOT ELICITING FROM HER HER
17 SPECULATION ABOUT HEARST'S STATE OF MIND NOR DID THE QUESTION
18 CALL FOR THAT.
19 THE COURT: LET'S SEE WHAT THE PENDING QUESTION WAS.
20 MR. LINDSTROM: DESCRIBE THE DISCUSSIONS RELATING TO
21 PRICE.
22 THE COURT: THE DISCUSSION WITH MR. WASSERSTEIN?
23 MR. LINDSTROM: CORRECT. YOUR HONOR, I'LL REFRAME
24 THE QUESTION.
25 THE COURT: WELL, NO, I UNDERSTAND WHERE YOU'RE 712
GREENTHAL - DIRECT / LINDSTROM
1 GOING WITH THIS AND I THINK THAT'S FAIR ENOUGH; BUT IF YOU WISH
2 TO PIN IT DOWN A LITTLE MORE PRECISELY, I'M NOT GOING TO STAND
3 IN YOUR WAY, COUNSEL.
4 BY MR. LINDSTROM:
5 Q. WHAT WAS THE NEXT INDICATION OF PRICE THAT CAME FROM
6 HEARST?
7 A. AGAIN, I GOT THROUGH THE BACKGROUND. I HAD SUGGESTED TO
8 THEM THAT THE CHRONICLE SHAREHOLDERS, I BELIEVE, WOULD BE
9 WILLING TO SELL THE PAPER FOR $700 MILLION. BRUCE THEN MADE
10 THE SUGGESTION THAT WE SHOULD MEET IN THE MIDDLE; AND I
11 CORRECTED HIM THAT MAYBE HE HADN'T HEARD THE FIRST PART OF WHAT
12 I HAD SAID TO HIM, WHICH IS THAT WE WERE NOT IN THE MIDDLE. WE
13 WERE AT 700 MILLION.
14 WE THEN HAD A CONTINUING DIALOGUE ABOUT VALUE OF
15 DIFFERENT COMPONENTS OF THE COMPANY, AND THE NEXT INDICATION
16 THAT I GOT FROM HIM WAS A NUMBER AT 660 MILLION.
17 Q. DID YOU VIEW THAT PRICE AS AN ATTRACTIVE ONE?
18 A. I DID.
19 Q. DID YOU BELIEVE AT THAT TIME THAT IT WAS HIGHER THAN ANY
20 OTHER PRICE THAT THE CHRONICLE WOULD EXPECT TO GET FOR THE
21 PAPER FROM THIRD-PARTY BUYERS?
22 A. I BELIEVED THAT IT WAS THE HIGHEST PRICE THEY WERE GOING
23 TO SEE, AND IN SUBSEQUENT CONVERSATIONS WAS ABLE TO FURTHER GET
24 COMFORT ON THAT FACT.
25 Q. AND HOW DID YOU DO THAT? 713
GREENTHAL - DIRECT / LINDSTROM
1 A. THROUGH DISCUSSIONS WITH OTHER BUYERS WHO WERE STILL IN
2 THE MARKET AT THE TIME.
3 Q. AND HAVE YOU TOLD THE COURT ABOUT THOSE DISCUSSIONS?
4 A. I HAVE.
5 Q. THOSE ARE THE INDICATIONS OF WILLINGNESS TO PAY SOMETHING
6 ON THE ORDER OF FOUR TO LOW 500 MILLION FROM GANNETT,
7 KNIGHT-RIDDER AND TIMES MIRROR?
8 A. CORRECT.
9 Q. AT SOME POINT IN TIME DID YOU PRESENT THE HEARST PROPOSAL
10 OF $660 MILLION TO THE BOARD OF DIRECTORS OF CHRONICLE
11 PUBLISHING?
12 A. WE DID.
13 Q. IN CONNECTION WITH THAT PRESENTATION, DID YOU RENDER A
14 FAIRNESS OPINION?
15 A. YES, WE DID.
16 Q. WHAT IS A FAIRNESS OPINION?
17 A. A FAIRNESS OPINION IS AN EXPRESSION BY A FINANCIAL
18 INSTITUTION, PARTICULARLY TO AN INVESTMENT BANK, WITH RESPECT
19 TO THE FAIRNESS OF THE TRANSACTION TO THE SHAREHOLDERS TAKING
20 INTO ACCOUNT ALL FACTORS WHICH ARE DEEMED RELEVANT IN THEIR
21 CONSIDERATION.
22 Q. DID YOU MAKE THIS PRESENTATION YOURSELF?
23 A. YES.
24 MR. LINDSTROM: YOUR HONOR, MAY I APPROACH?
25 THE COURT: YOU MAY. 714
GREENTHAL - DIRECT / LINDSTROM
1 MR. LINDSTROM: LET ME PLACE BEFORE THE WITNESS,
2 YOUR HONOR, WHAT'S BEEN MARKED BOTH AS PLAINTIFF'S EXHIBIT 9
3 AND THE IDENTICAL DOCUMENT IS H-0950, A HEARST DOCUMENT. I
4 BELIEVE THEY'RE BOTH IN EVIDENCE.
5 Q. WHAT IS THIS DOCUMENT?
6 A. THIS IS THE PRESENTATION THAT WE MADE TO THE BOARD OF
7 DIRECTORS WITH RESPECT TO THE FAIRNESS TO THE SHAREHOLDERS OF
8 THE SALE OF THE CHRONICLE NEWSPAPER AND SF GATE.
9 Q. DID YOU MAKE THIS PRESENTATION ON AUGUST 6, 1999?
10 A. YES, WE DID.
11 Q. DID YOU WALK THE BOARD OF DIRECTORS THROUGH PAGE 2,
12 "UPDATE ON SALE PROCESS"?
13 A. YES, WE DID.
14 Q. I NOTICE THAT YOU INDICATE IN THE LAST BULLET POINT THAT
15 DLJ HAD REQUESTED PRELIMINARY BIDS TO BE DUE AUGUST 10TH. DO
16 YOU SEE THAT REFERENCE?
17 A. YEP.
18 Q. THIS MEETING WAS ON AUGUST 6; IS THAT RIGHT?
19 A. CORRECT.
20 Q. CAN YOU EXPLAIN TO THE COURT WHY IT WAS YOU WERE
21 PRESENTING THE HEARST PROPOSAL BEFORE THE DATE FOR PRELIMINARY
22 BIDS FROM THIRD PARTIES?
23 A. BECAUSE HEARST HAD, YOU KNOW, DURING THE COURSE OF OUR
24 DISCUSSIONS, IMPROVED THEIR BID TO 660 MILLION, AND IT
25 PRESENTED US WITH A CONTRACT WHICH WE FOUND VERY ATTRACTIVE. 715
GREENTHAL - DIRECT / LINDSTROM
1 AND IT WAS OUR BELIEF THAT WAS THE BEST CONCLUSION WE WERE
2 GOING TO REACH AND WE WERE PREPARED TO SIGN A TRANSACTION WITH
3 THEM AND SHUT OUR PROCESS DOWN AS RELATED TO THE CHRONICLE. WE
4 HAD A PRETTY GOOD SENSE OF WHAT WE WERE GOING TO GET AND
5 DECIDED THAT IT WAS IN EVERYBODY'S INTEREST TO SIGN THIS DEAL
6 NOW.
7 Q. DID YOU REGARD THE $660 MILLION OFFER FROM HEARST AS
8 PREEMPTIVE?
9 A. AT THAT POINT, YES.
10 Q. NOW, YOU MENTIONED SOMETHING ABOUT A CONTRACT THAT HAD
11 BEEN OFFERED BY HEARST A FEW MOMENTS AGO. WAS THERE SOMETHING
12 ABOUT THE HEARST CONTRACT THAT WAS MORE FAVORABLE THAN YOU
13 EXPECTED FROM OTHER BUYERS?
14 A. THE ANSWER IS YES. BY VIRTUE OF THE FACT THAT THEY HAD
15 BEEN IN, YOU KNOW, AN OPERATING RELATIONSHIP WITH THE CHRONICLE
16 FOR 35 PLUS YEARS, THEY KNEW EVERYTHING THERE WAS TO KNOW ABOUT
17 THE BUSINESS AND THEY WERE, THEREFORE, WILLING TO SIGN A
18 CONTRACT WHICH WAS QUITE FAVORABLE TO THE SELLERS IN TERMS OF
19 THE -- YOU KNOW, ALL THE REPRESENTATIONS AND WARRANTIES THAT
20 NEEDED TO BE MADE BY THE SELLER.
21 THE OTHER THING THAT WAS CRITICALLY IMPORTANT TO THE
22 SHAREHOLDERS WAS THAT THEY AGREED TO EMPLOY ALL THE EMPLOYEES,
23 AND THAT WAS A VERY IMPORTANT THING FROM MY CLIENT'S
24 STANDPOINT. THEY WANTED TO MAKE SURE THAT THE EMPLOYEES WERE
25 GOING TO BE TAKEN CARE OF. 716
GREENTHAL - DIRECT / LINDSTROM
1 Q. AS OF THE DATE THAT YOU MADE THIS PRESENTATION TO THE
2 BOARD, AUGUST 6TH, HAD THE FORM OF THE CONTRACT BETWEEN HEARST
3 AND CHRONICLE PUBLISHING BEEN AGREED TO?
4 A. YES. IT WAS EFFECTIVELY COMPLETE AND READY TO BE SIGNED
5 IF THE BOARD APPROVED THE TRANSACTION.
6 Q. LET ME DIRECT YOUR ATTENTION TO PAGE 3 OF YOUR BOARD
7 PRESENTATION, AND THIS AGAIN IS PLAINTIFF'S EXHIBIT 9, H-0950
8 IN EVIDENCE. DID YOU WALK THE BOARD THROUGH THE PROVISIONS OF
9 THIS PAGE?
10 A. WE DID AND IN CONJUNCTION WITH LEGAL COUNSEL AS WELL.
11 Q. LET ME ZOOM IN HERE.
12 THE FIRST BULLET POINT YOU INDICATE THAT THE
13 PROPOSED TRANSACTION HAS THE FOLLOWING SIGNIFICANT TERMS AND
14 THEN YOU LIST A NUMBER.
15 A. UH-HUH.
16 Q. RIGHT?
17 A. YES.
18 Q. THE FIRST RELATES TO THE PURCHASE OF ASSETS OF SAN
19 FRANCISCO CHRONICLE AND SF GATE. YOU'VE MENTIONED SF GATE A
20 NUMBER OF TIMES THIS MORNING. WHAT IS THAT?
21 A. IT'S THE WEBSITE THAT RELATES TO THE CHRONICLE AND THE
22 EXAMINER, ALSO THE -- ALSO CHRON AT THAT POINT.
23 Q. WAS THAT SOLD WITH THE PAPER?
24 A. YES, IT WAS.
25 Q. OR TO BE SOLD WITH THE PAPER? 717
GREENTHAL - DIRECT / LINDSTROM
1 A. YES, IT WAS.
2 Q. AND WAS THE SF GATE INCLUDED IN THE PURCHASE PRICE OF
3 $660 MILLION?
4 A. YES.
5 Q. WHAT'S THE SIGNIFICANCE -- WHAT WAS THE SIGNIFICANCE OF
6 THIS NEXT BULLET POINT, "NO MATERIAL ADVERSE CHANGE PROVISION"?
7 A. IT EFFECTIVELY MEANT THAT SINCE THEY WERE 50 PERCENT
8 OPERATORS OF THE CHRONICLE, THAT BETWEEN THE SIGNING OF THE
9 DOCUMENT AND THE CLOSING, THAT NO MATTER WHAT HAPPENED TO THE
10 NEWSPAPER OF A MATERIAL SENSE, IT WAS NOT GOING TO RESULT IN
11 THE CONTRACT BASICALLY BEING BREACHED OR A WALK-AWAY EVENT IF
12 YOU WILL.
13 Q. THE NEXT BULLET POINT INDICATES REPRESENTATION WARRANTIES
14 DO NOT COVER PRINTING COMPANY. WHAT WAS THE SIGNIFICANCE OF
15 THAT PROVISION?
16 A. I DON'T RECALL SPECIFICALLY WHAT THAT RELATED TO; BUT,
17 AGAIN, I BELIEVED IT WAS THAT WE DID NOT HAVE TO REP AND
18 WARRANT THE ACTIVITIES OF THE PRINTING COMPANY AS IT
19 HISTORICALLY EXISTED.
20 Q. THE NEXT ENTRY, "WORKING CAPITAL ADJUSTMENT," WHAT WAS THE
21 SIGNIFICANCE OF THAT?
22 A. I BELIEVED THAT THAT WAS TO LET THE BOARD KNOW THAT TO THE
23 EXTENT THERE WAS MORE OR LESS WORKING CAPITAL IN THE COMPANY AT
24 CLOSING, THAT IT WAS AN ADJUSTMENT TO THE PURCHASE PRICE.
25 WORKING CAPITAL IS NET ASSETS MINUS NET LIABILITIES. 718
GREENTHAL - DIRECT / LINDSTROM
1 Q. NOW, WITHOUT --
2 A. CURRENT ASSETS MINUS CURRENT LIABILITIES, EXCUSE ME.
3 Q. NOW, WITHOUT GOING THROUGH EACH AND EVERY ONE OF THESE,
4 WOULD IT BE FAIR TO SAY THAT THESE WERE THE PROVISIONS TO WHICH
5 YOU REFERRED A FEW MOMENTS AGO IN INDICATING THAT THE FORM OF
6 THE AGREEMENT PROPOSED BY HEARST WAS MORE ADVANTAGEOUS?
7 A. YES.
8 Q. NOW, LET'S TAKE YOU DOWN TO THE NEXT MAJOR POINT, "DLJ
9 BELIEVES H CORPORATION'S PROPOSED PURCHASE PRICE TO BE
10 ATTRACTIVE." DO YOU SEE THAT?
11 A. UH-HUH.
12 Q. WHO OR WHAT IS "H CORPORATION"?
13 A. THAT'S HEARST.
14 Q. THE FIRST STATEMENT YOU INDICATE THAT THE 660 MILLION IS
15 AT THE HIGH END OF DLJ'S ORIGINAL VALUATION RANGE. DO YOU SEE
16 THAT?
17 A. YES.
18 Q. BY THIS POINT IN TIME, HAD YOU MADE ADJUSTMENTS TO THE
19 VALUATION RANGE THAT YOU DESCRIBED TO YOUR HONOR EARLIER IN
20 YOUR TESTIMONY?
21 A. WELL, AGAIN, WE DID A BUNCH OF WORK SINCE THE POINT THE
22 ORIGINAL VALUATION WAS DONE AND GOT DIFFERENT SETS OF
23 PROJECTIONS FROM THE COMPANY. SO, YES, THERE WERE ADJUSTMENTS.
24 Q. AND THE ORIGINAL VALUATION RANGE PRESENTED TO THE BOARD
25 WAS AGAIN? 719
GREENTHAL - DIRECT / LINDSTROM
1 A. 610.
2 Q. THAT WAS THE HIGH END?
3 A. YES, THAT WAS THE HIGH END, ROUGHLY.
4 Q. AND IN THE NEXT BULLET POINT YOU INDICATE THAT THE HEARST
5 PROPOSED PURCHASE PRICE EXCEEDS THE VALUE DLJ ESTIMATES
6 THIRD-PARTY BUYERS WOULD BE WILLING TO PAY. DO YOU SEE THAT?
7 A. YES.
8 Q. ON WHAT DID YOU BASE THAT STATEMENT TO THE BOARD?
9 A. BASED ON AN ANALYSIS WE DID OF WHAT WE THINK -- WHAT WE
10 THOUGHT THE PROPERTY WOULD BRING TO A THIRD-PARTY BUYER BASED
11 ON A VARIETY OF DIFFERENT VALUATION TECHNIQUES.
12 Q. NOW, IS THAT ANALYSIS AND ARE THOSE VALUATION TECHNIQUES
13 PRESENTED IN THE PAGES THAT FOLLOW?
14 A. YES, THEY ARE.
15 Q. THE THIRD BULLET POINT, "RECENT DISCUSSIONS WITH POTENTIAL
16 THIRD-PARTY BUYERS HAVE CONFIRMED DLJ'S VALUATION CONCLUSIONS,"
17 WHAT WAS THAT REFERRING TO?
18 A. BASICALLY WHAT WE HAD -- WHAT WE DISCUSSED EARLIER, WHICH
19 IS THAT WE HAD HAD SOME CONVERSATIONS WITH PEOPLE WHO WE
20 THOUGHT WERE SERIOUS BIDDERS FOR THE PROPERTY THAT LED US TO
21 BELIEVE WE HAD THE BEST BID THAT WE SHOULD EXPECT TO SEE IN THE
22 MARKET.
23 Q. AND AGAIN THAT'S GANNETT, KNIGHT-RIDDER AND TIMES MIRROR?
24 A. GANNETT, KNIGHT-RIDDER AND TIMES MIRROR.
25 Q. LET ME GO TO PAGE 5 OF YOUR ANALYSIS. THIS IS A PAGE 720
GREENTHAL - DIRECT / LINDSTROM
1 ENTITLED "VALUATION SUMMARY." THIS IS A GRAPHIC DEPICTION.
2 CAN YOU DESCRIBE WHAT THIS DEPICTS FOR HIS HONOR?
3 A. IT TAKES THREE DIFFERENT VALUATION APPROACHES TO LOOKING
4 AT THE VALUE OF THE CHRONICLE. THESE ARE STANDARD MEASURES BY
5 WHICH INVESTMENT BANKERS WILL LOOK AT VALUATION.
6 THE LEFT COLUMN IS LOOKING AT MERGER AND ACQUISITION
7 COMPARABLES, TRANSACTIONS WHICH RELATE IN SOME SENSE TO THE
8 TRANSACTION THAT WE'RE LOOKING AT.
9 Q. NOW, LET ME STOP YOU THERE. THE LEFT COLUMN HAS A RANGE
10 OF VALUE FROM 153 MILLION TO 341 MILLION; IS THAT RIGHT?
11 A. CORRECT.
12 Q. AND ON WHAT COMPARABLES WAS THAT BASED?
13 A. THERE'S A LIST IN THE BACK OF THIS PRESENTATION THAT WENT
14 THROUGH THE VARIOUS TRANSACTIONS THAT WE LOOKED AT.
15 Q. OTHER MEDIA TRANSACTIONS?
16 A. OTHER NEWSPAPER TRANSACTIONS.
17 Q. NOW, THE SECOND COLUMN HAS A VALUATION RANGE OF
18 131 MILLION TO 215 MILLION. DO YOU SEE THAT?
19 A. YES.
20 Q. AND WHAT IS THAT VALUATION METHODOLOGY?
21 A. IT'S BASICALLY LOOKING AT PUBLIC TRADING LEVELS OF
22 NEWSPAPER COMPANIES. THE OVERALL ANALYSIS, AS IT RELATES TO
23 CHRONICLE, WE WOULD LOOK AT AND PUT DIFFERENT WEIGHT ON
24 DIFFERENT OF THESE VALUATION TECHNIQUES BECAUSE THE CHRONICLE
25 WAS IN A FAIRLY UNIQUE POSITION BY VIRTUE OF OPERATING AT A 721
GREENTHAL - DIRECT / LINDSTROM
1 JOA.
2 Q. THE THIRD COLUMN REFERS TO DCF ANALYSIS. DO YOU SEE THAT?
3 A. YES.
4 Q. WHAT IS DCF ANALYSIS?
5 A. DISCOUNT CASH FLOW ANALYSIS.
6 Q. CAN YOU DESCRIBE THAT METHODOLOGY FOR THE COURT?
7 A. WE EFFECTIVELY PROJECT THE FUTURE REVENUE CASH FLOW STREAM
8 FOR THE BUSINESS AND ATTEMPT TO DISCOUNT THAT BACK TO CURRENT
9 DAY TO CAPTURE IN A SINGLE NUMBER THE VALUE OF THAT CASH FLOW
10 STREAM.
11 Q. YOU MENTIONED THAT THIS VALUATION RELATED TO THIRD-PARTY
12 VALUATION; IS THAT CORRECT?
13 A. YES.
14 Q. WHAT WAS THE REASON YOU WERE VALUING THIRD PARTIES'
15 INTEREST AS OPPOSED TO THAT OF EITHER THE CHRONICLE OR HEARST?
16 A. EFFECTIVELY WE WERE LOOKING AT SOMEBODY WHO COULD BUY THE
17 PROPERTY IN THE MARKET WHO DIDN'T HAVE A PARTICIPATION
18 CURRENTLY IN THE JOA.
19 Q. NOW, I GATHER FROM THIS GRAPHIC DEPICTION THAT IN YOUR
20 MIND THE HEARST CORPORATION PROPOSAL WAS WORTH MORE THAN WHAT
21 YOU THOUGHT THIRD PARTIES WOULD BE WILLING TO PAY; IS THAT
22 RIGHT?
23 A. YES.
24 Q. CAN YOU EXPLAIN TO THE COURT WHY IT IS THAT THIS ASSET
25 WOULD BE WORTH MORE IN THE HANDS OF HEARST THAN IN A 722
GREENTHAL - DIRECT / LINDSTROM
1 THIRD-PARTY PURCHASER?
2 A. EFFECTIVELY HEARST ALREADY OWNED HALF THE ASSETS. A
3 THIRD-PARTY BUYER WOULD HAVE TO GO OUT AND BUY THE OTHER HALF
4 OF THE ASSETS TO CONTINUE TO RUN THE NEWSPAPER.
5 SO FROM THEIR -- THEIR DISCOUNTED CASH FLOW
6 ANALYSIS, THEY WOULD HAVE TO PUT IN A PAYMENT FOR THE
7 EXPENDITURE FOR THE OTHER ASSETS.
8 LIKEWISE, THE THIRD PARTY WOULD HAVE TO CONTINUE TO
9 FUND THE REMAINING SIX YEARS OF PAYMENTS UNDER THE JOA TO THE
10 HEARST CORPORATION. THAT WOULD BE A FLOW OUT OF THEIR
11 CALCULATION.
12 Q. YOU MENTIONED EARLIER THAT YOU VALUED THE OUTFLOW AT ABOUT
13 90 MILLION; RIGHT?
14 A. CORRECT.
15 Q. DID YOU MAKE ANY ATTEMPT TO VALUE WHAT THAT OTHER HALF
16 ASSET BASE WOULD BE WORTH?
17 A. WE DIDN'T IN A TOTAL SENSE, BUT WE DID HAVE ESTIMATES FROM
18 THE COMPANY ABOUT WHAT THE COSTS WOULD BE OF A PRINTING PLANT
19 IF WE NEEDED TO REPLACE ONE IF WE LOST IT AT THE END OF THE
20 JOA. AND THAT NUMBER, WHICH I WILL TELL YOU EVOLVED OVER TIME
21 AND I'M NOT SURE EVER SETTLED OUT AT A NUMBER THAT I WOULD TELL
22 YOU WAS A HUNDRED PERCENT, YOU KNOW, BOUGHT OFF ON, THE LAST
23 NUMBER PRIOR TO THIS WOULD HAVE BEEN 200 MILLION.
24 Q. YOU'VE MODELED TWO SCENARIOS HERE UNDER THE DISCOUNTED
25 CASH FLOW ANALYSIS; IS THAT RIGHT? 723
GREENTHAL - DIRECT / LINDSTROM
1 A. YES.
2 Q. THE FIRST SCENARIO YIELDS $540 MILLION?
3 A. CORRECT.
4 Q. WHAT WERE THE ASSUMPTIONS UNDERLYING THAT SCENARIO?
5 A. THE 540 MILLION-DOLLAR ASSUMPTIONS WERE THAT AT THE END OF
6 THE JOA, THE HEARST CORPORATION WOULD HAVE FOLDED THE EXAMINER
7 AND THE CHRONICLE WOULD HAVE BEEN THE ONLY REMAINING NEWSPAPER
8 IN SAN FRANCISCO UNDER -- OPERATING BETWEEN THOSE TWO
9 NEWSPAPERS.
10 Q. HOW LIKELY DID YOU VIEW THAT SCENARIO AS BEING?
11 A. WE VIEWED THAT AS THE LIKELY OUTCOME.
12 Q. THE LOWER --
13 A. AGAIN, WE'RE LOOKING AT THIS FROM A THIRD-PARTY
14 PERSPECTIVE SINCE WE WEREN'T EVALUATING THIS FROM HEARST'S
15 PERSPECTIVE.
16 Q. THE LOWER CASE, 489 MILLION, WHAT WERE THE ASSUMPTIONS
17 UNDERLYING THAT SCENARIO?
18 A. IN THAT SCENARIO, WHICH WE VIEWED AS OUR WORST CASE
19 SCENARIO, WHICH I THINK IS THE WAY IT'S LABELED HERE, WE
20 ASSUMED THAT AT THE END OF THE JOA THAT HEARST WOULD BEHAVE IN
21 A WAY -- A MANNER WHICH FROM OUR STANDPOINT WAS PURELY
22 IRRATIONAL FINANCIALLY. IT CONDUCTED A LIMITED NUMBER OF -- A
23 LIMITED NUMBER OF YEARS OF COMPETITION, THEN FOLD THEIR TENT
24 AND GO HOME.
25 Q. UNDER THIS SCENARIO, DID HEARST STAY IN THE MARKET AFTER 724
GREENTHAL - DIRECT / LINDSTROM
1 THE EXPIRATION OF THE JOA?
2 A. YES, THEY DID.
3 Q. FOR HOW LONG?
4 A. FOR THREE YEARS.
5 Q. THEN WHAT HAPPENED AFTER THE THREE YEARS?
6 A. THREE YEARS THEY BASICALLY WENT HOME. THEY CALLED IT
7 QUITS AND WENT HOME AFTER LOSING A LOT OF MONEY.
8 Q. NOW, IF I CAN ZOOM IN ON THIS, IN THE FOOTNOTE IN THIS
9 COLUMN YOU INDICATE, "WORST CASE IS A WAR" -- IT'S A NEWSPAPER
10 WAR; RIGHT?
11 A. YES.
12 Q. -- "IN 2006, 2007 AND 2008 WITH THE EXAMINER CLOSING AT
13 THE END OF 2008." DO YOU SEE THAT?
14 A. YES.
15 Q. DID YOU EVER MODEL A SCENARIO THAT HAD THE EXAMINER IN THE
16 MARKET PAST 2008?
17 A. WE NEVER DID EVER.
18 Q. DID YOU MAKE ANY ATTEMPT TO ESTIMATE WHAT AMOUNT OF MONEY
19 THE EXAMINER MIGHT LOSE IF IT WERE, IN FACT, TO ENGAGE IN THIS
20 WAR SCENARIO DURING THE YEARS 2006 THROUGH 2008?
21 A. YES, WE DID.
22 Q. WHAT DID YOU CONCLUDE?
23 A. WE CONCLUDED THAT OVER A PERIOD OF THREE YEARS IT WOULD
24 LOSE $160 MILLION, YOU KNOW, JUST ON A BASIC EBIDTA BASIS.
25 THAT'S EARNINGS BEFORE INTEREST, TAX, DEPRECIATION AND 725
GREENTHAL - DIRECT / LINDSTROM
1 AMORTIZATION.
2 Q. LET ME ASK YOU A QUESTION. THE SCENARIO, THE LOWER CASE
3 SCENARIO, 489 MILLION, IS PREMISED ON A WAR THAT YOU'VE TOLD US
4 YOU DIDN'T THINK WOULD HAPPEN; RIGHT?
5 A. CORRECT. YEAH.
6 Q. WHY DID YOU BOTHER TO MODEL THAT?
7 A. WE MODELED THAT BECAUSE OBVIOUSLY WE THOUGHT THAT IT HAD
8 SOME DEGREE OF UNCERTAINTY OVER THE LENGTH OF THE JOA; BUT
9 WHILE YOU COULD SIT AND SAY THE PURELY RATIONAL THING WAS
10 EVERYBODY GO THEIR SEPARATE WAYS AND THE EXAMINER GO OUT OF
11 BUSINESS, WE WANTED TO SEE WHAT THE WORST CASE WOULD LOOK LIKE.
12 AND, QUITE FRANKLY, WE DIDN'T SPEND A LOT OF TIME ON
13 IT AND YOU COULD SEE THAT THE VALUING DIFFERENTIATION IS NOT
14 HUGE FROM THE CHRONICLE SHAREHOLDER STANDPOINT. BUT WE DECIDED
15 THAT IT WAS THE PRUDENT THING TO DO WOULD BE TO LOOK AT, YOU
16 KNOW, HOW BAD IT WOULD BE IF SOMEBODY DECIDED TO ACT
17 IRRATIONALLY.
18 Q. AND WHAT DID YOU CONCLUDE THAT THE DIFFERENCE IN VALUATION
19 UNDER THIS DISCOUNTED CASH FLOW ANALYSIS WOULD BE BETWEEN
20 HEARST EXITING IMMEDIATELY UPON EXPIRATION OF THE JOA AND
21 WAGING THIS WAR FOR THREE YEARS?
22 A. APPROXIMATELY $50 MILLION.
23 Q. WHAT ACTION DID THE BOARD TAKE IN RESPONSE TO THE
24 PRESENTATION THAT YOU MADE ON AUGUST 6TH?
25 A. THEY DECIDED TO APPROVE THE TRANSACTION OF THE SALE OF THE 726
GREENTHAL - DIRECT / LINDSTROM
1 PAPER TO HEARST.
2 MR. LINDSTROM: THANK YOU, YOUR HONOR. I HAVE NO
3 FURTHER QUESTIONS.
4 THE COURT: VERY WELL. ANY OTHER DEFENDANTS WISH TO
5 TAKE THIS WITNESS ON DIRECT?
6 MR. HALLING: NO QUESTIONS, YOUR HONOR.
7 MR. HOCKETT: WE HAVE NO QUESTIONS, YOUR HONOR.
8 THE COURT: ALL RIGHT. WHY DON'T WE TAKE UNTIL FIVE
9 MINUTES AFTER THE HOUR, MR. ALIOTO, AND THEN YOU CAN BEGIN YOUR
10 CROSS-EXAMINATION.
11 MR. ALIOTO: THANK YOU, YOUR HONOR.
12 (RECESS TAKEN AT 9:50 A.M.)
13 (CONTINUED ON NEXT PAGE - NOTHING OMITTED.)
14
15
16
17
18
19
20
21
22
23
24
25 727
GREENTHAL - CROSS / ALIOTO
1 (PROCEEDINGS RESUMED AT 10:10 A.M.)
2 THE COURT: VERY WELL. MR. ALIOTO, YOU MAY
3 CROSS-EXAMINE.
4 MR. ALIOTO: THANK YOU, YOUR HONOR.
5 CROSS-EXAMINATION
6 BY MR. ALIOTO:
7 Q. MAY IT PLEASE YOUR HONOR.
8 IT IS CORRECT, IS IT NOT, THAT THE DLJ WILL BE PAID
9 APPROXIMATELY $2.6 MILLION IF THE TRANSACTION HERE IS CLOSED?
10 A. WE HAVE BEEN PAID 20 PERCENT OF THAT, BUT, YES, THAT WOULD
11 BE -- THE BALANCE WILL BE DUE AT CLOSING.
12 Q. SO IF YOU HAVE BEEN PAID 20 PERCENT, THAT MEANS YOU HAVE
13 BEEN PAID ABOUT $500,000 FOR YOUR WORK SO FAR?
14 A. CORRECT.
15 Q. AND IF THIS TRANSACTION CLOSES, NAMELY, THE PURCHASE OF
16 THE CHRONICLE BY THE HEARST CORPORATION, THEN THE DLJ WILL BE
17 PAID AN ADDITIONAL $2.1 MILLION?
18 A. CORRECT.
19 Q. IS THAT RIGHT?
20 A. MORE OR LESS.
21 Q. AND IS THAT FOR ALL OF THE WORK THAT HAS BEEN DONE UP TO
22 THIS POINT?
23 A. THAT'S BEEN -- THAT'S FOR THE WORK RELATED TO THE SALE OF
24 THE CHRONICLE NEWSPAPER. IT DOESN'T RELATE TO THE REST OF THE
25 BUSINESSES. 728
GREENTHAL - CROSS / ALIOTO
1 Q. SO YOU HAVE -- SO YOU ARE BEING PAID FEES FOR OTHER WORK
2 ON BEHALF OF THE CHRONICLE, CPC, IN ADDITION TO THIS?
3 A. THAT'S RIGHT.
4 Q. SO THEN -- SO WE ARE CLEAR, THE 2.1, THEN, AND THE
5 500,000, THAT WAS JUST RELATED TO THE SALE OF THE CHRONICLE?
6 A. THE CHRONICLE AND THE GATE, YES.
7 Q. ALL RIGHT. NOW, YOU HAVE REFERRED TO THE COMPETITION OR
8 POTENTIAL COMPETITION OR ACTUAL COMPETITION BETWEEN HEARST AND
9 THE CHRONICLE AS "WAR"?
10 A. IF YOU ARE DESCRIBING THE MODELING THAT WE DID, PROJECTING
11 OUT, YES, IT WAS REFERRED TO AS "WAR."
12 Q. YES. BUT WHAT WAS REFERRED TO AS "WAR" WAS COMPETITION;
13 IS THAT RIGHT?
14 A. WHAT WAS REFERRED -- WHAT WAS REFERRED TO AS "WAR" WAS THE
15 TWO NEWSPAPERS BEING INDEPENDENT OF EACH OTHER AND COMPETING
16 WHERE THEY DON'T COMPETE CURRENTLY, THAT'S CORRECT.
17 Q. OKAY. SO THAT'S -- WE CALL THAT SOMETIMES "COMPETITION,"
18 DON'T WE?
19 A. SURE.
20 Q. OKAY. AND SO THE OPPOSITE OF THIS WAR OR COMPETITION
21 WOULD BE THE ELIMINATION OF COMPETITION AND SOME KIND OF PEACE?
22 A. THERE IS NO COMPETITION CURRENTLY SO IT'S NOT ELIMINATION
23 OF COMPETITION.
24 Q. WHEN YOU REFER TO "WAR," YOU ARE TALKING ABOUT AFTER THE
25 JOA, AREN'T YOU? 729
GREENTHAL - CROSS / ALIOTO
1 A. WHEN I REFERRED TO "WAR," I REFERRED TO AFTER THE JOA,
2 ASSUMING HEARST DOES SOMETHING WHICH WE VIEWED AS IRRATIONAL
3 STATE OF THE MARKET AND WENT INTO FULL-SCALE COMPETITION.
4 Q. MADAM, YOU REFERRED TO "WAR" AS CONDUCT AFTER THE JOA,
5 DIDN'T YOU?
6 A. I -- YOU ASKED A DIFFERENT QUESTION BEFORE.
7 Q. WELL, LOOK. THE LAST -- LET ME GO TO THE ELMO BECAUSE
8 THIS WAS THE LAST DOCUMENT THAT YOU HAD. AND THIS IS THE -- I
9 WILL ZOOM THIS DOCUMENT. THIS IS THE LAST DOCUMENT YOU WERE
10 TALKING ABOUT OR TESTIFYING ABOUT ON THE STAND WITH REGARD TO
11 CERTAIN VALUATIONS.
12 A. YES.
13 Q. THEN IN THE FOOTNOTE YOU REFER TO "WORST CASE IS A WAR IN
14 2006, '7, '8," SO FORTH, CORRECT?
15 A. YES.
16 Q. THAT'S AFTER THE JOA, ISN'T IT?
17 A. THAT'S AFTER THE JOA IN THAT SCENARIO.
18 Q. OKAY. AND IN THAT SCENARIO WHEN YOU REFER TO "WAR," YOU
19 ARE TALKING ABOUT COMPETITION; ISN'T THAT RIGHT? HOWEVER
20 IRRATIONAL YOU MAY THINK IT IS, THAT'S WHAT YOU ARE TALKING
21 ABOUT.
22 A. THAT'S WHAT I SAID BEFORE.
23 Q. OKAY. AND SO WHAT YOU WERE ADVOCATING WAS NOT COMPETITION
24 BUT THE OPPOSITE OF THAT, WHICH WOULD BE SOME KIND OF PEACE,
25 WHICH WOULD BE THE ELIMINATION OF COMPETITION; IS THAT RIGHT? 730
GREENTHAL - CROSS / ALIOTO
1 A. I WASN'T ADVOCATING ANYTHING. IT WAS OUR OPINION THAT
2 THAT WAS NOT A RATIONAL OUTCOME AND, THEREFORE, OUR BELIEF THAT
3 THERE WOULD NOT BE THE EXISTENCE OF EXAMINER AND THE WAR
4 SCENARIO.
5 Q. IT IS, IN FACT, YOUR BELIEF, IS IT NOT, FROM YOUR
6 EXPERIENCE IN THE INDUSTRY, THAT IN A SITUATION WHERE
7 COMPETITORS GO TO WAR, THERE IS A SIGNIFICANT PRICE CUTTING IN
8 THE MARKETPLACE?
9 A. THERE CAN RESULT IN PRICE CUTTING, YES.
10 Q. AND THAT WOULD INCLUDE, WOULD IT NOT, THAT THE
11 BENEFICIARIES OF THAT WOULD BE ADVERTISERS AND CONSUMERS?
12 A. IN THAT CASE WHERE THERE IS PRICE CUTTING BOTH ON
13 ADVERTISING AND CIRCULATION, YES, THOSE WOULD BE THE
14 BENEFICIARIES.
15 Q. AND THAT'S BECAUSE OF THE -- TYPICALLY OF LOWERING
16 ADVERTISING RATES, IS IT NOT?
17 A. THAT'S BECAUSE IN CERTAIN CIRCUMSTANCES YOU HAVE LOWERING
18 OF ADVERTISING RATES.
19 Q. AND ALSO THERE ARE OTHER DIFFERENT WAYS IN WHICH THERE CAN
20 BE OTHER FORMS OF COMPETITION AGAIN TO THE BENEFIT OF
21 ADVERTISERS AND CONSUMERS; IS THAT RIGHT?
22 A. IT TAKES SHAPE IN A LOT OF DIFFERENT WAYS, BUT THAT CAN BE
23 ONE OUTCOME.
24 Q. NOW, WHEN THERE IS THIS WAR OR COMPETITION BETWEEN THE --
25 BETWEEN COMPETITORS, ONE OF THE PROBLEMS WITH THAT FROM THE 731
GREENTHAL - CROSS / ALIOTO
1 BUSINESS, FROM THE CHRONICLE CORPORATION'S, STANDPOINT IS THAT
2 THEIR PROFITS GET LOWERED; IS THAT RIGHT?
3 A. CAN YOU REPEAT THE QUESTION?
4 Q. YOU UNDERSTOOD, DID YOU NOT, WHEN YOU WERE ATTEMPTING
5 TO -- OR AT LEAST YOU BELIEVED THAT -- WHEN YOU WERE ATTEMPTING
6 TO SELL THE CHRONICLE, YOU BELIEVED THAT THE EXAMINER WOULD
7 SHUT DOWN AFTER 2005?
8 A. WE BELIEVED THAT WAS THE LIKELY SCENARIO, YES.
9 Q. AND, I TAKE IT, THAT WHEN YOU HAD THESE DISCUSSIONS WITH
10 PERSONS OTHER THAN HEARST, YOU TOLD THEM THAT?
11 A. WE -- WE HAD DISCUSSIONS WITH PEOPLE ABOUT THE JOA. THESE
12 ARE NEWSPAPER PEOPLE WE WERE TALKING TO. THEY HAD THEIR OWN
13 POINTS OF VIEW. IN CERTAIN CIRCUMSTANCES THEY EXPRESSED VIEWS
14 TO US, WHICH I HAVE TESTIFIED ABOUT.
15 Q. QUESTION AGAIN, MADAM, IS: AND WHEN YOU HAD THESE
16 DISCUSSIONS WITH THESE OTHER PEOPLE, YOU TOLD THEM YOUR VIEW
17 THAT YOU THOUGHT THAT THE EXAMINER WAS GOING TO SHUT DOWN IN
18 2005; IS THAT RIGHT?
19 A. WE TOLD THEM THAT IN OUR VIEW THAT THE EXAMINER WAS A
20 DYING NEWSPAPER, AND THE LIKELY SCENARIO WAS THEY WERE GOING TO
21 SHUT DOWN, AND WE GOT NO DISAGREEMENT FROM ANYONE.
22 Q. OKAY. AND SO THEN YOU UNDERSTOOD, AT LEAST IN YOUR OWN
23 MIND, THAT WHAT -- AT LEAST AS FAR AS SAN FRANCISCO WAS
24 CONCERNED, THAT WHAT YOU WERE OFFERING WAS A PAPER THAT WOULD
25 HAVE A MONOPOLY, A DAILY NEWSPAPER, THAT WOULD HAVE A MONOPOLY 732
GREENTHAL - CROSS / ALIOTO
1 IN SAN FRANCISCO; IS THAT RIGHT?
2 A. IT'S A LONG QUESTION. BUT WHAT WE WERE OFFERING WAS A
3 NEWSPAPER WHICH WAS SUBJECT TO A JOA, WHICH WAS GOING TO
4 CONTINUE UNTIL THE END OF THE YEAR 2005 IN WHICH THE LIKELY
5 SCENARIO WAS THAT ONE NEWSPAPER OF THE TWO WOULD EXIST. I
6 WOULD NOT CALL IT A "MONOPOLY," AS YOU DESCRIBED IT.
7 Q. WELL, THOSE WERE THE RESULTS OF THE STUDIES THAT YOU SENT
8 OUT TO ALL OF THESE PEOPLE IN THE BEGINNING. DIDN'T YOU SHOW
9 THEM THAT THE TWO NEWSPAPERS HAD OVER 97 PERCENT OF SAN
10 FRANCISCO?
11 A. WE SHOWED THEM THAT IF YOU WANT TO DEFINE THE MARKET IN A
12 VERY NARROW SENSE, WHICH WAS NOT THE WAY WE DEFINED IT, THEY
13 HAD A HIGH PERCENTAGE OF CERTAIN MARKETS. BUT IF YOU LOOKED AT
14 THE BROADER SAN FRANCISCO MARKET, THERE WAS SIGNIFICANT LOSS OF
15 COMPETITION. IN FACT, WE SHOWED THEM THAT OTHER COMPETITORS
16 HAD PICKED UP CIRCULATION WHERE THEY HAD LOST CIRCULATION.
17 Q. AGAIN, MY QUESTION IS: WHEN YOU GAVE THEM THE BROCHURE,
18 YOU WERE SHOWING THEM, WERE YOU NOT, THAT IF -- THAT IF THE TWO
19 PAPERS -- THAT THE TWO PAPERS HAD 97 PERCENT OF THE SAN
20 FRANCISCO MARKET FOR DAILY NEWSPAPERS, RIGHT?
21 A. A CERTAIN PORTION OF THE SAN FRANCISCO MARKET. I MEAN, I
22 DON'T KNOW HOW YOU ARE DEFINING "SAN FRANCISCO," BECAUSE I
23 BELIEVE THE SAN FRANCISCO MARKET IN TOTALITY IS BROADER. WE
24 CERTAINLY SHOWED THEM WHAT CIRCULATION WAS IN DIFFERENT PARTS
25 OF THAT MARKET. I AM NOT SURE WHAT DEFINITION YOU ARE USING. 733
GREENTHAL - CROSS / ALIOTO
1 MR. ALIOTO: MAY I APPROACH THE WITNESS, YOUR HONOR?
2 THE COURT: VERY WELL.
3 BY MR. ALIOTO:
4 Q. LET ME SHOW YOU WHAT IS PLAINTIFF'S EXHIBIT NUMBER 6 IN
5 EVIDENCE.
6 PLAINTIFF'S EXHIBIT NUMBER 6 IN EVIDENCE IS ENTITLED
7 "SAN FRANCISCO CHRONICLE, THE GATE AND OTHER NEWSPAPERS."
8 IT'S CONFIDENTIAL INFORMATION, MEMORANDUM, JULY 1999,
9 DONALDSON, LUFKIN & JENRETTE.
10 THIS IS -- OH, YOU HAVE A COPY YOURSELF?
11 A. YES. I HAVE A COPY ALREADY.
12 Q. ALL RIGHT. THIS IS, IN FACT, THE BROCHURE THAT WAS
13 PREPARED BY DONALDSON, LUFKIN & JENRETTE AND SENT TO THE
14 POTENTIAL PURCHASERS OF THE CHRONICLE; IS THAT CORRECT?
15 A. CORRECT.
16 Q. I WOULD LIKE TO DIRECT YOUR ATTENTION -- IF YOU WILL GO TO
17 PAGE 45 OF THAT DOCUMENT.
18 A. YES. I DO NOT HAVE A VERY CLEAR COPY BUT I WILL TRY TO
19 FOLLOW WITH YOU.
20 Q. I'M SORRY. I CAN'T HEAR YOU. ONE MOMENT, PLEASE.
21 OKAY. ON PAGE 45 THAT IS TO SHOW THE DAILY
22 NEWSPAPER CIRCULATION IN SAN FRANCISCO, CORRECT?
23 A. SAN FRANCISCO DMA.
24 Q. SAN FRANCISCO DMA, CORRECT?
25 A. YES. 734
GREENTHAL - CROSS / ALIOTO
1 Q. OKAY. AND THERE ARE A NUMBER OF COUNTIES LISTED, ARE
2 THERE NOT?
3 A. YES, THERE ARE.
4 Q. AND THE FOURTH ONE DOWN IS SAN FRANCISCO, IS IT NOT?
5 A. YES, IT IS.
6 Q. AND SAN FRANCISCO SHOWS THAT THE CHRONICLE AND THE
7 EXAMINER HAVE APPROXIMATELY -- YOU CAN TELL FROM THOSE FIGURES,
8 CAN YOU NOT? -- 97 PERCENT OF THE MARKET?
9 A. IT'S SHOWN IN THE CONTEXT OF ALL OF THESE MARKETS, NOT
10 SIMPLY IN THAT MARKET, WHAT ITS CIRCULATION HAS BEEN. THAT
11 PARTICULAR SUBSEGMENT OF THE SAN FRANCISCO DMA, YOU ARE
12 CORRECT.
13 Q. OKAY. I AM GOING TO TRY ONE MORE TIME.
14 IT SHOWS IN SAN FRANCISCO THAT IT'S 97 PERCENT OF
15 THE MARKET, DOES IT NOT?
16 A. BUT IT'S IN THE --
17 Q. DOES IT OR DOESN'T IT?
18 A. IT SHOWS IN THE SAN FRANCISCO COUNTY, WHICH IS PART OF THE
19 SAN FRANCISCO DMA, THAT IT IS THAT PERCENTAGE.
20 Q. DOES IT SHOW IN SAN FRANCISCO?
21 A. WHICH SAN FRANCISCO, THE DMA OR THE SUBSEGMENT OF THE
22 COUNTY?
23 Q. OKAY. WE WILL HAVE THE DEFINITE -- ALL RIGHT. IF YOU
24 WILL GO TO THE FOURTH COLUMN. DO YOU SEE WHERE IT SAYS "SAN
25 FRANCISCO"? 735
GREENTHAL - CROSS / ALIOTO
1 A. YES.
2 Q. OKAY. THAT'S SUPPOSED TO BE SAN FRANCISCO COUNTY, ISN'T
3 IT?
4 A. THE FIRST COLUMN, YES.
5 Q. YES.
6 A. SO IT'S --
7 Q. SO IN SAN FRANCISCO --
8 A. YES.
9 Q. -- COUNTY IT SHOWS THAT THOSE TWO NEWSPAPERS, DAILY
10 NEWSPAPERS, WOULD HAVE 97 PERCENT OF THE MARKET, CORRECT?
11 A. WITHOUT CALCULATING, THAT LOOKS CORRECT.
12 Q. THANK YOU.
13 NOW, YOU IN FACT MADE AN ANALYSIS ABOUT THE WAR, AND
14 ONE OF THE THINGS THAT YOU SAID ABOUT THE WAR WAS, WAS IT NOT,
15 THAT IT WOULD PROBABLY RESULT IN A DECREASE IN ADVERTISING
16 RATES?
17 A. OUR SCENARIO THAT WE MODELED REFLECTED A DECREASE IN
18 ADVERTISING RATES TRYING TO SHOW WHAT WE THOUGHT WAS THE
19 PESSIMISTIC OUTCOME RELATED TO WAR.
20 Q. YES. YOU SAY "PESSIMISTIC" WHEN YOU ARE TALKING ABOUT
21 COMPETITION. YOU CALL "COMPETITION" WAR AND PESSIMISTIC.
22 THAT'S THE WORST CASE COMPETITION; IS THAT IT?
23 A. ACTUALLY, I THINK THOSE WERE YOUR WORDS. MY WORDS WERE WE
24 MODELED A VERY PESSIMISTIC SCENARIO, WHICH MEANS WE USED VERY
25 CONSERVATIVE ASSUMPTIONS IN TERMS OF MODELING TO SHOW THE WORST 736
GREENTHAL - CROSS / ALIOTO
1 CASE OUTCOME FROM THE FINANCIAL STANDPOINT.
2 Q. OKAY. WHEN YOU SAY "THE WORST CASE OUTCOME FROM A
3 FINANCIAL STANDPOINT," YOU ARE TALKING ABOUT FROM THE
4 PERSPECTIVE OF THE COMPANIES. YOU ARE NOT TALKING ABOUT FROM
5 THE PERSPECTIVE OF ADVERTISERS OR CONSUMERS, ARE YOU?
6 A. WE WEREN'T MODELING IT FOR THE CONSUMERS OR ADVERTISING
7 IT -- ADVERTISERS.
8 Q. AND IN MAKING YOUR SO-CALLED "WORST CASE," THE MODEL
9 CALLED FOR, DID IT NOT, THAT THE RATES FOR ADVERTISING AND
10 CIRCULATION WOULD BE DECREASED; ISN'T THAT TRUE?
11 A. THAT'S TRUE.
12 Q. AND IN THE ABSENCE OF THAT WAR, IF THERE WERE PEACE AND
13 JUST ONE NEWSPAPER, YOU MODELED IT THAT THE -- THAT THE RESULT
14 WOULD BE AN INCREASE IN THE ADVERTISING RATE, DIDN'T YOU?
15 A. WE MODELED THAT THERE WOULD BE AN INCREASE IN ADVERTISING
16 RATE BECAUSE THERE WOULD BE MORE CIRCULATION OF THE NEWSPAPER
17 AND, THEREFORE, ON A PER-CIRCULATION BASIS EFFECTIVELY YOU
18 WOULD BE IN THE SAME POSITION.
19 Q. YES. SO THE ANSWER IS, I TAKE IT, TO MY QUESTION IS, YES,
20 YOUR MODEL DID SHOW THAT WITH THE ONE NEWSPAPER THERE WOULD BE
21 AN INCREASE IN THE RATES OF ABOUT 20 PERCENT, CORRECT?
22 A. REFLECTIVE OF THE GAIN IN CIRCULATION, CORRECT.
23 Q. OKAY. SO THAT IN THE WAR SITUATION THE CONSUMERS AND THE
24 ADVERTISERS BENEFIT AND IN THE PEACE SITUATION THE SO-CALLED
25 COMPETITORS BENEFIT -- OR WHOEVER IS LEFT. RIGHT? 737
GREENTHAL - CROSS / ALIOTO
1 A. WAIT. I -- I AM NOT FOLLOWING -- GO THROUGH IT ONE MORE
2 TIME.
3 IN A WAR SCENARIO ADVERTISERS AND CONSUMERS WOULD
4 PAY LOWER PRICES. THERE WOULD BE LESS PROFIT.
5 Q. THEREFORE, THEY BENEFIT -- THEY BENEFIT, RIGHT?
6 A. THEY WOULD BENEFIT.
7 Q. OKAY. THAT'S THE WORST CASE?
8 A. RIGHT.
9 Q. OKAY.
10 A. THAT'S THE WORST CASE FROM A FINANCIAL STANDPOINT.
11 Q. WELL, WHEN YOU SAY "FINANCIAL STANDPOINT," YOU ARE NOT
12 TALKING ABOUT THE FINANCE OF CONSUMERS OR SUBSCRIBERS, ARE YOU?
13 A. WELL, I ALREADY TOLD YOU I AM NOT AND, QUITE FRANKLY, WE
14 WERE HIRED TO LOOK AT THE CASE FROM THE CHRONICLE'S STANDPOINT.
15 Q. OKAY. SO, IN OTHER WORDS, WHAT YOU ARE SAYING IS IT'S THE
16 BEST INTERESTS FROM THE CHRONICLE FROM THE CHRONICLE'S
17 STANDPOINT, CORRECT?
18 A. I -- YOU HAVE TO ASK A FULL QUESTION.
19 Q. I HAVE TO DO WHAT?
20 A. I DON'T UNDERSTAND YOUR QUESTION AS YOU'VE ASKED IT. IF
21 YOU COULD ASK IT A COMPLETE QUESTION, I WOULD BE HAPPY TO
22 ANSWER IT.
23 Q. IN YOUR STUDY YOU WERE SHOWING THAT FROM 1994 THROUGH
24 191998 -- AND THIS STUDY IS AS OF JULY OF 1999 -- YOU WERE
25 SHOWING THAT THERE WAS CONTINUAL INCREASES IN THE REVENUES AND 738
GREENTHAL - CROSS / ALIOTO
1 THE NET EXCESS FOR THE TWO NEWSPAPERS UNDER THE JOA, CORRECT?
2 A. I DON'T RECALL WHETHER IT WAS CONTINUAL. THERE WAS
3 PROGRESS ON BALANCE. I DON'T KNOW EACH YEAR.
4 Q. ALL RIGHT. WELL, WOULD YOU PLEASE TAKE A LOOK AT -- LET'S
5 BEGIN ON PAGE 48 AND THEN AGAIN -- THIS IS EXHIBIT 6 WHICH WAS
6 SENT TO ALL OF THE PERCENT TIFF PURCHASERS, AS I UNDERSTAND IT,
7 OF THE -- POTENTIAL PURCHASERS OF THE CHRONICLE.
8 A. UH-HUH.
9 Q. AND IT WOULD BE ON PAGE 48.
10 A. YES.
11 Q. AND YOU WILL NOTE, FOR EXAMPLE, FIRST IS THE SUMMARY. I
12 WANT TO DIRECT YOUR ATTENTION TO THE FIRST PAGE OF THAT.
13 A. YEAH.
14 Q. AND UNDER THE SUMMARY RIGHT AT THE VERY TOP IT STATES IN
15 THE VERY FIRST SENTENCE, QUOTE:
16 "FROM 1994 TO 1998, THE SFNA'S REVENUES AND
17 NET EXCESS HAVE GROWN 26.2 PERCENT AND
18 80.3 PERCENT RESPECTIVELY."
19 DO YOU SEE THAT?
20 A. YES.
21 Q. SO THAT MEANS THAT THE NET EXCESS -- YOU UNDERSTOOD THE
22 NECESSARY EXCESS TO BE THAT PORTION WHICH WOULD THEN BE DIVIDED
23 BETWEEN THE TWO PAPERS?
24 A. YES.
25 Q. AND THAT THAT -- DURING THAT TIME PERIOD, 1994 TO 1998, 739
GREENTHAL - CROSS / ALIOTO
1 WHAT THE TWO PAPERS WERE DIVIDING IN THOSE PERIODS HAD
2 INCREASED 80 PERCENT; IS THAT RIGHT?
3 A. THAT'S WHAT THAT SAYS. THAT'S NOT WHAT YOU ASKED ME
4 BEFORE.
5 Q. THIS IS -- THIS IS THE DOCUMENT YOU SENT AROUND, ISN'T IT?
6 A. YES.
7 Q. THIS IS THE -- IT HAS DONALDSON AND LUFKIN & JENRETTE,
8 DOESN'T IT?
9 A. YES, IT DOES.
10 Q. THIS IS WHAT YOU DID, ISN'T IT?
11 A. YES. AS I SAID, IT'S NOT THE QUESTION YOU ASKED ME
12 BEFORE. YOU ASKED ME WHETHER IT GREW IN EACH AND EVERY YEAR
13 AND I SAID I DIDN'T KNOW IF IT GREW IN EACH AND EVERY YEAR BUT
14 THIS IS THE COMPOUNDS BETWEEN THE TWO END POINTS AND I BELIEVE
15 IF YOU LOOK AT THE BACK YOU ARE GOING TO FIND THAT IT DIDN'T
16 NECESSARILY GROW IN EACH AND EVERY YEAR.
17 Q. LET'S TAKE A LOOK AT EACH ONE, THEN.
18 FIRST ON 48, IF YOU WILL -- ON PAGE 48?
19 A. I AM LOOKING AT PAGE 52.
20 Q. WE WILL GO ONE YEAR AT A TIME, OKAY?
21 A. IT'S ON PAGE 52.
22 Q. IF YOU LOOK AT FISCAL YEAR 1998 COMPARED WITH FISCAL YEAR
23 19,970TH OWE THAT'S THE FIRST ONE. DO YOU SEE THAT ON PAGE 48?
24 A. YES.
25 Q. IT SAYS, QUOTE: 740
GREENTHAL - CROSS / ALIOTO
1 "REVENUES INCREASED 17.4 MILLION -- FORGET
2 THE PERCENTAGE -- IN 1998 OVER '97. ADVERTISING
3 REVENUES INCREASED 18 MILLION."
4 A. YES.
5 Q. "NATIONAL ADVERTISING REVENUES INCREASED 6 MILLION?
6 A. RIGHT.
7 Q. AND THEN, IN ADDITION, CLASSIFIED ADVERTISING REVENUES
8 INCREASED 6 MILLION.
9 DO YOU SEE THAT?
10 A. YES.
11 Q. OKAY. GO TO THE NEXT PAGE, FISCAL YEAR 1996 COMPARED WITH
12 FISCAL YEAR 1995. AGAIN, REVENUES INCREASED 7 MILLION. DO YOU
13 SEE THAT?
14 A. UH-HUH.
15 Q. ADVERTISING REVENUES INCREASED 4.7 MILLION. DO YOU SEE
16 THAT?
17 A. ADVERTISING INCREASED 4.7? WHERE -- WHICH PAGE ARE YOU
18 ON?
19 Q. PAGE 49 IN THE MIDDLE OF THE PAGE UNDER THE HEADNOTE --
20 A. 49? OKAY.
21 Q. THIS IS THE PREVIOUS YEAR, REVENUES INCREASED 7 MILLION?
22 A. YEAH.
23 Q. ADVERTISING REVENUES INCREASED 4.7 MILLION?
24 A. YEAH.
25 Q. YOU WILL GO DOWN, IT SAYS CLASSIFIED ADVERTISING IS 741
GREENTHAL - CROSS / ALIOTO
1 INCREASED 12 MILLION; NATIONAL ADVERTISING INCREASED 5 MILLION.
2 DO YOU SEE THOSE?
3 A. YES.
4 Q. OKAY. THAT'S FROM AT LEAST 1995, '96, '97 AND '98. THOSE
5 ARE THE FOUR YEARS, CORRECT?
6 A. IN '9 -- AGAIN, YOU ASKED ME ABOUT REVENUE AND NET EXCESS.
7 ON PAGE 52 YOU CAN SEE THE SUMMARY OF THESE NUMBERS WHICH SHOW
8 BETWEEN '97 AND '98, IN FACT, NET EXCESS DECLINED -- NET EXCESS
9 DECLINED. THAT'S ALL I WAS RESPONDING TO.
10 OVER THE FIVE YEARS THERE WAS AN INCREASE,
11 ABSOLUTELY, NOT EACH YEAR, THOUGH.
12 Q. YES. AND ONE OF THE REASONS FOR -- TO SHOW SOME PART OF
13 THE SO-CALLED "NET EXCESS DECLINE" WAS THAT CHRONICLE'S
14 50 PERCENT SHARE OF SFNA'S EXPENSES IS MORE THAN HALF THE
15 AGENCY EXPENSES IN CERTAIN YEARS DUE TO CHRONICLE'S ADDITIONAL
16 RESERVES FOR WORKERS' COMPENSATION AND BAD DEBT, CORRECT?
17 A. IF THAT'S -- WHERE ARE YOU READING FROM?
18 Q. THAT'S ON THE SAME PAGE YOU'RE READING -- YOU'RE LOOKING
19 AT, PAGE 52.
20 A. ALL RIGHT.
21 Q. OKAY. SO THE POINT IS IS WHAT YOUR ANALYSIS AND WHAT YOU
22 UNDERSTOOD AT LEAST AS OF THIS TIME WHEN YOU PREPARED THIS
23 DOCUMENT AND SENT IT OUT TO THESE PEOPLE IS THAT THE NET EXCESS
24 THAT REMAINED INCREASED OVER 80 PERCENT FROM 1994 AND THAT THE
25 REVENUES INCREASED SOME 26 PERCENT OVER THAT TIME PERIOD, 742
GREENTHAL - CROSS / ALIOTO
1 CORRECT?
2 A. THAT'S CORRECT, YES.
3 Q. OKAY. THAT MEANS THAT IF THIS JOA CONTINUED, IT'S ON
4 AN -- IF THIS JOA CONTINUED, IT WAS CLEAR, AT LEAST TO YOU, WAS
5 IT NOT, THAT THE EXAMINER WOULD MAKE MONEY AND THE CHRONICLE
6 WOULD MAKE MONEY, CORRECT?
7 A. WITH RESPECT TO THE AMOUNT THAT THEY WERE SPENDING ON
8 EDITORIAL IN ITS CURRENT FORM? I MEAN, YOU ARE TALKING ABOUT
9 EXCESS, WHICH YOU KNOW IS PREEDITORIAL COSTS. AND UNDER THE
10 CURRENT FORM THAT THEY WERE SPENDING MONEY AND THE CAPITAL
11 EXPENDITURES THEY WERE MAKING -- THEY WERE BOTH MAKING FREE
12 CASH FLOW POSITIVE.
13 Q. OKAY. FREE CASH FLOW POSITIVE. IS THAT WHAT YOU ARE
14 CALLING IT?
15 A. YES, WHICH IS THE RIGHT FINANCIAL MEASUREMENT.
16 Q. AND THIS FREE CASH FLOW POSITIVE, THAT WAS GOING TO EXIST,
17 WAS IT NOT, YOUR UNDERSTANDING -- IT CERTAINLY LOOKED LIKE IT
18 WAS DEFINITELY GOING TO EXIST -- FOR THE LIFE OF THE JOA?
19 A. IT LOOKED BASED ON THE PROJECTIONS THAT -- OR BASED ON THE
20 HISTORICAL TRENDS THAT THAT WAS GOING TO BE THE CASE.
21 Q. AND THE HISTORICAL TRENDS SHOWED THAT, AS A MATTER OF
22 FACT, THEY WERE GOING TO PROBABLY BE DOING BETTER?
23 A. NO. THE HISTORICAL TRENDS WERE JUST THAT. THEY WERE
24 HISTORICAL TRENDS. THERE WAS A LOT OF OTHER STUFF THAT'S GOING
25 ON IN THE NEWSPAPER BUSINESS AND IN SAN FRANCISCO IN 743
GREENTHAL - CROSS / ALIOTO
1 PARTICULAR, AND SO TO THE EXTENT THAT THE HISTORICAL TRENDS
2 CONTINUED -- WHICH IS NOT NECESSARILY GUARANTEED, OBVIOUSLY --
3 Q. NO.
4 A. -- THEY CLEARLY WOULD HAVE MADE MONEY.
5 TO THE EXTENT THERE WAS FURTHER EROSION OF THEIR
6 CIRCULATION BASE AND INCURSIONS BY COMPETITIVE THREATS, IT MAY
7 HAVE BEEN DIFFERENT. IT MAY HAVE BEEN BETTER. IT MAY HAVE
8 BEEN WORSE. THAT'S ALL I SAID.
9 Q. OKAY. BUT IT WAS YOUR UNDERSTANDING, CORRECT, THAT
10 NEITHER OF THESE PAPERS -- YOU FELT THAT FROM THESE FIGURES
11 THAT BOTH OF THESE PAPERS WOULD BE HAVING A POSITIVE CASH FLOW
12 FOR THE REMAINDER OF THE JOA?
13 A. UNDER OUR PROJECTIONS THEY HAD POSITIVE CASH FLOW.
14 Q. BOTH OF THEM?
15 A. YES.
16 Q. ALL RIGHT. I WANT TO GO TO YOUR -- THIS IS EXHIBIT NUMBER
17 5.
18 A. DO I HAVE THIS? I DON'T THINK I DO.
19 Q. I WILL SHOW YOU EXHIBIT NUMBER 5.
20 A. OKAY.
21 MR. ALIOTO: MAY I APPROACH THE WITNESS, YOUR HONOR?
22 THE COURT: YES, YOU MAY.
23 BY MR. ALIOTO:
24 Q. THIS IS EXHIBIT NUMBER 5. EXHIBIT NUMBER 5 IS ENTITLED
25 "PRESENTATION REGARDING PROJECT GOLDEN, MAY 4, 1999." 744
GREENTHAL - CROSS / ALIOTO
1 AND THIS WAS PREPARED BY DLJ, WAS IT NOT?
2 A. YES, IT WAS.
3 Q. AND PREPARED UNDER YOUR DIRECTION; IS THAT TRUE?
4 A. CORRECT.
5 Q. BY THE WAY, DID YOU CONSIDER THE PERSONS THAT YOU EMPLOYED
6 TO MAKE THIS DOCUMENT AND PREPARE THIS DOCUMENT -- LET ME BACK
7 UP.
8 THE DOCUMENT WAS PREPARED FOR THE BENEFIT OF THE
9 BOARD OF DIRECTORS OF THE CHRONICLE; IS THAT RIGHT?
10 A. YES.
11 Q. DID YOU BELIEVE THAT THE PEOPLE -- YOURSELF AND THE PEOPLE
12 THAT YOU EMPLOYED TO GATHER THAT INFORMATION AND MAKE THIS
13 DOCUMENT -- DID YOU BELIEVE THEM TO BE COMPETENT?
14 A. YES, I DID AND I DO.
15 Q. OKAY. AND DID YOU GET A -- MUCH OF YOUR INFORMATION FROM
16 THE CHRONICLE ITSELF?
17 A. MUCH OF WHAT, OF THE INFORMATION IN HERE?
18 Q. YES.
19 A. THIS COMES FROM A VARIETY OF DIFFERENT SOURCES. SOME OF
20 IT WOULD HAVE COME FROM THE CHRONICLE.
21 Q. OKAY. ALL RIGHT.
22 IS THERE -- IF YOU WILL NOW GO TO PAGE 26 OF THE
23 SUPPLEMENT -- LET'S SEE. FIRST THERE IS THE MAY 4 PROJECT
24 GOLDEN AND THEN THERE IS A SUPPLEMENT. SO YOU MAY -- DON'T GET
25 CONFUSED. 745
GREENTHAL - CROSS / ALIOTO
1 A. OKAY.
2 Q. THE SUPPLEMENT IS THE SECOND ONE.
3 A. I ONLY HAVE ONE PAGE 26. IS THAT WHAT YOU ARE REFERRING
4 TO?
5 Q. NO, THERE IS ONE AFTER.
6 A. THE FIRST?
7 Q. THE SECOND ONE.
8 A. OKAY.
9 Q. IN THE SUPPLEMENT?
10 A. OKAY. I'VE GOT IT.
11 Q. OKAY. NOW, THIS AGAIN IS AN ANALYSIS. THIS IS THE
12 SO-CALLED -- IT'S ENTITLED, QUOTE, "JOA OPERATING SCENARIOS."
13 AND IT STATES, QUOTE:
14 "IF THE JOA IS UNRESOLVED, HEARST COULD
15 LEAVE THE MARKET AFTER 2005, RESULTING IN ONE
16 SURVIVING NEWSPAPER, THE CHRONICLE, OR STAY IN
17 THE MARKET AFTER 2005, RESULTING IN WAR."
18 THAT'S THE HEADNOTE, CORRECT?
19 A. CORRECT.
20 Q. YOU SEE THAT. ALL RIGHT.
21 NOW, THE FIRST THING -- AND THEN ON THE LEFT-HAND
22 COLUMN -- OKAY. THESE ARE IN THREE COLUMNS. AND THE -- AND
23 THE FIRST COLUMN ARE THE DIFFERENT PROFIT -- DESCRIBED AS THE
24 "MAJOR PROFIT AND LOSS COMPONENTS." AND THEY START WITH
25 "CIRCULATION"; THEN THEY HAVE "CIRCULATION PRICING"; THEN THEY 746
GREENTHAL - CROSS / ALIOTO
1 HAVE "AD REVENUE"; THEN THEY HAVE "PRODUCTION AND CIRCULATION";
2 THEY HAVE, "EDITORIAL, "CAPITAL EXPENDITURES." AND THEN THE
3 "LENGTH OF COMPETITION."
4 AND THEN THE SECOND COLUMN IS THE "JOA RESOLUTION OR
5 HEARST WALKS IN 2006."
6 NOW, WHEN IT STATES "HEARST WALKS," I TAKE IT, IT
7 MEANS IT LEAVES THE MARKET?
8 A. YES.
9 Q. OKAY. AND I THINK YOU REFERRED TO THAT IN THE DIRECT
10 EXAMINATION AS FOLDING ONE'S TENT?
11 A. I REFERRED TO IT A NUMBER OF DIFFERENT WAYS. I MAY HAVE
12 SAID THAT.
13 Q. OKAY. BUT YOU DON'T REFER TO IT AS THE ELIMINATION OF
14 COMPETITION. THAT'S ONE EXPRESSION YOU DON'T USE IN THESE
15 DOCUMENTS FOR THAT, ISN'T IT?
16 A. THERE IS NO CURRENT COMPETITION.
17 Q. THIS IS 2006 WALKING?
18 A. YES.
19 Q. RIGHT?
20 A. YES. THERE HAS NOT BEEN A COMPETITION BETWEEN THESE TWO
21 NEWSPAPERS.
22 Q. AND IN 2005 IS WHEN THE JOA IS OVER, CORRECT?
23 A. THE END OF 2005.
24 Q. SO AT THE END OF 2005, THE SCENARIO IS HEARST WALKS OR
25 FOLDS ITS TENT, CORRECT? 747
GREENTHAL - CROSS / ALIOTO
1 A. YES.
2 Q. YOU DO NOT REFER TO THAT AS COMPETITION BEING ELIMINATED,
3 CORRECT?
4 A. BUT THE ELIMINATION OF COMPETITION WOULD SUGGEST YOU
5 ALREADY HAVE COMPETITION, WHICH YOU DON'T HAVE.
6 Q. OKAY. SO YOU ONLY HAVE WAR. THERE IS NO PEACE. IS THAT
7 IT?
8 A. WAIT.
9 Q. IS THAT IT?
10 A. THAT'S . . .
11 Q. ALL RIGHT. THIS THIRD COLUMN IS "NO RESOLUTION -- WAR."
12 DO YOU SEE THAT?
13 A. YES.
14 Q. OKAY. BY THE WAY, IN THE JOA -- YOU SAID YOU READ IT.
15 AND IN THE JOA, OF COURSE, THE CHRONICLE HAS THE RIGHT TO FIX
16 ITS OWN RATES FOR ADVERTISING AND CIRCULATION, CORRECT?
17 A. I DON'T RECALL.
18 Q. WELL, THAT WOULD BE IMPORTANT TO KNOW WHETHER THERE IS
19 COMPETITION, ISN'T THERE?
20 A. THE CHRONICLE, IT -- THE CHRONICLE HAS ITS OWN RIGHT TO
21 FIX WHAT? SAY THE QUESTION AGAIN.
22 Q. TO FIX ITS RATES.
23 A. THE RATES.
24 Q. ADVERTISING RATES.
25 A. THE RATES BETWEEN THE TWO WERE MANAGED BY THE SFNA. 748
GREENTHAL - CROSS / ALIOTO
1 Q. LET ME TRY THE QUESTION AGAIN.
2 UNDER THE JOA THE CHRONICLE HAS --
3 A. I DON'T KNOW WHAT THE JOA SAYS, BUT I KNOW THAT, AS A
4 PRACTICAL MATTER, WHICH I ASSUME IS GOVERNED BY THE JOA, THAT
5 THE RATES FOR THE TWO NEWSPAPERS WERE SET BY THE SFNA.
6 Q. OKAY. SO I THOUGHT YOU SAID, THOUGH, ON YOUR DIRECT
7 EXAMINATION THAT YOU READ AND FAMILIARIZED YOURSELF WITH THE
8 JOA.
9 A. I DID. I JUST DON'T REMEMBER EVERY DETAIL OF IT. THAT
10 WAS -- WE DID THIS A YEAR AGO.
11 Q. YES. BUT, I MEAN, THE SETTING OF THE ADVERTISING RATES
12 AND THE SETTING OF THE CIRCULATION RATES -- I MEAN, THAT'S NOT
13 A DETAIL. THAT IS -- THAT IS ABSOLUTELY FUNDAMENTAL, ISN'T IT,
14 ABOUT COMPETITION?
15 A. WHAT IS IN PARTICULAR MEMORIALIZED IN THE JOA IS A
16 SEPARATE QUESTION. I ASSUME THAT'S WHAT GOVERNED IT. I DON'T
17 RECALL WHAT'S WRITTEN THERE. I KNOW THAT THEY HAD A CENTRAL --
18 THE SFNA SET THE RATES.
19 Q. OKAY. SO WHAT YOU KNOW IS REGARDLESS OF WHAT MAY BE IN
20 THE JOA, YOU KNOW THAT THOSE GUYS AGREED ON THE RATES?
21 A. I KNOW THAT THE SFNA SET THE RATES.
22 Q. YES. SO YOU UNDERSTOOD THAT THE CHRONICLE AND THE
23 EXAMINER AGREED ON THE RATES, THEN, CORRECT?
24 A. I TESTIFIED TO WHAT I UNDERSTOOD.
25 Q. SO THEY DIDN'T AGREE ON THE RATES? 749
GREENTHAL - CROSS / ALIOTO
1 A. THE SFNA -- WHAT PART OF WHAT I AM SAYING IS HARD TO
2 UNDERSTAND? THE SFNA SETS THE RATES. THE CHRONICLE AND THE
3 EXAMINER ARE TWO NEWSPAPERS GOVERNED BY THE SFNA. THAT IS THE
4 ENTITY THAT MANAGES THOSE BUSINESSES. SO I DON'T -- I AM NOT
5 SURE WHY THAT'S CONFUSING.
6 Q. IF IN FACT THE JOA ALLOWS BOTH OF THESE PARTIES TO
7 SEPARATE -- MAKES IT THEIR RESPONSIBILITY TO SET THEIR OWN
8 RATES, YOU -- AND THEY DON'T THAT, THEY WOULD HAVE TO AGREE IF
9 THEY DON'T DO THAT, WOULDN'T THEY?
10 A. YOU KNOW, I AM NOT FOLLOWING YOUR QUESTION.
11 Q. OKAY. WELL, WHEN YOU SAID -- WHEN YOU SAY THERE WAS NO
12 COMPETITION BEFORE 2005 --
13 A. IT'S BECAUSE IT WAS -- THE TWO NEWSPAPERS WERE RUN BY ONE
14 ENTITY, THE SFNA.
15 Q. YEAH. SO IT'S YOUR -- SO THE REASON THAT YOU ARE SAYING
16 THAT IS THAT IT'S YOUR UNDERSTANDING THAT ANY RATES FOR
17 CIRCULATION, ADVERTISING OR OTHERWISE WERE SET BY THE SFNA. IT
18 WAS NOT SET BY THE INDEPENDENT COMPANIES. THAT'S YOUR
19 UNDERSTANDING?
20 A. BY THE HEARST CORPORATION OR CHRONICLE PUBLISHING COMPANY.
21 Q. OKAY. ALL RIGHT.
22 NOW, LET'S GO TO THE "NO RESOLUTION" ON THE RIGHT
23 SIDE AND "WAR."
24 AND WHEN IT SAYS "NO RESOLUTION," THAT MEANS THAT
25 THE QUESTION -- THAT'S NO RESOLUTION OF THE JOA, CORRECT? 750
GREENTHAL - CROSS / ALIOTO
1 A. YES.
2 Q. OKAY. NOW, IF YOU WILL GO TO THE FIRST PART ON THE
3 LEFT-HAND SIDE ABOUT CIRCULATION --
4 A. YEAH.
5 Q. -- UNDER THE ONE NEWSPAPER, "JOA RESOLUTION OR HEARST
6 WALKS," IT STATES, QUOTE, "92 PERCENT OF COMBINED CIRCULATION
7 IS KEPT (OTHER MARKETS AVERAGE 80 PERCENT)."
8 NOW, THAT MEANS, DOES IT NOT, THAT OF THE -- OF THE
9 CIRCULATIONS OF BOTH NEWSPAPERS, IF IT'S JUST THE CHRONICLE,
10 THE CHRONICLE WILL BE ABLE TO KEEP 92 PERCENT OF THAT?
11 A. IF THE EXAMINER GOES OUT OF BUSINESS, IT'S 92 PERCENT OF
12 THE COMBINED READERSHIP WOULD REMAIN WITH THE CHRONICLE IS WHAT
13 THAT IS MEANT TO SAY.
14 Q. WELL, NO, NOT IF THE EXAMINER GOES OUT OF BUSINESS. IT'S
15 IF THEY WALK. THAT MEANS THAT THEY'RE -- THAT'S DOING
16 SOMETHING VOLUNTARY, RIGHT?
17 A. IT SAYS ONE NEWSPAPER.
18 Q. OKAY. ALL RIGHT.
19 NOW, THEN, IF YOU CAN'T DO THAT AND YOU GO TO WAR,
20 THEN IT SAYS, QUOTE:
21 "EXAMINER LOSES 25,000 OVERLAPPING
22 SUBSCRIBERS BUT GAINS 50,000 SUBSCRIBERS WITH
23 PRICE COMPETITION RESULTING IN 25,000 NET
24 SUBSCRIBERS LOSS FOR CHRONICLE."
25 DO YOU SEE THAT? 751
GREENTHAL - CROSS / ALIOTO
1 A. YES.
2 Q. OKAY. SO THAT MEANS THAT -- THAT MEANS THAT EVEN THOUGH
3 THE EXAMINER MIGHT LOSE -- THIS ISN'T A WAR. THIS IS HEAD TO
4 HEAD, RIGHT?
5 A. I --
6 Q. WAR. THIS IS -- THIS MEANS COMPETING, THE EXAMINER AND
7 THE CHRONICLE.
8 A. THAT'S -- THAT'S WHAT IT MEANS.
9 Q. RIGHT. OKAY. ALL RIGHT.
10 THIS COMPETITION, EXAMINER -- EXAMINER COMES OUT
11 25,000 SUBSCRIBERS AHEAD OF THE CHRONICLE UNDER THIS VIEW,
12 CORRECT?
13 A. THE EXAMINER GAINS 25,000 IS STILL WAY BEHIND THE
14 CHRONICLE IN TERMS OF TOTAL CIRCULATION.
15 Q. I AM GOING TO TRY IT AGAIN.
16 A. THAT'S WHAT YOU JUST -- THAT'S FINE. ASK THE QUESTION SO
17 I CAN ANSWER IT THE WAY YOU WANT ME TO.
18 Q. THIS SHOWS THAT THE EXAMINER ENDS UP WITH 25,000 MORE
19 SUBSCRIBERS THAN IT HAD, CORRECT?
20 A. THAN IT HAD?
21 Q. YES.
22 A. THAT'S CORRECT. THAT'S NOT WHAT YOU ASKED.
23 Q. OKAY. AND IT ALSO SHOWS -- AND IT ALSO SHOWS THAT ONE OF
24 THE REASONS FOR THAT IS PRICE COMPETITION.
25 A. THAT'S THE SUGGESTION IN THE SCENARIO, YES. 752
GREENTHAL - CROSS / ALIOTO
1 Q. AND IT SHOWS THAT THE CHRONICLE LOSES 25.
2 A. RIGHT, OFF OF ITS EXISTING BASE.
3 Q. OKAY. AND, AGAIN, THE ONLY REASON FOR THAT IS PRICE
4 COMPETITION, CORRECT?
5 A. NO.
6 Q. THAT'S THE ONLY REASON GIVEN HERE?
7 A. THAT'S THE ONLY REASON GIVEN THERE. BUT IF YOU GO DOWN
8 THE ROW HERE, IT ALSO SAYS THAT THERE IS MORE MONEY EXPENDED ON
9 THE PART OF THE EXAMINER FOR EDITORIAL.
10 Q. OKAY. NOW, THE ONLY REASON GIVEN HERE IS PRICE
11 COMPETITION, CORRECT?
12 A. YES. BUT THAT'S PART OF THE WHOLE PAGE.
13 Q. THE ONLY REASON GIVEN HERE IS PRICE COMPETITION; ISN'T
14 THAT RIGHT?
15 A. THAT'S -- I ANSWERED "YES."
16 Q. OKAY. NOW, PRICE COMPETITION, THAT IS TO THE BENEFIT OF
17 THE -- IN THIS CASE THAT'S TO THE BENEFIT OF THE SUBSCRIBERS,
18 CORRECT?
19 A. YES.
20 Q. AND THEY GET THE PAPER BUT THEY DON'T PAY AS MUCH FOR IT,
21 CORRECT?
22 A. YES.
23 Q. OKAY. NOW WE ARE GOING TO GO TO THE NEXT ONE. THE NEXT
24 ONE IS "CIRCULATION PRICING." AND UNDER THE -- UNDER THE ONE
25 NEWSPAPER, IF THERE IS ONLY ONE NEWSPAPER, IF HEARST WALKS, IT 753
GREENTHAL - CROSS / ALIOTO
1 STATES, "NO PRICE INCREASE" IN THE CIRCULATION. SO THE IDEA
2 THERE WAS THAT THE CIRCULATION WOULD REMAIN -- THE CIRCULATION
3 PRICE WOULD REMAIN THE SAME, RIGHT?
4 A. CORRECT.
5 Q. HOWEVER, IN WAR WHEN THE EXAMINER AND CHRONICLE WOULD BE
6 COMPETING AGAINST EACH OTHER, UNDER THAT IT STATES,
7 "SUBSTANTIAL PRICE CUTS AT EXAMINER WITH MODEST PRICE CUTS AT
8 THE CHRONICLE."
9 SO THAT MEANS THAT BOTH OF THEM WERE CUTTING THEIR
10 PRICE, CORRECT?
11 A. YES.
12 Q. AND THE EXAMINER WAS CUTTING IT MORE?
13 A. CORRECT.
14 Q. AND THAT'S TO THE BENEFIT OF THE CONSUMERS, IS IT NOT?
15 A. THAT'S CLEAR, YES.
16 Q. AND IT ALSO, BECAUSE THE EXAMINER IS CUTTING IT -- CUTTING
17 IT MORE THAN THE CHRONICLE, IT GIVES -- IT'S NOT ONLY BETTER
18 FOR THE CONSUMERS IN TERMS OF THE PRICE, IT'S BETTER FOR THE
19 CONSUMERS IN TERMS OF CHOICE BECAUSE THEY HAVE A CHOICE BETWEEN
20 ONE OR THE OTHER, ONE THAT'S LOWER IN PRICE THAN EVEN THE
21 OTHER, CORRECT?
22 A. YOU'RE -- YOUR QUESTION DIDN'T FOLLOW. IT DIDN'T.
23 Q. THIS ALSO SHOWS THAT THE SUBSCRIBERS WILL HAVE A CHOICE
24 BETWEEN TWO PAPERS, CORRECT?
25 A. TO THE EXTENT THERE ARE TWO NEWSPAPERS, CLEARLY, 754
GREENTHAL - CROSS / ALIOTO
1 SUBSCRIBERS HAVE A CHOICE BETWEEN THE TWO.
2 Q. AND SO IN THE WAR SITUATION THE SUBSCRIBERS NOT ONLY PAY
3 LESS BUT THEY ALSO HAVE A CHOICE, CORRECT?
4 A. CORRECT, AS BETWEEN THESE PAPERS.
5 Q. RIGHT. AND SOMETIMES THAT'S REFERRED TO, IS IT NOT, AS A
6 CONSUMER CHOICE?
7 A. IF YOU SAY SO.
8 Q. NO. I AM ASKING YOU.
9 A. CONSUMER CHOICE REFERS TO A LOT OF DIFFERENT THINGS. BUT
10 CONSUMERS HAVING THE ABILITY TO CHOOSE WOULD CLEARLY BE
11 REFERRED TO AS CONSUMER CHOICE.
12 Q. IS THAT A BAD THING?
13 A. ON WHAT LEVEL?
14 Q. GOING TO THE NEXT -- GOING TO THE NEXT COLUMN ON "AD
15 REVENUE." THIS IS REVENUE COMING FROM THE ADVERTISERS NOW.
16 UNDER THE ONE NEWSPAPER WHERE HEARST WALKS, IT STATES, QUOTE:
17 "ONE TIME 20 PERCENT INCREASE IN RETAIL
18 NATIONAL AD RATES OFFSET BY MODEST DECLINES IN
19 COMBINED CIRCULATION."
20 OKAY. NOW, THAT MEANS, DOES IT NOT -- FIRST OF ALL,
21 THAT THE RATES, ONE TIME -- THAT THE RATES FOR RETAIL AND
22 NATIONAL ADS WOULD BE INCREASED 20 PERCENT?
23 A. CORRECT.
24 Q. AND THAT THIS WOULD BE OFFSET SLIGHTLY BY MODEST DECLINES
25 IN THE COMBINED CIRCULATION? 755
GREENTHAL - CROSS / ALIOTO
1 A. CORRECT.
2 Q. NOW IF YOU GO TO THE WAR, ONE -- THAT'S AN INCREASE. NOW
3 GO TO THE WAR. AND UNDER THE WAR WHAT HAPPENS, IT STATES AS
4 FOLLOWS, QUOTE:
5 "SIGNIFICANT AD PRICE COMPETITION WITH
6 15 PERCENT AND 10 PERCENT RATE DECLINES AT THE
7 EXAMINER AND CHRONICLE RESPECTIVELY."
8 DO YOU SEE THAT?
9 A. YES.
10 Q. OKAY. NOW, IT'S NOT JUST AN AD PRICE COMPETITION BUT
11 SIGNIFICANT AD PRICE COMPETITION WITH 15 PERCENT DECLINE FOR
12 THE EXAMINER, 10 PERCENT FOR THE CHRONICLE.
13 THAT MEANS THAT THE ADVERTISERS, THEN, WOULD
14 BENEFIT, CORRECT?
15 A. YES.
16 Q. AND THEY WOULD BENEFIT NOT ONLY BY A LOWER PRICE BUT ALSO
17 BY HAVING A CHOICE BETWEEN THE TWO PAPERS, CORRECT?
18 A. IN ADDITION TO THE OTHER THINGS THEY COULD CHOOSE FROM.
19 Q. OKAY. BUT IS THAT PART CORRECT?
20 A. YES.
21 Q. SO THAT THE SWING HERE IS THAT IF IN THE ONE THERE IS A
22 20 PERCENT INCREASE AND IN THE OTHER THERE IS 10 TO 15 PERCENT
23 DECREASE, SO THEN IT WOULD BE A DIFFERENCE OF ANYWHERE FROM 30
24 TO 35 PERCENT?
25 A. NO. 756
GREENTHAL - CROSS / ALIOTO
1 Q. IF YOU HAVE THE 20 PERCENT INCREASE IN THE PRICE -- IT
2 MIGHT EVEN BE MORE.
3 A. NO, IT'S LESS.
4 Q. IT WOULD BE LESS THAN 35 PERCENT DIFFERENCE?
5 A. BASICALLY, YOU ARE LOOKING AT THE NUMBERS THE WRONG WAY.
6 BECAUSE, ONE, YOU ARE DISAGGREGATING THE EFFECT OF CIRCULATION
7 ON THOSE TWO NUMBERS. FROM AN ADVERTISER'S STANDPOINT, THEY
8 BUY A NEWSPAPER TO REACH THE LARGEST AUDIENCE THEY CAN. THEY
9 ARE GOING TO PAY MORE TO THE EXTENT THE AUDIENCE IS BIGGER.
10 IN THE FIRST CASE THEY ARE REACHING A BIGGER
11 AUDIENCE THAN THEY ARE IN THE SECOND CASE.
12 IN THE FIRST CASE WE'VE HAD THE EXAMINER FOLD INTO
13 THE CHRONICLE AND IT HAS EFFECTIVELY PICKED UP ITS CIRCULATION.
14 THEREFORE, ON A PER-CIRCULATION BASIS THE, RATES HAVE CHANGED
15 VERY LITTLE.
16 Q. YES. THERE IS SOME REDUCTION IN THE CIRCULATION WHEN THE
17 ONE NEWSPAPER TAKES OVER BOTH. WE ALREADY WENT THERE.
18 A. OF THE COMBINED BASE.
19 Q. IT WENT TO 92 PERCENT.
20 AND THEN WITH REGARD TO HEAD TO HEAD, IT SHOWS THAT
21 THE EXAMINER WOULD TAKE SUBSCRIBERS AWAY FROM THE CHRONICLE,
22 DOESN'T IT?
23 A. ON THE HEAD TO HEAD IT SHOWS THERE -- THAT THE EXAMINER IS
24 GAINING SUBSCRIBERS AND THE CHRONICLE IS LOSING SUBSCRIBERS.
25 Q. OKAY. NOW I WANT TO GO TO THE CAPITAL EXPENDITURE, AND WE 757
GREENTHAL - CROSS / ALIOTO
1 WILL COME BACK TO THE -- ALL RIGHT. LET'S DO PRODUCTION AND
2 CIRCULATION.
3 A. OKAY.
4 Q. THE NEXT ITEM -- AND THESE ARE UNDER YOUR COLUMN ENTITLED
5 "MAJOR PROFIT AND LOSS COMPONENT." PRODUCTION AND CIRCULATION
6 UNDER THE ONE NEWSPAPER?
7 A. YES.
8 Q. IT STATES:
9 "NO PAYROLL COST SAVINGS BECAUSE OF UNION
10 CONTRACT, OTHER COSTS BASED ON CIRCULATION
11 LEVELS."
12 THEN UNDER THE WAR SITUATION IT STATES:
13 "COSTS GENERALLY ALLOCATED BASED ON
14 CIRCULATION LEVELS."
15 A. YES.
16 Q. OKAY. IN "EDITORIAL," WHICH IS THE NEXT ONE, THERE IS
17 STATED UNDER A ONE NEWSPAPER THAT THE "INCREMENTAL 5 MILLION
18 FOR SUNDAY."
19 NOW, THAT MEANS -- "INCREMENTAL 5 MILLION" MEANS
20 WHAT?
21 A. IT MEANS THAT THEY WOULD HAVE TO SPEND 5 MILLION MORE PER
22 YEAR FOR EDITORIAL COSTS BECAUSE THEY WOULD -- THEY WOULD BE
23 PUBLISHING THE SUNDAY NEWSPAPER.
24 Q. OKAY. AND THAT WOULD BE THE COST TO THEM, BUT THEY WOULD
25 HAVE TO PICK UP COSTS THAT OTHERWISE WOULD BE COVERED; IS THAT 758
GREENTHAL - CROSS / ALIOTO
1 WHAT YOU ARE SAYING?
2 A. I DON'T KNOW WHAT YOU MEAN BY "OTHERWISE -- COSTS THAT
3 WOULD OTHERWISE BE COVERED. "
4 Q. WHEN YOU SAY "INCREMENTAL," YOU MEAN TO WHAT?
5 A. TO THE EXISTING EDITORIAL COSTS INCURRED BY THE CHRONICLE.
6 Q. OKAY. NOW, THEN, ON THE -- WHEN IT'S A HEAD-TO-HEAD
7 SITUATION IT STATES, QUOTE:
8 "EXAMINER INCREASES SPENDING BY 25 MILLION
9 AND CHRONICLE INCREMENTALLY SPENDS 5 MILLION FOR
10 SUNDAY."
11 AND THE REASON FOR THE 25 MILLION IS -- AND THIS IS
12 SUPPOSED TO BE FOR THE SUNDAY PAPER, THE 25 MILLION FOR THE
13 EXAMINER OR FOR ALL --
14 A. FOR ALL OF IT.
15 Q. OKAY.
16 A. BECAUSE THEY ARE BASICALLY MILKING THEIR EDITORIAL FOR A
17 PERIOD OF TIME AND NOT SPENDING, FROM WHAT WE UNDERSTOOD, AS
18 MUCH AS THE CHRONICLE HAD.
19 Q. BUT THEY WOULD HAVE TO SPEND AN ADDITIONAL 25 MILLION?
20 A. CORRECT.
21 Q. AND THAT WOULD BE TO, WHAT, RUN THE PAPER?
22 A. THAT WOULD BE TO RUN THE EDITORIAL COSTS UP TO A LEVEL
23 WHICH IN OUR VIEW, IN OUR ESTIMATES -- AND THAT'S ALL THESE
24 ARE, ARE ESTIMATES -- WOULD BE REQUIRED TO BE A STAND-ALONE
25 NEWSPAPER. 759
GREENTHAL - CROSS / ALIOTO
1 Q. OKAY. AND THAT 25 IS ON EDITORIAL ALONE, RIGHT?
2 A. THAT 25 IS ON EDITORIAL ALONE, YES.
3 Q. SO THAT SUPPOSE, FOR EXAMPLE, THAT THE HEARST CORPORATION
4 WAS SAYING THAT IT WAS GOING TO SELL THE EXAMINER TO SOMEBODY
5 AND THAT THEY WERE GOING TO REIMBURSE THEM FOR 25 MILLION IN
6 COSTS FOR THE WHOLE OPERATION -- NOT JUST EDITORIAL BUT THE
7 WHOLE OPERATION. DO YOU THINK THAT THAT NEWSPAPER COULD STAND
8 ALONE IN COMPETITION TO THE CHRONICLE?
9 A. IT DEPENDS ON WHAT THE NEWSPAPER WAS TRYING TO DO AND WHAT
10 ELSE IT WAS COUPLED WITH AND WHAT OTHER EDITORIAL CONTENT IT
11 HAD.
12 Q. FOLLOWING THE SAME ANALYSIS THAT YOU MADE, A PAPER
13 COMPARABLE TO THE SAME -- TO THE EXAMINER THAT YOU WERE VIEWING
14 IN THIS ANALYSIS, WOULD YOUR ANSWER BE THE SAME?
15 A. AS I SAID, IT DEPENDS WHAT IT'S COUPLED WITH, WHAT OTHER
16 COSTS THAT OTHER NEWSPAPER ALREADY HAS, HOW THEY ARE GOING TO
17 POSITION THE PROPERTY IN THE MARKET.
18 Q. LET ME JUST ASK YOU THIS, OKAY? WHEN YOU SAY HERE THAT
19 THE EXAMINER INCREASES SPENDING BY 25 MILLION, YOU MEAN THAT
20 THAT IS ONLY FOR EDITORIAL. I THOUGHT YOU TESTIFIED TO THAT.
21 A. THAT'S FOR THE EDITORIAL FOR THE EXAMINER ON A STAND-ALONE
22 BASIS.
23 Q. RIGHT. IF THE EXAMINER WERE ON ITS OWN, IT WOULD SPEND
24 $25 MILLION ON EDITORIAL.
25 A. STAND ALONE. 760
GREENTHAL - CROSS / ALIOTO
1 Q. STAND ALONE. OKAY.
2 WOULD THERE BE OTHER COSTS BESIDES EDITORIAL, STAND
3 ALONE?
4 A. IN THE NEWSPAPER?
5 Q. YES.
6 A. CERTAINLY.
7 Q. HOW MUCH MORE?
8 A. THERE IS A LOT OF OTHER COSTS AND YOU HAVE JUST GONE
9 THROUGH SOME OF IT.
10 Q. OKAY. SO -- AND DO YOU THINK THAT THE COSTS WOULD BE AT
11 LEAST ANOTHER 100 MILLION?
12 A. I -- YOU KNOW, WE HAVE THE NUMBERS IN THE BACK. IF YOU'D
13 LIKE TO TURN THE PAGE, WE COULD LOOK AT THEM.
14 Q. OKAY. WE WILL.
15 NOW, THE 25 MILLION, THEN, IF IN FACT -- IF THERE
16 WERE PAPERS SIMILAR -- SUPPOSE WE WERE GOING TO TRY TO
17 REPRODUCE THE EXAMINER. IF ALL THEY HAD WAS 25 MILLION --
18 THAT'S ALL THE MONEY THAT THEY HAD -- COULD THE EXAMINER BE
19 REPRODUCED, STAND ALONE?
20 A. IT DEPENDS WHAT THE REVENUE STREAM IS. I MEAN, YOU CAN'T
21 DISAGGREGATE EXPENSES FROM REVENUES, POSITIONING THE MARKET.
22 WHERE ARE YOU GOING TO BE ABLE TO APPEAL? THAT'S A COST ITEM.
23 YOU HAVE TO LOOK AT THE ENTIRE P&L.
24 Q. WOULD IT COST MORE IN YOUR JUDGMENT THAN $25 MILLION FOR A
25 PAPER TO BE -- IF IT WERE TO BE COMPARABLE TO THE EXAMINER TO 761
GREENTHAL - CROSS / ALIOTO
1 STAND ALONE?
2 A. COST MEANING WOULD IT HAVE OUTFLOWS, EXPENSES OF
3 25 MILLION?
4 Q. YES.
5 A. IT PROBABLY WOULD HAVE MORE THAN 25 MILLION IN EXPENSES.
6 Q. THANK YOU.
7 OKAY. GO TO THE NEXT ONE, PLEASE, ON "CAPITAL
8 EXPENDITURES." OKAY. UNDER "CAPITAL EXPENDITURES," UNDER
9 WHERE ONE -- THERE IS ONLY ONE NEWSPAPER, IT SAYS IN "CAPITAL
10 EXPENDITURES":
11 "NO NEW PLANT IF JOA RESOLVED NOW."
12 THAT MEANS IF THE JOA IS FIXED NOW THAT THE ONE
13 SURVIVING PAPER WOULDN'T HAVE TO BUILD A NEW PLANT, CORRECT?
14 A. IT MEANS IF THE JOA WAS RESOLVED THAT ALL THE PLANTS COULD
15 BE USED IN THE PUBLISHING OF THE CHRONICLE.
16 Q. IT WOULDN'T HAVE TO BUILD A NEW PLANT?
17 A. CORRECT.
18 Q. OKAY. AND THEN ON THE OTHER SIDE, IF THERE IS A WAR, IT
19 STATES, QUOTE:
20 "CHRONICLE CONSTRUCTS A NEW PLANT AT A TOTAL
21 COST OF $125 MILLION IN 2003-2005, PLUS LAND
22 COST OF 15 MILLION. ASSUMES EXAMINER DOES NOT
23 CONSTRUCT NEW PLANT BUT RECEIVES TWO PLANTS AT
24 TERMINATION" --
25 THERE WERE THREE PLANTS, RIGHT? 762
GREENTHAL - CROSS / ALIOTO
1 A. YES.
2 Q.
3 -- "TWO PLANTS AT TERMINATION AND
4 CHRONICLE RECEIVES ONE PLANT AND $8 MILLION FROM
5 HEARST."
6 OKAY. DO YOU SEE THAT?
7 A. YES.
8 Q. OKAY. NOW, DOES IT ACCORD -- IT IS CORRECT, IS IT NOT,
9 THAT IN INDUSTRIES IN WHICH THERE IS COMPETITION THAT THOSE
10 INDUSTRIES GENERALLY NEED TO BE ABLE TO IMPROVE THEIR PRODUCTS
11 IN ORDER TO BE COMPETITIVE, THE QUALITY OF THEIR PRODUCTS?
12 A. IMPROVE IT FROM WHERE?
13 Q. QUALITY OF THEIR PRODUCTS.
14 A. IN COMPETITION --
15 Q. YES.
16 A. -- PEOPLE TEND TO WANT TO HAVE THE BEST PRODUCT.
17 Q. OKAY. AND IN COMPETITION PEOPLE ATTEMPT TO -- IN TRYING
18 TO DO THAT ATTEMPT TO TRY TO UPGRADE THEIR FACILITIES TO MAKE
19 SURE THAT THEY ARE ALWAYS TRYING TO COME OUT WITH THE BEST
20 QUALITY OF THEIR PRODUCT, DON'T THEY?
21 A. IT DEPENDS ON WHETHER IT'S REQUIRED, WHETHER IT'S A GOOD
22 INVESTMENT OR NOT.
23 THEY ARE ALSO LOOKING AT DIFFERENT INVESTMENT
24 ALTERNATIVES. PLANT AND EQUIPMENT IS AN INVESTMENT
25 ALTERNATIVE. MAYBE IT'S A BETTER IDEA TO SPEND MONEY ON 763
GREENTHAL - CROSS / ALIOTO
1 SOMETHING ELSE.
2 Q. OKAY. AND WHEN YOU SPEND THIS KIND OF MONEY ON A PLANT,
3 IT'S LIKE AN INVESTMENT IN THE FUTURE, ISN'T IT?
4 A. YOU ARE SPENDING THE MONEY ON THE PLANT BECAUSE YOU DON'T
5 HAVE THE PLANT TO PUBLISH YOUR PAPER.
6 Q. YOU HAVE TO DO IT --
7 A. IT'S NOT JUST AN INVESTMENT IN THE FUTURE; IT'S REQUIRED
8 TODAY IF THE JOA WERE TO END.
9 Q. THAT'S ONE OF THE -- THAT'S ONE OF THE EFFECTS IF THERE
10 WOULD BE COMPETITION, CORRECT?
11 A. WHAT -- THAT THEY WOULD HAVE TO BUILD A NEW PLANT?
12 Q. YES.
13 A. THEY WOULD EITHER HAVE TO BUILD IT OR -- YES, THEY WOULD
14 HAVE TO BUILD A NEW PLANT.
15 Q. OKAY. THANK YOU.
16 THE NEXT ONE, PLEASE, IS THE "LENGTH OF
17 COMPETITION."
18 A. YES.
19 Q. NOW, YOU HAVE DOWN HERE ON THE "LENGTH OF COMPETITION,"
20 UNDER THE ONE NEWSPAPER YOU HAVE, "HEARST LEAVES THE MARKET IN
21 2006."
22 SO THAT MEANS THAT WHAT YOU ARE PROPOSING ON THIS IS
23 THAT HEARST WOULD REMAIN IN THE MARKET UNDER THE JOA AT 2 -- UP
24 TO AT LEAST 2005, CORRECT?
25 A. UNTIL THE END OF THE JOA, WHICH I BELIEVE IS THE END OF 764
GREENTHAL - CROSS / ALIOTO
1 SEPTEMBER.
2 Q. OKAY. AND UNDER THE NEXT ONE, IF THERE IS COMPETITION,
3 YOU CLAIM THAT HEARST LEAVES THE MARKET IN 2009.
4 A. CORRECT.
5 Q. OKAY. SO THAT SOMEONE ELSE, AS YOU SAID, THAT HEARST IN
6 YOUR JUDGMENT WOULD ONLY BE ABLE TO REMAIN IN THE MARKET FOR AN
7 ADDITIONAL FOUR YEARS.
8 A. NO. IT'S THREE YEARS.
9 Q. THREE YEARS. 2000 -- YES. OKAY. WELL --
10 A. THE BEGINNING OF 2009.
11 Q. OKAY. THE BEGINNING OF 2009?
12 A. RIGHT.
13 Q. ALL RIGHT. FOR AN ADDITIONAL THREE YEARS.
14 OKAY. NOW -- NOW, IN THIS SITUATION -- IN THIS
15 SITUATION, AS FAR AS THE CONSUMERS ARE CONCERNED IN TERMS OF
16 CHOICE AND IN TERMS OF PRICE, THE WAR SITUATION IS BETTER FOR
17 THEM THAN THE ONE NEWSPAPER, ISN'T IT?
18 A. IT IS IF IT EVER OCCURRED.
19 (CONTINUED ON NEXT PAGE - NOTHING OMITTED.)
20
21
22
23
24
25 765
GREENTHAL - CROSS / ALIOTO
1 Q. AND THE THING THAT THREATENS THAT OCCURRING MORE THAN
2 ANYTHING ELSE IS THIS ATTEMPTED SALE OF THE CHRONICLE TODAY;
3 CORRECT?
4 A. NO.
5 Q. NOW, YOU STATED, AS I UNDERSTAND IT, THAT WHEN YOU HAD
6 THESE DEALINGS WITH THESE FOLKS OTHER THAN THE HEARST
7 CORPORATION ABOUT BUYING THE CHRONICLE, YOU SAID THAT, AS I
8 UNDERSTAND WHAT YOU SAID, THE FIRST RIGHT OF REFUSAL DIDN'T
9 BOTHER YOU.
10 A. THE FIRST RIGHT OF REFUSAL WAS SOMETHING WE COULD
11 STRUCTURE AROUND, SO IT DIDN'T AFFECT OUR PROCESS.
12 Q. WHEN YOU SAY STRUCTURE AROUND IT, YOU MEAN THAT YOU COULD
13 TRY TO FRAME THE SALE IN SUCH A WAY THAT YOU COULD AVOID IT?
14 A. CORRECT.
15 Q. AND DID YOU TELL THAT TO HEARST?
16 A. DID WE TELL WHAT TO HEARST?
17 Q. THAT YOU THOUGHT THAT YOU COULD DO THAT.
18 A. WE TOLD HEARST THAT WE WERE GOING IN THE MARKET IN A WAY
19 WHICH WE FELT DIDN'T TRIGGER THE RIGHT OF FIRST REFUSAL.
20 Q. OKAY. AND WERE YOU CONCERNED AT ALL ABOUT ANY POTENTIAL
21 LITIGATION BECAUSE OF THAT POSITION?
22 A. WE ASSUMED THAT IF WE SOLD THE NEWSPAPER TO ANYONE ELSE,
23 THAT THE POTENTIAL FOR LITIGATION WOULD ALWAYS EXIST, AND WE
24 ADVISED OUR CLIENT OF THAT.
25 Q. YEAH. SO WHAT YOU TOLD YOUR CLIENT IS, "WE CAN TRY TO DO 766
GREENTHAL - CROSS / ALIOTO
1 THIS, BUT YOU MAY BE FACING LITIGATION"; IS THAT RIGHT?
2 A. YOU MAY BE FACING LITIGATION.
3 Q. SO YOU DIDN'T THINK YOU WERE JUST FREE TO BE ABLE TO
4 DISREGARD IT; DID YOU?
5 A. NO. I THOUGHT -- WE THOUGHT WE MIGHT HAVE LITIGATION. WE
6 THOUGHT IT WOULDN'T PREVAIL AND WE HAD LEGAL COUNSEL TELL US
7 THAT.
8 Q. OKAY. SO THE IDEA WAS, YOU KNOW, FORGET WHAT'S IN THE
9 CONTRACT, JUST DO IT, FIGHT A LAWSUIT FOR A NUMBER OF YEARS BUT
10 JUST GO AHEAD?
11 A. THAT'S A NICE SPEECH. THAT'S NOT WHAT WE SAID.
12 Q. IS THAT THE IDEA?
13 A. WE SAID THE CONTRACT SAYS THAT THERE'S A RIGHT OF FIRST
14 REFUSAL UNDER CERTAIN CONTEXTS. WE'RE GOING TO GO INTO THE
15 MARKET IN A WAY WHICH DOES NOT TRIGGER THE RIGHT OF FIRST
16 REFUSAL. IT DIDN'T SAY FORGET THE LAW. IT SAID UNDER THE LAW
17 THIS IS THE PROPER WAY TO PROCEED, AND WE HAD LEGAL COUNSEL
18 TELL US THAT THEY AGREED WITH THAT.
19 Q. AND THE WAY YOU WERE GOING TO DO THAT WAS TRY TO BUNDLE
20 THESE OTHER NEWSPAPERS?
21 A. THE WAY WE WERE GOING TO DO THAT WAS TO SELL THE
22 CORPORATION WITH THE CHRONICLE AND THE OTHER NEWSPAPERS IN IT.
23 THE RIGHT OF FIRST REFUSAL EXTENDED TO THE CHRONICLE ONLY IN AN
24 ASSET TRANSACTION.
25 Q. YOU WERE GOING TO SELL -- YOU MEAN YOU WERE GOING TO SELL 767
GREENTHAL - CROSS / ALIOTO
1 THE CORPORATION, MEANING THE TELEVISION AND EVERYTHING, TO ONE
2 PERSON?
3 A. NO.
4 Q. OH, YOU MEAN JUST THE NEWSPAPER?
5 A. THE NEWSPAPER GROUP.
6 Q. THE NEWSPAPER GROUP. THAT'S WHAT I JUST ASKED YOU.
7 IN OTHER WORDS, IF SOMEONE WANTED THE CHRONICLE,
8 THEY'D HAVE TO BUNDLE UP THE OTHER TWO?
9 A. YOU DIDN'T JUST ASK ME THAT AND I TESTIFIED BEFORE WE WERE
10 SELLING EVERYTHING ELSE OUT. I GUESS YOU DIDN'T HEAR ME SAY
11 THAT. YOU DIDN'T JUST ASK ME THAT.
12 Q. OKAY. SO JUST SO WE UNDERSTAND THIS, THEN, YOUR IDEA IS
13 THE WAY YOU WERE GOING TO SKIRT AROUND THE RIGHT OF FIRST
14 REFUSAL WAS THAT YOU WERE GOING TO REQUIRE ANY PURCHASER TO
15 PURCHASE ALL THREE NEWSPAPERS RATHER THAN JUST THE CHRONICLE
16 EVEN IF THAT'S THE ONLY ONE THEY WANTED?
17 A. YOUR WORDS ARE GETTING BETTER. IF YOU WANT TO TRY TO
18 DESCRIBE IT AGAIN, I'D BE HAPPY TO HEAR IT.
19 WE WEREN'T SKIRTING AROUND IT. THE DOCUMENT, THE
20 LEGAL UNDERSTANDING OF WHAT IT WAS, WAS WHAT IT WAS. WE HAD A
21 RIGHT TO PURSUE THE TRANSACTION AS WE PURSUED IT.
22 Q. YOU WERE TRYING, THE WAY YOU WERE GOING TO GET --
23 A. ONE MORE TIME.
24 Q. I DON'T KNOW WHAT YOU -- I DON'T KNOW -- IF YOU DON'T WANT
25 TO SAY SKIRT AROUND IT, BUT YOU WERE GOING TO AVOID IT. 768
GREENTHAL - CROSS / ALIOTO
1 A. WE WERE NOT GOING TO TRIGGER IT.
2 Q. YOU WEREN'T GOING TO TRIGGER IT, OKAY.
3 A. CORRECT.
4 Q. OKAY. YOU WEREN'T GOING TO TRIGGER IT. AND THE WAY YOU
5 WEREN'T GOING TO TRIGGER IT WAS TO REQUIRE THAT IF SOMEBODY
6 WANTED TO BUY THE CHRONICLE, THEY ALSO HAD TO BUY A COUPLE OF
7 OTHER TWO NEWSPAPERS SOMEPLACE ELSE; IS THAT RIGHT?
8 A. CORRECT.
9 Q. OKAY. AND DID IT OCCUR TO YOU THAT THAT WOULD BE USING
10 THE CHRONICLE, WHICH SOMEONE MAY WANT, AND FORCE THEM TO BUY
11 SOMETHING THEY DIDN'T WANT?
12 A. IT OCCURRED --
13 Q. DID THAT EVER OCCUR TO YOU?
14 A. IT OCCURRED TO US THAT IF PEOPLE WANTED TO BUY ALL OF
15 THEM, THEY WOULD; AND IF THEY DIDN'T, THEY WOULDN'T.
16 Q. WELL, I THOUGHT YOU SAID THAT KNIGHT-RIDDER OR SOMEBODY --
17 YEAH, I THINK YOU SAID KNIGHT-RIDDER, OR ONE OF THEM WOULD SAY,
18 "WELL, WE DON'T WANT TO BUY THE OTHER TWO, BUT IF WE HAVE TO DO
19 IT, THAT'S WHAT WE'RE GOING TO DO"?
20 A. YES.
21 Q. OKAY. TWO OF THEM SAID THAT; RIGHT?
22 A. NO. WHAT I SAID IS ON THE GANNETT SITUATION, THEY
23 ACTUALLY ENDED UP BIDDING ON THE OTHER PROPERTY. I ACTUALLY
24 THINK THEY BID ON BOTH, BUT THEY DIDN'T BID ON ONLY ONE OF
25 THEM -- 769
GREENTHAL - CROSS / ALIOTO
1 Q. DID --
2 A. IF I COULD FINISH SINCE YOU ASKED ME A QUESTION.
3 Q. NO, GO AHEAD.
4 A. IN THE TIMES MIRROR THEY ALSO PURSUED THE OTHER
5 PROPERTIES.
6 KNIGHT-RIDDER WHICH IS IN THE NEWSPAPER BUSINESS,
7 DIDN'T HAVE THESE TWO NEWSPAPERS AS HIGH PRIORITIES ON THE LIST
8 BUT THEY WERE CLEARLY WILLING TO BUY THEM. THEY'RE IN THE
9 NEWSPAPER BUSINESS.
10 Q. OKAY. NOW, IN YOUR BUSINESS, HAVE YOU EVER HEARD OF A
11 NOTION IN ANTITRUST LAW CALLED TIE-IN ARRANGEMENTS?
12 A. IN INVESTMENT BANKING BUSINESS?
13 Q. YEAH. HAVE YOU EVER HEARD THAT EXPRESSION, TIE-IN
14 RELATION?
15 A. NOT AS IT RELATES TO THE INVESTMENT BANKING BUSINESS.
16 Q. HAVE YOU EVER HEARD OF TYING ONE PRODUCT WITH A COUPLE
17 PRODUCTS THEY DON'T WANT? HAVE YOU EVER HEARD OF THAT?
18 MR. LINDSTROM: YOUR HONOR, I'M GOING TO OBJECT.
19 THIS TESTIMONY IS IN NO WAY RELEVANT TO THE ISSUES THAT ARE
20 BEFORE US.
21 THE COURT: SUSTAINED.
22 BY MR. ALIOTO:
23 Q. THE 60-MILE LIMIT --
24 A. YES.
25 Q. -- DID YOU -- WAS IT YOUR UNDERSTANDING THAT ANY NEWSPAPER 770
GREENTHAL - CROSS / ALIOTO
1 COMPETENT, THAT HAD A NEWSPAPER WITHIN 60 MILES, WOULD SOMEHOW
2 BE PROHIBITED FROM BUYING THE CHRONICLE?
3 A. NO.
4 Q. OKAY. WAS IT YOUR UNDERSTANDING -- WHAT -- STATE WHAT
5 YOUR UNDERSTANDING OF THE 60-MILE LIMIT WAS.
6 A. OUR UNDERSTANDING WAS THAT WITHIN THE JOA THERE WAS A
7 STIPULATION THAT SAID THAT THE OWNERS OF THE -- THE PARTIES TO
8 THE JOA WERE NOT SUPPOSED TO OWN NEWSPAPERS WITHIN 60 MILES.
9 BUT, AGAIN, WE WERE ADVISED BY LEGAL COUNSEL ABOUT THE
10 ENFORCEABILITY OF THAT CLAUSE; AND THE ANSWER WAS THEY DIDN'T
11 BELIEVE IT WAS GOING TO BE AN IMPEDIMENT.
12 Q. AND DID THEY SAY -- DID THEY, SINCE YOU DISCUSSED WHAT
13 YOUR COUNSEL TOLD YOU, DID THEY ALSO TELL YOU AT THAT TIME THAT
14 THE REASON IT COULDN'T BE ENFORCED IS BECAUSE IT WAS
15 ANTICOMPETITIVE?
16 A. I DON'T RECALL WHY THEY SAID IT.
17 Q. SO I TAKE IT THAT WHEN YOU HAD THE DISCUSSIONS WITH THESE
18 OTHER POTENTIAL PURCHASERS, YOU TOLD THEM THAT NOT TO WORRY
19 ABOUT THE 60-MILE LIMIT?
20 A. NO. WE WOULD NEVER TELL THEM NOT TO WORRY ABOUT IT. WE
21 TOLD THEM TO SEEK THEIR OWN ADVICE, THAT OUR COUNSEL TOLD US
22 THAT WE COULD PROCEED IN ENTERING INTO A TRANSACTION WITH THEM
23 BUT THEY HAD TO CONCLUDE ON THEIR OWN -- IN THEIR OWN WAY
24 WHETHER THEY AGREED WITH US. WE'D NEVER TELL THEM TO RELY ON
25 OUR JUDGMENT ON THAT. WE WOULD OFFER OUR JUDGMENT. 771
GREENTHAL - CROSS / ALIOTO
1 Q. DID YOUR COUNSEL GIVE YOU A REASON AS TO WHY?
2 A. YOU JUST ASKED ME THAT QUESTION. I TOLD YOU I DIDN'T
3 REMEMBER.
4 Q. DID YOU BELIEVE THAT FRANK BENNACK WAS GETTING INSIDE
5 INFORMATION FROM JOHN SIAS?
6 A. I BELIEVED THAT JOHN AND FRANK WERE HAVING CONVERSATIONS
7 FREQUENTLY AND THAT WHETHER -- I DON'T BELIEVE IT WAS INSIDE
8 INFORMATION. I THINK THAT JOHN AND FRANK WERE TALKING TO EACH
9 OTHER ABOUT WHAT THE PROCESS WAS ABOUT AND TRYING TO
10 UNDERSTAND, YOU KNOW, WHERE THE CHRONICLE SHAREHOLDERS MAY BE
11 SELLERS. JOHN AND WE WERE TRYING TO UNDERSTAND THAT AS WELL.
12 Q. DID YOU FEEL THAT DISCUSSIONS THAT YOU WERE HAVING WITH
13 MR. SIAS WERE SOMEHOW GETTING TO FRANK BENNACK?
14 A. WE WERE CONCERNED THAT SOME OF THE CONVERSATIONS MAY HAVE
15 BEEN GETTING TO FRANK.
16 Q. SO THAT WHEN YOU WERE -- WHEN YOU WANTED TO CONDUCT
17 CONFIDENTIAL DISCUSSIONS WITH YOUR OWN CLIENTS, INCLUDING
18 MR. SIAS WHO WAS THE CHAIRMAN AND THE PRESIDENT AND THE CEO OF
19 THE CHRONICLE, YOU WERE CONCERNED THAT HE MIGHT REVEAL THIS
20 CONFIDENTIAL DISCUSSION YOU WERE HAVING TO MR. BENNACK?
21 A. WE WERE CONCERNED THAT THE INFORMATION NOT GO TO HEARST
22 AND TO THE EXTENT THAT JOHN AND FRANK HAD A FRIENDSHIP AND A
23 RELATIONSHIP AND WERE CONTINUING OPERATING THE SFNA, YOU KNOW,
24 AS PARTNERS TOGETHER, THAT THERE WAS POTENTIAL FOR THAT TO
25 HAPPEN. 772
GREENTHAL - CROSS / ALIOTO
1 THE COURT: AND WHAT INFORMATION IS THIS?
2 THE WITNESS: ARE YOU ASKING ME?
3 THE COURT: YES.
4 THE WITNESS: YOU KNOW, TO THE EXTENT THAT WE HAD
5 DEVISED A VIEW ABOUT, YOU KNOW, WHAT THE SELLING STRATEGY WAS
6 GOING TO BE, HOW WE WERE GOING TO PURSUE THE SALE OF THE
7 NEWSPAPER AND, YOU KNOW, HOW MUCH WE WANTED TO GET FOR IT TO
8 SELL IT, WE WERE CONCERNED ABOUT THAT.
9 BY MR. ALIOTO:
10 Q. YOU THOUGHT THAT MAYBE MR. SIAS WAS GIVING SOME OF YOUR
11 PLANS OR MAYBE STRATEGIES OR TACTICS AWAY TO HEARST OR THERE
12 WAS A POTENTIAL OF IT?
13 A. THERE WAS POTENTIAL.
14 Q. SO YOU DIDN'T TRUST HIM?
15 A. NO, THAT'S NOT WHAT I SAID.
16 Q. DID YOU TRUST HIM?
17 A. YES.
18 Q. DID YOU BRING THIS UP TO HIM? DID YOU TELL HIM, "LOOK, WE
19 HAVE A -- WE DO NOT WANT TO BE TALKING TO YOU ABOUT ANYTHING
20 THAT'S CONFIDENTIAL AND YOU LET MR. BENNACK OF HEARST KNOW
21 ABOUT IT"?
22 A. WE HAD -- JOHN AND I, AS WELL AS OTHER MEMBERS OF
23 MANAGEMENT, HAD A NUMBER OF CONVERSATIONS ABOUT MAKING SURE
24 THAT THE INFORMATION FLOW OUTSIDE OF OUR GROUP, WHETHER TO
25 HEARST OR ANYBODY ELSE, BECAUSE THEY WERE GETTING CALLS AND 773
GREENTHAL - CROSS / ALIOTO
1 JOHN KNOWS A LOT OF PEOPLE IN THE NEWSPAPER INDUSTRY, NOT JUST
2 HEARST, THAT THOSE CALLS BE VERY CAREFULLY CONDUCTED AND, IN
3 FACT, SUGGESTED TO THEM THAT THEY REALLY WERE SUPPOSED TO BE
4 REFERRED TO US.
5 Q. WELL, WAS THERE ANY INFORMATION IN PARTICULAR THAT YOU
6 THINK THAT MR. SIAS PASSED ON TO MR. BENNACK OF THE HEARST
7 CORPORATION THAT HE SHOULDN'T HAVE IN YOUR JUDGMENT?
8 A. NO.
9 Q. WHAT WAS THE OCCASION THAT GAVE RISE TO YOUR FEELING OR
10 BELIEF THAT THIS MAY HAVE BEEN GOING ON?
11 A. YOU KNOW, THEY'VE KNOWN EACH OTHER FOR A LONG TIME.
12 THEY'VE HAD THE -- THEY'VE HAD A DIALOGUE FOR A LONG TIME.
13 AND, YOU KNOW, WE WOULD HAVE CONVERSATIONS ABOUT THE FACT THAT
14 CONVERSATIONS WERE SUPPOSED TO HAPPEN THROUGH DLJ TO FIND OUT
15 THERE HAD BEEN CONVERSATIONS, BUT THERE WAS NOTHING SPECIFIC
16 THAT EVER GAVE RISE TO, YOU KNOW, CONCERNS.
17 Q. WELL, WASN'T THERE SOME DISCUSSION THAT YOU HAD HAD THAT
18 YOU FELT THAT SOMEHOW GOT TO FRANK AND THAT YOU THINK THAT IT
19 GOT THERE -- "FRANK" MEANING BENNACK, MR. BENNACK -- AND YOU
20 THINK THAT IT GOT THERE THROUGH MR. SIAS?
21 A. THERE WERE -- AGAIN, THERE WERE IMPRESSIONS THAT WE GOT
22 DURING THE COURSE OF THE PROCESS ABOUT, YOU KNOW, CONVERSATIONS
23 THAT WERE GOING ON AND WHETHER OR NOT THEY HAD INFORMATION IN
24 THEM THAT WE WOULD HAVE LIKED TO HAVE THE HEARST CORPORATION
25 GET. 774
GREENTHAL - CROSS / ALIOTO
1 I MEAN, THERE WAS A POINT AT WHICH THERE WAS --
2 THERE WAS A DISCUSSION WE HAD WITH JOHN AGAIN BEING CONCERNED
3 THAT THERE WAS SOME FLOW OF INFORMATION THAT MAYBE WASN'T WHAT
4 WE WANTED IT TO BE WHERE WE, YOU KNOW, WANTED TO MAKE SURE THAT
5 HE PASSED IT ON TO HEARST.
6 Q. ALL RIGHT. LET ME SHOW YOU A DOCUMENT WHICH IS 134 IN
7 EVIDENCE. IT'S NOT IN EVIDENCE.
8 MR. ALIOTO: MAY I APPROACH THE WITNESS, YOUR HONOR?
9 THE COURT: YES, YOU MAY.
10 BY MR. ALIOTO:
11 Q. LET ME SHOW YOU A DOCUMENT WHICH IS MARKED FOR
12 IDENTIFICATION AS EXHIBIT 134. EXHIBIT 134 IS AN E-MAIL
13 APPARENTLY FROM YOU DIRECTED TO THE CERTAIN MEMBERS OF THE
14 BOARDS OF DIRECTORS, OR MEMBERS I THINK THAT YOU IDENTIFIED OF
15 THE CHRONICLE, AND THE DATE IS JUNE 22, 1999.
16 AND IF YOU WOULD BE GOOD ENOUGH TO TAKE A LOOK AT
17 THIS, AND THE FIRST QUESTION IS: IS THAT AN E-MAIL THAT YOU
18 SENT OR CAUSED TO BE SENT TO THE PERSONS LISTED ON OR ABOUT THE
19 DATE INDICATED?
20 A. YES. ACTUALLY TWO E-MAILS.
21 Q. TWO E-MAILS, OKAY.
22 A. YES.
23 MR. ALIOTO: WE WOULD OFFER INTO EVIDENCE WHAT IS
24 MARKED FOR IDENTIFICATION AS 134.
25 MR. LINDSTROM: NO OBJECTION, YOUR HONOR. 775
GREENTHAL - CROSS / ALIOTO
1 MR. HALLING: NO OBJECTION.
2 THE COURT: 134 WILL BE ADMITTED.
3 (PLAINTIFF'S EXHIBIT 134
4 RECEIVED IN EVIDENCE)
5 BY MR. ALIOTO:
6 Q. DIRECTING YOUR ATTENTION TO THE RECIPIENTS OF THE E-MAIL,
7 THE FIRST IS TRISH. WHO IS THAT?
8 A. THAT'S TRISH KUBAL.
9 Q. AND WHO IS SHE?
10 A. SHE'S ONE OF THE SHAREHOLDER DIRECTORS.
11 Q. THE NEXT IS NION?
12 A. NION.
13 Q. NION, SORRY. WHO IS THAT?
14 A. HE WAS ALSO, NION MC EVOY, ONE OF THE SHAREHOLDER
15 DIRECTORS.
16 Q. AND C. THIERIOT?
17 A. WHICH IS KIP THIERIOT. THESE ARE ALL ADDRESSED TO THE
18 SHAREHOLDER DIRECTORS.
19 Q. SPALDING?
20 A. HELEN SPALDING, WHO WAS ALSO A SHAREHOLDER DIRECTOR.
21 Q. OKAY. FIRST YOU STATE, QUOTE:
22 "THOUGHT YOU ALL MIGHT FIND IT INTERESTING
23 TO KNOW THAT HEARST HAS HIRED BRUCE WASSERSTEIN
24 AND FRED SEEGAL (YES, THAT FRED SEEGAL) TO HELP
25 THEM ACQUIRE THE CHRONICLE. SMALL WORLD, HUH? 776
GREENTHAL - CROSS / ALIOTO
1 JILL."
2 A. RIGHT.
3 Q. OKAY. NOW, IDENTIFY FRED SEEGAL?
4 A. FRED SEEGAL IS THE PRESIDENT OF WASSERSTEIN PERELLA AND
5 WORKS FOR BRUCE WASSERSTEIN.
6 Q. WHEN YOU SAY, "YES, THAT FRED SEEGAL," I TAKE IT THAT THAT
7 FRED SEEGAL HAD SOME KIND OF PRIOR RELATIONSHIP TO THE PERSONS
8 TO WHOM YOU WERE SENDING THIS E-MAIL?
9 A. YES. HE HAD BEEN EARLY ON INVOLVED IN THE SALE OF THE
10 CABLE BUSINESS BUT HE CHANGED FIRMS ACTUALLY GOING TO
11 WASSERSTEIN PERELLA AT THAT POINT AND BECAME UNINVOLVED.
12 Q. OKAY. NOW YOU STATE, QUOTE:
13 "FRANK CALLED TODAY. VERY GOOD CALL. HE'S
14 CLEARLY CONCERNED THE PROCESS MAY GET AWAY FROM
15 HIM."
16 A. YEAH.
17 Q. "REITERATED HE'S THE BEST BUYER WITH THE BEST
18 ECONOMICS. WILLING TO PAY 'FULL PRICE.' SAID
19 THAT WHILE THEY BELIEVED THEY HAD AN ENFORCEABLE
20 RIGHT OF FIRST REFUSAL, THAT HE BELIEVED THAT IT
21 WILL NOT COME TO THAT. WANTS TO DO THE RIGHT
22 THING HERE. SENSITIVE TO THE HISTORY AND SOFT
23 ISSUES. WILLING TO LAY OUT FOR THE FAMILY HIS
24 INTENTION TO KEEP THE CHRONICLE NAME, THE
25 EMPLOYEE AND FAMILY INVOLVEMENT WITH THE PAPER 777
GREENTHAL - CROSS / ALIOTO
1 (NOT SURE WHAT HE MEANS BY THIS), IF THAT IS OF
2 INTEREST."
3 THEN:
4 "WOULD BE ON FIRST PLANE OUT WHEN
5 APPROPRIATE. I TOLD HIM IT WAS MY BELIEF THAT
6 THE CHRONICLE WOULD BE SOLD IN THE CORPORATION
7 WITH THE OTHER PAPERS. SUGGESTED THAT WE WOULD
8 GO INTO A PROCESS WITH TIME SCHEDULES, ET
9 CETERA."
10 NOW, LET'S STOP WITH "SELLING THE CHRONICLE WITH THE
11 OTHER PAPERS." IN THIS TRANSACTION, THIS VERY TRANSACTION OF
12 THE HEARST CORPORATION PURCHASING THE CHRONICLE, ARE THEY ALSO
13 PURCHASING THE OTHER PAPERS?
14 A. IN WHICH TRANSACTION?
15 Q. THIS ONE.
16 A. THEY'RE NOT.
17 Q. THEY ARE NOT. OKAY.
18 SO THE IDEA OF BUNDLING THE TWO OTHER NEWSPAPERS WAS
19 AT SOME POINT DROPPED?
20 A. IT WAS DROPPED WHEN WE DECIDED TO ENTER INTO THIS
21 TRANSACTION.
22 Q. WITH HEARST?
23 A. WITH HEARST.
24 Q. SO IT APPLIED TO EVERYBODY BUT HEARST?
25 A. NO. WE ACTUALLY MAILED INFORMATION TO HEARST SHOWING THEM 778
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1 THE WHOLE GROUP AND THEY WERE ALSO IN THE PROCESS; AND WHEN
2 THEY STEPPED UP TO BUY THIS PAPER AT THIS PRICE, WE CHANGED THE
3 DIRECTION OF THE PROCESS.
4 Q. OKAY. SO YOU DIDN'T REQUIRE THEM TO BUY THE TWO?
5 A. WE DIDN'T REQUIRE THEM TO BUY THE TWO BECAUSE THEY WEREN'T
6 GOING TO TRIGGER THE RIGHT OF FIRST REFUSAL IF THEY BOUGHT JUST
7 ONE.
8 Q. SO THE WHOLE PURPOSE OF BUNDLING WAS JUST THE FIRST RIGHT
9 OF REFUSAL, TRIGGERING IT?
10 A. NO. I TESTIFIED BEFORE ABOUT WHAT THE PURPOSES WERE.
11 THERE WERE OTHER WAYS TO ACCOMPLISH THE PURPOSES THAT I
12 TESTIFIED BEFORE, WHICH IS TAX-DEFERRED TRANSACTION, WINDING UP
13 THE AFFAIRS OF THE CORPORATION.
14 Q. OKAY. THE FACT, HOWEVER, THAT HEARST CORPORATION WAS NOT
15 REQUIRED TO BUY THE OTHER TWO PAPERS, THAT'S TRUE?
16 A. THAT'S CORRECT, YES.
17 Q. IT GOES ON, QUOTE:
18 "BUT WOULD PROBABLY BE WILLING TO LISTEN IF
19 HEARST HAD SOMETHING CONCRETE TO SAY."
20 WAIT. I MISSED ONE PART. SORRY. IT SAYS:
21 "I TOLD HIM THAT IT WAS MY BELIEF THAT THE
22 CHRONICLE WOULD BE SOLD IN THE CORPORATION WITH
23 THE OTHER PAPERS. SUGGESTED THAT WE WOULD GO
24 INTO A PROCESS WITH TIME SCHEDULES, ET CETERA,
25 BUT WOULD PROBABLY BE WILLING TO LISTEN IF 779
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1 HEARST HAD SOMETHING CONCRETE TO SAY. VERY
2 CLEAR TO ME THAT THE SUBSTANCE OF OUR LAST
3 DISCUSSION WITH JOHN" -- THAT'S JOHN SIAS?
4 A. CORRECT.
5 Q. -- "THAT THE DISCUSSION" -- "VERY CLEAR TO ME
6 THAT THE SUBSTANCE OF OUR LAST DISCUSSION WITH
7 JOHN ON THIS TOPIC SOMEHOW GOT TO FRANK AND THAT
8 FRANK IS CONCERNED THAT HE MAY ANGER THE FAMILY
9 (WHICH WILL THEN DECIDE NOT TO SELL) WITH
10 LEGALISTIC TACTICS AND THAT WE HAVE A STRONG
11 LEGAL CASE THAT THE RIGHT OF FIRST REFUSAL IS
12 NOT ENFORCEABLE. DO YOU ALL WANT TO HAVE A CALL
13 ABOUT THIS OR SHOULDN'T WE WAIT UNTIL THE BOARD
14 MEETING? JILL."
15 THE LAST DISCUSSION, IN REFERENCE IN THAT STATEMENT
16 TO THE LAST DISCUSSION WITH JOHN ON THIS TOPIC, THE TOPIC WAS?
17 A. THE TOPIC WAS THE FACT THAT WE HAD A CLEAR PATH TO SELLING
18 THE CHRONICLE AWAY FROM THEM.
19 Q. CLEAR PATH TO DO WHAT?
20 A. TO SELLING THE CHRONICLE AWAY FROM THE HEARST CORPORATION.
21 THAT THEY WERE IN REAL DANGER OF NOT BEING ABLE TO BUY THIS.
22 Q. ISN'T THAT SOMETHING YOU WANTED MR. BENNACK TO KNOW?
23 A. ABSOLUTELY.
24 Q. BUT YOU DIDN'T WANT MR. SIAS TO TELL HIM?
25 A. I DIDN'T KNOW IF MR. SIAS WOULD TELL HIM OR NOT. 780
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1 EVERYTHING ABOUT THE PROCESS THAT WE DESIGNED WAS DESIGNED TO
2 MAKE FOR THE HIGHEST AND BEST PRICE IN THE MARKET, WHETHER FROM
3 HEARST OR SOMEONE ELSE.
4 Q. WHEN YOU -- DID YOU ASK MR. SIAS TO STOP TALKING TO
5 MR. BENNACK?
6 A. WE HAD REPEATED CONVERSATIONS WITH -- WHERE WE TALKED
7 ABOUT THE FACT THAT ALL THE COMMUNICATION WAS SUPPOSED TO COME
8 THROUGH US, AND WE WERE AT THIS POINT IN TIME, I BELIEVE, NOT
9 IN OUR PROCESS YET.
10 Q. NOW, WHEN THE HEARST CORPORATION GAVE THE PRICE OF -- I
11 THINK YOU TESTIFIED NOT LESS THAN $565 MILLION?
12 A. YEAH.
13 Q. WHEN THE HEARST CORPORATION GAVE THAT PRICE, DID YOU THEN
14 TELL THAT TO ANY OF THE OTHER POTENTIAL BIDDERS?
15 A. NO.
16 Q. WHEN YOU SAY THAT YOU GOT THE -- I THINK YOU SAID THAT YOU
17 GOT AN IMPRESSION FROM THE OTHER BIDDERS THAT THEY WOULD --
18 THAT THEY WOULD BE INTERESTED AT CERTAIN LEVELS, DID YOU
19 ALREADY HAVE THE 565 PRICE WHEN YOU SPOKE TO MR. CORKINDALE
20 (SIC) OF GANNETT?
21 A. TO MR. MC CORKINDALE, YES.
22 Q. MC CORKINDALE.
23 A. YES.
24 Q. DID YOU HAVE THE 565 PRICE?
25 A. YES. 781
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1 Q. OKAY. AND HE TOLD YOU IN SUM OR SUBSTANCE THAT HE WAS
2 INTERESTED IN PURCHASING IT HIGH 400, LOW 500; CORRECT?
3 A. YES.
4 Q. AND WHEN HE TOLD YOU THAT, DID YOU TELL HIM, "YOU'RE TOO
5 LOW"?
6 A. DID I TELL HIM HE WAS TOO LOW?
7 Q. YEAH. YES.
8 A. I TOLD HIM THAT THAT WASN'T GOING TO BE -- THAT WASN'T
9 GOING TO BE A WINNING BID.
10 Q. OKAY. SO YOU DID TELL HIM TO BASICALLY FORGET IT?
11 A. NO. WE WERE STILL IN A PROCESS. WE HADN'T GOTTEN TO OUR
12 BID DATE YET; BUT AS IS MY JOB, I TRIED TO ENCOURAGE HIM TO GET
13 TO A HIGHER PRICE. WHETHER HE BELIEVED ME OR NOT, I DON'T
14 KNOW; BUT NOT UNTIL WE -- NOT UNTIL WE PRINTED THAT WE WERE
15 SELLING THIS TO HEARST WAS HE AWARE OF THE FACT THAT HEARST WAS
16 ABOUT TO BUY THIS.
17 Q. AND WITH REGARD TO KNIGHT-RIDDER, I TAKE IT THAT YOU HAD
18 THE 60-MILE DISCUSSION WITH MR. RIDDER, TONY RIDDER?
19 A. WE HAD A DISCUSSION THAT THERE WAS A 60-MILE PROVISION
20 IN -- I BELIEVE WE DID. I DON'T RECALL SPECIFICALLY, BUT I
21 BELIEVE WE DISCUSSED THAT IT WAS IN THE JOA.
22 Q. AND WERE YOU TOLD WITH REGARD TO THIS FIRST RIGHT OF
23 REFUSAL, WE JUST DISCUSSED THE 60 MILES, WERE YOU TOLD THAT
24 THIS FIRST RIGHT OF REFUSAL WAS ANTICOMPETITIVE SO YOU DIDN'T
25 HAVE TO WORRY ABOUT IT? 782
GREENTHAL - CROSS / ALIOTO
1 A. NO.
2 Q. DID YOU TELL MR. RIDDER THAT HIS $400 MILLION WAS TOO LOW?
3 A. AGAIN, I DON'T RECALL WHAT THE SPECIFIC CONVERSATION IS;
4 BUT THAT'S GENERALLY MY JOB, IS TO TELL BIDDERS THEY'RE TOO
5 LOW.
6 (LAUGHTER)
7 Q. OKAY. AND THEN WHEN TIMES MIRROR, WHEN THEY SPOKE TO YOU
8 AND THEY GAVE A HIGH 400, LOW 500, DID YOU TELL THEM THAT THEY
9 WERE TOO LOW?
10 A. AGAIN, SAME ANSWER.
11 Q. OKAY. NOW, YOU STATED THAT YOU CALCULATED THE VALUE, THE
12 PRESENT VALUE OF THE PAYMENTS OR POTENTIAL PAYMENTS OF THE JOA
13 THAT WOULD BE MADE TO HEARST, I TAKE IT FROM THIS DAY FORWARD
14 OR -- I'M SORRY, 1999 FORWARD, AT $90 MILLION?
15 A. APPROXIMATELY.
16 Q. DID YOU TELL THEM THAT?
17 A. DID WE TELL WHO THAT?
18 Q. HEARST.
19 A. NO.
20 Q. WAS THAT AT ALL DISCUSSED IN REACHING THE PRICE WITH
21 HEARST?
22 A. THE AMOUNT OF THE PAYMENTS? NOT THAT I HAVE ANY
23 RECOLLECTION OF.
24 Q. WELL, YOU KNOW, THAT THERE HAD TO BE SOMETHING, YOU KNOW,
25 TO OFFSET THE AMOUNT OF MONEY THAT THEY WOULD OTHERWISE BE 783
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1 MAKING IF THEY JUST STAYED IN THE JOA, ANYTHING LIKE THAT?
2 A. NO. THEY KNEW WHAT THE TERMS OF THE JOA WERE. THEY KNEW
3 WHAT THEY WERE GETTING AND FORFEITING BY BUYING THE CHRONICLE.
4 Q. AND DO I UNDERSTAND IT CORRECTLY THAT YOUR FIRST OFFER WAS
5 $700 MILLION?
6 A. YES.
7 Q. AND WHEN YOU FIRST GAVE THE OFFER OF $700 MILLION, YOU
8 WERE TAKING INTO ACCOUNT THAT THE JOA WOULD STAY IN EFFECT
9 UNTIL 2005?
10 A. WHEN WE MADE THE OFFER THAT WE WERE -- I THOUGHT THAT THE
11 SHAREHOLDERS WERE WILLING TO SELL AT 700 MILLION, WE MADE IT
12 BASED ON SELLING THE ASSETS OF THE CHRONICLE.
13 Q. OKAY. BUT, I MEAN, DID YOU MAKE IT WITH THE VIEW THAT THE
14 JOA WOULD CONTINUE IN EFFECT UNTIL 2005?
15 A. IF THE EXAMINER -- IF THE HEARSTS WERE TO BUY THE
16 CHRONICLE, WHETHER OR NOT THEY CONTINUED -- OUR ASSUMPTION WAS
17 THAT THEY WERE GOING TO CLOSE THE EXAMINER AND PUT IT -- OR PUT
18 IT UP FOR SALE. PROBABLY PUT IT UP FOR SALE FIRST.
19 Q. BUT I'M ASKING, WHEN YOU SAID THE 700, WHEN YOU CAME TO
20 THE 700, WAS THIS JUST SOME NUMBER THAT YOU OFFERED TO HEARST
21 NOT TO THE OTHER FOLKS?
22 A. WE NEVER GOT INTO A DISCUSSION WHERE THEY WERE ASKING US
23 WHAT THE NUMBER WAS WITH THE OTHER BIDDERS, AND OBVIOUSLY THEY
24 WERE PRETTY FAR AWAY FROM THAT NUMBER.
25 Q. DID YOU EVER TELL HEARST 700? 784
GREENTHAL - CROSS / ALIOTO
1 A. YES.
2 Q. DID YOU EVER TELL KNIGHT-RIDDER 700?
3 A. NO.
4 Q. DID YOU EVER TELL GANNETT 700?
5 A. NO.
6 Q. DID YOU EVER TELL TIMES MIRROR 700?
7 A. NO, AND NONE OF THOSE ASKED.
8 Q. DID HEARST ASK?
9 A. THEY DID ASK.
10 Q. AND THEY SAID, "HOW MUCH DO YOU WANT?"
11 A. YES.
12 MR. ALIOTO: OKAY. IF I MAY HAVE ONE MOMENT, YOUR
13 HONOR.
14 THE COURT: VERY WELL.
15 (PAUSE IN PROCEEDINGS.)
16 BY MR. ALIOTO:
17 Q. WERE YOU EVER TOLD THAT THE JUSTICE DEPARTMENT DIDN'T CARE
18 WHETHER SAN FRANCISCO WAS A ONE NEWSPAPER TOWN?
19 A. NOT THAT I HAVE ANY RECOLLECTION OF.
20 Q. WERE YOU EVER TOLD THAT THE HEARSTS WILL ATTEMPT -- HEARST
21 WOULD ATTEMPT TO SELL THE EXAMINER OUTSIDE OF THE JOA; IN OTHER
22 WORDS, ELIMINATE THE JOA?
23 A. I WAS TOLD THAT HEARST WAS GOING TO TRY TO SELL THE
24 EXAMINER OUTSIDE OF THE JOA, YES.
25 Q. WERE YOU TOLD THAT IF YOU SOLD THE PAPER TO ANYONE OTHER 785
GREENTHAL - CROSS / ALIOTO
1 THAN HEARST, THAT YOU WOULD BE IN LITIGATION?
2 A. RIGHT.
3 Q. BY HEARST. BY HEARST. WERE YOU TOLD THAT?
4 A. WAS I TOLD THAT HEARST WOULD SUE US?
5 Q. YES.
6 A. HEARST NEVER TOLD US THEY WOULD SUE US. WE ASSUMED IT WAS
7 HIGHLY LIKELY THEY WOULD PURSUE ALL REMEDIES.
8 Q. IF YOU SOLD IT TO ANYONE ELSE?
9 A. SURE.
10 MR. ALIOTO: THAT'S ALL. THANK YOU VERY MUCH.
11 THANK YOU, YOUR HONOR.
12 THE COURT: VERY WELL. MR. LINDSTROM, ANY REDIRECT?
13 MR. LINDSTROM: NO QUESTIONS, YOUR HONOR.
14 THE COURT: VERY WELL. THANK YOU, MS. GREENTHAL.
15 THE WITNESS: AM I DONE?
16 THE COURT: LET ME ASK YOU A COUPLE OF QUESTIONS
17 BEFORE YOU LEAVE THE STAND.
18 THE WITNESS: OKAY.
19 THE COURT: YOU TESTIFIED THAT YOU'VE BEEN INVOLVED
20 IN A HUNDRED PLUS MEDIA DEALS, INCLUDING A SUBSTANTIAL NUMBER
21 OF THOSE INVOLVING NEWSPAPERS?
22 THE WITNESS: WITH COMPANIES IN THE NEWSPAPER
23 BUSINESS OR RELATED TO NEWSPAPERS, YES.
24 THE COURT: SO I ASSUME, THEREFOR, THAT YOU'VE
25 BECOME FAMILIAR WITH THE NEWSPAPER INDUSTRY? 786
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1 THE WITNESS: YES, GENERALLY.
2 THE COURT: IN THE UNITED STATES AND PERHAPS
3 ELSEWHERE?
4 THE WITNESS: PRINCIPALLY IN THE UNITED STATES.
5 THE COURT: AND ARE AWARE OF THE PLAYERS?
6 THE WITNESS: YES.
7 THE COURT: AWARE OF THE MARKETS?
8 THE WITNESS: YES.
9 THE COURT: AND HOW LONG HAVE YOU BEEN SO INVOLVED?
10 THE WITNESS: I'VE BEEN SPECIALIZED IN PROVIDING
11 INVESTMENT BANKING SERVICES TO THE MEDIA INDUSTRY SINCE 1985,
12 AND EVEN PRIOR TO THAT I WAS DOING A FAIR AMOUNT OF MEDIA
13 TRANSACTIONS.
14 THE COURT: ALL RIGHT.
15 THE WITNESS: THAT'S A LONG TIME.
16 THE COURT: THAT'S A LOT OF TIME AND GIVES YOU A
17 FAIRLY LONG-TERM PERSPECTIVE ON THE INDUSTRY.
18 THE WITNESS: IN MY BUSINESS.
19 THE COURT: ALL RIGHT. ARE YOU AWARE OF INSTANCES
20 IN WHICH JOINT OPERATING AGREEMENTS OF THE KIND THAT THE
21 CHRONICLE AND THE EXAMINER HAVE BEEN INVOLVED IN HAVE BEEN
22 DISSOLVED?
23 THE WITNESS: YES.
24 THE COURT: APPROXIMATELY HOW MANY JOINT OPERATING
25 AGREEMENTS HAVE BEEN DISSOLVED IN, SAY, THE LAST 10 OR 15 787
GREENTHAL - CROSS / ALIOTO
1 YEARS?
2 THE WITNESS: I WOULDN'T KNOW THE EXACT NUMBER,
3 EXCEPT ONE OF THE EXHIBITS TO THE PRESENTATION THAT WE DID TO
4 THE BOARD WENT THROUGH THE COMPETITIVE SITUATIONS AND THE JOA'S
5 AND I THINK THAT -- ON HOW MANY WERE IN EXISTENCE AND WHAT THE
6 RESOLUTION WAS OF THE ONES THAT HAD BASICALLY FOLDED. AND IN
7 EVERY CASE OR VIRTUALLY EVERY CASE, I'D HAVE TO GO BACK AND
8 LOOK AT IT, THE FAILING NEWSPAPER WENT OUT OF BUSINESS, THE
9 LESSER NEWSPAPER.
10 THE COURT: IS THAT EXHIBIT 5?
11 THE WITNESS: YOU KNOW, YOU KNOW THIS BETTER THAN I
12 DO, BUT THAT WOULD BE INCLUDED IN 5. I THINK IT WAS ALSO IN
13 ANOTHER PRESENTATION.
14 MR. LINDSTROM: IT WAS ALSO 9, YOUR HONOR. THE
15 PRESENTATION TO THE BOARD ON AUGUST 6TH.
16 THE COURT: BUT IS IT IN 5, PROJECT GOLDEN, MAY 4,
17 1999?
18 THE WITNESS: IF YOU GIVE ME A SECOND, I'LL SEE IF I
19 CAN FIND IT. I KNOW IT WAS IN THE FAIRNESS OPINION THAT WE
20 DELIVERED AS WELL WHERE IT FIRST TURNED UP. YEAH, I BELIEVE IT
21 IS IN 5. IT SAID AT ONE TIME THERE WERE JOA'S IN 28 CITIES.
22 THERE ARE NOW 13 REMAINING, AND IT GOES THROUGH MARKET BY
23 MARKET WHAT THE RESOLUTION HAS BEEN IN THOSE MARKETS.
24 THE COURT: ALL RIGHT. AND YOU'RE LOOKING AT
25 EXHIBIT 5 OR -- 788
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1 THE WITNESS: YES, I AM. IT STARTS ON PAGE --
2 ACTUALLY, I DON'T KNOW IF THIS IS THE FIRST PAGE. IT STARTS ON
3 PAGE 64.
4 THE COURT: OKAY.
5 THE WITNESS: AND THE PRIOR PAGES, JUST FOR YOUR
6 HONOR TO SEE IS -- ALSO LOOKS AT WHERE THERE HAVE BEEN
7 COMPETITIVE SITUATIONS IN CERTAIN MARKETS AND WHAT THE
8 RESOLUTION HAS BEEN IN THOSE COMPETITIVE SITUATIONS WHERE THERE
9 WERE TWO PAPERS, AND IN VIRTUALLY ALL CASES ONE OF THOSE PAPERS
10 HAS FOLDED. THIS IS PAGE 64.
11 THE COURT: WHEN YOU SAY AT PAGE 64 THAT AT ONE
12 TIME, IT DOESN'T INDICATE WHEN --
13 THE WITNESS: YES.
14 THE COURT: -- BUT AT ONE TIME --
15 THE WITNESS: THAT'S HOW MANY -- I BELIEVE, AND THIS
16 WAS PREPARED BY ONE OF MY COLLEAGUES, I BELIEVE THAT THIS
17 REFERS TO THE FACT THAT THERE WERE 28 JOA'S GRANTED.
18 THE COURT: 28 JOA'S GRANTED BY THE DEPARTMENT OF
19 JUSTICE?
20 THE WITNESS: YES. AGAIN, I'M NOT CERTAIN THAT
21 THAT'S THE CORRECT NUMBER BUT I BELIEVE THAT'S WHAT THE
22 INTENTION WAS.
23 THE COURT: JOA'S IN 28 CITIES?
24 THE WITNESS: YES.
25 THE COURT: AND THERE WERE, AS OF THE TIME OF THIS 789
GREENTHAL - CROSS / ALIOTO
1 REPORT, MAY 1999, 13 REMAINING?
2 THE WITNESS: CORRECT.
3 THE COURT: SO 15 WOULD HAVE BEEN DISSOLVED?
4 THE WITNESS: 15 WOULD HAVE BEEN DISSOLVED ONE WAY
5 OR THE OTHER, 13 STILL BEING IN EXISTENCE.
6 THE COURT: ALL RIGHT.
7 THE WITNESS: I BELIEVE THIS IS -- AGAIN, I DIDN'T
8 PREPARE THIS.
9 THE COURT: AND IN HOW MANY, IF ANY OF THOSE
10 INSTANCES, DID THE SO-CALLED JUNIOR NEWSPAPER TAKE OVER THE
11 SENIOR NEWSPAPER?
12 THE WITNESS: I DON'T KNOW. I MEAN, YOU CAN LOOK AT
13 THESE SITUATIONS. I THINK IF THERE ARE ANY SITUATIONS THAT
14 FALL INTO THAT CATEGORY, IT'S DE MINIMIS.
15 THE ONLY ONE I CAN THINK OF -- WELL, IT'S NOT EVEN A
16 JUNIOR NEWSPAPER. IN THE SEATTLE SITUATION THE AFTERNOON
17 NEWSPAPER ACTUALLY WAS MOVED TO THE MORNING AND THEN TOOK OVER.
18 THAT CLEARLY WAS STILL THE DOMINANT NEWSPAPER.
19 IF YOU GO THROUGH THESE, IN KNOXVILLE CLEARLY THE
20 JOURNAL, WHICH WAS THE JUNIOR NEWSPAPER, WENT OUT OF BUSINESS.
21 IN MIAMI THE JUNIOR NEWSPAPER WENT OUT OF BUSINESS. IN ST.
22 LOUIS YOU BASICALLY HAD A COMING TOGETHER OF THESE TWO
23 OPERATIONS WITH ONE OF THEM HAVING BEEN SOLD -- THE JUNIOR
24 NEWSPAPER EFFECTIVELY HAVING BEEN SOLD AND FOLDED EVENTUALLY.
25 IN NASHVILLE THE JUNIOR NEWSPAPER WENT OUT OF BUSINESS. 790
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1 CHATTANOOGA THEY WERE BASICALLY IT LOOKED LIKE --
2 AGAIN, THE CIRCULATION, AT LEAST BASED ON WHAT'S PRESENTED
3 HERE, LOOKED LIKE THEY WERE RELATIVELY EVEN, ALTHOUGH ONE HAD A
4 SUNDAY CIRCULATION WHICH WOULD HAVE GIVEN IT A STRONGER
5 POSITION IN THE NEWSPAPER. THERE YOU MIGHT HAVE ARGUED THAT IS
6 THE JUNIOR NEWSPAPER, BUT IT'S PRETTY CLOSE IF YOU SEE WHAT I'M
7 LOOKING AT.
8 THE COURT: WELL, LET'S SEE, FREE PRESS WAS CLOSED
9 IN 1998 IN CHATTANOOGA.
10 THE WITNESS: CORRECT. CORRECT, AND THEY PROBABLY
11 SUCCEEDED TO THE SUNDAY CIRCULATION. AGAIN, I DON'T KNOW THE
12 SPECIFICS OF THIS ONE SITUATION.
13 THE COURT: I'M A LITTLE CONFUSED ON THE CHATTANOOGA
14 SITUATION. YOU HAVE, IF I UNDERSTAND THIS CHART CORRECTLY, THE
15 OX (PHONETIC) FAMILY AS OWNING THE FREE PRESS.
16 THE WITNESS: THE OX FAMILY, YES.
17 THE COURT: THAT'S NOT CORRECT; IS IT?
18 THE WITNESS: THE OX FAMILY OWNING THE FREE PRESS?
19 THE COURT: RIGHT. THEY OWN THE TIMES; DO THEY NOT?
20 THE WITNESS: I DON'T -- I DON'T KNOW.
21 THE COURT: BUT IN ANY EVENT --
22 THE WITNESS: THE OX FAMILY IS ONE OF THE FOUNDING
23 FAMILIES OF THE NEW YORK TIMES.
24 THE COURT: NO, I UNDERSTAND.
25 THE WITNESS: CORRECT. I DON'T -- AS I SAID, I'M 791
GREENTHAL - CROSS / ALIOTO
1 NOT FAMILIAR WITH THE CIRCUMSTANCES HERE.
2 THE COURT: BUT, IN ANY EVENT, IT WAS THE SENIOR
3 NEWSPAPER OR THE LARGER NEWSPAPER WHICH WAS THE SURVIVOR IN
4 CHATTANOOGA?
5 THE WITNESS: YES, BUT THE DAILY CIRCULATION WAS
6 VIRTUALLY IDENTICAL HERE.
7 THE COURT: ALL RIGHT. THEN HOW DID YOU MEASURE
8 SENIOR AND JUNIOR IN THAT CONTEXT?
9 THE WITNESS: I WOULD ARGUE THAT THE SENIOR
10 NEWSPAPER IN THIS SITUATION PROBABLY WAS THE FREE PRESS BECAUSE
11 OF THE SUNDAY PARTICIPATION, BUT ON A DAILY BASIS THEY WERE
12 PRETTY EQUIVALENT.
13 THE COURT: I SEE.
14 THE WITNESS: YES.
15 THE COURT: ALL RIGHT. WELL, THEN, IS THE SITUATION
16 IN THIS CASE UNUSUAL IN THAT THE JUNIOR NEWSPAPER OR THE OWNER
17 OF THE JUNIOR NEWSPAPER IS GOING TO BE TAKING OVER THE SENIOR
18 NEWSPAPER?
19 THE WITNESS: BECAUSE THEY'RE REQUIRING IT?
20 THE COURT: CORRECT.
21 THE WITNESS: IT CERTAINLY HAS HAPPENED BEFORE. YOU
22 KNOW, IT'S BASICALLY IN THE CONTEXT OF THE JUNIOR NEWSPAPER NOT
23 BEING IN A POSITION TO SURVIVE AND THE OWNER OF THE SENIOR
24 NEWSPAPER WANTING TO EXIT THE MARKET.
25 THE COURT: I'M SORRY. 792
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1 THE WITNESS: IT CERTAINLY HAS HAPPENED BEFORE, AND
2 YOU CAN LOOK AT SOME OF THESE OTHER SCENARIOS AGAIN, NOT
3 NECESSARILY IN A JOA CONTEXT BUT WHERE THERE WERE COMPETITIVE
4 SITUATIONS WHERE THEY SOLD OUT TO THE STRONGER OF THE TWO
5 OWNERS.
6 BUT I THINK THE RELEVANT MEASUREMENT HERE REALLY
7 RELATES TO, YOU KNOW, WHETHER OR NOT YOU HAVE A SITUATION THAT
8 IS DEVELOPED TO A POINT WHERE ONE NEWSPAPER IS CLEARLY SO
9 DOMINANT OVER THE OTHER NEWSPAPER, AND YOU COULD ONLY HAVE THAT
10 IN THIS SITUATION.
11 WE HAPPEN TO HAVE A CIRCUMSTANCE IN WHICH THE HOLDER
12 AND THE OWNER OF THE SENIOR NEWSPAPER WANTS TO EXIT THE
13 BUSINESS FOR A LOT OF DIFFERENT REASONS; AND SO IN THE CONTEXT
14 OF THAT SITUATION, THE PEOPLE WHO OWN THE JUNIOR NEWSPAPER
15 OBVIOUSLY ARE IN THE NEWSPAPER BUSINESS AND WANT TO CONTINUE IN
16 THE MARKET AND WANT TO BUY THE NEWSPAPER.
17 THE COURT: WE HAD TESTIMONY YESTERDAY FROM ROBERT
18 PAGE, WHO IS A PERSON WHO'S BEEN IN THE NEWSPAPER BUSINESS A
19 LONG TIME.
20 THE WITNESS: RIGHT.
21 THE COURT: DO YOU KNOW MR. PAGE?
22 THE WITNESS: I'M FAMILIAR WITH WHO HE IS.
23 THE COURT: ALL RIGHT. HIS TESTIMONY WAS THAT THE
24 CHRONICLE WAS WORTH A BILLION DOLLARS.
25 THE WITNESS: OUTSIDE OF THE JOA? 793
GREENTHAL - CROSS / ALIOTO
1 THE COURT: ON THE BLOCK AS IS TODAY.
2 THE WITNESS: SUBJECT TO THE JOA?
3 THE COURT: SUBJECT TO THE JOA TO THE YEAR 2005.
4 THE WITNESS: TO SOMEBODY OTHER THAN HEARST?
5 THE COURT: CORRECT.
6 THE WITNESS: OKAY.
7 THE COURT: WHAT'S YOUR REACTION TO THAT?
8 THE WITNESS: I THINK HE'S WRONG.
9 THE COURT: WHY?
10 THE WITNESS: WE WENT INTO THE MARKET TO FIND BUYERS
11 FOR THE PROPERTY AND THERE WAS NO BUYER AT THAT PRICE, AND THE
12 MARKET SPEAKS. IT SPEAKS. AND WE HAD CONVERSATIONS IN THE
13 MARKET. THESE ARE PEOPLE -- THE PEOPLE I HAD CONVERSATIONS
14 WITH ARE PEOPLE THAT I'VE KNOWN IN THIS INDUSTRY FOR QUITE A
15 WHILE, AND I BELIEVE I HAD A PRETTY GOOD SENSE OF WHO THEY
16 WERE.
17 I MEAN, YOU CAN MAKE AN ARGUMENT THAT HEARST
18 EFFECTIVELY, BECAUSE THEY OWN THE PLANT OR OWN 50 PERCENT OF
19 THE ASSETS, WHICH, YOU KNOW, YOU CAN TAKE A CALCULATION FROM A
20 HUNDRED -- A COUPLE HUNDRED MILLION DOLLARS, BECAUSE THEY HAD
21 AN ENTITLEMENT TO THE REVENUE STREAM OF ANOTHER HUNDRED MILLION
22 DOLLARS, THAT THEY HAD EFFECTIVELY TWO TO $300 MILLION OF VALUE
23 BY VIRTUE OF THEIR PARTICIPATION IN THE JOA THAT WAS AVAILABLE
24 TO PURCHASE.
25 IF YOU LOOK AT THAT IN TOTALITY, THEY COULD HAVE 794
GREENTHAL - CROSS / ALIOTO
1 SOLD THE ASSETS FOR 150 -- 100 TO 200 MILLION. THEY COULD HAVE
2 GIVEN UP THE REVENUE STREAM AND GOT PAID A HUNDRED MILLION
3 DOLLARS. IN TOTALITY THAT MAY HAVE GOTTEN YOU CLOSE TO A
4 BILLION DOLLARS WITH WHAT WE GOT.
5 THE COURT: RUN THROUGH THAT ANALYSIS AGAIN.
6 THE WITNESS: WELL, LET'S JUST SAY HEARST SAYS,
7 "OKAY, AS OF TODAY WE'RE GOING TO GIVE UP AND WE'RE GOING TO GO
8 HOME AND WE'RE NOT GOING TO -- WE'RE GOING TO GO OUT OF THE
9 MARKET. WE HAVE SOME ASSETS. WE HAVE A PARTICIPATION IN THE
10 JOA," WHICH UNDER CALCULATIONS WHICH WE RAN, WHO KNOWS IF
11 THEY'RE RIGHT OR NOT, "WOULD HAVE YIELDED US A HUNDRED MILLION
12 DOLLARS OF CASH FLOW. PAY US FOR A HUNDRED MILLION DOLLARS OF
13 CASH FLOW."
14 THEN THEY WOULD HAVE SAID, "YOU KNOW, WE ALSO OWN
15 HALF THE ASSETS. PAY US A COUPLE HUNDRED MILLION DOLLARS FOR
16 HALF THE ASSETS."
17 THAT'S $300 MILLION OF VALUE THAT WOULD THEN REVERT
18 TO THE CHRONICLE. THE CHRONICLE WAS THEN WORTH $660 MILLION.
19 TO SOMEBODY WHO ALREADY HAD THOSE ASSETS, THE TOTAL PACKAGE OF
20 ASSETS, MAYBE IT WAS WORTH A BILLION DOLLARS.
21 THE COURT: WELL, THEN THAT'S REALLY NOT
22 INCONSISTENT WITH MR. PAGE'S TESTIMONY; IS IT?
23 THE WITNESS: EXCEPT I THOUGHT WHAT YOU HAD SAID WAS
24 HE SAID IT WAS WORTH THAT IN THE JOA WITH HEARST STILL GETTING
25 ALL IT WAS ENTITLED TO. 795
GREENTHAL - CROSS / ALIOTO
1 THE COURT: THAT'S A FAIR DISTINCTION. I THINK THAT
2 IS A DISTINCTION BETWEEN YOUR VIEW AND HIS.
3 THE WITNESS: THE JOA, I MEAN, AS YOU KNOW, WAS A
4 CONTRACT THAT WAS ENTERED INTO QUITE A WHILE AGO. IT EXISTS.
5 IT IS. IT'S A CONTRACTUAL RELATIONSHIP. OUR JOB IS TO VALUE
6 OUR ASSETS. WE ONLY HAVE CERTAIN ASSETS. WE HAD HALF THE
7 INCOME STREAM FOR THE NEXT SIX YEARS. WE HAD HALF THE ASSETS
8 AND WITH THE CHRONICLE PUBLISHING OPERATION ON A GOING-FORWARD
9 BASIS AFTER THAT, DURING AND AFTER THAT -- SORRY.
10 THE COURT: I'M SORRY.
11 THE WITNESS: NO, I MEAN, THE DISTINCTION WOULD BE
12 WHERE WE'RE GOING TO GET SOME CASH FLOW IN THE INTERIM.
13 THE COURT: IF YOU CAN ANSWER THIS QUESTION, WHAT
14 PRICE WOULD YOU HAVE PUT ON THE TOTAL PACKAGE OF ASSETS? LET'S
15 ASSUME BOTH CHRONICLE AND HEARST CAME TO YOU AND SAID, "WE BOTH
16 WANT OUT OF THE MARKET." WHAT PRICE WOULD YOU HAVE --
17 THE WITNESS: THAT WOULD HAVE BEEN A GOOD
18 ASSIGNMENT.
19 (LAUGHTER)
20 THE WITNESS: I MEAN, THE SAN FRANCISCO MARKET IS
21 VERY DESIRABLE AND SOMETHING IN THE NEIGHBORHOOD OF A BILLION
22 DOLLARS FOR THE ASSET WOULDN'T HAVE SURPRISED ME. YOU KNOW,
23 BASICALLY SAYING YOU'RE GOING TO HAVE ONE NEWSPAPER THAT
24 OPERATES WHERE THERE WERE TWO, THAT YOU GET THE TOTAL PACKAGE
25 OF ASSETS, YOU DON'T HAVE TO PAY ANY DISTRIBUTIONS IN THE 796
GREENTHAL - CROSS / ALIOTO
1 INTERIM, THERE'S -- I MEAN, I'M GUESSING HERE, BUT I DON'T
2 THINK THAT'S AN UNREASONABLE NUMBER.
3 IT'S NOT THE SITUATION WE HAD TO DEAL WITH; BUT
4 IT'S -- YOU KNOW, IT WOULD BE NICE FROM A BANKER PERSPECTIVE.
5 THE COURT: WHAT ABOUT FROM THE POINT OF VIEW OF A
6 READER OF THOSE NEWSPAPERS, THE QUALITY OF JOURNALISM LIKELY TO
7 RESULT, DO YOU HAVE ANY VIEWS ON THAT?
8 THE WITNESS: OH, BOY. IN WHAT SCENARIO ARE YOU
9 TALKING? IF IT WAS ONE NEWSPAPER WITH --
10 THE COURT: EXACTLY. EXACTLY THE SCENARIO WE'VE
11 BEEN TALKING ABOUT.
12 THE WITNESS: MY OWN VIEW WAS THAT BECAUSE YOU HAD
13 THE TWO ENTITIES OWNING THESE NEWSPAPERS WITH, YOU KNOW, SOME
14 DEGREE OF HISTORICAL TENSION, IS PROBABLY A POLITE WAY OF
15 SAYING IT, THAT THERE WAS PROBABLY AN AGGREGATE -- INAGGREGATE
16 UNDERINVESTMENT IN THE PROPERTIES, IN THE CONTENT, AND THAT TO
17 THE EXTENT THAT YOU HAD A NEWSPAPER WHERE YOU COULD DO WHAT YOU
18 WANTED AND GET THE DIRECT BENEFIT OF THAT, MEANING YOU DIDN'T
19 HAVE SOMEBODY ELSE YOU HAD TO SHARE EVERY PENNY WITH, THAT YOU
20 WOULD -- YOU WOULD -- THEN A RATIONAL INVESTMENT THEORY WOULD
21 BE THAT YOU WOULD GO AND REALLY MAKE THIS THE BEST NEWSPAPER
22 YOU COULD MAKE IT.
23 I PERSONALLY BELIEVE, AND I KNOW THIS IS NOT
24 CONSISTENT WITH THE PLAINTIFF'S ARGUMENT, THAT THE CHRONICLE IN
25 PARTICULAR HAS SUFFERED GREAT COMPETITIVE LOSS. I MEAN, IT IS 797
GREENTHAL - CROSS / ALIOTO
1 NOT THE NEWSPAPER THAT IT HAD BEEN SEVERAL YEARS AGO.
2 IF YOU LOOK AT THE PENINSULA, WHICH IN ANY
3 DEFINITION OF WHAT'S AN IMPORTANT MARKET IN TERMS OF THE
4 AGGREGATE SAN FRANCISCO MARKET, THE SAN JOSE MERCURY NEWS IN
5 SOME WAYS HAS TAKEN THE MOST VALUABLE PART OF THIS MARKET AWAY
6 FROM THE CHRONICLE. AND TO SUGGEST THAT SOMEHOW THAT'S THE END
7 OF THE ROAD TO ME SEEMS NAIVE. THAT IS A VERY -- I MEAN, THAT
8 IS THE HOTBED OF ACTIVITY IN THE SAN FRANCISCO MARKET AND IT IS
9 NOT READING, BY AND LARGE, THE CHRONICLE COMPARED TO THE NEWS.
10 THE NEWS HAS REALLY TAKEN THAT SPACE.
11 THE COURT: AND WHY IS THAT?
12 THE WITNESS: I THINK THEY'VE BEEN VERY AGGRESSIVE.
13 I THINK THEY SPENT HEAVILY ON THE EDITORIAL CONTENT; AND IT IN
14 ITS OWN MARKET, IN THE SAN JOSE MARKET, IT IS THE ONLY
15 NEWSPAPER IN ANY WAY YOU'D LIKE TO MEASURE IT.
16 KNIGHT-RIDDER HAS DONE A VERY GOOD JOB, I THINK, OF
17 INVESTING HEAVILY IN WHAT READERS WERE INTERESTED IN AND IN
18 TAKING THAT INTO THE MARKET AND EXPANDING THEIR DEFINITION OF
19 THE MARKET, AND THAT DEFINITION -- THEIR DEFINITION OF THE
20 MARKET NOW INCLUDES BIG PIECES OF WHAT IS THE CHRONICLE MARKET
21 ANY WAY YOU WANT TO CUT THE NUMBERS.
22 THE COURT: AND YOU THINK THAT SITUATION WOULD HAVE
23 BEEN DIFFERENT IF THERE HAD BEEN NO JOINT OPERATING AGREEMENT
24 IN THE FIRST INSTANCE?
25 THE WITNESS: I MEAN, YOU KNOW, YOU AND I CAN 798
GREENTHAL - CROSS / ALIOTO
1 SPECULATE ALL DAY LONG. I THINK THAT, YOU KNOW, WORKING WITH A
2 FAMILY IN THIS SITUATION, I THINK THERE WAS SOME, YOU KNOW,
3 RESENTMENT WITH THE FACT THAT THEY BELIEVED THERE WAS
4 UNDERINVESTMENT IN THE EXAMINER AND A CERTAIN DEGREE OF FREE
5 RIDING OFF OF THE CHRONICLE INVESTMENT IN ITS EDITORIAL.
6 WHETHER THEY'RE RIGHT OR NOT, WE'LL LET OTHER PEOPLE DETERMINE.
7 WHETHER THAT AFFECTED THEIR WILLINGNESS TO POUR
8 MONEY IN TO MAKE IT THE BEST NEWSPAPER WHEN YOU KNEW EVERY
9 DOLLAR OF PROFIT THAT WAS GENERATED WENT 50-50, IF YOU FOLLOW
10 WHAT I'M SAYING. THEY HAD 80 PERCENT OF THE CIRCULATION. THEY
11 HAD TO GIVE 50 PERCENT OF THEIR INVESTMENT PROFIT TO HEARST.
12 IF YOU WERE IN THEIR SITUATION, I'M NOT SURE I WOULD
13 DO IT. AND I THINK WHAT HEARST SAID IS, "LOOK, WE'RE IN A
14 POSITION WHERE WE HAVE A DECLINE -- WE'RE CLEARLY THE WEAK
15 SISTER OF THIS JOA. YOU KNOW, WE'RE NOT GOING TO INVEST
16 HEAVILY IN THIS NEWSPAPER BECAUSE WHY SHOULD WE? WHAT'S THE
17 BENEFIT OF IT? WE'LL LET THEM INVEST. IF THEY GENERATE PROFIT
18 FOR EVERYBODY, THAT'S GREAT. WE GET 50 CENTS ON THE DOLLAR."
19 I MEAN, YOU KNOW, THIS IS GUESSWORK, BUT IT MAKES
20 SENSE TO ME AND I THINK THAT IT REALLY AFFECTED HOW PEOPLE
21 LOOKED AT MAKING INVESTMENTS HERE. THANK YOU.
22 THE COURT: THANK YOU VERY MUCH, MS. GREENTHAL. YOU
23 MAY STEP DOWN AND YOU'RE EXCUSED.
24 THE WITNESS: THANK YOU.
25 (WITNESS EXCUSED.) 799
GREENTHAL - CROSS / ALIOTO
1 THE COURT: ALL RIGHT. WE'RE READY TO RETURN TO THE
2 PLAINTIFF'S CASE. MR. ALIOTO, WOULD YOU CALL YOUR NEXT
3 WITNESS.
4 MR. ALIOTO: MAY IT PLEASE THE COURT, WE WOULD CALL
5 MR. ASHER.
6 DID THE COURT SAY 12:00 O'CLOCK OR 12:30 WE WOULD
7 BREAK?
8 THE COURT: BETWEEN 12:00 AND 12:30. DO YOU WANT TO
9 TAKE A BREAK BEFORE YOU CALL UP MR. ASHER?
10 MR. ALIOTO: ACTUALLY I WOULD JUST TO GET THESE
11 THINGS TOGETHER.
12 THE COURT: SURE. I UNDERSTAND. LET'S DO THAT.
13 LET'S TAKE UNTIL -- CAN YOU BE BACK AND READY TO GO AT FIVE
14 MINUTES OF?
15 MR. ALIOTO: SURE. I THINK I COULD ONLY DO THE
16 INTRODUCTION, THOUGH, REALLY, YOUR HONOR. IF THE COURT IS
17 GOING TO BE LEAVING AROUND 12:00 O'CLOCK, IT WILL JUST BE AN
18 INTRODUCTION REALLY OF MR. ASHER.
19 THE COURT: WELL, LET'S GET UNDER WAY WITH HIM.
20 MR. ALIOTO: SURE.
21 THE COURT: WE CAN GO PAST 12:00. I CAN'T GO TOO
22 FAR PAST 12:00.
23 MR. ALIOTO: THANK YOU, YOUR HONOR.
24 (RECESS TAKEN AT 11:40 A.M.)
25 (CONTINUED ON NEXT PAGE - NOTHING OMITTED.) 800
GREENTHAL - CROSS / ALIOTO
1 (PROCEEDINGS RESUMED AT 12:00 O'CLOCK NOON.)
2 THE LAW CLERK: PLEASE REMAIN SEATED. COME TO
3 ORDER. THIS COURT IS NOW IN SESSION.
4 THE COURT: VERY WELL, MR. ALIOTO. YOU MAY CALL
5 YOUR NEXT WITNESS.
6 MR. ALIOTO: THANK YOU, YOUR HONOR.
7 MAY IT PLEASE YOUR HONOR, THE PLAINTIFFS WOULD CALL
8 TO THE STAND MR. JAMES ASHER.
9 JAMES ASHER,
10 CALLED AS A WITNESS FOR THE PLAINTIFF, HAVING BEEN DULY SWORN,
11 TESTIFIED AS FOLLOWS:
12 THE CLERK: PLEASE BE SEATED.
13 PLEASE STATE YOUR FULL NAME FOR THE RECORD AND SPELL
14 YOUR LAST NAME.
15 THE WITNESS: JAMES M. ASHER, A-S-H-E-R.
16 DIRECT EXAMINATION
17 BY MR. ALIOTO:
18 Q. MR. ASHER, YOU ARE THE VICE PRESIDENT AND CHIEF LEGAL AND
19 DEVELOPMENT OFFICER OF THE HEARST CORPORATION; IS THAT CORRECT?
20 A. YES, ALTHOUGH RECENTLY SENIOR VICE PRESIDENT.
21 Q. SENIOR VICE PRESIDENT.
22 YOU HAVE BEEN IN COURT DURING THIS TRIAL, HAVE YOU
23 NOT?
24 A. YES, I HAVE.
25 Q. YOU ARE AWARE THAT THE CHRONICLE HAS ANNOUNCED THAT IT HAS 801
ASHER - DIRECT / ALIOTO
1 LOWERED ITS RACK PRICE FROM 50 CENTS TO 25 CENTS IN SAN
2 FRANCISCO?
3 A. I KNEW THAT THIS WAS SOMETHING THAT WAS COMING, YES. I
4 HADN'T HEARD THAT IT WAS OFFICIALLY ANNOUNCED.
5 Q. OKAY.
6 A. IT SHOWS THERE IS SOME COMPETITION.
7 Q. OR A CASE.
8 YOU FILED AN AFFIDAVIT IN THIS CASE?
9 A. YES, I DID.
10 Q. LET ME SHOW YOU WHAT --
11 MAY I APPROACH THE WITNESS, YOUR HONOR?
12 THE COURT: VERY WELL.
13 BY MR. ALIOTO:
14 Q. LET ME GIVE YOU WHAT IS MARKED FOR IDENTIFICATION -- OR IS
15 IN EVIDENCE AS 51. IT IS THE DECLARATION OF JAMES M. ASHER IN
16 SUPPORT OF THE OPPOSITION OF DEFENDANT THE HEARST CORPORATION
17 TO THE PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION. AND IT
18 WAS EXECUTED ON MARCH 22ND, 2000, IN SAN FRANCISCO.
19 I AM DIRECTING YOUR ATTENTION TO THE LAST PAGE, PAGE
20 5, OF THE AFFIDAVIT.
21 I ASK YOU, SIR, WHETHER OR NOT THAT'S YOUR
22 SIGNATURE?
23 A. YES, IT IS.
24 Q. AND THAT IS THE AFFIDAVIT THAT YOU FILED IN THIS CASE, IS
25 IT NOT? 802
ASHER - DIRECT / ALIOTO
1 A. YES, IT IS.
2 Q. AND YOU FILED IT UNDER OATH, DID YOU NOT?
3 A. YES, I DID.
4 Q. AND IT WAS -- AND YOU DID IN FACT STATE, DID YOU NOT,
5 THAT, QUOTE:
6 "IF CALLED AS A WITNESS, I COULD AND I WOULD
7 TESTIFY TO THE MATTERS SET FORTH IN THIS
8 DECLARATION OF MY OWN PERSONAL KNOWLEDGE."
9 YOU MADE THAT STATEMENT, DID YOU NOT?
10 A. YES, I DID.
11 Q. I DIRECT YOUR ATTENTION TO PAGE 1, PARAGRAPH 3, BEGINNING
12 AT LINE 23. YOU STATED AS FOLLOWS, QUOTE:
13 "THE EXAMINER CURRENTLY WOULD NOT BE
14 PROFITABLE ON A STAND-ALONE BASIS WITH REGARD TO
15 THE JAA."
16 FIRST OF ALL WITH REGARD TO THAT SENTENCE, DO YOU
17 HAVE PERSONAL KNOWLEDGE OF THAT?
18 A. I BELIEVE I DO.
19 Q. AND THE SOURCE OF THAT KNOWLEDGE IS?
20 A. I REVIEWED THE STUDIES THAT ARE IN EVIDENCE IN THIS CASE,
21 I BELIEVE, INCLUDING THE ECONOMICS -- ECONOMICS INCORPORATED
22 STUDY, THE INCREMENTAL COST STUDY, AND I HAVE ALSO REVIEWED
23 STUDIES THAT WERE PREPARED BY THE AGENCY THAT WE CALL THREE
24 PRODUCT STUDIES.
25 Q. AND YOU HAD A -- AND YOU HAD A CERTAIN AMOUNT THAT WAS 803
ASHER - DIRECT / ALIOTO
1 ATTRIBUTABLE TO THE ADVERTISING THAT WAS -- YOU HAD -- ARE YOU
2 SAYING THAT YOU HAD IN YOUR POSSESSION INFORMATION SHOWING HOW
3 MUCH OF THE AVENUE -- ADVERTISING REVENUE WAS THE EXAMINER'S?
4 A. I AM NOT SURE YOUR QUESTION IS CLEAR ENOUGH.
5 Q. WHAT YEARS DID YOU HAVE? DID YOU HAVE '99 OR '98 OR
'97?
6 A. I'D HAVE TO REFRESH MY RECOLLECTION BY REVIEWING THE
7 VARIOUS REPORTS.
8 Q. WELL, WHAT IS THE APPROXIMATE AMOUNT OF REVENUES THAT WERE
9 ACHIEVED BY THE SAN FRANCISCO NEWSPAPER AGENCY, EITHER THIS
10 YEAR, '99 OR '98?
11 A. WELL, AGAIN, IF I COULD REVIEW THOSE REPORTS AND REFRESH
12 MY RECOLLECTION, I WILL GIVE YOU THE NUMBERS.
13 Q. DO YOU HAVE ANY INFORMATION THAT BREAKS OUT THE
14 ADVERTISING REVENUES OF THE SAN FRANCISCO NEWSPAPER AGENCY
15 WHICH WOULD SHOW HOW MUCH OF THAT IS ATTRIBUTABLE TO THE
16 EXAMINER?
17 A. THESE WERE NUMBERS -- YOU ARE ASKING NUMBERS PREPARED BY
18 THE NEWSPAPER AGENCY?
19 Q. PREPARED BY ANYBODY THAT WOULD SHOW HOW MUCH OF THE
20 ADVERTISING REVENUE RECEIVED BY THE SAN FRANCISCO NEWSPAPER
21 AGENCY WAS FROM THE EXAMINER ALONE.
22 A. I BELIEVE THE -- THE -- AT LEAST SOME OF THE STUDIES THAT
23 I REFERRED TO THAT I REVIEWED DO MAKE AN ATTEMPT TO ALLOCATE
24 REVENUES BETWEEN THE CHRONICLE AND THE EXAMINER.
25 Q. YOU SAY THEY DO. CAN YOU IDENTIFY WHAT DOCUMENTS YOU ARE 804
ASHER - DIRECT / ALIOTO
1 TALKING ABOUT?
2 A. THE SPECIFIC ONES, I BELIEVE, WOULD BE THE -- THE
3 SO-CALLED "THREE PRODUCT STUDY" IN PARTICULAR THAT WAS PREPARED
4 BY THE NEWSPAPER AGENCY.
5 Q. AND THAT WAS FOR WHICH YEARS?
6 A. I DON'T RECALL ALL OF THE YEARS THAT I MAY HAVE SEEN. I
7 BELIEVE THE MOST RECENT ONE THAT I SAW WOULD -- WAS EITHER
8 ESTIMATING FOR -- IT WAS PROBABLY FOR 1999, AN ESTIMATE FOR
'99
9 OR -- AN ESTIMATE FOR '99.
10 Q. WHAT PART OF THE REVENUE -- HOW MUCH WERE THE REVENUES IN
11 1999?
12 A. AS I SAID, MR. ALIOTO, IF YOU WILL PERMIT ME TO REVIEW THE
13 REPORT TO REFRESH MY RECOLLECTION, I WILL BE GLAD TO ANSWER
14 THAT.
15 Q. I AM TALKING ABOUT JUST THE GENERAL REVENUES. HOW MUCH OF
16 THE GENERAL REVENUES -- WHAT WERE THE GENERAL REVENUES IN 1999?
17 A. OF WHAT?
18 Q. FOR THE SAN FRANCISCO NEWSPAPER AGENCY.
19 MAY I USE THE EASEL, YOUR HONOR?
20 THE COURT: YES, YOU MAY.
21 BY MR. ALIOTO:
22 Q. LET ME SHOW YOU THE NUMBERS THAT MR. SIAS DID. WE CAN DO
23 THIS FASTER.
24 THESE ARE THE NUMBERS THAT WE PUT UP WHILE MR. SIAS
25 WAS ON THE STAND. YOU WERE IN THE COURT WHEN HE DID THIS, WERE 805
ASHER - DIRECT / ALIOTO
1 YOU NOT?
2 A. YES, I WAS.
3 Q. OKAY. AND HE GAVE US FOR 1999 THAT THE INCOME FOR THE SAN
4 FRANCISCO NEWSPAPER AGENCY, BOTH FROM CIRCULATION AND
5 ADVERTISING, WAS FROM -- WAS APPROXIMATELY $444 MILLION.
6 DOES THAT ACCORD WITH YOUR UNDERSTANDING?
7 A. I BELIEVE -- THAT SOUNDS ABOUT RIGHT.
8 Q. OKAY. DO YOU KNOW WHAT PORTION OF THE $444 MILLION IS
9 ATTRIBUTABLE TO CIRCULATION AND WHAT PORTION IS ATTRIBUTABLE TO
10 ADVERTISING, APPROXIMATELY?
11 A. I DON'T RECALL.
12 Q. WELL, APPROXIMATELY. ARE WE TALKING ABOUT 50/50?
13 A. NO.
14 Q. 20/80, WHAT?
15 A. MOST OF THE REVENUE IS ATTRIBUTABLE TO ADVERTISING.
16 Q. WOULD YOU SAY ABOUT 80 PERCENT?
17 A. I DON'T RECALL SPECIFICALLY. THAT SOUNDS ABOUT RIGHT.
18 Q. OKAY. WELL, LET'S JUST FOR THE PURPOSE OF THIS -- OF THIS
19 QUESTION, SUPPOSE IT'S APPROXIMATELY 80 PERCENT, SOMEWHERE IN
20 THE RANGE OF $350 MILLION OR SO. OUT OF THAT HOW MUCH -- ARE
21 YOU TELLING US AND STATING TO THE COURT THAT YOU HAVE SOME
22 DOCUMENT THAT WOULD SHOW YOU THAT OUT OF THAT $350 MILLION OR
23 SO THAT YOU COULD TELL US HOW MUCH IS FROM THE EXAMINER?
24 A. THE DOCUMENT THAT I AM REFERRING TO MAKES A FAIR
25 ALLOCATION OF WHAT PORTION OF THAT REVENUE WOULD BE FAIRLY 806
ASHER - DIRECT / ALIOTO
1 ATTRIBUTABLE TO THE EXAMINER ON THE ONE HAND AND WHAT PORTION
2 WOULD BE ATTRIBUTABLE TO THE CHRONICLE ON THE OTHER.
3 Q. WELL, YOU ARE TALKING ABOUT THIS DOCUMENT, AND YOU SAY
4 THAT IT'S A FAIR PROPORTION. IS THAT PROPORTION MADE ON THE
5 BASIS OF CIRCULATION? IS THAT HOW IT'S DONE?
6 A. IT'S A MORE COMPLEX ANALYSIS, BUT CIRCULATION IS THE -- IS
7 THE PRIMARY DRIVER OF THE ALLOCATION, YES.
8 Q. OKAY. AND IF YOU SAY THAT THAT'S THE PRIMARY DRIVER, IT'S
9 JUST BASED ON THE CIRCULATION, THEN THE CIRCULATION IS LIKE A
10 FOUR-TO-ONE RATIO, ISN'T IT?
11 A. APPROXIMATELY.
12 Q. AND IF IT WERE A FOUR-TO-ONE RATIO OUT OF 350 --
13 APPROXIMATELY -- LET'S SAY $350 MILLION, ONE-FIFTH OF THAT
14 WOULD BE ABOUT 70 -- $70 MILLION OR SO?
15 A. I AM NOT DOING THE MATH BUT IF YOU'RE -- I'LL LET YOU DO
16 IT.
17 Q. WELL, HOW MUCH DO YOU SPEND ON EDITORIAL?
18 A. HOW MUCH DO I SPEND ON EDITORIAL?
19 Q. HOW MUCH DOES THE HEARST CORPORATION SPEND ON EDITORIAL?
20 A. IN WHAT YEAR AND FOR WHAT NEWSPAPER?
21 Q. 1999, THE EXAMINER.
22 A. EDITORIAL EXPENSE ALONE, I BELIEVE, WAS CLOSE TO
23 $16 MILLION.
24 Q. APPROXIMATELY $16 MILLION.
25 SO JUST TAKING ONE OF THESE AT A TIME, FIRST OF ALL, 807
ASHER - DIRECT / ALIOTO
1 YOU ARE NOT SAYING IN YOUR AFFIDAVIT, ARE YOU, THAT UNDER THE
2 JOA -- THAT UNDER THE JOA THE SAN FRANCISCO EXAMINER IS
3 SUFFERING A LOSS, ARE YOU? YOU DON'T MEAN THAT, DO YOU?
4 A. I THINK I'D LIKE YOU TO BE MORE SPECIFIC ABOUT THAT.
5 Q. WELL, YOU KNOW --
6 A. WHEN YOU SAY "UNDER THE JOA," EXACTLY WHAT DO YOU MEAN?
7 Q. PRESENTLY, AS THE SITUATION PRESENTLY STANDS, THE EXAMINER
8 MADE A PROFIT IN 1999, DIDN'T THEY?
9 A. AND I'D LIKE YOU TO DEFINE WHAT YOU MEAN BY THE WORD
10 "PROFIT."
11 Q. HAVE YOU EVER USED THE WORD BEFORE?
12 A. YES, I DO, BUT IT MEANS DIFFERENT THINGS TO DIFFERENT
13 PEOPLE. I WANT TO BE SURE WE ARE ASKING AND ANSWERING THE SAME
14 QUESTION.
15 THE COURT: MR. ASHER, LISTEN TO THE QUESTION.
16 THE WITNESS: YES.
17 THE COURT: GIVE IT A FAIR INTERPRETATION, USING
18 LAYMAN'S LANGUAGE.
19 THE WITNESS: OKAY.
20 THE COURT: AND THEN ANSWER IT.
21 THE WITNESS: OKAY. YES, YOUR HONOR.
22 COULD I HEAR THE LAST QUESTION?
23 BY MR. ALIOTO:
24 Q. YOU WERE NOT INTENDING BY THIS AFFIDAVIT -- YOU WERE NOT
25 INTENDING TO INDICATE TO THE COURT, WERE YOU, THAT THE EXAMINER 808
ASHER - DIRECT / ALIOTO
1 WAS NOT MAKING ANY MONEY OPERATING UNDER THE JOA?
2 A. I WAS NOT INTENDING TO SAY THAT, THAT'S CORRECT.
3 Q. YOU WERE TRYING TO SAY THAT IF THE EXAMINER WERE STANDING
4 ALONE, IT WOULDN'T MAKE ANY MONEY?
5 A. THAT'S CORRECT.
6 Q. OKAY. NOW, OUT OF THE -- OUT OF THE REVENUE, THE AD
7 REVENUE, WHICH YOU THINK IS ABOUT -- WELL, DO YOU THINK IT'S
8 ABOUT 80 PERCENT OF THE -- OF THE TOTAL REVENUE?
9 A. THAT SOUNDS APPROXIMATELY CORRECT.
10 Q. OKAY. NOW, OUT OF THAT, ISN'T IT CORRECT THAT ALMOST
11 99 PERCENT OF THE ADVERTISING REVENUE, THIS SOME 350 OR
12 $400 MILLION, WHATEVER IT IS, IS DONE IN COMBINATION WITH BOTH
13 PAPERS?
14 A. THAT IS CORRECT.
15 Q. SO THAT THERE IS NO WAY TO KNOW, IS THERE, WHAT PART IS
16 THE EXAMINER AND WHAT PART IS THE CHRONICLE?
17 A. I BELIEVE THERE ARE WAYS TO MAKE A FAIR ALLOCATION OF
18 THE -- OF THE REVENUE BETWEEN THE TWO PAPERS.
19 Q. AND WHAT YOU ARE SAYING IS THAT YOU THINK THAT THE WAY TO
20 DO THAT IS JUST TAKE A CIRCULATION NUMBER, A PERCENTAGE OF THE
21 CIRCULATION NUMBER?
22 A. I THINK THAT CIRCULATION COULD BE USED -- AND I BELIEVE
23 USING CIRCULATION, IT WOULD TEND TO OVERSTATE THE REAL
24 CONTRIBUTION OF THE EXAMINER TO THE ADVERTISING REVENUE.
25 Q. AND THEN WOULD YOU USE THE SAME KIND OF FORMULA, WHATEVER 809
ASHER - DIRECT / ALIOTO
1 IT IS, TO USE THAT SAME FORMULA ON THE EXPENSES (INDICATING)?
2 A. NO, YOU WOULD NOT IN THEIR ENTIRETY.
3 Q. WOULD YOU --
4 A. CERTAIN EXPENSES -- CERTAIN EXPENSES WOULD VARY DIRECTLY
5 WITH CIRCULATION. OTHER EXPENSES ARE MORE IN THE NATURE OF
6 FIXED COSTS, PARTICULARLY WHAT ARE CALLED THE FIRST COSTS TO
7 PRODUCE A PAPER. THOSE DO NOT VARY IN PROPORTION TO
8 CIRCULATION.
9 Q. YOU WILL ADMIT, WILL YOU NOT, THAT IF YOU TOOK THE AD
10 REVENUE AND YOU TOOK SOME PERCENTAGE OF IT BASED ON THE
11 CIRCULATION, THAT THAT WOULD -- THAT THAT WOULD GENERATE
12 MORE -- THAT WOULD GENERATE MONEY THAT WOULD SHOW THAT YOU
13 WOULD HAVE AN EXCESS OVER YOUR EXPENSES? YOU AGREE WITH THAT,
14 DON'T YOU?
15 A. I -- I'M -- I DON'T WANT TO BE ARGUMENTATIVE, BUT WE ARE
16 TALKING WHICH EXPENSES, ONLY THOSE OF THE JOA OR ALL EXPENSES
17 AGAIN?
18 Q. YOU FILED AN AFFIDAVIT IN COURT. YOU STATED IN THIS
19 AFFIDAVIT -- I AM GOING TO READ THE WHOLE PART, QUOTE:
20 "THE EXAMINER CURRENTLY WOULD NOT BE
21 PROFITABLE ON A STAND-ALONE BASIS OUTSIDE THE
22 JOA. THE COSTS TO PUBLISH THE EXAMINER
23 CURRENTLY EXCEED THE REVENUES IT CONTRIBUTES TO
24 THE JOA BY MILLIONS OF DOLLARS ANNUALLY."
25 LET'S STOP THERE. 810
ASHER - DIRECT / ALIOTO
1 FIRST OF ALL, YOU HAVE NO PERSONAL KNOWLEDGE, DO
2 YOU, THAT THE EXAMINER -- THAT THE COSTS TO PUBLISH THE
3 EXAMINER CURRENTLY EXCEED THE REVENUES IT CONTRIBUTES TO THE
4 JOA BY MILLIONS OF DOLLARS?
5 A. WELL, I -- I BELIEVE I HAVE PERSONAL KNOWLEDGE BASED ON MY
6 REVIEW OF -- OF THE SO-CALLED "INCREMENTAL COST STUDY."
7 Q. "INCREMENTAL COST," DOES IT INCLUDE THE REVENUES ALSO?
8 A. SURE, IT DOES.
9 Q. AND IF IT --
10 A. THE STUDY -- WELL, YES.
11 Q. YOU HAVE INFORMATION --
12 A. I CALL --
13 Q. YOU ARE TELLING ME -- SORRY.
14 A. I'M SORRY.
15 Q. YOU ARE STATING TO THIS COURT THAT YOU HAVE SOME DOCUMENT
16 WHICH WILL SHOW THAT THE COSTS TO PUBLISH THE EXAMINER
17 CURRENTLY EXCEED THE REVENUES IT CONTRIBUTES TO THE JOA BY
18 MILLIONS OF DOLLARS ANNUALLY? IS THAT WHAT YOU ARE SAYING?
19 A. ON AN INCREMENTAL BASIS, YES.
20 Q. SO WHEN YOU SAY "ON AN INCREMENTAL BASIS," THEN YOU DID
21 SOME OTHER CALCULATIONS? IS THAT WHAT YOU ARE SAYING?
22 A. NO. THAT'S WHAT I MEANT BY THIS SENTENCE.
23 Q. ARE YOU SAYING THAT THIS -- THAT THIS EXHIBIT OR THAT THIS
24 DOCUMENT EXISTS FROM WHICH WE COULD TAKE THE DOCUMENT AND IT
25 WOULD SHOW THAT THE -- THAT THE COSTS TO PUBLISH THE EXAMINER 811
ASHER - DIRECT / ALIOTO
1 CURRENTLY EXCEED THE REVENUES THE EXAMINER CONTRIBUTES TO THE
2 JOA BY MILLIONS OF DOLLARS ANNUALLY? IS THAT WHAT YOU ARE
3 SAYING?
4 A. ON AN INCREMENTAL BASIS, YES.
5 Q. INCREMENTAL OR OTHERWISE, ARE YOU SAYING THAT THAT
6 DOCUMENT EXISTS?
7 A. I BELIEVE IT DOES.
8 Q. DO YOU HAVE IT?
9 A. UP HERE (INDICATING), NO.
10 Q. WHEN WAS THE LAST TIME YOU SAW IT?
11 A. I DON'T KNOW. THE LAST TIME I LOOKED AT THE INCREMENTAL
12 STUDY, SOMETIME OVER THE LAST WEEK.
13 Q. DID YOU USE THIS DOCUMENT (INDICATING) AS A BASIS FOR
14 MAKING THIS STATEMENT IN YOUR AFFIDAVIT TO THE COURT?
15 A. YES.
16 Q. DID YOU USE ANYTHING ELSE OTHER THAN THIS DOCUMENT THAT
17 YOU ARE TALKING ABOUT?
18 A. TO PREPARE THIS DECLARATION OR THIS SENTENCE?
19 Q. NO. TO MAKE THE STATEMENT TO THE COURT, QUOTE:
20 "THE COSTS TO PUBLISH THE EXAMINER CURRENTLY
21 EXCEED THE REVENUES IT CONTRIBUTES TO THE JOA BY
22 MILLIONS OF DOLLARS ANNUALLY."
23 A. I WOULD SAY IT IS BASED ON A REVIEW, I BELIEVE AS I HAVE
24 SAID OF ALL THREE STUDIES, THE INCREMENTAL STUDY, THE
25 ECONOMISTS, INCORPORATED STUDY AND THE WHAT WE CALL "THREE 812
ASHER - DIRECT / ALIOTO
1 PRODUCT STUDY" THAT THE NEWSPAPER AGENCY PREPARES.
2 Q. ARE YOU AWARE OF THE TESTIMONY OF MR. FALK, THE PRESIDENT
3 OF THE SAN FRANCISCO NEWSPAPER AGENCY, WITH REGARD TO WHETHER
4 OR NOT IT IS EVEN POSSIBLE TO TRY TO SEPARATE THE COSTS OF THE
5 EXAMINER OR THE INCOME OF THE EXAMINER FROM THE CHRONICLE?
6 A. NO.
7 Q. YOU GO ON TO SAY, QUOTE:
8 "AS A RESULT, CURRENTLY THE OPERATIONS OF
9 THE CHRONICLE SUBSIDIZES THE LOSSES WITHIN THE
10 JOA FROM THE OPERATION OF THE EXAMINER."
11 DO YOU SEE THAT?
12 A. YES.
13 Q. AND THE IDEA HERE IS TO ADVISE THE COURT OF THESE -- OF
14 THIS KIND OF SITUATION SO THAT YOU WERE SAYING TO THE COURT,
15 "DON'T STOP THIS SALE BECAUSE RIGHT NOW THE CHRONICLE IS JUST
16 SUBSIDIZING THE EXAMINER'S LOSSES"; IS THAT RIGHT?
17 A. WELL, I THINK THAT'S ONE OF THE THOUGHTS THAT THIS WOULD
18 BE DESIGNED TO CONVEY, YES.
19 Q. HOW LONG HAS THE EXAMINER BEEN OPERATING AT A LOSS?
20 A. I DON'T KNOW.
21 Q. WHO IN THE HEARST CORPORATION WOULD KNOW? I MEAN,
22 STANDING ALONE, WHO WOULD KNOW THAT?
23 A. HOW -- HOW LONG HAS THE EXAMINER BEEN OPERATING AT A LOSS
24 STANDING ALONE?
25 Q. YES. 813
ASHER - DIRECT / ALIOTO
1 A. IS THAT YOUR QUESTION?
2 Q. YES.
3 A. THE EXAMINER DOES NOT OPERATE STANDING ALONE TODAY.
4 Q. I KNOW. SO THERE ARE NO NUMBERS THAT SHOW THAT, ARE
5 THERE?
6 A. I BELIEVE I SAID I HAVE REVIEWED STUDIES THAT INDICATE
7 WHAT THE -- WHAT THE FINANCIAL RESULTS WOULD BE IF THE EXAMINER
8 WERE STANDING ALONE.
9 Q. LET ME SHOW YOU A DOCUMENT WHICH IS EXHIBIT 100.
10 MAY I APPROACH THE WITNESS, YOUR HONOR?
11 THE COURT: YES, YOU MAY.
12 BY MR. ALIOTO:
13 Q. LET ME SHOW YOU EXHIBIT 100.
14 EXHIBIT 100 IS A DOCUMENT, DATED DECEMBER 14, 1999.
15 IT IS DIRECTED -- IT IS FROM YOU. IT IS TO THE FILE.
16 DID YOU, SIR, PREPARE THIS DOCUMENT ON OR ABOUT THE
17 DATE INDICATED OR CAUSE IT TO BE PREPARED AND TO BE SENT TO
18 YOUR FILES?
19 A. YES, I DID.
20 MR. ALIOTO: IT'S IN EVIDENCE, ISN'T IT?
21 MR. SHULMAN: YES.
22 BY MR. ALIOTO:
23 Q. OKAY. I UNDERSTAND THAT THAT DOCUMENT IS IN EVIDENCE.
24 AND I THINK I LEFT MINE UP THERE. DID I?
25 NO. 814
ASHER - DIRECT / ALIOTO
1 I JUST DROPPED IT, JUDGE.
2 THE WITNESS: I CAN READ FROM THIS ONE.
3 MR. ALIOTO: HERE IT IS. SORRY. OKAY.
4 BY MR. ALIOTO:
5 Q. THIS IS GOING TO BE A LITTLE BIT OUT OF CHRONOLOGICAL
6 ORDER, BUT I WANTED TO MOVE TO THIS ONE AND THEN WE WILL COME
7 BACK TO OTHERS.
8 THIS IS A DOCUMENT THAT YOU PREPARED ON DECEMBER 14,
9 1999. IT IS SUPPOSED TO REFLECT A CONVERSATION OR AT LEAST A
10 MEETING THAT YOU HAD WITH A REPRESENTATIVE, THE ATTORNEY, FOR
11 THE FANG FAMILY AT THE TIME; IS THAT RIGHT?
12 A. YES.
13 Q. AND THAT WOULD BE MR. BALABANIAN?
14 A. YES.
15 Q. OKAY. AND AT THAT TIME MR. BALABANIAN APPROACHED YOU WITH
16 THE POSSIBILITY WITH REGARD TO THE PURCHASE OF THE EXAMINER,
17 CORRECT?
18 A. YES, IN PART.
19 Q. DID YOU GIVE THIS MEMORANDUM TO ANYONE? YOU SHOW A CARBON
20 COPY TO JONATHAN THACKERAY. TO ANYONE ELSE?
21 A. I DON'T RECALL.
22 Q. THE FIRST ITEM, IT STATES, QUOTE:
23 "IN THE DECEMBER 2, 1999 PHONE CALL,
24 BALABANIAN REPORTED THAT HE HAD SPOKEN FURTHER
25 WITH TED FANG AND HAD THE FOLLOWING PROPOSAL TO 815
ASHER - DIRECT / ALIOTO
1 MAKE TO US: ONE, THE PENDING LITIGATION WOULD
2 BE SETTLED IN A WAY TO RESOLVE THE UNDERLYING
3 ISSUES IN A MANNER WHICH WOULD PREVENT THE SAME
4 ISSUES FROM BEING RAISED IN FUTURE LITIGATION."
5 DO YOU SEE THAT?
6 A. YES.
7 Q. IS THAT A PROPOSAL THAT WAS MADE TO YOU?
8 A. YES.
9 Q. AND BY THE "PENDING LITIGATION," THAT WAS LITIGATION
10 BETWEEN THE EXAMINER AND THE PAN ASIA GROUP?
11 A. I AM NOT SURE IT WAS WITH THE EXAMINER, BUT I BELIEVE THE
12 AGENCY AND PERHAPS THE HEARST CORPORATION, AS WELL.
13 Q. IT GOES ON TO SAY, QUOTE:
14 "THE FANGS WOULD 'TAKE THE EXAMINER OFF OUR,
15 HANDS,' BY PURCHASING THE ASSETS WE HAVE OFFERED
16 FOR SALE. BALABANIAN STATED THEY DID NOT WANT
17 OR NEED TO PURCHASE ANY OF OUR PRINTING ASSETS
18 BUT THEY MIGHT WANT PRINTING SERVICES FOR A LONG
19 TRANSITION PERIOD. HE ALSO STATED THAT THEY
20 BELIEVED THAT THE EXAMINER WAS NOT VIABLE ON ITS
21 OWN AND THAT A CASH SUBSIDY WOULD BE REQUIRED
22 FOR THEM TO BE ABLE TO OPERATE THE EXAMINER AS A
23 DAILY NEWSPAPER. HIS PROPOSAL, WHICH HE STATED
24 WAS NEGOTIABLE, WAS THAT HEARST WOULD PAY
25 $35 MILLION A YEAR THROUGH THE END OF THE 816
ASHER - DIRECT / ALIOTO
1 EXISTING TERM OF THE JOA."
2 DO YOU SEE THAT?
3 A. YES, I DO.
4 Q. OKAY. AND THE JOA, AS OF THIS TIME, WOULD HAVE HOW MANY
5 YEARS LEFT?
6 A. APPROXIMATELY SIX YEARS.
7 Q. OKAY. AND SIX YEARS WITH $35 MILLION EACH YEAR WOULD BE
8 APPROXIMATELY 100 -- $210 MILLION?
9 A. YES.
10 Q. OKAY. NOW, YOU -- DID YOU UNDERSTAND AT THAT TIME -- WHEN
11 YOU SAID IN YOUR AFFIDAVIT THAT THE COSTS TO PUBLISH THE
12 EXAMINER CURRENTLY EXCEED THE REVENUES IT CONTRIBUTES TO THE
13 JOA BY MILLIONS OF DOLLARS ANNUALLY, HOW MANY MILLIONS?
14 A. I DON'T RECALL.
15 Q. ONE MILLION, TWO MILLIONS?
16 A. TENS.
17 Q. TENS OF MILLIONS?
18 A. YES.
19 Q. TWENTIES OF MILLIONS? HOW MANY MILLIONS?
20 A. I THINK, IF I COULD REFRESH MY RECOLLECTION FROM A REVIEW
21 OF THE REPORTS, I COULD GIVE YOU A MORE SPECIFIC ANSWER.
22 Q. WELL, ARE WE TALKING IN THE RANGE OF HUNDREDS OF MILLIONS
23 OR TENS OF MILLIONS?
24 A. TENS.
25 Q. TENS OF MILLIONS. 817
ASHER - DIRECT / ALIOTO
1 SO THAT YOU KNEW WHEN YOU RECEIVED THIS OFFER FROM
2 MR. BALABANIAN THAT $35 MILLION OR $210 MILLION FOR THE LIFE OF
3 THE JOA WAS NOT OUT OF LINE; IS THAT RIGHT?
4 A. OUT OF LINE IN WHAT CONTEXT?
5 Q. YOU DID NOT CONSIDER THAT TO BE EXORBITANT.
6 A. YES, I DID.
7 Q. YOU DID. DID YOU TELL HIM?
8 A. I DON'T RECALL IF I COMMUNICATED THAT AT THIS MEETING, BUT
9 I BELIEVE I DID COMMUNICATE IN THE COURSE OF OUR DISCUSSIONS,
10 AND WHETHER IT WAS WITH MR. BALABANIAN OR OTHER REPRESENTATIVES
11 OF PAN ASIA, THAT I FELT THAT A SUBSIDY OF THIS MAGNITUDE WAS
12 EXORBITANT.
13 Q. TURN THE PAGE AND IT GOES TO -- AND IT STATES HERE, BY THE
14 WAY, QUOTE -- I AM CONTINUING READING AFTER THE 35 A YEAR,
15 QUOTE:
16 "THE JOA WOULD BE TERMINATED AT THE CLOSING
17 OF THE SALE AND THE PAYMENT WOULD IN EFFECT BE A
18 NEGATIVE PURCHASE PRICE."
19 DO YOU SEE THAT?
20 A. YES, I DO.
21 Q. NOW, YOU UNDERSTOOD, DID YOU NOT, AFTER YOU WERE PUT IN
22 CHARGE OF SELLING THE EXAMINER -- YOU BELIEVED THAT YOU WOULD
23 HAVE -- THAT YOU WOULD BE INVOLVED IN A NEGATIVE PRICE?
24 A. WHEN -- WHEN IS THIS -- IS YOUR QUESTION ABOUT MY BELIEF?
25 Q. YOU WERE PUT IN CHARGE, WERE YOU NOT, OF ATTEMPTING TO TRY 818
ASHER - DIRECT / ALIOTO
1 TO SELL THE EXAMINER?
2 A. YES, I WAS.
3 Q. ALL RIGHT. AND YOU UNDERSTOOD THAT IN ORDER TO TRY TO DO
4 THAT, YOU WOULD HAVE TO BE INVOLVED IN A NEGATIVE PRICE?
5 A. NOT AT THE TIME THAT I WAS INITIALLY ASSIGNED TO THAT
6 TASK, NO.
7 Q. BUT YOU CAME TO THAT BELIEF, IS THAT IT?
8 A. AS A RESULT OF THE SALES PROCESS, YES.
9 Q. NONETHELESS, EVEN THOUGH IT WAS A NEGATIVE PRICE, YOU
10 THOUGHT THAT IT WAS MORE IMPORTANT TO DO THAT THAN JUST SHUT
11 THE PAPER DOWN, CORRECT?
12 A. IN RELATION TO THIS SPECIFIC PROPOSAL (INDICATING)?
13 Q. NO.
14 A. OR IN RELATION TO THE CURRENT TRANSACTION WITH THE FANG
15 FAMILY?
16 Q. YOU UNDERSTOOD, DID YOU NOT, WHEN YOU WERE PUT IN CHARGE
17 OF DISPOSING OF THE EXAMINER THAT IT WAS BETTER FOR THE HEARST
18 CORPORATION TO TRANSFER THE EXAMINER WITH A NEGATIVE PRICE THAN
19 IT WAS TO -- THAN IT WOULD HAVE BEEN TO JUST SHUT IT DOWN?
20 A. I CAME TO THAT BELIEF AT THE END OF THE SALES PROCESS,
21 YES.
22 Q. ALL RIGHT. NOW, CONTINUING WITH THIS DOCUMENT, WHICH IS
23 EXHIBIT 100. THE NEXT ITEM ON PAGE 2 STATES AS FOLLOWS, QUOTE:
24 "THEY WOULD WANT TO EXPLORE OBTAINING SOME
25 ASSURANCE FROM HEARST THAT IT WOULD NOT ENGAGE 819
ASHER - DIRECT / ALIOTO
1 IN THE BUSINESS OF DISTRIBUTING FREE CIRCULATION
2 NEWSPAPERS."
3 DO YOU SEE THAT?
4 A. YES, I DO.
5 Q. WAS THAT STATEMENT MADE TO YOU?
6 A. I BELIEVE IT WAS.
7 Q. OKAY. AND YOU UNDERSTOOD IT TO MEAN THAT THAT WAS, LIKE,
8 AN INVITATION NOT TO COMPETE FOR THE DISTRIBUTION OF FREE
9 CIRCULATION NEWSPAPERS, CORRECT?
10 A. I AM NOT SURE I HAD THAT SPECIFIC REACTION AT THE TIME.
11 Q. DID YOU TELL THEM YOU WEREN'T GOING TO DO IT?
12 A. I TOLD THEM THAT I THOUGHT THERE COULD BE SOME ISSUES IN
13 DOING IT AND THAT -- BUT I WAS NOT AT THIS MEETING SPECIFICALLY
14 RESPONDING TO THIS PROPOSAL IN ANY WAY.
15 Q. DID YOU INDICATE TO THEM IN THE LEAST BIT THAT YOU
16 INTENDED TO ACTUALLY BE IN THE BUSINESS OR WERE SERIOUSLY
17 CONSIDERING BEING IN THE BUSINESS WITH THE CHRONICLE OF
18 DISTRIBUTING FREE CIRCULATION PAPERS?
19 A. I DON'T RECALL OUR INTENT IN THAT REGARD EVER ARISING IN
20 THIS DISCUSSION.
21 Q. THE NEXT ITEM.
22 DID YOU EVER AGREE TO THAT, BY THE WAY?
23 A. NO, WE DID NOT.
24 Q. THE NEXT ITEM, QUOTE:
25 "ASSUMING WE REACHED AGREEMENT ON ALL 820
ASHER - DIRECT / ALIOTO
1 MATTERS, THE FANGS WOULD USE THEIR EXTENSIVE
2 POLITICAL CONNECTIONS TO ASSIST US IN COMPLETING
3 OUR PURCHASE OF THE CHRONICLE."
4 DO YOU SEE THAT?
5 A. YES, I DO.
6 Q. WAS THAT SAID TO YOU?
7 A. TO THE BEST OF MY RECOLLECTION, YES.
8 Q. WAS THAT A CONSIDERATION AT ALL IN YOUR ULTIMATE AGREEMENT
9 WITH THEM TO SELL THE EXAMINER TO THEM?
10 A. I BELIEVE IT'S FAIR TO SAY IT WAS A CONSIDERATION BUT NOT
11 A VERY SIGNIFICANT ONE.
12 Q. NOW, YOU IN FACT ENTERED INTO AN AGREEMENT, DID YOU NOT,
13 WITH THE -- WHICH WAS -- WITH THE PAN ASIAN GROUP UNDER THE
14 NAME FOR THE PURPOSE OF THE SALE EXIN, FOR THE SALE OF THE
15 EXAMINER?
16 A. EXIN, LLC, I THINK, YES.
17 Q. OKAY. LET ME SHOW YOU EXHIBIT 35.
18 THE COURT: WHEN YOU COME TO A CONVENIENT BREAKING
19 POINT, LET ME KNOW. BUT GO AHEAD.
20 MR. ALIOTO: ALL RIGHT. LET ME JUST DO THIS LAST
21 ONE.
22 THE COURT: THAT'S FINE.
23 MR. ALIOTO: AND THEN I WILL BE FINISHED, JUDGE.
24 SORRY.
25 //// 821
ASHER - DIRECT / ALIOTO
1 BY MR. ALIOTO:
2 Q. LET ME DO THIS: UNDER EXHIBIT-- WELL, EXHIBIT 35 IS THE
3 AGREEMENT BETWEEN YOURSELF AND EXIN -- "YOURSELF" MEANING THE
4 HEARST CORPORATION.
5 NOW, IS IT CORRECT THAT UNDER THE AGREEMENT,
6 TAKING -- LET'S TAKE -- THERE WERE THREE YEARS. THE FIRST
7 YEAR -- IN THE FIRST YEAR YOU WERE TO GIVE A SUBSIDY AFTER FOUR
8 MONTHS OF ABOUT $16 MILLION.
9 A. THAT'S CORRECT.
10 Q. OKAY. SO I AM GOING TO PUT "FIRST YEAR," PUT FIRST ON THE
11 TOP OF THE EASEL. AND THE SUBSIDY WAS GOING TO BE $16 MILLION.
12 IN THE SECOND YEAR THE SUBSIDY WAS GOING TO BE HOW
13 MUCH?
14 A. 25 MILLION.
15 Q. UP TO 25 MILLION?
16 A. UP TO 25 MILLION.
17 Q. AND THE THIRD YEAR THE SUBSIDY WAS GOING TO BE HOW MUCH?
18 A. UP TO 25 MILLION.
19 Q. OKAY. NOW, THEY HAD TO SPEND -- AT LEAST -- THEY HAD TO
20 GO AT LEAST UP TO $15 MILLION, DID THEY NOT?
21 A. NO. THERE WAS NO REQUIREMENT TO SPEND ANY SPECIFIC AMOUNT
22 OF MONEY.
23 Q. CORRECT.
24 AND THAT MEANS --
25 A. THANK YOU. 822
ASHER - DIRECT / ALIOTO
1 Q. -- THAT THERE WAS REALLY NO REQUIREMENT FROM ANY OF THIS
2 FOR THEM TO DO ANYTHING IF THEY DIDN'T WANT TO DO IT?
3 A. I DON'T THINK THAT'S A FAIR CHARACTERIZATION OF THE
4 AGREEMENT.
5 Q. THAT'S THE $100. THAT WAS THE $100?
6 A. OH, NO. I AM REFERRING TO OTHER PROVISIONS.
7 Q. OKAY. NOW, IF THEY ONLY SPENT $15 MILLION -- LET'S TAKE
8 THE SECOND AND THIRD YEAR. IF THEY ONLY SPENT $15 MILLION THE
9 SECOND YEAR AND THE THIRD YEAR -- IF THAT'S ALL THEY SPENT ON
10 THE NEWSPAPER, THEN THEY WOULD BE ABLE TO GET HALF OF THE
11 DIFFERENCE LESS THE 25; IS THAT RIGHT?
12 A. THAT'S CORRECT.
13 Q. SO THAT THE DIFFERENCE HERE WOULD BE $10 AND THE
14 DIFFERENCE -- 10 MILLION. AND THE DIFFERENCE HERE WOULD BE
15 10 MILLION.
16 IF THEY ONLY SPENT 15, THEY COULD HAVE $5 MILLION,
17 HALF OF THIS -- WITH NO STRINGS; IS THAT RIGHT?
18 A. THAT'S CORRECT.
19 Q. SO THEN IF YOU PAID THEM IN ANY OF THOSE YEARS $20 MILLION
20 AND THEY ONLY SPENT 15 ON THE PAPER, THEY COULD TAKE FIVE
21 MILLION AND JUST SIMPLY PUT IT IN THEIR POCKET, RIGHT?
22 A. THAT'S CORRECT.
23 Q. AND THE IDEA HERE WAS TO INCENTIVIZE THEM TO SPEND AS LESS
24 ON THE PAPER AS THEY CAN IN ORDER TO BE ABLE TO GET MORE CASH
25 TO THEM DIRECTLY; ISN'T THAT RIGHT? 823
ASHER - DIRECT / ALIOTO
1 A. NO.
2 Q. THIS $5 MILLION, THERE ARE NO EXPENSES OR COSTS OR
3 ANYTHING CONNECTED TO IT. IT GOES TO THE BOTTOM LINE, DOESN'T
4 IT?
5 A. I AM NOT SURE WHAT YOU MEAN BY "THE BOTTOM LINE." BUT
6 THERE ARE NO STRINGS ATTACHED TO IT, THAT'S CORRECT.
7 Q. OKAY. NOW, IF THEY SPENT MORE MONEY ON THE PAPER --
8 SUPPOSE THEY SPENT 25, UP TO THE 25 -- THEY WOULD GET
9 PERSONALLY NOTHING; ISN'T THAT RIGHT?
10 A. NOT CORRECT.
11 Q. THEY WOULD NOT GET ANYTHING -- IF THEY SPENT UP TO THE
12 25 MILLION, THEY WOULD HAVE NOTHING LEFT OUT OF THE 25 MILLION
13 AND YOU WERE GOING TO REIMBURSE THEM UP TO THAT AMOUNT?
14 A. THAT'S A DIFFERENT QUESTION, THAT'S CORRECT. IF THEY
15 SPENT ALL OF THE REIMBURSABLE AMOUNT OF 25, THERE WOULD BE NO
16 EXCESS LEFT OVER FROM THAT.
17 Q. SO IT IS CORRECT, THEN, IS IT NOT, THAT THE LESS THEY
18 SPEND ON THE PAPER THE MORE THEY PERSONALLY MAKE?
19 A. NOT NECESSARILY.
20 THE COURT: VERY WELL. WE WILL RESUME TOMORROW AT
21 8:30 WITH FURTHER EXAMINATION OF MR. ASHER, AND I WILL LOOK
22 FORWARD TO SEEING COUNSEL AT THAT TIME. THANK YOU.
23 MR. SHULMAN: YOUR HONOR, COULD -- DOES YOUR HONOR
24 INTEND TO HOLD COURT ON MONDAY?
25 THE COURT: NO. 824
ASHER - DIRECT / ALIOTO
1 MR. SHULMAN: OKAY.
2 THE COURT: I DO NOT. I THOUGHT WE HAD DISCUSSED
3 THAT.
4 MR. SHULMAN: OKAY.
5 THE COURT: PERHAPS THAT WAS NOT CLEAR. NO, I AM
6 NOT ABLE TO BE IN COURT ON MONDAY.
7 MR. SHULMAN: I JUST WANTED TO CONFIRM THAT FOR MY
8 OWN PLANS.
9 THE COURT: I HAVE OTHER COMMITMENTS.
10 MR. HOCKETT: YOUR HONOR, WITH RESPECT TO --
11 THE COURT: SO AFTER TOMORROW WE WILL RESUME AT
12 8:30.
13 MR. HOCKETT: YOUR HONOR, WITH RESPECT TO THE
14 SCHEDULE ON TUESDAY AND THURSDAY OF NEXT WEEK, WILL THOSE BE
15 HALF DAYS, AS WELL?
16 THE COURT: CORRECT.
17 MR. HOCKETT: THANK YOU.
18 (PROCEEDINGS ADJOURNED FOR THE DAY AT 12:30 P.M.)
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