Daily Court Transcripts
May 09, 2000
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VOLUME 6
PAGES 1083 - 1260
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
BEFORE THE HONORABLE VAUGHN R. WALKER, JUDGE
CLINTON REILLY, )
)
PLAINTIFF, )
)
VS. ) NO. C 00-0119 VRW
)
THE HEARST CORPORATION, )
ET AL., )
)
DEFENDANTS. )
____________________________)
SAN FRANCISCO, CALIFORNIA
TUESDAY, MAY 9, 2000
TRANSCRIPT OF PROCEEDINGS
APPEARANCES:
FOR PLAINTIFF: JOSEPH M. ALIOTO LAW FIRM
ONE EMBARCADERO CENTER, SUITE 4000
SAN FRANCISCO, CALIFORNIA 94111
BY: JOSEPH M. ALIOTO
ANGELINA ALIOTO-GRACE
ATTORNEY AT LAW
SHULMAN, WALCOTT & SHULMAN, P.A.
121 WEST FRANKLIN AVENUE
MINNEAPOLIS, MINNESOTA 55404
BY: DANIEL R. SHULMAN
JAMES HILBERT
ATTORNEYS AT LAW
(APPEARANCES CONTINUED ON FOLLOWING PAGE)
REPORTED BY: JO ANN BRYCE, CSR, RMR, CRR, FCRR
JUDITH N. THOMSEN, CSR, RMR, FCRR
OFFICIAL REPORTERS, USDC
COMPUTERIZED TRANSCRIPTION BY ECLIPSE
1084
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 THOMAS S. HIXSON
ATTORNEYS AT LAW
17
18
19
20
21
22
23
24
25
1085
1 I N D E X
2
PLAINTIFF'S WITNESSES PAGE VOL.
3
INGRAM, LAWRENCE L.
4 DIRECT EXAMINATION BY MR. SHULMAN 1091 6
CROSS-EXAMINATION BY MR. HOCKETT 1111 6
5 CROSS-EXAMINATION BY MR. LINDSTROM 1121 6
CROSS-EXAMINATION BY MR. HALLING 1151 6
6
SCHMIDT, JOHN SCOTT
7 DIRECT EXAMINATION BY MR. SHULMAN 1160 6
CROSS-EXAMINATION BY MR. HOCKETT 1177 6
8 CROSS-EXAMINATION BY MR. LINDSTROM 1186 6
CROSS-EXAMINATION BY MR. HALLING 1190 6
9 REDIRECT EXAMINATION BY MR. SHULMAN 1192 6
RECROSS-EXAMINATION BY MR. HOCKETT 1194 6
10
FLOOD, FRANK
11 DIRECT EXAMINATION BY MR. SHULMAN 1198 6
CROSS-EXAMINATION BY MR. HUSTON 1223 6
12 CROSS-EXAMINATION BY MR. HOCKETT 1227 6
REDIRECT EXAMINATION BY MR. SHULMAN 1235 6
13
WEAVER, MICHAEL ROGER
14 DIRECT EXAMINATION BY MR. SHULMAN 1238 6
15
E X H I B I T S
16
17 PLAINTIFF'S EXHIBITS W/DRAWN IDEN EVID VOL.
18 60 1240 6
349 1162 6
19
DEFENDANTS' EXHIBITS W/DRAWN IDEN EVID VOL.
20
E-88 1153 6
21
22
23
24
25
1086
1 TUESDAY - MAY 9, 2000 8:40 A.M.
2
3 THE CLERK: CALLING CIVIL 2000-119, CLINTON REILLY
4 VERSUS HEARST CORPORATION, ET AL.
5 COUNSEL, PLEASE STATE YOUR APPEARANCES.
6 MR. HALLING: GARY HALLING FOR THE HEARST
7 CORPORATION.
8 MR. LINDSTROM: GREG LINDSTROM, YOUR HONOR, FOR
9 CHRONICLE PUBLISHING.
10 MR. HOCKETT: CHRISTOPHER HOCKETT FOR INTERVENOR
11 EXIN LLC.
12 MR. SHULMAN: DAN SHULMAN FOR THE PLAINTIFF.
13 THE COURT: ALL RIGHT. GOOD MORNING, COUNSEL.
14 WE'RE READY, I GATHER, FOR CONTINUED TESTIMONY OF MR. INGRAM.
15 MR. SHULMAN: CORRECT, YOUR HONOR.
16 THE COURT: AND HE'S HERE READY TO GO, I ASSUME.
17 MR. SHULMAN: YES, HE IS.
18 THE COURT: BEFORE HE COMES TO THE STAND, LET ME
19 TAKE UP A COUPLE MATTERS WITH COUNSEL.
20 IN REVIEWING THE LEGAL LANDSCAPE WE HAVE, OF COURSE,
21 THE DEPARTMENT OF JUSTICE PRESS RELEASES IN THE ST. LOUIS CASE,
22 IN THE FRANKLIN, PENNSYLVANIA, CASE IN 1985 AND, OF COURSE, WE
23 HAVE THE PRESS RELEASE IN THIS CASE.
24 ARE THERE ANY OTHER PRESS RELEASES OR EXPRESSIONS
25 FROM THE DEPARTMENT OF JUSTICE ON THIS SUBJECT?
1087
1 NOW, IN SOME OF THE MATERIALS THAT HAVE BEEN
2 SUBMITTED, THERE WAS REFERENCE TO AN AMICUS BRIEF THAT THE
3 DEPARTMENT FILED IN THE HAWAII CASE. MY UNDERSTANDING OF THE
4 STATUS OF THAT CASE IS THAT THE NINTH CIRCUIT UPHELD THE
5 PRELIMINARY INJUNCTION, AND THE MATTER THEREFORE RETURNED TO
6 THE TRIAL COURT FOR FINAL JUDGMENT --
7 MR. ALIOTO: FOR TRIAL.
8 THE COURT: -- FOR TRIAL, AND THERE ARE NO FURTHER
9 PROCEEDINGS IN THE NINTH CIRCUIT AT THIS TIME. IF THAT IS
10 INCORRECT, I HOPE SOMEONE WILL CORRECT ME, BUT I ASSUME THAT'S
11 THE CASE.
12 QUERY: DID THE DEPARTMENT FILE AN AMICUS BRIEF IN
13 THE NINTH CIRCUIT OR IN THE DISTRICT COURT?
14 MR. SHULMAN: NINTH CIRCUIT, I BELIEVE.
15 MR. ALIOTO: NINTH CIRCUIT.
16 MR. SHULMAN: WE CAN PROVIDE A COPY OF THAT TO YOUR
17 HONOR.
18 THE COURT: VERY WELL. I APPRECIATE IT.
19 IS THERE ANY OTHER GUIDANCE THAT THE DEPARTMENT HAS
20 AFFORDED OTHER THAN THE ITEMS THAT I'VE MENTIONED?
21 MR. CONNELL: YOUR HONOR, I MAY BE THE PERSON BEST
22 SITUATED TO ANSWER THAT. THERE ARE NO OTHER PUBLIC STATEMENTS
23 BY THE DEPARTMENT WITH RESPECT TO TERMINATION OF OTHER JOA'S.
24 THEY NEVER ISSUED ANY.
25 THE COURT: ALL RIGHT. SO WE HAVE ONLY THE ST.
1088
1 LOUIS PRESS RELEASE --
2 MR. CONNELL: FRANKLIN.
3 THE COURT: -- THE FRANKLIN, PENNSYLVANIA, PRESS
4 RELEASE, THIS PRESS RELEASE WITH ALL THE LIGHT IT CASTS, AND
5 WHAT THE DEPARTMENT HAS SUBMITTED IN ITS AMICUS BRIEF IN THE
6 HAWAII CASE; IS THAT CORRECT?
7 MR. CONNELL: THAT'S CORRECT, YOUR HONOR, AS FAR AS
8 SPECIFIC JOA TERMINATIONS ARE CONCERNED. I TAKE IT THAT'S THE
9 QUESTION.
10 THE COURT: THAT IS THE QUESTION.
11 MR. CONNELL: YOUR HONOR, MAY I SAY THAT WE CAN PUT
12 IN, THROUGH -- DURING THE TESTIMONY OF DR. ROSSE A COMPLETE
13 LIST OF THE JOA'S AND WHEN THEY ENDED AND SO FORTH, AND THAT
14 MAY BE HELPFUL TO THE COURT.
15 THE COURT: ALL RIGHT. THAT WILL BE FINE.
16 MR. HALLING: YOUR HONOR, JUST ONE SMALL
17 CLARIFICATION. WHEN THE HAWAII CASE WENT BACK TO THE DISTRICT
18 COURT, THE PROCEEDINGS THERE HAVE CURRENTLY BEEN SUSPENDED
19 BECAUSE OF A STIPULATION AND ORDER FROM THAT COURT THAT
20 PROVIDED FOR A SALES EFFORT CONCERNING THE JUNIOR PAPER, AND
21 THAT ORDER SAYS THE SALES EFFORT WILL BE OUTSIDE THE JOA AND
22 WITHOUT A SUBSIDY; AND THEN IT COMES BACK TO THE DISTRICT
23 COURT, ACCORDING TO THE ORDER, FOR REVIEW IF THERE IS A BUYER.
24 THE COURT: WHAT'S THE TIME PERIOD ON THAT EFFORT?
25 MR. CONNELL: I BELIEVE IT'S FOUR MONTHS.
1089
1 THE COURT: AND THAT FOUR-MONTH PERIOD BEGAN WHEN?
2 MR. HALLING: WITHIN THE LAST COUPLE OF WEEKS.
3 THE COURT: AH, SO IT'S BASICALLY JUST STARTED;
4 CORRECT?
5 MR. HALLING: YES.
6 THE COURT: ALL RIGHT. NOW, I DON'T WANT AN ANSWER
7 TO THIS QUESTION AT THE MOMENT, AND THE REASON I'M ASKING IT IS
8 FOR YOU TO BEGIN THINKING ABOUT IT AND BEGIN THINKING WHEN YOU
9 MAY PROVIDE SOME GUIDANCE. WE STILL HAVE A CASE TO TRY AND I
10 UNDERSTAND WHAT IT'S LIKE WHEN YOU'RE IN TRIAL. YOU DON'T HAVE
11 A LOT OF TIME TO GO TO THE LIBRARY AND DO LEGAL RESEARCH WHEN
12 YOU'RE IN THE MIDST OF TRIAL, BUT I WOULD LIKE YOU TO BE
13 THINKING ABOUT THIS QUESTION AND TO GIVE ME SUCH GUIDANCE AS
14 YOU CAN AS TO WHEN YOU MAY BE IN A POSITION TO RESPOND.
15 THE PARTIES, THE DEFENDANT PARTIES, TWO OF THE
16 DEFENDANT PARTIES, HEARST AND THE CHRONICLE, HAVE BEEN
17 OPERATING FOR 35 YEARS UNDER AN EXEMPTION AFFORDED BY THE
18 NEWSPAPER PRESERVATION ACT OR THE GLOSS ON THE ANTITRUST
19 STATUTES.
20 IF THE CONDITIONS FOR THAT EXEMPTION NO LONGER
21 APPLY, WHAT IS THE REMEDY? IS THIS -- AND THIS IS SIMPLY A
22 FURTHER INQUIRY ALONG THAT LINE, IS THE REMEDY THE REMEDY THAT
23 TYPICALLY OBTAINS IN A SITUATION IN WHICH THERE HAS BEEN A
24 MERGER WHICH IS SUBSEQUENTLY FOUND TO VIOLATE SECTION 7 AND THE
25 COURT TYPICALLY IN THAT CASE, I BELIEVE, YOU MAY VERY WELL
1090
1 DISABUSE ME OF THIS IDEA IF IT IS INCORRECT, BUT THE COURT
2 TYPICALLY IN THAT SITUATION ORDERS AN ORDERLY BUT PROMPT
3 SEGREGATION OF THE MERGED ASSETS? IS THAT THE REMEDY WHICH
4 SHOULD APPLY IN THIS SITUATION IF THE EXEMPTION DOES NOT APPLY
5 HERE?
6 ALL RIGHT. AS I SAY, I DON'T WANT AN ANSWER AT THE
7 MOMENT. I DON'T EVEN WANT YOU TO TELL ME AT THE MOMENT WHEN
8 YOU'RE GOING TO BE IN A POSITION TO PROVIDE THAT ANSWER, BUT BE
9 THINKING ABOUT IT. THIS IS SOMETHING THAT WE'LL DISCUSS LATER.
10 ALL RIGHT. READY WITH MR. INGRAM?
11 MR. SHULMAN: YES, YOUR HONOR.
12 LAWRENCE L. INGRAM,
13 CALLED AS A WITNESS FOR THE PLAINTIFF, HAVING BEEN PREVIOUSLY
14 DULY SWORN, TESTIFIED FURTHER AS FOLLOWS:
15 THE COURT: MR. INGRAM, YOU UNDERSTAND THAT YOU'RE
16 STILL UNDER THE OATH THAT YOU TOOK WHEN YOU TESTIFIED HERE LAST
17 FRIDAY?
18 THE WITNESS: YES, I DO.
19 THE COURT: VERY WELL. MR. SHULMAN, YOU MAY
20 PROCEED.
21 MR. SHULMAN: THANK YOU. MAY IT PLEASE THE COURT.
22 DO WE HAVE EXHIBIT 23 ON THE....
23
24
25
1091
INGRAM - DIRECT \ SHULMAN
1 DIRECT EXAMINATION (RESUMED)
2 BY MR. SHULMAN:
3 Q. WHEN WE BROKE ON FRIDAY, I WAS ASKING YOU QUESTIONS ABOUT
4 WHAT YOU HAD DESCRIBED AS YOUR 22-MONTH PHASE-IN PLAN THAT YOU
5 HAD WORKED OUT FOR MR. REILLY. DO YOU RECALL THAT?
6 A. YES, I DO.
7 Q. AND WE HAD GOT TO THE STAGE OF THAT WHERE YOU WERE TALKING
8 ABOUT THE PLAN TO ESTABLISH A NEW PRINTING FACILITY FOR
9 MR. REILLY. DO YOU REMEMBER THAT?
10 A. YES.
11 Q. AND YOU HAD MENTIONED THAT PART OF THE PLAN WAS TO TRY TO
12 OBTAIN THE PRESENT EXAMINER BUILDING AND REINSTALL IN THAT
13 BUILDING A PRINTING PLANT THAT HAD PREVIOUSLY BEEN THERE. DO
14 YOU REMEMBER THAT?
15 A. THAT'S RIGHT.
16 Q. OKAY. DID YOU HAVE ANYTHING TO DO WITH THE CREATION OF
17 THAT PRINTING PLANT IN THE EXAMINER BUILDING ORIGINALLY?
18 A. YES. IN I THINK IT WAS ABOUT --
19 Q. AND WOULD YOU EXPLAIN WHAT YOUR ROLE WAS IN THE CREATION
20 OF THAT PRINTING PLANT ORIGINALLY?
21 A. OUR COMPANY HAD THE ASSIGNMENT TO DESIGN AND BUILD THAT
22 PARTICULAR PLANT, THE EXTENSION OF THE PLANT WHICH WAS THE
23 EXAMINER SIDE.
24 Q. OKAY. AND WERE YOU PERSONALLY INVOLVED IN THAT?
25 A. YES.
1092
INGRAM - DIRECT \ SHULMAN
1 Q. AND YOU MENTIONED THAT AT SOME POINT IN TIME THE PRINTING
2 PLANT HAD BEEN REMOVED FROM THE EXAMINER BUILDING. DO YOU
3 RECALL THAT?
4 A. YES.
5 Q. DID YOU HAVE ANYTHING TO DO WITH THE REMOVAL OF THAT
6 PRINTING PLANT FROM THE EXAMINER BUILDING?
7 A. YES.
8 Q. AND WHAT DID YOU HAVE TO DO WITH THAT?
9 A. THAT WAS AS AN EMPLOYEE OF THE AGENCY, I WAS RESPONSIBLE
10 FOR BUILDING THE TWO SATELLITE PLANTS AND UPGRADING THE UNION
11 CITY PLANT AND DECOMMISSIONING THE PRINTING PLANT THERE ON
12 FIFTH AND MISSION.
13 Q. OKAY. SO YOU WERE PERSONALLY INVOLVED IN THAT?
14 A. YES.
15 Q. NOW, THE NEWSPAPER AGENCY TODAY HAS THREE PLANTS; CORRECT?
16 A. THAT'S RIGHT.
17 Q. YOU'RE FAMILIAR WITH THOSE PLANTS?
18 A. YES, I AM.
19 Q. DID YOU HAVE ANYTHING TO DO WITH REGARD TO THE
20 CONSTRUCTION OF ANY OF THOSE PLANTS?
21 A. YES.
22 Q. WOULD YOU -- WELL, WHAT ARE THE THREE PLANTS?
23 A. THE PLANT KNOWN AS THE ARMY STREET PLANT DOWN ON 280 AND
24 ARMY STREET, THE RICHMOND PLANT WHICH IS THE NORTH PLANT UP IN
25 RICHMOND, ARE THE TWO SATELLITES THAT I BUILT.
1093
INGRAM - DIRECT \ SHULMAN
1 Q. OKAY. YOU BUILT EACH OF THOSE TWO PRINTING PLANTS,
2 RICHMOND AND ARMY STREET?
3 A. YES. THAT'S RIGHT.
4 Q. OKAY. AND WHAT IS THE THIRD PLANT?
5 A. IT IS THE UNION CITY PLANT IN UNION CITY.
6 Q. AND WHAT, IF ANYTHING, DID YOU HAVE TO DO WITH THE
7 CONSTRUCTION OF THAT PLANT?
8 A. I DIDN'T HAVE ANYTHING TO DO WITH THE CONSTRUCTION. I
9 REMOVED THE PRESS EQUIPMENT AND REINSTALLED REBUILT EQUIPMENT
10 AT THE SAME -- AT ABOUT THE SAME TIME THAT WE BUILT SATELLITES.
11 Q. OKAY. AND YOU ALSO MENTIONED THAT OVER THE YEARS YOU'VE
12 BUILT A NUMBER OF NEWSPAPER PRINTING PLANTS.
13 A. OUR COMPANY WAS RESPONSIBLE FOR BUILDING A LOT OF
14 NEWSPAPER PLANTS AND MAJOR ADDITIONS ON NEWSPAPER PLANTS.
15 Q. OKAY. AND YOU PERSONALLY HAVE BEEN INVOLVED IN BUILDING
16 PLANTS; CORRECT?
17 A. THAT'S RIGHT.
18 Q. YOU MENTIONED THE PAPER IN DETROIT; RIGHT?
19 A. DETROIT NEWS.
20 Q. CAN YOU JUST GIVE US SOME EXAMPLES OF SOME OF THE OTHER
21 PLANTS YOU'VE BUILT? JUST NAME THE NEWSPAPERS AND THEIR
22 CIRCULATION, PLEASE.
23 A. I'LL GUESS ON THE CIRCULATIONS. THE DALLAS MORNING NEWS,
24 WHICH AT THAT TIME I THINK WAS AROUND 400,000. THE -- I CAN'T
25 THINK THE NAME OF IT, THE OTHER DALLAS PAPER WHICH HAD A
1094
INGRAM - DIRECT \ SHULMAN
1 CIRCULATION OF ABOUT 250,000.
2 THE COURT: THE TIMES HERALD?
3 THE WITNESS: THE TIMES HERALD, THANK YOU.
4 SAN MATEO TIMES WHICH PROBABLY WAS AROUND 70,000 AT
5 THE TIME WE BUILT THAT PLANT.
6 IT'S BEEN A WHILE, BUT I DID THE ANCHORAGE TIMES. I
7 DID THE VANCOUVER, WASHINGTON; CHEYENNE, WYOMING; AND ALL OF
8 THOSE PAPERS HAD CIRCULATIONS OF AROUND 50 TO 60,000. THEY
9 WERE SMALL PAPERS.
10 THE HOUSTON POST, WHICH WAS PROBABLY 300,000 AT THAT
11 TIME. THE VISALIA, CALIFORNIA, I REALLY DON'T KNOW WHAT THE
12 CIRCULATION WAS THEN; CHILLICOTHE, OHIO, IT'S AROUND 60,000;
13 POUGHKEEPSIE, NEW YORK, WHICH I THINK WAS AROUND 90,000.
14 THERE WERE A NUMBER OF OTHERS, BUT I'M NOT RECALLING
15 THEM.
16 BY MR. SHULMAN:
17 Q. ALL RIGHT. NOW, THE PAPER THAT YOU WERE CONSULTING WITH
18 MR. REILLY ABOUT IF HE WERE SUCCESSFUL IN OBTAINING THE
19 EXAMINER, CAN YOU DESCRIBE THE PHYSICAL CHARACTERISTICS OF THAT
20 PAPER IN TERMS OF PAGES, COLOR AND LIKE THAT?
21 A. THE PAPER THAT WE ENVISIONED, IN ORDER TO NOT BE
22 DISADVANTAGED COMPETITIVELY WITH THE CHRONICLE PHYSICALLY, WE
23 FELT THAT YOU NEEDED A PAPER THAT COULD -- HAD TO CARRY UP TO
24 EIGHT SECTIONS IN ORDER TO EFFECTIVELY DIFFERENTIATE BETWEEN
25 THE NEWS, SPORTS, BUSINESS, ET CETERA.
1095
INGRAM - DIRECT \ SHULMAN
1 IT SHOULD CARRY THE SAME AMOUNT OF COLOR THAT THE
2 CHRONICLE CAN PRODUCE RIGHT NOW, WHICH IS ESSENTIALLY FRONT AND
3 BACK COLOR ON TWO TO FOUR SECTIONS.
4 IT NEEDS A PAGE CAPACITY OF ANYWHERE FROM 64 TO 96
5 PAGES, AND WOULD HAVE TO BE PRODUCED IN A WINDOW THAT WOULD
6 ALLOW THE EDITORIAL TO CLOSE ABOUT MIDNIGHT AND BE OUT TO PRESS
7 BY ABOUT 4:00 O'CLOCK.
8 Q. SO THAT'S EIGHT SECTIONS, FOUR COLORS, 64 TO 96 PAGES?
9 A. THAT'S RIGHT.
10 Q. NOW, I HAD ASKED YOU IF YOU HAD ANY FAMILIARITY WITH THE
11 PRINTING CAPACITY OR THE EQUIPMENT AT THE INDEPENDENT, THE
12 FANGS' NEWSPAPER. DO YOU RECALL THAT?
13 A. YES.
14 Q. HAVE YOU READ THE DEPOSITION TESTIMONY OF MR. FANG
15 CONCERNING THE PRINTING CAPACITY THAT HE HAS?
16 A. YES.
17 Q. OKAY. IN YOUR --
18 MR. HOCKETT: I OBJECT TO THIS LINE OF QUESTIONS IN
19 THAT THIS WITNESS TESTIFIED THAT HE HAD NOT REVIEWED ANY OF
20 THAT. THIS IS A NEW BASIS FOR HIS OPINIONS, AND WE HAVE MADE A
21 MOTION, WHICH WAS -- WHICH THE COURT SAID IT WOULD FAVORABLY
22 ENTERTAIN WHEN THE SITUATION AROSE, THAT NO --
23 THE COURT: MR. HOCKETT, NO SPEAKING OBJECTIONS.
24 WHAT'S YOUR OBJECTION?
25 MR. HOCKETT: MY OBJECTION IS, YOUR HONOR, THAT THIS
1096
INGRAM - DIRECT \ SHULMAN
1 WITNESS HAS NOT DISCLOSED --
2 THE COURT: NO SPEAKING OBJECTIONS, MR. HOCKETT.
3 WHAT'S YOUR OBJECTION?
4 MR. HOCKETT: I'M SORRY, YOUR HONOR. I'M JUST
5 REFERRING TO THE MOTION THAT I MADE BEFORE, WHICH IS THAT THE
6 WITNESSES WOULD NOT TESTIFY TO MATTERS NOT DISCLOSED IN THEIR
7 DECLARATIONS OR DEPOSITIONS.
8 THE COURT: OBJECTION OVERRULED. WHEN YOU STATE A
9 PROPER OBJECTION, I'LL RULE ON IT.
10 PROCEED.
11 MR. SHULMAN: OKAY.
12 Q. YOU HAVE READ MR. FANG'S TESTIMONY ABOUT HIS EQUIPMENT?
13 A. YES.
14 Q. OKAY. DO YOU HAVE AN OPINION ABOUT WHETHER, WITH THAT
15 EQUIPMENT, MR. FANG WOULD BE ABLE TO PRODUCE A NEWSPAPER OF THE
16 TYPE YOU'VE DESCRIBED?
17 MR. HOCKETT: OBJECTION, YOUR HONOR.
18 MR. HALLING: OBJECTION.
19 MR. HOCKETT: IT'S BEYOND THE SCOPE.
20 MR. HALLING: BEYOND THE SCOPE OF THE DESIGNATION.
21 THE COURT: WAS THIS WITNESS DESIGNATED FOR THIS
22 TESTIMONY?
23 MR. SHULMAN: HE HAS A DECLARATION, YOUR HONOR. HE
24 HAS -- THERE ARE DOCUMENTS HE PROVIDED WHERE HE DESCRIBED
25 WHAT --
1097
INGRAM - DIRECT \ SHULMAN
1 THE COURT: WHERE IS HIS WITNESS STATEMENT?
2 MR. SHULMAN: AND HIS DEPOSITION WAS ALSO TAKEN AT
3 SOME LENGTH.
4 THE COURT: ALL RIGHT.
5 MR. SHULMAN: IT'S EXHIBIT 57. WELL, HIS
6 DECLARATION IS EXHIBIT 57.
7 (PAUSE IN PROCEEDINGS.)
8 THE COURT: HIS DECLARATION IS 57.
9 MR. SHULMAN: RIGHT.
10 THE COURT: AND THIS IS IN LIEU OF HIS WITNESS
11 STATEMENT?
12 MR. SHULMAN: RIGHT, PLUS HIS DEPOSITION, YOUR
13 HONOR. HE WAS DEPOSED WAS IT TWO DAYS OR ONE?
14 MR. HILBERT: ONE.
15 MR. SHULMAN: ONE, ONE-DAY DEPOSITION.
16 THE COURT: OBJECTION OVERRULED. YOU MAY PROCEED.
17 BY MR. SHULMAN:
18 Q. DO YOU HAVE AN OPINION ABOUT WHETHER MR. FANG CAN PRODUCE
19 A PAPER OF THE TYPE YOU DESCRIBE WITH THE EQUIPMENT THAT HE
20 HAS? YOU CAN ANSWER THAT YES OR NO.
21 A. YES, I HAVE AN OPINION.
22 Q. AND WHAT IS YOUR OPINION?
23 A. THAT HE CAN'T PRODUCE THAT PRODUCT ON THE PRESS EQUIPMENT
24 THAT HE HAS.
25 Q. HE CANNOT?
1098
INGRAM - DIRECT \ SHULMAN
1 A. CANNOT.
2 Q. AND WOULD YOU EXPLAIN THE BASIS FOR YOUR OPINION, PLEASE.
3 A. THE PRESS EQUIPMENT THAT HE HAS IS COST COMMUNITY PRESS,
4 WHICH IS A SINGLE-WIDTH PRESS. IF ONE PLAYED AROUND, THAT
5 PRESS CAN PRODUCE TWO SECTIONS MAXIMUM. IT CAN RUN UP TO 40
6 PAGES, AND THAT'S IN HIS DEPOSITION, AND, AS I UNDERSTAND, IT
7 CAN PRINT -- IT HAS TWO WEBS OF COLOR, SO IT CAN PRINT FOUR
8 PAGES OF COLOR. IT COULD NOT BEGIN TO PRINT ANY -- ANYTHING
9 BEYOND THE 40 PAGES.
10 AND THE TIME THAT IT WOULD REQUIRE TO PRINT THAT
11 WOULD WELL EXCEED THE WINDOW THAT WOULD BE -- THAT WOULD ALLOW
12 IT TO BE COMPETITIVE AND CARRY AS LATE OF NEWS AS THE CHRONICLE
13 WOULD HAVE.
14 Q. NOW, HAVE I COVERED WITH YOU IN YOUR TRANSITION PLAN WHAT
15 WOULD BE THE -- WHAT WOULD BE NEEDED IN ORDER TO SET UP WHAT
16 YOU'VE DESCRIBED AS THE NECESSARY FACILITIES TO PRINT THE
17 EXAMINER?
18 A. ARE YOU REFERRING TO OUR PLAN?
19 Q. RIGHT, YOUR PLAN.
20 A. I BELIEVE WE HAVE. I CAN GO OVER IT ONCE MORE IF YOU'D
21 LIKE.
22 Q. YOU DON'T NEED TO DO THAT.
23 A. ALL RIGHT.
24 Q. ALL RIGHT. IN ADDITION TO -- NOW, WE'VE GONE OVER THE
25 RENEGOTIATING THE LABOR CONTRACTS, SELLING THE ADS AND THE
1099
INGRAM - DIRECT \ SHULMAN
1 PRINTING. WHAT OTHER ASPECTS, IF ANY, ARE THERE TO THE
2 TRANSITION PROGRAM, THE 22-MONTH PHASE-IN, THAT YOU PROPOSED
3 FOR MR. REILLY?
4 A. FOLLOWING THE RENEGOTIATION OF THE CONTRACT, THEN WE HAD
5 ASSUMED THERE WOULD BE PROBABLY A MONTH OF TRANSFER OF
6 OWNERSHIP; AND AT THAT TIME, MR. REILLY WOULD BEGIN THE PROCESS
7 OF ASSEMBLING THE EDITORIAL STAFF, HUMAN RESOURCES, FINANCE,
8 ALL OF THE SUPPORT STAFFS FOR THE PAPER SO THAT HE COULD TAKE
9 OVER THAT FUNCTION.
10 WE FELT THAT WOULD TAKE ABOUT FOUR MONTHS TO DEVELOP
11 THAT; AND AT THAT POINT HE WOULD BE -- HE WOULD THEN TAKE OVER
12 THE BUSINESS FUNCTIONS, EDITORIAL FUNCTIONS, OF THE PAPER.
13 Q. NOW, HOW LONG WOULD, IN YOUR VIEW, WOULD IT TAKE TO
14 ESTABLISH THE PRINTING PLANT THAT YOU BELIEVE WOULD BE
15 NECESSARY?
16 A. ANYWHERE FROM 12 TO 18 MONTHS DEPENDING ON AVAILABILITY OF
17 PRESS EQUIPMENT.
18 Q. OKAY. ALL RIGHT. WHAT ELSE IS THERE, THEN, BESIDES
19 THE -- WHAT ELSE IS THERE IN THE TRANSITION PACKAGE?
20 A. BUILDING THE CIRCULATION, SALES AND DISTRIBUTION STAFF.
21 AND I'VE GOT TO BACK UP AND SAY WE FELT IT'S EXTREMELY
22 IMPORTANT TO HAVE THIS TRANSITION BE AS SEAMLESS AS POSSIBLE
23 BECAUSE THE CIRCULATION IS FRAGILE. WE FELT HE NEEDED TO MAKE
24 THIS MOVE SMOOTHLY.
25 THE DEVELOPMENT OF THE CIRCULATION STAFF WE FELT
1100
INGRAM - DIRECT \ SHULMAN
1 WOULD TAKE ABOUT FOUR MONTHS, FOLLOWED BY THEN ASSEMBLING THE
2 ADVERTISING STAFF AND WORKING WITH THE EXISTING ACCOUNTS SO
3 THAT THERE WAS A TRANSFER OF THAT BUSINESS INTO THE NEW
4 BUSINESS. AND WE FELT THAT WOULD TAKE ABOUT SIX MONTHS.
5 Q. OKAY. AND SO ALL OF THAT TAKES US -- WOULD TAKE YOU OUT
6 TO 22 MONTHS?
7 A. THAT'S RIGHT.
8 Q. NOW, ARE YOU AWARE THAT THE AGREEMENT BETWEEN HEARST AND
9 THE FANGS PROVIDES FOR A FOUR-MONTH TRANSITIONAL PERIOD?
10 A. YES.
11 Q. IN YOUR -- DO YOU HAVE AN OPINION ABOUT WHETHER THAT IS A
12 SUFFICIENTLY LONG TRANSITION PERIOD IN ORDER TO PRODUCE A PAPER
13 THAT IS COMPETITIVE WITH THE CHRONICLE? YES OR NO.
14 A. NO.
15 Q. YOU DON'T HAVE AN OPINION?
16 A. OH, I HAVE AN OPINION. YES, I HAVE AN OPINION.
17 Q. OKAY. AND WHAT IS YOUR OPINION?
18 A. THAT IT'S NOT LONG ENOUGH.
19 Q. OKAY. AND WHAT IS THE BASIS FOR THAT OPINION?
20 A. THE MAIN ONE IS THE INABILITY TO DEVELOP THE PRINTING
21 FACILITIES TO PRODUCE A PAPER THAT WOULD BE COMPETITIVE. BUT
22 EVEN BEYOND THAT, THE BUSINESS TRANSITION NEEDS TO BE -- NEEDS
23 TO BE DONE IN A SLOWER AND SMOOTHER FASHION.
24 Q. OKAY. IF YOU LOOK AT THE LAST PAGE OF EXHIBIT 23, IT IS
25 ENTITLED "SAN FRANCISCO EXAMINER ESTIMATED EXPENSES." ARE YOU
1101
INGRAM - DIRECT \ SHULMAN
1 FAMILIAR WITH THIS?
2 A. YES.
3 Q. CAN YOU EXPLAIN WHAT THIS IS?
4 A. THIS IS PART OF THE DOCUMENT THAT WE PREPARED AFTER OUR
5 FIRST MEETING IN ORANGE COUNTY, AND THIS -- THE DOCUMENT ON THE
6 EXPENSES WAS A DOCUMENT THAT WAS PREPARED BY MIKE WEAVER. WE
7 ATTACHED THAT TO THIS TO GIVE CLINT SOME FEEL FOR WHAT THE
8 COSTS MIGHT BE TO OPERATE THIS.
9 THE BOTTOM PART OF IT IS A VERY QUICK ESTIMATE OF
10 THE CAPITAL COSTS THAT WOULD BE INVOLVED.
11 Q. OKAY. WE'LL ASK MR. WEAVER ABOUT THE FIRST PART. HE
12 PREPARED THAT?
13 A. YES.
14 Q. OKAY. THE BOTTOM OF THE PAGE IS "EQUIPMENT CAPITAL
15 COSTS." WERE YOU INVOLVED IN THE PREPARATION OF THAT?
16 A. YES.
17 Q. AND WOULD YOU EXPLAIN WHAT THAT SHOWS?
18 A. IT SHOWS THE LINE ITEMS OF THE BASIC EQUIPMENT THAT WOULD
19 BE REQUIRED TO DEVELOP THE PRINTING FACILITIES TO TAKE OVER
20 THIS WORK ASSUMING THAT WE WOULD BE LOCATED IN THE 110 FIFTH
21 STREET BUILDING; THE PRESS EQUIPMENT WE HAD ESTIMATED AT EIGHT
22 AND A HALF MILLION IF IT WERE USED EQUIPMENT; THE MAIL ROOM AND
23 DOCK EQUIPMENT AT 4.8 MILLION; AND MATERIAL HANDLING, SUCH AS
24 ROLL-HANDLING EQUIPMENT, OF ABOUT A MILLION; AND AN ESTIMATE OF
25 ABOUT 700,000 FOR ADDITIONAL PRINTING PRESS EQUIPMENT; AND A
1102
INGRAM - DIRECT \ SHULMAN
1 MILLION AND A HALF JUST A CONTINGENCY FUND IN THERE.
2 THIS WAS NOT AN ESTIMATE THAT A LOT OF TIME WAS PUT
3 INTO. WE LATER WENT BACK AND REVISITED THIS. BUT THIS IS A --
4 THIS WAS, AGAIN, TO GIVE MR. REILLY SOME IDEA OF WHAT HIS
5 EXPOSURE MIGHT BE.
6 Q. LET ME ASK YOU TO TURN NEXT TO EXHIBIT 28 IN EVIDENCE. DO
7 YOU HAVE THAT IN FRONT OF YOU?
8 A. YES, I DO.
9 Q. AND EXHIBIT 28 IS A FAX TRANSMISSION FROM YOU TO
10 MR. REILLY AND IT'S DATED -- WELL, IF WE LOOK AT THE -- WHERE
11 DID I GET THAT DATE? OH, IT'S DATED FEBRUARY 29, 2000. DID
12 YOU PREPARE THIS?
13 A. YES.
14 Q. AND DID YOU SEND IT TO MR. REILLY ON OR ABOUT THIS DATE?
15 A. YES, I DID.
16 Q. OKAY. AND THIS IS ABOUT A MONTH BEFORE THE MARCH 25
17 MEETING IN MR. REILLY'S OFFICE; CORRECT?
18 A. RIGHT.
19 Q. WAS THIS DONE IN CONNECTION WITH YOUR CONSULTING WITH
20 MR. REILLY IF HE WERE TO MAKE AN OFFER FOR THE EXAMINER?
21 A. THAT'S RIGHT.
22 Q. OKAY. CAN YOU EXPLAIN WHAT THIS IS?
23 A. THIS WAS A DOCUMENT THAT I PREPARED TO TRY TO GO THROUGH
24 IN AS MUCH DETAIL AS I COULD THE ELEMENTS OF THE PROPOSED
25 BUSINESS AND PUT TOGETHER WHAT I FELT WOULD BE THE COST IF WE
1103
INGRAM - DIRECT \ SHULMAN
1 WERE ABLE TO ACHIEVE A NUMBER OF THINGS. NUMBER ONE WOULD BE
2 THE RENEGOTIATION OF THE CONTRACTS TO A LEVEL THAT WOULD BE
3 MORE APPROPRIATE FOR THIS SIZE OF A PAPER, RESTRUCTURING OF THE
4 EDITORIAL, ADVERTISING, CIRCULATION TO MAKE THEM MORE -- MORE
5 LIKE A PAPER THIS SIZE.
6 THIS I VIEWED, AND IN MY CONVERSATIONS WITH
7 MR. REILLY I CONVEYED THIS TO HIM, THAT THIS WOULD BE SIMILAR
8 TO A BUDGET THAT WE'D HAVE TO FOLLOW. THESE WOULD BE THE COSTS
9 AT THE VERY MINIMUM THAT WE COULD PROBABLY ACHIEVE AND WE'D
10 HAVE TO BE PREPARED TO SPEND.
11 Q. OKAY. I WANT TO BACK UP FOR JUST A SECOND. WHEN WE WERE
12 TALKING ABOUT THE PAPER THAT YOU ENVISIONED FOR MR. REILLY,
13 WHAT YOU CONSIDERED TO BE THE COMPETITIVE PAPER WITH THE
14 VARIOUS CHARACTERISTICS, PAGES, ET CETERA, WHAT WAS THE
15 CIRCULATION THAT YOU ASSUMED FOR THAT PAPER?
16 A. 85 TO 90,000.
17 Q. OKAY. AND SO WHEN YOU ANSWERED WITH REGARD TO THE ABILITY
18 OF THE FANGS TO PRINT A PAPER, WAS IT WITH REGARD TO A PAPER OF
19 THAT SIZE CIRCULATION?
20 A. THAT'S RIGHT.
21 Q. OKAY. AND THE EXPENSES THAT YOU'RE TALKING ABOUT HERE,
22 AND I'M LOOKING AT THE SECOND PAGE, THE EXECUTIVE SUMMARY, WHAT
23 ARE THE -- IS THIS FOR A PAPER OF THAT TYPE OF THOSE
24 CHARACTERISTICS?
25 A. YES, IT IS.
1104
INGRAM - DIRECT \ SHULMAN
1 Q. TELL US WHAT THIS SHOWS IN TERMS OF EXPENSES.
2 A. THE ESTIMATE HERE IS JUST OVER $45 MILLION A YEAR TO
3 PRODUCE THE PAPER YOU DESCRIBED, FIVE DAYS A WEEK PLUS A
4 WEEKEND EDITION.
5 Q. OKAY, $45,130,600?
6 A. THAT'S RIGHT.
7 Q. YOU ALSO MADE SOME ASSUMPTIONS ABOUT REVENUE; RIGHT?
8 A. I DIDN'T MAKE THE ASSUMPTIONS ABOUT THE REVENUE. THESE
9 ARE NUMBERS THAT I REQUESTED.
10 Q. FROM?
11 A. FROM DAVID BEIHOFF.
12 Q. AND WHO'S MR. BEIHOFF?
13 A. MR. BEIHOFF IS THE GENERAL MANAGER OF THE PITTSBURGH POST
14 GAZETTE, AND THE REASON I ASKED DAVE TO DO THIS IS HE HAD BEEN
15 THE VICE PRESIDENT OF ADVERTISING FOR THE SAN FRANCISCO
16 NEWSPAPER AGENCY UNTIL, OH, I THINK ABOUT 1994 AND HE HAD SOME
17 EXPERTISE IN THAT.
18 Q. OKAY. AND WHAT YOU SHOW HERE SHOWS THE PAPER MAKING A
19 PROFIT; RIGHT?
20 A. YES.
21 Q. ALL RIGHT. IF YOU LOOK AT THE NEXT PAGE, IT SAYS,
22 "DESCRIPTION OF PRODUCT AFTER INITIAL PHASE-IN." CAN YOU TELL
23 US WHAT THIS IS?
24 A. THIS WAS AN ATTEMPT TO SHOW WHAT WE BELIEVE THE PAPER
25 NEEDED TO BE WHEN WE DID GET THROUGH THE PHASE-IN; IN OTHER
1105
INGRAM - DIRECT \ SHULMAN
1 WORDS, WHEN MR. REILLY WOULD BE RESPONSIBLE FOR THOSE COSTS.
2 AND WE STARTED WITH THE CIRCULATION AND IN THE AREAS
3 THAT IT WOULD BE. I SPENT A FAIR AMOUNT OF TIME TALKING TO
4 DAVE BEIHOFF, AND WE HAD AGREED THAT IT WAS IMPORTANT TO
5 MAINTAIN THE CIRCULATION IN WHAT WOULD BE THE METROPOLITAN AREA
6 OF SAN FRANCISCO, BUT WE COULD, WITHOUT ANY EFFECT TO THE
7 ADVERTISING REVENUES, SHED A PORTION OF THE CIRCULATION, ABOUT
8 17,000, THAT WERE IN OUTLYING AREAS AND DIDN'T SUPPORT THE
9 ADVERTISING RATES.
10 SO THE FIRST PART OF THIS BASICALLY IS JUST
11 REHASHING WHAT THE CIRCULATION FIGURES ARE RIGHT NOW IN THOSE
12 AREAS.
13 Q. OKAY. AND THEN THE REST OF THIS PROVIDES DETAIL ON YOUR
14 ESTIMATES OF THE COSTS, THE $45 MILLION THAT YOU BELIEVE IT
15 WOULD TAKE TO DO A PAPER OF THIS SIZE?
16 A. YES.
17 Q. ALL RIGHT. LET ME -- I WANT TO GO BACK NOW TO YOUR
18 DECLARATION, EXHIBIT 57.
19 A. (WITNESS EXAMINES DOCUMENT.)
20 Q. AND I WANT TO DIRECT YOUR ATTENTION -- THIS IS THE
21 DECLARATION YOU DID IN CONJUNCTION WITH THE MEETING ON MARCH
22 25; CORRECT?
23 A. CORRECT.
24 Q. ALL RIGHT. I WANT TO DIRECT YOUR ATTENTION TO PARAGRAPH 4
25 ON THE SECOND PAGE.
1106
INGRAM - DIRECT \ SHULMAN
1 A. YES.
2 Q. YOU SAY, BEGINNING AT LINE 17:
3 "BASED UPON THOSE FACTS AND MY EXPERIENCE IN
4 THE INDUSTRY, THE PRESENT SUBSIDY BY HEARST WILL
5 NOT UNDER ANY CIRCUMSTANCES BE ABLE TO SUPPORT
6 THE PROBABILITY OR EVEN THE POSSIBILITY OF A
7 VIABLE PAPER WHICH WOULD BE COMPETITIVE TO THE
8 CHRONICLE. IN ORDER TO PRODUCE A VIABLE,
9 COMPETITIVE PAPER, A BUYER OF THE EXAMINER WOULD
10 NEED A SUBSIDY OF $50 MILLION FOR FIVE YEARS OR
11 A ONE-TIME PAYMENT OF $250 MILLION."
12 DO YOU SEE THAT?
13 A. YES.
14 Q. IS THAT YOUR OPINION?
15 A. YES.
16 Q. ON WHAT DO YOU BASE THAT OPINION?
17 A. I BASE IT ON THE FACT THAT WE HAD GONE THROUGH THESE COST
18 ESTIMATES A NUMBER OF TIMES. I HAD INDEPENDENTLY AND WE HAD AS
19 A GROUP, MR. FLAHERTY, MR. WEAVER AND MYSELF, AND WE'D ALL COME
20 UP WITH THE COSTS OF AROUND $50 MILLION A YEAR TO PRINT THIS
21 PAPER AT A MINIMUM.
22 Q. OKAY. NOW, IN THE STUDY THAT WE JUST LOOKED AT, YOU
23 SHOWED A -- YOU SHOWED THE PAPER WITH A COST OF $50 MILLION,
24 $45 MILLION, MAKING A PROFIT. DO YOU RECALL THAT?
25 A. YES.
1107
INGRAM - DIRECT \ SHULMAN
1 Q. OKAY. HOW DO YOU RECONCILE THAT WITH YOUR OPINION THAT
2 THE HEARST SUBSIDY WOULD NOT UNDER ANY CIRCUMSTANCES BE ABLE TO
3 SUPPORT THE PROBABILITY OR EVEN THE POSSIBILITY OF A VIABLE
4 PAPER WHICH WOULD BE COMPETITIVE TO THE CHRONICLE?
5 A. THIS PRO FORMA THAT WE HAD WAS BASED ON THE ADVERTISING
6 REVENUES THAT WERE DEVELOPED BY DAVE BEIHOFF, AND THEY WERE
7 THE -- THE UNDERLYING ASSUMPTION WAS THAT THIS WOULD BE AFTER
8 THIS PAPER HAD GONE THROUGH THE PHASE-IN PERIOD AND REACHED
9 EQUILIBRIUM.
10 THAT I THINK ALL OF US ASSUME THAT THERE'S GOING TO
11 BE A PERIOD IN THERE WHERE IN ORDER TO STABILIZE THE NEWSPAPER
12 YOU PROBABLY WOULD GIVE MOST THE ADVERTISING AWAY JUST AS
13 U.S.A. TODAY HAD TO DO WHEN THEY ESTABLISHED THEMSELVES.
14 THERE'S NOTHING TO INDICATE THAT YOU'RE GOING TO GET THAT
15 ADVERTISING. THAT'S THE POTENTIAL THAT'S OUT THERE AND THE
16 POTENTIAL THAT'S THERE IN MR. BEIHOFF'S JUDGMENT IF YOU HAVE A
17 SUCCESSFUL PAPER THAT COMPETES WITH THE CHRONICLE AND IS ABLE
18 TO MAINTAIN THE SAME RELATIVE STRENGTH IN THE METROPOLITAN AREA
19 THAT IT PRESENTLY HAS AGAINST THE CHRONICLE.
20 Q. OKAY. AND THE PHASE-IN PERIOD YOU'RE TALKING ABOUT WAS
21 THE 22-MONTH PHASE-IN PERIOD?
22 A. THAT'S THE PHASE-IN PERIOD BEFORE YOU WOULD BE RESPONSIBLE
23 FOR FULL PRODUCTION AND SALES YOURSELF. NONE OF US KNEW FOR
24 SURE HOW LONG YOU'D HAVE TO GO BEFORE YOU COULD -- YOU COULD
25 FIND YOURSELF IN A POSITION COMPETITIVELY WHERE YOU COULD BEGIN
1108
INGRAM - DIRECT \ SHULMAN
1 TO RAISE YOUR AD RATES WHERE THEY NEEDED TO BE, BUT THE NUMBER
2 ONE THING YOU HAD TO HAVE WAS YOU HAD TO CARRY A REPRESENTATIVE
3 AMOUNT OF ADVERTISING IN THE PAPER ALL THE TIME EVEN IF YOU HAD
4 TO DO IT AT VERY LITTLE REVENUE.
5 Q. IN -- OKAY.
6 YOU SAY AFTER THE FOUR-MONTH -- BACK IN YOUR
7 DECLARATION YOU SAY:
8 "AFTER THE FOUR-MONTH TRANSITION PERIOD, PAN
9 ASIA WILL NOT BE ABLE TO PRODUCE A VIABLE
10 COMPETITIVE DAILY NEWSPAPER," END OF QUOTE.
11 DO YOU SEE THAT?
12 A. YES.
13 Q. IS THAT YOUR OPINION?
14 A. YES.
15 Q. WHAT IS THAT BASED ON?
16 A. THEY DON'T HAVE THE EQUIPMENT TO PRODUCE A PAPER THAT CAN
17 STAND ALONGSIDE THE CHRONICLE, AND FOUR MONTHS WON'T GIVE THEM
18 ENOUGH TIME TO DEVELOP THAT ABILITY.
19 Q. OKAY. YOU SAY, QUOTE:
20 "THE PRODUCTION CAPACITY NECESSARY TO
21 PRODUCE A MORNING NEWSPAPER THAT CAN BE
22 COMPETITIVE WITH THE CHRONICLE IS SIGNIFICANT.
23 THE PRODUCTION" -- END OF QUOTE.
24 AND YOU'VE TOLD US ABOUT THAT; RIGHT?
25 A. RIGHT.
1109
INGRAM - DIRECT \ SHULMAN
1 Q. OKAY. YOU SAY, QUOTE:
2 "THE PRODUCTION SYSTEM REQUIRED FOR THE
3 PUBLICATIONS, WHICH THE INDEPENDENT NOW
4 PRODUCES, CANNOT SATISFY THE REQUIREMENTS
5 ABOVE," END OF QUOTE.
6 YOU'VE TOLD US ABOUT THAT; RIGHT?
7 A. RIGHT.
8 Q. OKAY. NOW, YOU SAY, QUOTE:
9 "FURTHER, THERE IS NO CONTRACT PRINTING
10 AVAILABLE IN THE BAY AREA SUFFICIENT TO PRODUCE
11 A DAILY MORNING NEWSPAPER. I PERSONALLY
12 INVESTIGATED THE AVAILABILITY OF SUCH CONTRACT
13 PRINTING WHEN I WAS WITH THE SFNA IN 1988," END
14 OF QUOTE. I'M GOING TO STOP THERE.
15 DID YOU DO THAT IN 1988?
16 A. YES.
17 Q. CAN YOU EXPLAIN WHAT YOU DID?
18 A. WE HAD CAPACITY PROBLEMS BEFORE WE BROUGHT THE NEW PLANTS
19 ON LINE, AND WE FELT IF WE COULD GET EVEN AS SMALL AS A 25,000
20 IN ADDITIONAL PAPERS PRINTED SOMEWHERE ELSE, THAT THAT COULD
21 TAKE US THROUGH THAT CRUNCH PERIOD, AND I WAS UNABLE TO FIND
22 ANYBODY THAT HAD PRESS CAPACITY THAT COULD DO THAT FOR US IN
23 THIS GENERAL AREA THAT WOULD ALLOW US TO PRINT IT TIMELY AND
24 GET IT OUT.
25 Q. OKAY. NOW, WHY -- YOUR DECLARATION SAYS:
1110
INGRAM - DIRECT \ SHULMAN
1 "THERE IS NO CONTRACT PRINTING AVAILABLE IN
2 THE BAY AREA SUFFICIENT TO PRODUCE A DAILY
3 MORNING NEWSPAPER."
4 WHY DO YOU BELIEVE THAT THERE IS NOT SUCH CONTRACT
5 PRINTING AVAILABLE TODAY TO PRODUCE THE PAPER?
6 A. I'M NOT AWARE OF ANY PLANTS THAT HAVE BEEN BUILT OR ANY
7 PLANTS THAT HAVE BEEN ABANDONED AND THE EQUIPMENT IS STILL
8 THERE THAT'S DIFFERENT FROM 1988.
9 Q. OKAY. IT CONTINUES, QUOTE:
10 "ALSO, IT WILL BE IMPOSSIBLE FOR PAN ASIA TO
11 BUILD THE REQUIRED PRINTING CAPACITY IN TIME TO
12 PRODUCE A VIABLE COMPETITIVE MORNING NEWSPAPER,"
13 END OF QUOTE.
14 YOU'VE TOLD US ABOUT THAT?
15 A. YES.
16 Q. YOU SAY, QUOTE:
17 "CONSTRUCTION OF THE NECESSARY FACILITIES
18 WOULD TAKE AT LEAST 18 TO 24 MONTHS TO COMPLETE.
19 IN ADDITION, THE COSTS FOR SUCH CAPACITY, WHICH
20 WOULD NEED TO BE PAID DURING THE CONSTRUCTION
21 PERIOD AND BEFORE ANY NEWSPAPERS ARE PRODUCED
22 AND SOLD, WOULD BE APPROXIMATELY 30 TO
23 $35 MILLION INCLUDING THE COSTS" -- "NOT
24 INCLUDING THE COST OF THE BUILDING," END OF
25 QUOTE.
1111
INGRAM - CROSS / HOCKETT
1 DO YOU SEE THAT?
2 A. YES.
3 Q. NOW, THAT'S ABOUT DOUBLE WHAT YOU HAD BUDGETED FOR
4 MR. REILLY; RIGHT?
5 A. THAT'S RIGHT.
6 Q. OKAY. WHY WOULD THE -- WHY DO YOU SAY THAT THE COST OF
7 THE PRINTING PLANT WOULD BE 30 TO $35 MILLION WHEN YOU HAD TOLD
8 MR. REILLY OR GIVEN HIM AN ESTIMATE OF $16 MILLION?
9 A. THE ESTIMATE THAT I GAVE MR. REILLY, AND IT WAS NOTED ON
10 THERE, WAS FOR USED EQUIPMENT. IT WASN'T NECESSARILY WHAT HE
11 WOULD ACCEPT, BUT THAT WOULD BE THE LOWEST PRICE WOULD BE TO
12 USE USED EQUIPMENT. WHAT I HAVE IN THERE IS ASSUMING HE WOULD
13 BUY NEW EQUIPMENT.
14 MR. SHULMAN: THANK YOU.
15 MAY I HAVE JUST A SECOND, YOUR HONOR?
16 THE COURT: YES, YOU MAY.
17 (PAUSE IN PROCEEDINGS.)
18 MR. SHULMAN: THANK YOU, YOUR HONOR. I HAVE NO
19 FURTHER QUESTIONS.
20 THE COURT: VERY WELL. MR. HOCKETT, YOU MAY
21 CROSS-EXAMINE.
22 CROSS-EXAMINATION
23 BY MR. HOCKETT:
24 Q. GOOD MORNING, MR. INGRAM.
25 A. GOOD MORNING.
1112
INGRAM - CROSS / HOCKETT
1 Q. MY NAME IS CHRIS HOCKETT, AND I REPRESENT THE INTERVENOR
2 EXIN LLC.
3 I WANT TO SHOW YOU AGAIN YOUR DECLARATION, WHICH HAS
4 BEEN MARKED AS PLAINTIFF'S EXHIBIT 57 AND I BELIEVE IS ALREADY
5 IN EVIDENCE.
6 AND SPECIFICALLY THIS DECLARATION WAS DEVELOPED AND
7 EXECUTED BY YOU AT THE MEETING ON MARCH 25TH WITH THE OTHER
8 EXPERTS; CORRECT?
9 A. THAT'S RIGHT.
10 Q. AND THE FIRST TWO SENTENCES OF PARAGRAPH 4 REGARDING YOUR
11 CONCLUSIONS ABOUT THE ADEQUACY OF THE SUBSIDY AND THE MINIMUM
12 SUBSIDY NECESSARY OF 50 MILLION FOR FIVE YEARS OR A ONE-TIME
13 PAYMENT OF 250 MILLION, THOSE ARE THE SAME WORDS THAT EVERYBODY
14 ELSE USES ABOUT THOSE SUBJECTS IN THEIR DECLARATIONS; IS THAT
15 CORRECT?
16 A. THAT'S RIGHT.
17 Q. YOU GO ON TO SAY LATER IN THAT PARAGRAPH AND YOU WERE JUST
18 ADDRESSING UNDER QUESTIONING FROM MR. SHULMAN THAT THERE IS NO
19 CONTRACT PRINTING AVAILABLE IN THE BAY AREA SUFFICIENT TO
20 PRODUCE A DAILY MORNING NEWSPAPER; CORRECT?
21 A. THAT'S RIGHT.
22 Q. AND YOU SAID THAT THE BASIS FOR THAT WAS THAT YOU HAD
23 PERSONALLY INVESTIGATED THE AVAILABILITY OF SUCH CONTRACT
24 PRINTING WHEN YOU WERE WITH THE AGENCY IN 1988?
25 A. RIGHT.
1113
INGRAM - CROSS / HOCKETT
1 Q. NOW, AT YOUR DEPOSITION YOU SAID THAT WAS THE LAST TIME
2 YOU CHECKED ON THE AVAILABILITY OF CONTRACT PRINTING IN THE BAY
3 AREA, 1988.
4 A. THAT'S THE LAST TIME I INVESTIGATED IT.
5 Q. IT'S POSSIBLE, ISN'T IT, THAT THE SITUATION MIGHT HAVE
6 CHANGED IN THE LAST 12 YEARS; ISN'T IT, SIR?
7 A. I THINK IT'S POSSIBLE BUT IMPROBABLE.
8 Q. IN ANY EVENT, YOU HAVEN'T BOTHERED TO CHECK; CORRECT?
9 A. I HAVEN'T MADE AN INVESTIGATION. I WOULD BE AWARE IF A
10 PLANT WAS BUILT BECAUSE I'M IN THE BUSINESS.
11 Q. BUT YOU HAVEN'T CHECKED; HAVE YOU, SIR?
12 A. NO, SIR.
13 Q. NOW, YOU HAVE NO PERSONAL KNOWLEDGE OF THE TERMS OF THE
14 HEARST/FANG CONTRACT; DO YOU, SIR?
15 A. NO, SIR, I DON'T.
16 Q. AND YOU HAVE NO PERSONAL KNOWLEDGE REGARDING THE FANG
17 FAMILY'S INTENTIONS REGARDING THE OPERATION OF THE PAPER?
18 A. NO.
19 Q. YOU HAVE NO KNOWLEDGE OF THEIR PLANNED CIRCULATION OR THE
20 NUMBER OF EDITIONS, OR ANYTHING LIKE THAT; DO YOU, SIR?
21 A. I HAVE NO IDEA WHAT THEIR PLANS ARE.
22 Q. BUT YOU DO KNOW, DON'T YOU, SIR, THAT THE FANGS HAVE THEIR
23 OWN PRINTING FACILITIES; DO YOU NOT?
24 A. YES, I DO.
25 Q. I BELIEVE YOU TESTIFIED ABOUT THE INTELLIGENCE YOU HAD
1114
INGRAM - CROSS / HOCKETT
1 GATHERED ON THAT. DO YOU HAPPEN TO KNOW WHETHER THE FANGS'
2 PRESSES ARE FULLY PAGINATED?
3 A. IF THEIR PRESSES?
4 Q. I'M SORRY, IF THEIR OPERATION IS PAGINATED.
5 A. I HAVE NO IDEA.
6 Q. AND YOU TESTIFIED A MINUTE AGO THAT YOU HAD OFFERED, IN
7 YOUR EFFORTS TO AID MR. REILLY IN CONSIDERING A BID FOR THE
8 EXAMINER HIMSELF, THE POSSIBILITY THAT MR. REILLY COULD
9 PURCHASE USED PRODUCTION EQUIPMENT; IS THAT CORRECT?
10 A. THAT'S RIGHT.
11 Q. IS THERE ANY REASON WHY THE FANGS COULD NOT MAKE
12 THEMSELVES -- COULD NOT AVAIL THEMSELVES OF THAT OPPORTUNITY?
13 A. THERE'S REASONS THAT REILLY MIGHT NOT WANT TO.
14 Q. WELL, IF THE FANGS WISHED TO PURCHASE USED EQUIPMENT, THEY
15 COULD DO SO; COULD THEY NOT, SIR?
16 A. YES.
17 Q. NOW, MR. REILLY RETAINED YOU AT FIRST BECAUSE HE WAS
18 CONSIDERING AN OFFER TO BUY THE EXAMINER; IS THAT CORRECT?
19 A. THAT'S RIGHT.
20 Q. AND YOU ASSISTED HIM IN UNDERSTANDING SOME OF THE ISSUES
21 REGARDING BUYING AND OPERATING THE EXAMINER; CORRECT?
22 A. CORRECT.
23 Q. AND ONE OF THE ISSUES YOU IDENTIFIED WAS COLLECTIVE
24 BARGAINING AGREEMENTS; CORRECT?
25 A. YES.
1115
INGRAM - CROSS / HOCKETT
1 Q. AND YOU TOLD MR. REILLY THAT IT WOULD BE DIFFICULT TO
2 SUCCEED WITH THE EXAMINER IF IT HAD TO OPERATE UNDER THE
3 COLLECTIVE BARGAINING AGREEMENTS THAT WERE IN PLACE WITH THE
4 AGENCY; CORRECT?
5 A. CORRECT.
6 Q. LET ME SHOW YOU WHAT HAS BEEN MARKED AND IS IN EVIDENCE AS
7 PLAINTIFF'S EXHIBIT 20 AND SPECIFICALLY PAGE 178. AND I
8 BELIEVE YOU TESTIFIED THIS WAS PREPARED IN AID OF MR. REILLY'S
9 BID FOR THE EXAMINER. AND IT SAYS RIGHT AT THE TOP THAT YOU
10 ASSUMED THAT RADICAL CHANGES IN THE COLLECTIVE BARGAINING
11 AGREEMENTS BE ACHIEVED BEFORE THE PURCHASE IS CONSUMMATED. DO
12 YOU SEE THAT?
13 A. YES.
14 Q. SO TO CREATE YOUR COST MODEL FOR MR. REILLY, YOU ASSUMED
15 THAT THERE WOULD BE RADICAL CHANGES IN THE COLLECTIVE
16 BARGAINING AGREEMENTS; CORRECT?
17 A. THAT'S RIGHT.
18 Q. AND YOU BELIEVED THAT THAT WAS AN IMPORTANT ASPECT OF
19 MR. REILLY'S PLAN; CORRECT?
20 A. I BELIEVE IT WAS PIVOTAL.
21 Q. PIVOTAL YOU SAID?
22 A. YES.
23 Q. AND IN GENERAL, MORE BROADLY, YOU FELT THAT A LOT OF
24 CHANGES WOULD BE NECESSARY IF THE EXAMINER WAS GOING TO HAVE
25 THE OPPORTUNITY TO SUCCEED AS AN INDEPENDENT PAPER; CORRECT?
1116
INGRAM - CROSS / HOCKETT
1 A. CORRECT.
2 Q. NOW, DID YOU CONFER WITH MR. REILLY AND THE OTHER
3 NEWSPAPER ADVISORS DURING THE TIME MR. REILLY WAS DISCUSSING
4 MAKING AN OFFER FOR THE EXAMINER?
5 A. YES.
6 Q. AND YOU HAD A CONVERSATION WITH HIM IN MID-FEBRUARY OF
7 THIS YEAR SHORTLY AFTER HE HAD HAD A NEGOTIATING SESSION WITH
8 HEARST; IS THAT CORRECT?
9 A. I'M SURE IT IS.
10 Q. AND IN YOUR UNDERSTANDING HEARST HAD INDICATED A
11 WILLINGNESS TO EXTEND A SUBSIDY OR A PERIOD OF JOINT OPERATIONS
12 TO A PROSPECTIVE BUYER. DO YOU REMEMBER THAT?
13 A. YES.
14 Q. LET ME SHOW YOU WHAT HAS BEEN MARKED AND IS IN EVIDENCE AS
15 CHRONICLE EXHIBIT 305. AND I WANT TO FOCUS YOUR ATTENTION ON
16 THE BOTTOM PART, WHICH APPEARS TO BE AN E-MAIL FROM LARRY
17 INGRAM TO ALAN FLAHERTY ENTITLED "CLINT REPORT." DO YOU SEE
18 THAT?
19 A. YES.
20 Q. DO YOU RECOGNIZE THAT AS AN E-MAIL THAT YOU SENT ON OR
21 ABOUT THE DATE IT BEARS?
22 A. YES, I DO. YES.
23 Q. THAT'S FEBRUARY 13TH, 2000?
24 A. RIGHT.
25 Q. AND WAS THIS AN E-MAIL THAT YOU SENT AFTER THE
1117
INGRAM - CROSS / HOCKETT
1 CONVERSATION THAT WE'VE JUST REFERENCED?
2 A. YES.
3 Q. WHERE HEARST HAD INDICATED A WILLINGNESS TO SUBSIDIZE A
4 BUYER; CORRECT?
5 A. RIGHT.
6 Q. AND YOU SAY, AND I QUOTE:
7 "I TALKED WITH CLINT LATE LAST NIGHT. HE
8 WAS HAPPY AS THE FOX IN THE HEN HOUSE."
9 DID YOU WRITE THAT, SIR?
10 A. YES.
11 Q. AND DID YOU FEEL THAT MR. REILLY WAS HAPPY AS A FOX IN A
12 HEN HOUSE?
13 A. HE WAS VERY HAPPY.
14 Q. AND WHY ARE FOXES HAPPY WHEN THEY GET INSIDE HEN HOUSES,
15 SIR?
16 A. I DON'T KNOW MUCH ABOUT FOXES.
17 Q. IT'S NOT BECAUSE THEY'RE ABOUT TO DO SOMETHING GOOD FOR
18 THE PUBLIC; IS IT, SIR?
19 THE COURT: THAT'S ARGUMENTATIVE, MR. HOCKETT.
20 MR. HOCKETT: I'LL WITHDRAW IT.
21 Q. NOW, MR. INGRAM, IN THE COURSE OF YOUR WORK FOR
22 MR. REILLY, YOU CALCULATED COST FIGURES FOR A STAND-ALONE
23 EXAMINER; CORRECT?
24 A. THAT'S RIGHT.
25 Q. AND IN DOING SO, YOU USED COST INFORMATION FROM THE TOLEDO
1118
INGRAM - CROSS / HOCKETT
1 BLADE NEWSPAPER?
2 A. NOT COST INFORMATION. FTE INFORMATION.
3 Q. FTE, PERSONNEL?
4 A. RIGHT.
5 Q. AND YOU CONSIDERED THE TOLEDO BLADE TO BE A RELEVANT
6 BENCHMARK FOR THAT INFORMATION; CORRECT?
7 A. IT WAS A PAPER CLOSER TO THE CIRCULATION THAN IS THE
8 CHRONICLE.
9 Q. AND YOU THOUGHT IT WAS APPROPRIATE TO USE IT AS A
10 BENCHMARK; CORRECT?
11 A. YES.
12 Q. NOW, YOU DIDN'T DO ANY REVENUE CALCULATIONS YOURSELF; IS
13 THAT CORRECT?
14 A. NO, I DIDN'T.
15 Q. AND THAT'S OUTSIDE YOUR AREA OF EXPERTISE; RIGHT?
16 A. YES.
17 Q. AND I BELIEVE YOU TESTIFIED THAT THE REVENUE NUMBERS YOU
18 GOT WERE FROM DAVE BEIHOFF; CORRECT?
19 A. CORRECT.
20 Q. HE'S ANOTHER PERSON WHO MR. REILLY RETAINED TO WORK ON THE
21 PROJECT OF BIDDING FOR THE EXAMINER?
22 A. NO.
23 Q. HE OFFERED SOME ADVICE IN CONNECTION WITH THAT PROJECT?
24 A. I ASKED HIM FOR ADVICE, AND HE GAVE IT TO ME. WE'RE
25 FRIENDS.
1119
INGRAM - CROSS / HOCKETT
1 Q. TO ASSIST YOU IN YOUR WORK ON THE PROJECT?
2 A. THAT'S RIGHT.
3 Q. NOW, MR. BEIHOFF IS AN AD EXECUTIVE WITH MANY YEARS OF
4 EXPERIENCE IN THE NEWSPAPER INDUSTRY?
5 A. YES.
6 Q. AND YOU WOULD AGREE THAT HE IS MORE ABLE TO PREDICT
7 REVENUES THAN YOU ARE; WOULD YOU NOT, SIR?
8 A. I WOULD AGREE WITH THAT.
9 Q. AND YOU TOOK HIS REVENUE PROJECTIONS AND YOU REDUCED THEM
10 BY 25 PERCENT; DID YOU NOT?
11 A. YES.
12 Q. AND YOU'VE SAID THAT THAT WAS A, QUOTE, "VERY ARBITRARY,"
13 END QUOTE, REDUCTION ON YOUR PART; DID YOU NOT?
14 A. YES.
15 Q. AND YOU BELIEVE THAT MR. BEIHOFF KNOWS MORE ABOUT THAT
16 SUBJECT THAN YOU DO?
17 A. HE KNOWS A LOT MORE ABOUT ADVERTISING REVENUE THAN I DO.
18 Q. THE 50 MILLION-DOLLAR A YEAR SUBSIDY THAT YOU CALCULATED
19 WAS CALCULATED WITHOUT REGARD TO HOW REVENUES WOULD BE SHARED
20 WITH THE SELLER, IF AT ALL; CORRECT?
21 A. I'D LIKE TO HEAR THAT AGAIN.
22 Q. THE 50 MILLION-DOLLAR A YEAR SUBSIDY THAT YOU TESTIFIED
23 WOULD BE NECESSARY FOR AN INDEPENDENT EXAMINER TO SUCCEED WAS
24 CALCULATED WITHOUT REGARD TO REVENUES THAT A BUYER MIGHT BE
25 PERMITTED TO RETAIN; CORRECT?
1120
INGRAM - CROSS / HOCKETT
1 A. IT WAS CALCULATED ON THE BASIS OF THE COSTS TO PRODUCE THE
2 PAPER.
3 Q. AND DID NOT TAKE INTO ACCOUNT REVENUES; CORRECT?
4 A. NO.
5 Q. SO IF THERE WERE REVENUES THAT A BUYER WAS PERMITTED TO
6 RETAIN, THAT WOULD HELP OFFSET THE COSTS THAT YOU CALCULATED;
7 CORRECT?
8 A. THAT'S RIGHT.
9 Q. AND I BELIEVE WE SAW, AND AGAIN THIS IS PLAINTIFF'S
10 EXHIBIT 20, THAT IN YOUR CALCULATIONS FOR MR. REILLY, EVEN
11 AFTER YOU HAD REDUCED THE BEIHOFF NUMBERS BY 25 PERCENT, YOU
12 SHOW AN OPERATING PROFIT AFTER YOUR PHASE-IN PERIOD; CORRECT?
13 A. YES.
14 Q. A PROFIT OF -- A MARGIN OF 16.7 PERCENT; CORRECT?
15 A. THAT'S RIGHT.
16 Q. THAT'S WHAT IT SAYS.
17 I'M SORRY, I DIDN'T GET YOUR ANSWER.
18 A. I SAID THAT'S RIGHT.
19 Q. NOW, TO JUSTIFY THE SUBSIDY THAT YOU STATED IN YOUR
20 DECLARATION, YOU WOULD HAVE TO ASSUME NO REVENUE AT ALL TO
21 OFFSET THE COSTS THAT YOU CALCULATED; CORRECT?
22 A. THAT'S RIGHT.
23 Q. AND I BELIEVE YOU TESTIFIED THAT YOUR DECLARATION REALLY
24 SHOULD HAVE SAID THAT THE FANGS WOULD NEED A SUBSIDY OF UP TO
25 $50 MILLION PER YEAR.
1121
INGRAM - CROSS / LINDSTROM
1 A. IN MY DEPOSITION.
2 Q. AND UP TO $50 MILLION IS A LOT DIFFERENT THAN $50 MILLION;
3 ISN'T IT, SIR?
4 A. YES.
5 MR. HOCKETT: I HAVE NO FURTHER QUESTIONS.
6 THE COURT: VERY WELL. ANY OTHER CROSS-EXAMINATION?
7 MR. LINDSTROM: YES, YOUR HONOR.
8 THE COURT: MR. LINDSTROM.
9 (PAUSE IN PROCEEDINGS.)
10 THE COURT: PROCEED.
11 MR. LINDSTROM: THANK YOU, YOUR HONOR.
12 CROSS-EXAMINATION
13 BY MR. LINDSTROM:
14 Q. GOOD MORNING, MR. INGRAM.
15 A. GOOD MORNING.
16 Q. AS I THINK YOU KNOW, I REPRESENT CHRONICLE PUBLISHING.
17 A. SURE.
18 Q. I WANT TO TAKE YOU BACK TO YOUR TESTIMONY ON FRIDAY AND TO
19 YOUR INITIAL MEETING WITH MR. REILLY. THAT MEETING OCCURRED ON
20 FEBRUARY 2ND IN THE AFTERNOON; ISN'T THAT CORRECT?
21 A. I THINK IT WAS THE 3RD.
22 Q. IN ANY EVENT, IT WAS EARLY FEBRUARY; ISN'T THAT RIGHT?
23 A. RIGHT.
24 Q. AND YOU DO HAVE A DISTINCT RECOLLECTION OF THE MEETING; DO
25 YOU NOT?
1122
INGRAM - CROSS / LINDSTROM
1 A. I HAVE A RECOLLECTION OF THE MEETING.
2 Q. YOU HAD BEEN INVITED TO THAT MEETING BY MR. BARLETTA; IS
3 THAT CORRECT?
4 A. CORRECT.
5 Q. HE WAS AN OLD FRIEND OF YOURS FROM THE NEWSPAPER INDUSTRY?
6 A. RIGHT.
7 Q. AND IT WAS YOUR UNDERSTANDING GOING INTO THAT MEETING THAT
8 BECAUSE MR. REILLY HAD NO NEWSPAPER EXPERIENCE, HE WAS
9 ASSEMBLING A TEAM OF EXPERTS TO HELP ADVISE HIM IN CONJUNCTION
10 WITH HIS POSSIBLE BID FOR THE EXAMINER; CORRECT?
11 A. CORRECT.
12 Q. AND ONE OF THE REASONS YOU WERE INVITED TO THAT MEETING
13 WAS BECAUSE YOU HAD RUN THE OPERATIONS OF THE SAN FRANCISCO
14 NEWS AGENCY FOR SOME EIGHT YEARS; ISN'T THAT RIGHT?
15 A. YES.
16 Q. AND YOU ARE, SIR, A PRODUCTION AND FACILITIES EXPERT; ARE
17 YOU NOT?
18 A. YES.
19 Q. AND MUCH OF THAT EXPERTISE DERIVES FROM THE TIME THAT YOU
20 RAN THE EXAMINER; ISN'T THAT RIGHT?
21 A. SOME OF IT.
22 Q. NOW, THE OTHER MEMBERS OF THE TEAM, MR. WEAVER WAS THE
23 NUMBERS GUY; RIGHT?
24 A. RIGHT.
25 Q. TELL US WHAT MR. FLAHERTY BROUGHT TO THE PARTY.
1123
INGRAM - CROSS / LINDSTROM
1 A. FLAHERTY IS A CONSULTANT IN THE NEWSPAPER INDUSTRY. HE
2 CAME OUT OF PRETTY MUCH THE SAME END THAT I DID, PRODUCTION.
3 HE WAS THE ASSISTANT OPERATIONS DIRECTOR IN NEW YORK AND
4 PROBABLY FOR THE LAST 15 OR 20 YEARS HE'S BEEN AN INDEPENDENT
5 CONSULTANT IN THE NEWSPAPER BUSINESS.
6 Q. DID YOU REGARD MR. FLAHERTY AS AN EXPERT AS WELL?
7 A. YES.
8 Q. AND WHEN YOU MET WITH MR. REILLY ON THAT FIRST OCCASION,
9 YOU MET WITH MR. WEAVER AND MR. REILLY IN MR. REILLY'S OFFICES
10 HERE IN SAN FRANCISCO; ISN'T THAT RIGHT?
11 A. RIGHT.
12 Q. IT WAS YOUR UNDERSTANDING THAT THE DAY BEFORE A MEETING
13 HAD OCCURRED INVOLVING MR. FLAHERTY, MR. WEAVER AND MR. REILLY;
14 ISN'T THAT RIGHT?
15 A. RIGHT.
16 Q. AND AT THE CONCLUSION OF YOUR MEETING WITH MR. REILLY, HE
17 ASKED THE THREE OF YOU TO GET TOGETHER AS QUICKLY AS POSSIBLE;
18 ISN'T THAT RIGHT?
19 A. THAT'S RIGHT.
20 Q. AND THE REASON FOR THAT WAS HE WAS GETTING READY TO GO
21 INTO NEGOTIATIONS WITH THE HEARST CORPORATION; RIGHT?
22 A. RIGHT.
23 Q. AND HE WANTED SOME INFORMATION FROM HIS TEAM OF EXPERTS;
24 ISN'T THAT SO?
25 A. RIGHT.
1124
INGRAM - CROSS / LINDSTROM
1 Q. AND ONE OF THE THINGS HE SAID THAT HE WANTED TO KNOW FROM
2 YOU, ACCORDING TO YOUR DIRECT TESTIMONY, IS WHAT HE MIGHT BE
3 ABLE TO EXPECT, WHAT HE MIGHT BE FACED WITH. DO YOU RECALL
4 GIVING THAT TESTIMONY?
5 A. YES.
6 (CONTINUED ON NEXT PAGE - NOTHING OMITTED.)
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
1125
INGRAM - CROSS / LINDSTROM
1 BY MR. LINDSTROM:
2 Q. AND ONE OF THE SPECIFIC THINGS THAT MR. REILLY ASKED YOU
3 FOR WAS AN ESTIMATE OF THE COST TO PUT OUT TODAY'S EXAMINER;
4 ISN'T THAT RIGHT?
5 A. THAT WAS A REQUEST I MADE.
6 Q. WELL, IT WAS A REQUEST OF MR. WEAVER IN YOUR PRESENCE?
7 A. I THINK -- I THINK I TESTIFIED THAT IT WAS A REQUEST
8 THAT -- IT MAY HAVE BEEN REQUESTED IN THE TELEPHONE CALL,
9 THAT -- THAT ALAN HAD FROM HIS APARTMENT IN ORANGE COUNTY WHEN
10 WE WERE THERE.
11 Q. WELL, IN ANY EVENT, IN THE VERY FIRST DOCUMENT THAT YOU
12 PROVIDED TO MR. REILLY IN THIS ENGAGEMENT, YOU INCLUDED AN
13 ESTIMATE OF THE COSTS OF PUTTING OUT TODAY'S EXAMINER; ISN'T
14 THAT RIGHT?
15 A. THAT'S RIGHT.
16 Q. NOW, YOU MENTIONED THE MEETING WITH MR. FLAHERTY. THAT
17 OCCURRED AT HIS CONDOMINIUM?
18 A. I THINK IT'S A CONDOMINIUM HE RENTED, YES.
19 Q. AND THAT WAS ON THE 9TH OR 10TH OF FEBRUARY, RIGHT?
20 A. THAT'S RIGHT.
21 Q. FOLLOWING YOUR MEETING THE WEEK BEFORE WITH MR. REILLY,
22 RIGHT?
23 A. CORRECT.
24 Q. AND THE MEETING TOOK PRETTY MUCH THE WHOLE DAY; ISN'T THAT
25 RIGHT?
1126
INGRAM - CROSS / LINDSTROM
1 A. MOST OF THE DAY.
2 Q. AND AT THE END OF THE MEETING, THERE WAS A TELEPHONE
3 CONVERSATION BETWEEN MR. FLAHERTY AND MR. REILLY; ISN'T THAT
4 RIGHT?
5 A. TOWARDS THE END OF THE DAY, MID-AFTERNOON, I WOULD SAY.
6 Q. YOU HEARD MR. FLAHERTY'S SIDE OF THAT CONVERSATION; ISN'T
7 THAT TRUE?
8 A. YES.
9 Q. AND ONE OF THE THINGS MR. FLAHERTY PROMISED MR. REILLY WAS
10 A REPORT; ISN'T THAT RIGHT?
11 A. YES.
12 Q. AND, AS THINGS TURNED OUT, YOU WERE CHARGED WITH THE
13 RESPONSIBILITY FOR PREPARING THE REPORT; ISN'T THAT RIGHT?
14 A. THAT'S RIGHT.
15 Q. EXHIBIT PLAINTIFF'S 23 IN EVIDENCE, WHICH MR. SHULMAN
16 SHOWED YOU, IS THAT REPORT?
17 A. CORRECT.
18 (PAUSE IN THE PROCEEDINGS.)
19 MR. ALIOTO: (INDICATING).
20 MR. LINDSTROM: THANK YOU, MR. ALIOTO.
21 BY MR. LINDSTROM:
22 Q. THIS IS THE DOCUMENT ENTITLED "EXAMINER PHASE IN PLAN TIME
23 LINE AND HEARST'S PHASE IN OBLIGATION," CORRECT?
24 A. YES.
25 Q. AND DOWN AT THE BOTTOM, AS MR. SHULMAN INDICATED, THERE IS
1127
INGRAM - CROSS / LINDSTROM
1 A FOOTER.
2 THIS DOCUMENT WAS PRODUCED ON YOUR COMPUTER; ISN'T
3 THAT RIGHT, SIR?
4 A. THE DOCUMENT WAS PREPARED ON MY COMPUTER AND SENT TO ALAN
5 FLAHERTY, AND THAT DOCUMENT YOU ARE LOOKING AT WAS PRODUCED ON
6 HIS COMPUTER.
7 Q. ALL RIGHT. IN FACT, YOU PRODUCED THE REPORT AND TRIED TO
8 SEND TO IT MR. REILLY, BUT YOU WERE UNABLE TO GET IT
9 COMMUNICATED TO HIM; ISN'T THAT RIGHT?
10 A. THAT'S RIGHT.
11 Q. SO YOU SENT TO IT MR. FLAHERTY?
12 A. WELL, THAT ISN'T EXACTLY THE WAY IT WENT. I SENT IT TO
13 FLAHERTY, THEN TO WEAVER. THEY REVIEWED IT AND WE ADDED ONE
14 PARAGRAPH TO THE TOP AND I -- AND I TRIED TO SEND IT AND
15 FLAHERTY WAS THE ONE THAT MANAGED TO GET IT THROUGH. I DIDN'T
16 SEND IT BACK TO HIM TO SEND.
17 Q. ALL RIGHT. IN ANY EVENT, THE TEXT OF THE REPORT WAS
18 PREPARED BY YOU WORKING AT YOUR COMPUTER; ISN'T THAT RIGHT?
19 A. RIGHT.
20 Q. AND ONE OF THE THINGS YOU DID WAS PULL TOGETHER THE INPUT
21 THAT THE THREE EXPERTS EXCHANGED IN THE MEETING IN ORANGE
22 COUNTY; ISN'T THAT RIGHT?
23 A. RIGHT.
24 Q. NOW, IF WE TURN TO BATES STAMP PAGE R005, WE SEE HERE "SAN
25 FRANCISCO EXAMINER ESTIMATED EXPENSES."
1128
INGRAM - CROSS / LINDSTROM
1 IN THE RIGHT-HAND COLUMN THERE IS AN INDICATION OF
2 CURRENT EXPENSE; ISN'T THAT RIGHT?
3 A. RIGHT.
4 Q. AND THAT WAS INTENDED TO BE AN INDICATION OF THE EXPENSE
5 TODAY OF PUTTING OUT THE EXAMINER; ISN'T THAT RIGHT?
6 A. I ASSUME SO. THIS IS NOT MY DOCUMENT. THIS IS MIKE
7 WEAVER'S DOCUMENT.
8 Q. THAT WAS YOUR UNDERSTANDING, WAS IT NOT, SIR --
9 A. IT WAS.
10 Q. -- IN PUTTING TOGETHER THIS REPORT FOR MR. REILLY?
11 A. YES.
12 Q. AND IT WAS FURTHER YOUR UNDERSTANDING THAT THE ESTIMATE
13 THAT THE THREE OF YOU WERE SUBMITTING WAS $80,800,000 AS THE
14 COST OF PRODUCING TODAY'S EXAMINER; ISN'T THAT RIGHT?
15 A. YES.
16 Q. NOW, YOU TOLD US DURING DIRECT EXAMINATION THAT THIS WAS A
17 NUMBER THAT WAS PRODUCED BY MR. WEAVER, RIGHT?
18 A. RIGHT.
19 Q. NOW, YOU UNDERSTOOD, DID YOU NOT, THAT ONE OF THE REASONS
20 MR. REILLY HIRED YOU IS SO THAT YOUR EXPERIENCE IN PRODUCING
21 THE EXAMINER FOR EIGHT YEARS WOULD BE BROUGHT TO BEAR ON THIS
22 ASSIGNMENT; ISN'T THAT RIGHT?
23 A. SURE.
24 Q. AND YOU INCLUDED THIS NUMBER OF $80,800,000 IN YOUR REPORT
25 TO MR. REILLY; ISN'T THAT TRUE?
1129
INGRAM - CROSS / LINDSTROM
1 A. THAT'S RIGHT.
2 Q. AND YOU DIDN'T INDICATE TO HIM IN ANY WAY, SHAPE OR FORM
3 THAT THIS NUMBER WAS IN ANY WAY UNRELIABLE, DID YOU?
4 A. I DON'T KNOW THAT IT'S UNRELIABLE.
5 Q. AND, IN FACT, YOU VIEW IT AS A REASONABLE ESTIMATE OF THE
6 COSTS OF PRODUCING TODAY'S EXAMINER; ISN'T THAT TRUE, SIR?
7 A. I THINK SO.
8 Q. NOW, IN YOUR JUDGMENT THE COST STRUCTURE OF THE EXISTING
9 EXAMINER, THIS $80 MILLION THAT WE HAVE SEEN, WAS OVERPRICED
10 RELATIVE TO THE REVENUE OF THE PAPER; ISN'T THAT RIGHT?
11 A. I WOULD LIKE TO TRY THAT AGAIN?
12 Q. ISN'T IT TRUE, SIR, THAT IN YOUR DEPOSITION YOU TOLD ME
13 THAT YOUR VIEW WAS THAT THIS COST STRUCTURE OF PUTTING OUT
14 TODAY'S EXAMINER, SOME $80 MILLION AS WE HAVE JUST SEEN, WAS
15 OVERPRICED RELATIVE TO THE REVENUE EARNED BY THAT PAPER?
16 A. I AGREE WITH THAT.
17 Q. AND, INDEED, YOU EXPRESSED THE VIEW THAT THE OPPORTUNITY
18 FOR THE CURRENT EXAMINER TO GENERATE SUFFICIENT REVENUE TO
19 COVER AN $80 MILLION COST STRUCTURE WAS IN YOUR WORDS
20 "NON-EXISTENT," ISN'T THAT RIGHT?
21 A. THAT'S RIGHT.
22 Q. NOW, IT WAS YOUR VIEW AND YOUR VIEW TODAY THAT IF ANALYZED
23 ON A STAND-ALONE BASIS, TODAY'S EXAMINER WAS LOSING MONEY;
24 ISN'T THAT CORRECT?
25 A. I DON'T KNOW HOW YOU CAN ANALYZE ON A STAND-ALONE BASIS.
1130
INGRAM - CROSS / LINDSTROM
1 BUT IF THE CURRENT EXPENSES ARE TO BE TAKEN AS A STAND-ALONE
2 BASIS, I'D SAY YOU'RE RIGHT.
3 Q. YOU WERE PRESENT AT THE MARCH 25TH MEETING OF THE REILLY
4 EXPERTS; ISN'T THAT RIGHT?
5 A. YES.
6 Q. AND DO YOU RECALL MR. CLANCY STATING HIS OPINION THAT ON A
7 STAND-ALONE BASIS TODAY'S EXAMINER WOULD BE LOSING AT LEAST
8 $20 MILLION?
9 A. I THINK I RECALL THAT.
10 Q. AND YOU DIDN'T DISAGREE WITH HIM, DID YOU, SIR?
11 A. NO.
12 Q. IN FACT, IT WAS YOUR OPINION THAT IT WAS PROBABLY AT LEAST
13 THAT MUCH; ISN'T THAT RIGHT?
14 A. I THINK SO.
15 Q. AND, IN FACT, IT IS YOUR OPINION THAT THE LOSSES SUSTAINED
16 TODAY BY THE EXAMINER, IF ANALYZED ON A STAND-ALONE BASIS, ARE
17 MORE ON THE ORDER OF 30 TO $50 MILLION; ISN'T THAT TRUE, SIR?
18 A. I THINK THAT'S PROBABLY RIGHT.
19 Q. AND THAT'S BASED, AMONG OTHER THINGS, ON YOUR EXPERIENCE
20 IN RUNNING THIS PAPER FOR EIGHT YEARS; ISN'T THAT RIGHT?
21 A. RUNNING A PART OF THE PAPER.
22 Q. WELL, WERE YOU NOT SENIOR VICE PRESIDENT IN CHARGE OF
23 OPERATIONS FOR THE SAN FRANCISCO NEWS AGENCY?
24 A. THAT'S RIGHT.
25 Q. AND DIDN'T YOUR RESPONSIBILITIES INCLUDE PUTTING OUT THIS
1131
INGRAM - CROSS / LINDSTROM
1 PAPER?
2 A. PUTTING OUT THE PAPER, NOT THE REVENUE SIDE.
3 Q. NOW, MR. FLAHERTY WASN'T AT THE MARCH 25TH MEETING, WAS
4 HE?
5 A. NO.
6 Q. HE HAD BEEN DROPPED FROM THE TEAM; ISN'T THAT TRUE?
7 A. HE HAD TAKEN A VACATION IN THE MIDDLE OF IT AND THE -- BY
8 THE TIME HE GOT BACK IT HAD PRETTY MUCH WALKED AWAY FROM HIM.
9 Q. IN FACT, MR. REILLY HAD WALKED AWAY FROM MR. FLAHERTY;
10 ISN'T THAT TRUE, SIR?
11 A. I DON'T KNOW.
12 Q. ISN'T IT TRUE THAT MR. REILLY TOLD YOU HE WASN'T HAPPY
13 WITH THE SERVICES OF MR. FLAHERTY?
14 A. HE HAD MENTIONED THAT ONE TIME. HE DIDN'T MENTION
15 ANYTHING ABOUT TAKING FLAHERTY OFF THE TEAM.
16 Q. MR. FLAHERTY HAD EXPRESSED THE VIEW TO YOU THAT HE, TOO,
17 THOUGHT THE EXAMINER WAS LOSING MONEY; ISN'T THAT RIGHT?
18 A. WELL, I AM SURE HE DID.
19 Q. DO YOU RECALL HIM STATING "THIS DOG WOULD NEVER HUNT" OR
20 WORDS TO THAT EFFECT?
21 A. I DON'T REMEMBER THAT.
22 Q. DO YOU RECALL HIM STATING THAT HE DID NOT THINK THE
23 EXAMINER COULD BE MADE PROFITABLE UNDER ANY SCENARIO?
24 A. I HAVEN'T HEARD HIM SAY THAT. I HAVE HEARD OF HIM SAYING
25 THAT.
1132
INGRAM - CROSS / LINDSTROM
1 Q. HE TOLD THAT TO MR. REILLY, DIDN'T HE?
2 A. HE MAY HAVE.
3 Q. WELL, MR. REILLY TOLD YOU THAT HE SAID THAT, DIDN'T HE?
4 A. WHAT I WAS TOLD IS THAT HE WAS VERY PESSIMISTIC AND HE
5 WASN'T COMING AT IT FROM A CONSTRUCTIVE DIRECTION.
6 Q. NOW, ISN'T IT TRUE, SIR, THAT MR. FLAHERTY EXPRESSED THE
7 VIEW TO YOU THAT THE EXAMINER COULD NOT BE MADE PROFITABLE
8 UNDER ANY SCENARIO?
9 A. HE EXPRESSED THE VIEW LIKE THAT IN OUR MEETING IN -- IN
10 ORANGE COUNTY.
11 Q. THAT WAS THE VERY FIRST MEETING OF THIS GROUP?
12 A. RIGHT.
13 Q. NOW, YOU ARE ALSO AWARE, ARE YOU NOT, THAT MR. FLAHERTY
14 PERFORMED AN INCREMENTAL ANALYSIS OF EXACTLY THE TYPE THAT THE
15 DEPARTMENT OF JUSTICE SAID SHOULD BE DONE IN THE HONOLULU CASE?
16 A. AM I AWARE OF THAT? NO, I AM NOT AWARE OF THAT.
17 Q. WELL, LET ME SHOW YOU EXHIBIT 1044 IN EVIDENCE.
18 THIS IS A MEMORANDUM FROM MR. FLAHERTY -- LET'S ZOOM
19 IN ON THE ADDRESSEES.
20 MIKE WEAVER, HE IS HERE IN THE COURTROOM, RIGHT?
21 A. YES.
22 Q. AND MR. WEAVER WAS THE FINANCIAL MEMBER OF YOUR TEAM,
23 RIGHT?
24 A. THAT'S RIGHT.
25 Q. AND LARRY INGRAM, THAT'S YOU, IS IT, SIR?
1133
INGRAM - CROSS / LINDSTROM
1 A. THAT'S RIGHT.
2 Q. NOW, IT'S YOUR TESTIMONY THAT ALTHOUGH THIS MEMO WAS
3 ADDRESSED TO YOU, YOU NEVER SAW IT BEFORE YOUR DEPOSITION;
4 ISN'T THAT RIGHT?
5 A. THAT'S RIGHT.
6 Q. NOW, LET'S ZOOM IN ON THE SECOND FULL PARAGRAPH, LAST
7 SENTENCE.
8 WELL, LET'S START WITH THE SECOND SENTENCE OF THIS
9 PARAGRAPH. MR. FLAHERTY INDICATES:
10 "WHILE THE EXAMINER NAME IS FAMILIAR THE
11 COST STRUCTURE BEHIND THAT NAME IS SO OVERPRICED
12 RELATIVE TO ITS REVENUE" --
13 YOU AGREE WITH THAT, RIGHT, SIR?
14 A. YES.
15 Q. AND THEN IN THE NEXT SENTENCE HE OFFERS THIS STATEMENT:
16 "IF DAILY EXAMINER WERE DROPPED, AGENCY
17 REVENUES WOULD DECLINE BY ABOUT 32 MILLION AND
18 THE COMBINED EXPENSES OF HEARST, CHRONICLE AND
19 AGENCY WOULD DECLINE BY $72 MILLION."
20 DO YOU SEE THAT?
21 A. I SEE IT.
22 Q. NOW, IT'S YOUR INTERPRETATION, IS IT NOT, OF THIS SENTENCE
23 THAT THE AGENCY WOULD BE $40 MILLION BETTER OFF IF IT DROPPED
24 THE EXAMINER?
25 A. THAT'S WHAT THAT SAYS.
1134
INGRAM - CROSS / LINDSTROM
1 Q. AND, IN FACT, THAT'S WHAT MR. FLAHERTY TOLD YOU; ISN'T
2 THAT RIGHT?
3 A. NO. AND I -- IF YOU RECALL, I -- I PUT ON THE -- THE
4 PIECE OF PAPER THAT I -- I WAS ASKED TO FILL OUT TO GO THROUGH
5 THE -- THE DISCOVERY INFORMATION THAT I HAD NOT SEEN THIS MEMO,
6 EVEN THOUGH IT WAS ADDRESSED TO ME, AND THAT WAS BEFORE MY
7 DEPOSITION.
8 Q. THIS MEMO IS A PROBLEM, ISN'T IT, SIR?
9 A. I DON'T SEE IT AS A PROBLEM. I DON'T KNOW IF YOU DO OR
10 NOT.
11 Q. DO YOU DISAGREE BASED ON YOUR BACKGROUND, TRAINING AND
12 EXPERIENCE WITH THE ASSERTION BY MR. FLAHERTY IN THIS DOCUMENT
13 THAT IF THE EXAMINER WERE DROPPED, AGENCY REVENUES WOULD
14 DECLINE BY ABOUT 32 MILLION AND THE COMBINED EXPENSES OF
15 HEARST, CHRONICLE AND AGENCY WOULD DECLINE BY 72 MILLION?
16 A. I THINK I AGREE WITH THAT.
17 Q. IT'S PRETTY CLOSE TO YOUR OWN ESTIMATE, ISN'T IT, SIR?
18 A. UH-HUH, THAT'S RIGHT.
19 Q. AND THE DETAIL BEHIND THESE FIGURES THAT MR. FLAHERTY
20 DESCRIBED, IT'S NOWHERE TO BE FOUND, IS IT?
21 A. I DON'T KNOW.
22 Q. YOU'VE NEVER SEEN THE DETAIL, HAVE YOU?
23 A. NO.
24 Q. NOW, AT YOUR DEPOSITION YOU TOLD ME THAT MR. FLAHERTY
25 TRANSFERRED TO YOU A LARGE AMOUNT OF DATA IN CONNECTION WITH
1135
INGRAM - CROSS / LINDSTROM
1 HIS WORK; ISN'T THAT RIGHT?
2 A. HE TRANSFERRED THE -- THE DATA THAT WE HAD PUT TOGETHER AT
3 THAT MEETING ONTO A DISK AND HE DOWNLOADED WHAT WAS ON HIS
4 DISK, AS WELL. I COULDN'T OPEN IT BECAUSE I DON'T HAVE EXCEL.
5 I HAVE LOTUS.
6 Q. NOW, YOU TOLD ME OF THE EXISTENCE OF THIS DOWNLOADED DATA
7 AT YOUR DEPOSITION, RIGHT?
8 A. RIGHT.
9 Q. AND THAT WAS SOME TWO WEEKS AGO, RIGHT?
10 A. RIGHT.
11 Q. NOW, HAVE YOU MADE ANY EFFORT TO SEARCH YOUR DATABASE TO
12 SEE WHETHER THIS DETAIL FROM MR. FLAHERTY IS IN FACT INCLUDED
13 IN THAT DOWNLOADED DATA?
14 A. NO.
15 Q. WHERE IS MR. FLAHERTY?
16 A. HE LIVES IN CINCINATTI.
17 Q. SOME 2,000 MILES AWAY?
18 A. I THINK THAT'S ABOUT RIGHT.
19 Q. NOW, MR. FLAHERTY WAS THE VERY FIRST EXPERT RETAINED BY
20 MR. REILLY; ISN'T THAT RIGHT?
21 A. I DON'T KNOW. I THOUGHT WE WERE ALL RETAINED AT THE SAME
22 TIME.
23 Q. WELL, CERTAINLY YOU AND MR. WEAVER AND MR. FLAHERTY WERE
24 RETAINED ABOUT THE SAME TIME; ISN'T THAT RIGHT?
25 A. RIGHT.
1136
INGRAM - CROSS / LINDSTROM
1 Q. BUT SINCE THEN MR. REILLY HAS RETAINED MR. SCHMIDT, RIGHT?
2 A. RIGHT.
3 Q. MR. PAGE?
4 A. RIGHT.
5 Q. MR. OSBORN?
6 A. THAT'S RIGHT.
7 Q. MR. FLOOD?
8 A. YES.
9 Q. DO YOU KNOW WHY MR. FLAHERTY ISN'T HERE TO TESTIFY AMONG
10 THE REILLY EXPERTS?
11 A. I ASSUME BECAUSE HE HASN'T BEEN INVOLVED IN IT SINCE THE
12 VERY FIRST.
13 Q. IT WOULDN'T HAVE ANYTHING TO DO WITH THE JUSTICE
14 DEPARTMENT'S POSITION IN HONOLULU, WOULD IT?
15 A. I DON'T THINK SO.
16 Q. NOW, LET'S TALK ABOUT THE SUBSIDY THAT'S DESCRIBED IN YOUR
17 DECLARATION AT PARAGRAPH 4. AT LINES 18 TO 19 YOU REFER TO "A
18 VIABLE PAPER WHICH WOULD BE COMPETITIVE TO THE CHRONICLE,"
19 ISN'T THAT RIGHT?
20 A. RIGHT.
21 Q. AND THEN IN THE NEXT LINE YOU AGAIN REFER TO "A VIABLE
22 COMPETITIVE PAPER." DO YOU SEE THAT REFERENCE?
23 A. YES.
24 Q. WHAT DO YOU MEAN BY THE TERM "VIABLE COMPETITIVE PAPER,"
25 AS USED IN YOUR DECLARATION?
1137
INGRAM - CROSS / LINDSTROM
1 A. A PAPER THAT CAN STAND ALONGSIDE THE CHRONICLE FROM A
2 READERSHIP STANDPOINT AND ATTRACT READERS COMPETITIVELY; FROM
3 THE ADVERTISING STANDPOINT TO PROVIDE THE -- THE ENVIRONMENT
4 THAT CAN -- CAN SELL ADVERTISING AGAINST THE -- AGAINST THE
5 CHRONICLE.
6 Q. AND YOU DESCRIBED THE CHARACTERISTICS OF SUCH A PAPER
7 DURING YOUR DIRECT EXAMINATION BY MR. SHULMAN, CORRECT?
8 A. RIGHT.
9 Q. AND, AMONG OTHER THINGS, IT WOULD NEED TO HAVE MINIMUM 85
10 TO 90,000 IN CIRCULATION, RIGHT?
11 A. THAT'S RIGHT.
12 Q. AND YOU DESCRIBED THE LENGTH OF THE PAPER AND THE CONTENT,
13 RIGHT?
14 A. THAT'S RIGHT.
15 Q. AND IT WAS YOUR BEST JUDGMENT THAT THAT VIABLE COMPETITIVE
16 PAPER, ONCE ESTABLISHED, WOULD COST ABOUT $50 MILLION A YEAR TO
17 PUT OUT; ISN'T THAT RIGHT?
18 A. RIGHT.
19 Q. NOW, WHAT MARKET WAS TO BE SERVED BY THIS VIABLE
20 COMPETITIVE PAPER THAT YOU ENVISION IN YOUR DECLARATION?
21 A. THE MARKET WAS A SAN FRANCISCO MARKET, SAN FRANCISCO
22 COUNTY AND THE PORTIONS OF THE CONTIGUOUS COUNTIES THAT
23 BASICALLY MAKE UP THE SAN FRANCISCO MARKET.
24 Q. ALL RIGHT. AND THAT MARKET DOESN'T STOP AT THE BOUNDARIES
25 OF THE CITY AND COUNTY OF SAN FRANCISCO, IN YOUR JUDGMENT, DOES
1138
INGRAM - CROSS / LINDSTROM
1 IT?
2 A. NO.
3 Q. AND, IN FACT, IT INCLUDES NORTH SAN MATEO COUNTY; ISN'T
4 THAT RIGHT?
5 A. YES.
6 Q. AND MARIN COUNTY?
7 A. A PORTION OF MARIN COUNTY.
8 Q. WHAT PORTION?
9 A. THE -- THE SOUTHERN PORTION OF MARIN COUNTY AND PROBABLY
10 JUST THE STREET SALE PORTION OF IT.
11 Q. IT ALSO INCLUDES THE EAST BAY WEST OF THE BERKELEY HILLS
12 IN YOUR JUDGMENT; ISN'T THAT RIGHT?
13 A. YES.
14 Q. NOW, WHY WOULD THESE OUTLYING AREAS BE INCLUDED, IN YOUR
15 JUDGMENT, IN THE SAN FRANCISCO MARKET?
16 A. BECAUSE THESE ARE -- THESE ARE AREAS WHERE THE PEOPLE WHO
17 LIVE THERE WORK AND SHOP IN SAN FRANCISCO AND CONSIDER
18 THEMSELVES PART OF SAN FRANCISCO AND ARE ATTRACTIVE TO THE --
19 TO THE ADVERTISERS IN SAN FRANCISCO.
20 Q. IN YOUR EXPERIENCE SAN FRANCISCO ADVERTISERS WANT TO REACH
21 THIS GROUP AS PART OF THEIR ADVERTISING EFFORT; ISN'T THAT
22 RIGHT?
23 A. THAT'S -- THAT'S RIGHT.
24 Q. SO THE ADVERTISERS ARE DEFINING THE MARKET FOR YOU; ISN'T
25 THAT TRUE?
1139
INGRAM - CROSS / LINDSTROM
1 A. YES.
2 Q. NOW, A COUPLE TIMES DURING YOUR DIRECT EXAMINATION YOU
3 REFERRED TO THE METROPOLITAN AREA OF SAN FRANCISCO.
4 DO YOU RECALL THAT TESTIMONY?
5 A. YES.
6 Q. IS THAT METROPOLITAN MARKET THAT YOU DESCRIBED THE SAME
7 ONE THAT YOU HAVE JUST NOW TOLD US ABOUT?
8 A. I THINK SO.
9 Q. IN OTHER WORDS, INCLUDING PARTS OF MARIN, SAN MATEO AND
10 THE EAST BAY, RIGHT?
11 A. RIGHT.
12 Q. NOW, MR. REILLY'S CONTEMPLATED EXAMINER WOULD HAVE
13 COMPETED IN ALL OF THESE AREAS THAT YOU HAVE JUST IDENTIFIED;
14 ISN'T THAT RIGHT?
15 A. YES.
16 Q. AND THE CHRONICLE COMPETES IN ALL OF THESE AREAS, AS WELL;
17 ISN'T THAT RIGHT?
18 A. THAT'S RIGHT.
19 Q. AND IN THOSE AREAS BOTH PAPERS HAVE TO COMPETE AGAINST
20 OTHERS; ISN'T THAT TRUE?
21 A. IN SOME OF THOSE AREAS.
22 Q. WELL, FOR EXAMPLE, IN MARIN BOTH PAPERS WOULD BE REQUIRED
23 TO COMPETE AGAINST THE MARIN INDEPENDENT JOURNAL; ISN'T THAT
24 RIGHT?
25 A. THAT'S RIGHT.
1140
INGRAM - CROSS / LINDSTROM
1 Q. AND IN THE EAST BAY YOU WOULD BE REQUIRED TO COMPETE
2 AGAINST THE OAKLAND TRIBUNE AND OTHER EAST BAY PAPERS; ISN'T
3 THAT RIGHT?
4 A. TO SOME EXTENT.
5 Q. AND IN SAN MATEO YOU WOULD BE REQUIRED TO COMPETE WITH THE
6 PENINSULA PAPERS, SUCH AS THE SAN JOSE MERCURY NEWS; ISN'T THAT
7 RIGHT?
8 A. TO AN EXTENT.
9 Q. AND YOU TOLD US TODAY ABOUT THE SAN MATEO TIMES. THAT
10 WOULD BE A COMPETITOR, AS WELL; ISN'T THAT RIGHT?
11 A. TO AN EXTENT.
12 Q. BOTH FOR THE CHRONICLE AND THE REILLY CONTEMPLATED
13 EXAMINER; ISN'T THAT RIGHT?
14 A. THAT'S RIGHT.
15 Q. AND, IN FACT, IN YOUR DEPOSITION YOU TOLD ME THAT WHILE AT
16 THE AGENCY THE CHRONICLE AND THE SAN JOSE MERCURY HAD ATTEMPTED
17 TO BEAT ONE ANOTHER OVER THE HEADS ON MORE THAN ONE OCCASION;
18 IS THAT RIGHT?
19 A. YES.
20 Q. IN COMPETITION, RIGHT?
21 A. IT WASN'T COMPETITION OF WORK. THERE IS A LINE IN THERE
22 THAT NEITHER OF US SEEM TO BE ABLE TO GO INTO THE OTHER
23 PERSON'S TURF.
24 Q. BUT BOTH SIDES WERE ATTEMPTING TO EXPAND THAT LINE; IS
25 THAT RIGHT?
1141
INGRAM - CROSS / LINDSTROM
1 A. AT THE TIME I WAS THERE IT WAS SOMETHING WE DIDN'T TRY
2 VERY HARD TO DO BECAUSE IT DIDN'T WORK.
3 Q. NOW, THE SUBSIDY THAT YOU'VE DESCRIBED OF $50 MILLION,
4 THAT ASSUMES LITTLE TO NO OFFSETTING REVENUE DURING THE SUBSIDY
5 PERIOD, CORRECT?
6 A. YES.
7 Q. AND THAT SUBSIDY, FOR THE RECORD, MEANS JUST TO GET TO
8 BREAK EVEN; ISN'T THAT RIGHT?
9 A. THAT'S RIGHT.
10 Q. IN OTHER WORDS, THE SUBSIDY THAT YOU'VE DESCRIBED IN YOUR
11 DECLARATION DOESN'T INCLUDE ANY OPERATING PROFIT; ISN'T THAT
12 RIGHT?
13 A. THAT'S RIGHT.
14 Q. AND THERE IS NOTHING THERE FOR A RETURN ON INVESTMENT,
15 CORRECT?
16 A. IT'S -- IT'S A BREAK EVEN. IT'S NOT -- IT'S NOT A PROFIT
17 ENTERPRISE DURING THE SUBSIDY PERIOD.
18 Q. NOW, THE SUBSIDY THAT YOU'VE DESCRIBED IN YOUR JUDGMENT
19 WOULD BE REQUIRED NO MATTER WHO WAS TO OPERATE THIS NEW
20 EXAMINER; ISN'T THAT TRUE?
21 A. YES.
22 Q. IN OTHER WORDS, IT DOESN'T MATTER WHETHER IT'S THE FANGS
23 OR MR. REILLY. IT'S STILL GOING TO COST $50 MILLION A YEAR IN
24 SUBSIDY FOR FIVE YEARS, RIGHT?
25 A. THAT'S MY BELIEF.
1142
INGRAM - CROSS / LINDSTROM
1 Q. IN YOUR JUDGMENT THE SAME WOULD BE TRUE IF GANNETT WERE TO
2 PURCHASE THE PAPER, RIGHT?
3 A. THERE ARE SOME DIFFERENCES THERE. IT'S GOING TO COST THAT
4 MUCH TO RUN IT. GANNETT HAS -- HAS RESOURCES, PERSONNEL AND
5 THINGS OF THAT NATURE, THAT THEY CAN CALL AND IT MAY CHANGE THE
6 PICTURE SOMEWHAT BUT PROBABLY NOT A LOT.
7 Q. ISN'T IT TRUE, SIR, THAT IN YOUR JUDGMENT IF HEARST ITSELF
8 WERE TO ATTEMPT TO OPERATE THIS PAPER FOLLOWING THE EXPIRATION
9 OF THE JOA, IT WOULD NEED RESOURCES OF $50 MILLION A YEAR TO
10 SUBSIDIZE THE LOSSES THAT WOULD BE OTHERWISE INCURRED?
11 A. IT MAY VERY WELL NEED MORE IF HEARST RAN IT.
12 Q. NOW, THE INITIAL GOAL OF MR. REILLY WAS TO ACQUIRE THE
13 EXAMINER FOR HIMSELF; ISN'T THAT RIGHT?
14 A. YES.
15 Q. AND FOLLOWING YOUR FIRST MEETING WITH MR. WEAVER AND
16 MR. REILLY, YOU HAD LUNCH THE NEXT DAY WITH MR. REILLY; ISN'T
17 THAT RIGHT?
18 A. YES.
19 Q. AND THAT WAS AFTER YOU HAD REVIEWED THIS ROOM FULL OF DUE
20 DILIGENCE MATERIALS THAT HEARST HAD MADE AVAILABLE TO HIM AS A
21 PROSPECTIVE BUYER AT THE LAW OFFICES OF HEARST'S COUNSEL; ISN'T
22 THAT RIGHT?
23 A. YES.
24 Q. AND, OF COURSE, YOU HAD SEEN THE VERONIS SUHLER REPORT,
25 RIGHT?
1143
INGRAM - CROSS / LINDSTROM
1 A. I HADN'T STUDIED IT. I HAD SEEN IT.
2 Q. AS OF THAT POINT IN TIME YOU HADN'T STUDIED IT?
3 A. RIGHT.
4 Q. AND DURING YOUR LUNCH, YOU AND MR. REILLY TALKED ABOUT HIS
5 GOALS AND OBJECTIVES, DIDN'T YOU?
6 A. YES.
7 Q. AND THE NEXT MONDAY YOU CALLED MR. FLAHERTY; ISN'T THAT
8 RIGHT?
9 A. MAY HAVE.
10 Q. AND YOU GAVE HIM A REPORT ON YOUR CONVERSATION WITH
11 MR. REILLY; ISN'T THAT TRUE?
12 A. I THINK SO.
13 Q. AND YOU TOLD MR. FLAHERTY THAT MR. REILLY WAS LOOKING FOR
14 A FINANCIAL HOME RUN; ISN'T THAT RIGHT?
15 A. YES.
16 Q. AND THAT'S WHAT MR. REILLY HAD TOLD YOU; ISN'T THAT TRUE?
17 A. MR. REILLY TOLD ME THAT HE WANTED TO PURCHASE THE PAPER.
18 HE FELT THAT -- THAT HE HAD INTEREST IN -- IN GETTING INTO THAT
19 BUSINESS AND THAT HE FELT THAT WOULD BE A HOME RUN. HE WOULD
20 LIKE TO HAVE THAT PAPER. HE WOULD LIKE TO MAKE IT WORK. HE
21 FELT VERY STRONGLY ABOUT THE NEED FOR TWO PAPERS THERE AND HIS
22 BACKGROUND AS A POLITICAL CONSULTANT AND . . .
23 Q. ISN'T IT TRUE, SIR, THAT YOU TOLD MR. FLAHERTY THAT CLINT
24 REILLY WAS LOOKING FOR A FINANCIAL HOME RUN?
25 A. I THINK HE FIGURED THAT WOULD BE A FINANCIAL HOME RUN.
1144
INGRAM - CROSS / LINDSTROM
1 Q. ISN'T IT TRUE, SIR, THAT YOU TOLD MR. FLAHERTY THAT
2 PLAINTIFF REILLY WAS LOOKING FOR A FINANCIAL HOME RUN?
3 A. PROBABLY.
4 Q. AND YOU ALSO TOLD MR. FLAHERTY IN THAT CONVERSATION THAT
5 CLINT WANTS TO GET EXAMINER AT LOW RISK. ISN'T THAT RIGHT?
6 A. SURE.
7 Q. AND MR. REILLY HAD TOLD YOU HE DIDN'T WANT TO PUT ANY OF
8 HIS OWN MONEY INTO THIS PAPER, DIDN'T HE?
9 A. NO, HE DID NOT TELL ME THAT.
10 Q. ISN'T IT TRUE THAT CLINT SAID HE DOES NOT WANT TO INVEST
11 MUCH CAPITAL?
12 A. CLINT WANTED TO KNOW WHAT HIS EXPOSURE WOULD BE AND TRIED
13 TO MINIMIZE IT. HE ON MANY OCCASIONS HAD MENTIONED THE FACT
14 THAT AT SOME POINT HE MIGHT BRING A FAIR AMOUNT OF HIS CAPITAL
15 TO BEAR ON THE PROJECT.
16 Q. DID YOU TELL MR. FLAHERTY IN YOUR CONVERSATION ON MONDAY,
17 THE 6TH OF FEBRUARY, CLINT DOES NOT WANT TO INVEST MUCH
18 CAPITAL, YES OR NO?
19 A. I DON'T BELIEVE I DID.
20 Q. NOW, YOU ALSO TOLD MR. FLAHERTY THAT MR. REILLY WANTED
21 ANOTHER ASSET FROM HEARST; IS THAT RIGHT?
22 A. ONE OF HIS APPROACHES TO PUTTING THE DEAL TOGETHER WAS TO
23 PROTECT HIMSELF WITH -- WITH SOME REAL ESTATE ASSETS BECAUSE HE
24 UNDERSTOOD REAL ESTATE. AND THERE WAS OTHER PROPERTIES OUT
25 THERE THAT WE TOLD HIM THAT HE NEEDED TO MAKE THE THING RUN --
1145
INGRAM - CROSS / LINDSTROM
1 RUN PROPERLY LIKE THE BRANNAN STREET GARAGE AND THE PARKING.
2 AND -- AND MR. REILLY LOOKED AT THOSE AS PART -- AS A POTENTIAL
3 PART OF THE PACKAGE, THAT IF THINGS FAILED WOULD ALLOW HIM TO
4 COVER SOME OF HIS COSTS.
5 Q. BECAUSE THAT REAL ESTATE HAD VALUES APART FROM THE
6 NEWSPAPER BUSINESS, CORRECT?
7 A. YES.
8 Q. ALL RIGHT. AND HE WAS TRYING FOR THE MARKET STREET OFFICE
9 BUILDING AND GARAGE; ISN'T THAT RIGHT?
10 A. THE MARKET STREET? THE -- THERE IS NOT A GARAGE THERE.
11 ARE YOU TALKING ABOUT THE 1010 FIFTH?
12 Q. I AM TALKING ABOUT WHAT YOU TOLD MR. FLAHERTY ON THE 6TH.
13 WHAT DID YOU TELL HIM THAT MR. REILLY WAS INTERESTED IN?
14 A. IN THE -- THE 1010 BUILDING WAS IN THE -- IN THE
15 PROSPECTUS. WE HAD ADVISED HIM AND I HAD ADVISED HIM THAT
16 THE -- THE BRANNAN STREET GARAGE SHOULD BE MADE PART OF IT AND
17 THAT THERE WAS PROPERTY BETWEEN MARKET AND, I GUESS, THAT'S
18 HOWARD STREET THAT WAS BEING USED FOR PARKING AND THEY
19 NEEDED -- THEY WOULD NEED THAT, AS WELL, FOR PARKING FOR
20 EMPLOYEES AND TRUCKS BECAUSE THEY WERE GOING TO LOSE THE REST
21 OF THE PARKING.
22 Q. YOU SAID --
23 A. AND TO TRY TO MAKE IT PART OF THE DEAL.
24 Q. YOU SUGGESTED HE MIGHT ALSO GET THE FIFTH AND BRANNAN
25 SITE, CORRECT?
1146
INGRAM - CROSS / LINDSTROM
1 A. RIGHT.
2 Q. ALL RIGHT. NOW, BOTH OF THESE SITES ARE BELOW MARKET
3 STREET; ISN'T THAT RIGHT?
4 A. YES.
5 Q. AND THERE IS AN AWFUL LOT GOING DOWN THERE RIGHT NOW IN
6 THE WAY OF REAL ESTATE DEVELOPMENT; ISN'T THAT TRUE?
7 A. I ASSUME THAT'S TRUE. I DON'T LIVE IN THE AREA ANY
8 LONGER.
9 Q. WELL, DO YOU HAVE ANY VIEW, AS YOU SIT HERE, WHETHER THOSE
10 REAL ESTATE PARCELS MIGHT BE MORE VALUABLE IF PUT TO ANOTHER
11 USE?
12 A. I DON'T HAVE ANY OPINION ON THAT.
13 Q. YOU REGARD MR. REILLY AS A PRETTY SAVVY REAL ESTATE
14 INVESTOR, DO YOU NOT?
15 A. I ASSUME HE IS. HE DIDN'T COME UP WITH THOSE NOTIONS.
16 THOSE ARE THE PIECES OF PROPERTY THAT I POINTED OUT TO HIM.
17 Q. ISN'T IT TRUE THAT THE REASON MR. REILLY IS HAPPY AS A FOX
18 IN THE HEN HOUSE IS HE THOUGHT HE WAS GOING TO BE ABLE TO GET
19 THESE REAL ESTATE PARCELS AS PART OF THIS DEAL?
20 A. NO. AS I RECALL THE CONVERSATION I HAD WITH HIM, REAL
21 ESTATE WASN'T COMING TO PLAY IN THERE. HE WAS -- HE DIDN'T
22 BELIEVE GOING IN THAT MEETING THAT -- THAT THE NEGOTIATIONS
23 MIGHT -- MIGHT BE HEADING IN THE RIGHT DIRECTION. HE CAME OUT
24 OF THE MEETING BELIEVING THAT THE HEARST CORPORATION REALLY
25 WANTED TO MAKE A DEAL AND HE WAS GOING TO BE ABLE TO DO THE
1147
INGRAM - CROSS / LINDSTROM
1 DEAL.
2 Q. NOW, EXHIBIT 305 IN EVIDENCE -- IT'S THE ONE MR. HOCKETT
3 SHOWED YOU. THIS IS THE "FOX IN THE HEN HOUSE" MEMO, RIGHT?
4 A. RIGHT.
5 Q. NOW, THIS IS AN E-MAIL SENT BY YOU ON FEBRUARY 13TH,
6 RIGHT?
7 A. YES.
8 Q. AND AS OF THAT POINT IN TIME, MR. REILLY FELT VERY
9 POSITIVELY ABOUT HIS ABILITY TO MAKE A GOOD DEAL, RIGHT?
10 A. TO MAKE A DEAL, THAT'S RIGHT.
11 Q. THAT WAS THE FINANCIAL HOME RUN THAT WE TALKED ABOUT
12 EARLIER; IS THAT TRUE?
13 A. NO.
14 Q. JUST A GOOD DEAL?
15 A. IT WAS -- HE -- HE -- HE FELT COMING OUT OF THAT MEETING
16 THAT THERE WAS GOING TO BE SERIOUS NEGOTIATIONS TO SELL THAT
17 PAPER AND STRUCTURED IN A WAY THAT -- THAT IT WOULD HAVE A
18 CHANCE TO BE SUCCESSFUL.
19 Q. AND WHEN YOU TALKED WITH MR. REILLY LATER IN EARLY MARCH,
20 THE TIDE HAD TURNED; ISN'T THAT RIGHT?
21 A. THEY HAD HAD A MEETING THAT HADN'T GONE WELL, BUT I AM NOT
22 SURE WHAT THE -- EXACTLY WHAT THE PROBLEM WAS. BUT I KNOW IT
23 DIDN'T GO WELL.
24 Q. WELL, LET ME TELL YOU -- LET ME ASK YOU TO LOOK HERE AT
25 EXHIBIT 321 IN EVIDENCE. THIS IS ANOTHER E-MAIL WITH YOUR
1148
INGRAM - CROSS / LINDSTROM
1 HANDLE "BRASS MONKEY 2," RIGHT?
2 A. RIGHT.
3 Q. THAT'S YOUR E-MAIL ADDRESS?
4 A. RIGHT.
5 Q. AND YOU ARE RELAYING TO MR. WEAVER THE GIST OF THE
6 CONVERSATION YOU JUST HAD WITH MR. REILLY; ISN'T THAT RIGHT?
7 A. RIGHT.
8 Q. AND THIS IS A CONVERSATION THAT HAD OCCURRED ON THE 4TH OF
9 MARCH, RIGHT?
10 A. YES.
11 Q. AND THE CONTEXT HERE IS HE HAD BEEN IN NEW YORK MEETING
12 WITH HEARST REPRESENTATIVES, RIGHT?
13 A. I DON'T THINK HE WAS IN NEW YORK. I THINK -- I THINK HE
14 WAS HERE.
15 Q. ALL RIGHT. IN ANY EVENT, THE CONTEXT WAS HE HAD MET WITH
16 HEARST REPRESENTATIVES; ISN'T THAT TRUE?
17 A. YES.
18 Q. ALL RIGHT. AND HE TOLD YOU THAT THINGS WENT BADLY; ISN'T
19 THAT RIGHT?
20 A. THAT'S RIGHT.
21 Q. AND ONE OF THE THINGS THAT WENT BADLY WAS THAT HIS SIDE,
22 AS HE TOLD YOU, WAS DISORGANIZED; ISN'T THAT RIGHT?
23 A. THEY HADN'T HAD A CHANCE TO GET TOGETHER BEFORE THE
24 MEETING.
25 Q. AND HE SUGGESTED, MR. REILLY SUGGESTED, THAT THE MEETING
1149
INGRAM - CROSS / LINDSTROM
1 HAD BEEN A WASTE OF TIME; ISN'T THAT RIGHT?
2 A. I DON'T THINK HE SAID IT WAS A WASTE OF TIME. HE FELT THE
3 MEETING HAD GONE VERY POORLY.
4 Q. AND DID HE TELL YOU WHAT MR. ASHER'S REACTION WAS TO THE
5 MEETING?
6 A. AS I RECALL -- I AM NOT SURE HE TOLD ME WHAT THE REACTION
7 WAS OTHER THAN THEY DIDN'T GET ANYWHERE AND MR. ASHER WAS GOING
8 TO, AS IT SAYS HERE, GET BACK TO HIM ON MONDAY.
9 Q. OKAY. DID MR. REILLY TELL YOU THAT THEY, REFERRING TO HIS
10 SIDE, WERE COMPLETELY UNCOORDINATED?
11 A. HE SAID THEY HAD MISSED THE OPPORTUNITY TO GET TOGETHER
12 AND COORDINATE THEMSELVES BEFORE THE MEETING. I DON'T REMEMBER
13 HIM SAYING THAT THEY WERE COMPLETELY UNCOORDINATED BUT HE MAY
14 HAVE.
15 Q. AND THEN IN THE NEXT SENTENCE DID MR. REILLY TELL YOU THAT
16 HE HAD HAD A RESTLESS NIGHT THINKING OVER OUR CONCERNS?
17 A. YES.
18 Q. AND YOU HAD TOLD HIM, HAD YOU NOT, IN SUM OR SUBSTANCE
19 THAT THIS PAPER WASN'T GOING TO BE THE FINANCIAL HOME RUN HE
20 WAS HOPING FOR; ISN'T THAT RIGHT?
21 A. NO.
22 Q. ISN'T IT TRUE, SIR, THAT YOU TOLD MR. REILLY, YOU AND
23 MR. WEAVER, THAT THIS PAPER WAS NOT LIKELY EVER GOING TO BE
24 PROFITABLE UNDER THESE SCENARIOS?
25 A. NO. WHAT WE HAD TOLD HIM IS THAT THE -- THE WAY THE DEAL
1150
INGRAM - CROSS / LINDSTROM
1 WAS GETTING CONSTRUCTED FROM HEARST'S SIDE, IT WAS GOING TO
2 MAKE THE -- IT WOULD MAKE THE PAPER FAIL, NOT MAKE IT BE
3 UNPROFITABLE, THAT IT WOULD FAIL, THAT THE RESTRICTIONS THAT
4 THEY WERE PLACING ON HIM AS PART OF THIS DEAL, WHICH WAS 50,000
5 PRINT ORDER DAILY AND NO SUNDAY, DID NOT PROVIDE FOR A PAPER
6 THAT COULD SUCCEED IN SAN FRANCISCO, ATTRACT ADVERTISING AND/OR
7 READERS.
8 Q. ISN'T IT YOUR TESTIMONY, SIR, HERE TODAY THAT THE
9 EXAMINER, NO MATTER WHO RUNS IT, IS GOING TO FAIL UNLESS IT'S
10 SUPPORTED BY A $50 MILLION SUBSIDY FOR FIVE YEARS?
11 A. MY TESTIMONY IS THAT UNLESS IT'S SUPPORTED BY A SUBSIDY
12 AND ALLOWED TO PRINT A COMPETITIVE PAPER, IT'S GOING TO TAKE AT
13 LEAST FOUR TO SIX YEARS, SEVEN YEARS, MAYBE, BEFORE IT CAN
14 REACH A POINT THAT IT BEGINS TO MAKE MONEY.
15 Q. AND DURING THAT PERIOD IT WILL LOSE APPROXIMATELY
16 $250 MILLION; ISN'T THAT RIGHT?
17 A. IT VERY WELL COULD.
18 MR. LINDSTROM: THANK YOU, YOUR HONOR. NO FURTHER
19 QUESTIONS.
20 THE COURT: VERY WELL. MR. HALLING?
21 HOW LONG IS YOUR EXAMINATION OF THIS WITNESS?
22 MR. HALLING: SHORT.
23 THE COURT: ALL RIGHT.
24
25
1151
INGRAM - CROSS / HALLING
1 CROSS-EXAMINATION
2 BY MR. HALLING:
3 Q. NOW, MR. INGRAM, THERE WAS A HOUSECLEANING AT THE AGENCY
4 IN 1993, WAS THERE NOT?
5 A. YOU CAN CALL IT THAT.
6 Q. A NUMBER OF PEOPLE LEFT, INCLUDING YOURSELF?
7 A. THAT'S RIGHT.
8 Q. IN FACT, YOU WERE LET GO. YOU WERE DISAPPOINTED IN THAT,
9 WEREN'T YOU?
10 A. OF COURSE.
11 Q. NOW, A LOT OF -- A NUMBER OF OTHER PEOPLE LEFT WHEN YOU
12 DID, DIDN'T THEY?
13 A. FOUR OR FIVE.
14 Q. THOSE JUST HAPPENED TO BE OTHER CONSULTANTS THAT
15 MR. REILLY HAS RETAINED FOR THIS CASE; ISN'T THAT RIGHT?
16 A. YOU KNOW, I DON'T THINK SO. OH, YEAH, ONE, TOM CLANCY.
17 Q. HOW ABOUT MR. FLOOD?
18 A. I AM NOT SURE WHEN FLOOD LEFT. IT WAS -- I WAS ALREADY
19 OUT OF THE -- OF THE AREA BY THE TIME HE LEFT THERE.
20 Q. NOW, THE REASON FOR THIS HOUSECLEANING WAS THE POOR
21 FINANCIAL RESULTS OF THE AGENCY; ISN'T THAT RIGHT?
22 A. THE REASON FOR THE HOUSECLEANING WAS THE NEW MANAGEMENT
23 CAME INTO THE CHRONICLE AND THEY BROUGHT THEIR OWN MANAGEMENT
24 STAFF WITH THEM.
25 Q. AND THE REASON FOR THE NEW MANAGEMENT WAS THE POOR
1152
INGRAM - CROSS / HALLING
1 FINANCIAL RESULTS; ISN'T THAT CORRECT?
2 A. YOU ARE ASKING ME TO MAKE A JUDGMENT THAT I DON'T HAVE
3 KNOWLEDGE OF.
4 Q. SO YOU --
5 A. I DIDN'T REPLACE MYSELF.
6 Q. SO YOUR TESTIMONY IS YOU DON'T KNOW?
7 A. RIGHT.
8 Q. NOW, MR. LINDSTROM ASKED YOU SOME QUESTIONS ABOUT SOME
9 DOCUMENTS PREPARED BY MR. FLAHERTY. I WOULD LIKE TO DIRECT
10 YOUR ATTENTION TO EXIN EXHIBIT 88.
11 MAY I APPROACH THE WITNESS, YOUR HONOR?
12 THE COURT: YES, YOU MAY.
13 BY MR. HALLING:
14 Q. PLEASE TAKE A LOOK AT THAT DOCUMENT, MR. INGRAM.
15 WAS THAT A DOCUMENT THAT WAS PART OF YOUR
16 INFORMATION EXCHANGE WITH MR. FLAHERTY IN CONNECTION WITH YOUR
17 CONSULTATION ON MR. REILLY'S POTENTIAL PURCHASE OF THE
18 EXAMINER?
19 A. I AM NOT FAMILIAR WITH THIS DOCUMENT.
20 Q. YOU DID --
21 A. THIS ISN'T ONE OF THEM THAT WE WORKED ON AS A -- AS A
22 GROUP.
23 Q. AT THE BOTTOM OF THE PAGE THERE IS A REFERENCE TO
24 "FLAHERTY DOCUMENTS." DO YOU SEE THAT, IN THE FOOTER?
25 A. OH, YEAH, RIGHT.
1153
INGRAM - CROSS / HALLING
1 Q. YOU DID EXCHANGE INFORMATION WITH MR. FLAHERTY AS PART OF
2 YOUR CONSULTATION, DID YOU NOT?
3 A. WE WORKED TOGETHER CLOSELY FOR A WHILE.
4 Q. YOU ALSO SPOKE WITH MR. REILLY AS PART OF THE
5 CONSULTATION, DID YOU NOT?
6 A. YES.
7 MR. HALLING: YOUR HONOR, THIS EXHIBIT, EXIN 88, HAS
8 PREVIOUSLY BEEN STIPULATED TO BUT NOT FORMALLY OFFERED, AND I
9 WOULD LIKE TO OFFER IT AT THIS TIME.
10 THE COURT: ANY OBJECTION, MR. SHULMAN?
11 MR. SHULMAN: NO, YOUR HONOR.
12 THE COURT: EXIN 88 WILL BE ADMITTED.
13 (DEFENDANT'S EXHIBIT E-88
14 RECEIVED IN EVIDENCE)
15 BY MR. HALLING:
16 Q. I WOULD LIKE TO DIRECT YOUR ATTENTION, MR. INGRAM, TO
17 THE -- THE DESCRIPTION UNDER THE PHRASE "SUM SFX."
18 DO YOU SEE THAT?
19 A. ALL RIGHT.
20 Q. SPECIFICALLY THE FIRST TWO PARAGRAPHS. IT TALKS ABOUT A
21 PHONE CALL YOU HAD WITH MR. FLAHERTY AROUND THE 6TH OF
22 FEBRUARY.
23 YOU HAD A CALL WITH HIM ABOUT THEN, DIDN'T YOU?
24 A. YES.
25 Q. IT READS:
1154
INGRAM - CROSS / HALLING
1 "CLINT WANTS TO GET EXAMINER AT LOW RISK AND
2 ANOTHER ASSET FROM HEARST. HE TALKED ABOUT
3 TRYING FOR MARKET STREET OFFICE BUILDING AND
4 GARAGE."
5 I ASSUME "HE" MEANS MR. REILLY, CORRECT?
6 A. I DIDN'T WRITE THIS.
7 Q. IT CONTINUES:
8 "LARRY COUNTERED BY SUGGESTING FIFTH AND
9 BRANNAN SITE."
10 IT CONTINUES:
11 "LARRY SAYS CLINT HAS MADE MONEY BY BEING A
12 CONTRARIAN AND THAT HE WOULD LIKE TO FOLLOW THAT
13 PATH IN THIS OPPORTUNITY. HE'S LOOKING FOR A
14 FINANCIAL HOME RUN, EVEN IF THERE'S A LOW
15 PROBABILITY OF ACHIEVING IT."
16 NOW, IT'S TRUE, IS IT NOT, MR. INGRAM, THAT THIS WAS
17 ALL A REAL ESTATE PLOY BY MR. REILLY?
18 A. NO.
19 Q. ISN'T THAT RIGHT?
20 A. NO, IT WASN'T.
21 Q. THAT'S MR. REILLY'S PRINCIPAL BUSINESS, ISN'T IT, REAL
22 ESTATE?
23 A. IT'S NOT THE ONLY BUSINESS HE HAS BEEN IN. THAT'S HIS
24 PRINCIPAL BUSINESS.
25 Q. HE HAS BEEN A POLITICAL CONSULTANT PREVIOUSLY?
1155
INGRAM - REDIRECT / SHULMAN
1 THE COURT: DON'T INTERRUPT THE WITNESS.
2 BY MR. HALLING:
3 Q. SO HE IS A POLITICAL CONSULTANT; NOW HE IS IN THE REAL
4 ESTATE BUSINESS, CORRECT?
5 A. THAT'S RIGHT.
6 Q. HE HAS NO EXPERIENCE IN THE NEWSPAPER BUSINESS?
7 A. THAT'S RIGHT.
8 MR. HALLING: I HAVE NOTHING FURTHER.
9 THE COURT: ALL RIGHT. MR. SHULMAN, ANY REDIRECT?
10 MR. SHULMAN: YES, YOUR HONOR. BRIEFLY.
11 REDIRECT EXAMINATION
12 BY MR. SHULMAN:
13 Q. JUST A FEW POINTS.
14 MR. INGRAM, I THINK YOU SAID THAT AFTER MR. REILLY
15 HAD ONE OF THESE MEETINGS WITH HEARST, YOU EXPRESSED THE
16 CONCERN THAT THE TERMS THAT HEARST WAS OFFERING, HEARST WAS
17 TRYING TO MAKE THE PAPER FAIL AFTER IT WAS SOLD?
18 A. YES.
19 Q. WHAT DID YOU MEAN BY THAT?
20 A. THE -- THE CONDITIONS THAT THE PRINT ORDER BE 50,000 ON
21 THE DAILY AND THEY NOT HAVE A SUNDAY WOULDN'T ALLOW THE PAPER
22 TO PROSPER. THERE IS -- TO SUMMARILY LOP OFF HALF OF THE -- OF
23 YOUR -- OF YOUR CUSTOMERS AND NOT PUT THEM IN THE PAPER AND
24 MAKE ONE AVAILABLE FOR SALE IS BAD ENOUGH, BUT TO HAVE ONE
25 SUNDAY PRODUCT WITH THE CHRONICLE OUT THERE WITH THE SUNDAY
1156
INGRAM - REDIRECT / SHULMAN
1 IS -- IS TANTAMOUNT TO ENDING THE PAPER VERY SWIFTLY.
2 Q. AND THOSE WERE TERMS THAT HEARST HAD PROPOSED TO
3 MR. REILLY?
4 A. YES. THAT WAS MY UNDERSTANDING.
5 Q. ALL RIGHT. NOW, YOU WERE ASKED SOME QUESTIONS ABOUT
6 EXHIBIT -- EXHIBIT 1044. AND THIS IS THE -- THE MEMO FOR
7 MR. INGRAM.
8 DO YOU REMEMBER THAT?
9 I'M SORRY, FROM MR. FLAHERTY TO YOU.
10 A. THAT'S RIGHT.
11 Q. THE ONE THAT YOU HADN'T SEEN BEFORE YOUR DEPOSITION.
12 A. THAT'S RIGHT.
13 Q. OKAY. WHAT DOES THIS MEMO TELL YOU ABOUT WHETHER THE
14 FANGS HAVE A CHANCE WITH THE EXAMINER?
15 A. THE -- WHAT I HAVE READ OF THIS MEMO -- AND I HAVEN'T READ
16 THE WHOLE MEMO. BUT IT CERTAINLY DOESN'T SAY THAT THEY HAVE AN
17 OPPORTUNITY, EITHER.
18 Q. NOW, LET ME ASK YOU FINALLY, YOU WERE ASKED BY COUNSEL IF
19 YOU KNEW WHAT THE FANGS' PLANS WERE FOR THE EXAMINER. DO YOU
20 REMEMBER BEING ASKED THAT?
21 A. YES.
22 Q. OKAY. I WANT TO READ TO YOU SOME TESTIMONY THAT MR. FANG
23 GAVE AT HIS DEPOSITION IN THIS CASE. AND IT'S AT PAGE 27, LINE
24 12, TO LINE 18.
25 DO YOU WANT THAT, YOUR HONOR?
1157
INGRAM - REDIRECT / SHULMAN
1 THE COURT: GO AHEAD AND READ IT.
2 MR. SHULMAN: OKAY.
3 MR. HALLING: 27?
4 MR. SHULMAN: YES, PAGE 27, LINE 12.
5 "Q. NO, I MEAN, HAVE YOU PREPARED A
6 BUSINESS PLAN, ANYTHING THAT YOU WOULD CALL A
7 BUSINESS PLAN, FOR THE EXAMINER?
8 "A. COULD YOU REPEAT THAT QUESTION AGAIN?
9 "I SAY READ IT BACK, PLEASE.
10 "THE WITNESS: NO, SIR."
11 BY MR. SHULMAN:
12 Q. NOW, WERE YOU AWARE THAT THE FANGS DON'T EVEN KNOW WHAT
13 THEIR PLANS ARE?
14 A. I AM NOT AWARE OF IT.
15 MR. SHULMAN: THANK YOU. NO QUESTIONS.
16 THE COURT: ALL RIGHT. WHY DON'T WE TAKE A BREAK?
17 LET ME GIVE YOU A HEADS UP. I HAVE A CONFERENCE CALL WHICH I
18 NEED TO TAKE AT 12:00 O'CLOCK NOON AND CAN LET YOU RECESS AT
19 THAT TIME. I DON'T KNOW, UNFORTUNATELY, HOW LONG THAT IS GOING
20 TO TAKE. I MAY HAVE AN INDICATION OF THAT AFTER I RETURN TO
21 THE BENCH FOLLOWING THIS BREAK. AND, IF I DO HAVE AN IDEA OF
22 HOW LONG THAT WILL TAKE, I CAN GIVE YOU AN ESTIMATE OF HOW MUCH
23 TIME YOU WILL HAVE FREE. BUT AT THE MOMENT I CANNOT GIVE YOU
24 THAT ESTIMATE. BUT I WANT TO GIVE YOU A HEADS UP THAT WE ARE
25 GOING TO HAVE TO TAKE A BREAK AT 12:00 SO I CAN TAKE THAT CALL.
1158
INGRAM - REDIRECT / SHULMAN
1 SECONDLY, LET ME THROW INTO THE MIX OF QUESTIONS
2 THAT ARE ON MY MIND OF THE KIND THAT I STATED AT THE OUTSET.
3 AND, AGAIN, I AM NOT ASKING FOR YOUR ANSWER NOW. I AM NOT EVEN
4 ASKING AT PRESENT FOR YOU TO TELL ME WHEN YOU ARE GOING TO BE
5 IN A POSITION TO ANSWER THESE QUESTIONS, BUT LET ME JUST THROW
6 THEM OUT FOR YOU TO BE MULLING OVER.
7 AND THAT IS, AS I WAS LOOKING FOR GUIDANCE WITH
8 REFERENCE TO THE DEPARTMENT'S INTERPRETATION OF THE NEWSPAPER
9 PRESERVATION ACT AND SECTION 7 AND SECTIONS 1 AND 2 OF THE
10 SHERMAN ACT IN CONNECTION WITH THIS BUSINESS, WHAT ANTITRUST
11 ANALYSIS HAS BEEN AFFORDED TO NEGATIVE PRICE CONTRACTS? IS
12 THERE ANYTHING IN THE CASE LAW THAT DEALS WITH THE ALLOCATIVE
13 EFFECT OF A NEGATIVE PRICE CONTRACT? ALL RIGHT?
14 SO PUT THAT IN THE HOPPER, AS WELL. LET'S TAKE 15
15 MINUTES, UNTIL 10:30.
16 AND, MR. INGRAM, YOU MAY STEP DOWN AND YOU ARE
17 EXCUSED, SIR.
18 THE WITNESS: THANK YOU.
19 (RECESS TAKEN AT 10:20 A.M.)
20 (CONTINUED ON NEXT PAGE - NOTHING OMITTED.)
21
22
23
24
25
1159
INGRAM - REDIRECT / SHULMAN
1 (PROCEEDINGS RESUMED AT 10:43 A.M.)
2 THE COURT: VERY WELL. THANK YOU FOR YOUR PATIENCE,
3 COUNSEL.
4 IN TERMS OF OUR SCHEDULE TODAY, WHAT WE CAN DO IS
5 BREAK AT 12:00 O'CLOCK SO I CAN TAKE THAT CONFERENCE CALL. I
6 WILL COMMIT TO SPEND NO MORE THAN A HALF AN HOUR ON THAT
7 ENDEAVOR, BE BACK AND WE'LL RESUME AT THE CONCLUSION OF THAT
8 CALL AT 12:30 AND WE CAN GO UNTIL 2:00 O'CLOCK THIS AFTERNOON,
9 IF THAT'S ALL RIGHT WITH COUNSEL. IS THAT ALL RIGHT WITH
10 PLAINTIFFS?
11 MR. SHULMAN: YES, YOUR HONOR.
12 MR. HALLING: THANK YOU, YOUR HONOR.
13 THE COURT: ALL RIGHT, FINE.
14 YOUR NEXT WITNESS, MR. SHULMAN.
15 MR. SHULMAN: MAY IT PLEASE THE COURT, THE PLAINTIFF
16 CALLS J. SCOTT SCHMIDT.
17 THE CLERK: PLEASE RAISE YOUR RIGHT HAND TO BE
18 SWORN.
19 JOHN SCOTT SCHMIDT,
20 CALLED AS A WITNESS FOR THE PLAINTIFF, HAVING BEEN DULY SWORN,
21 TESTIFIED AS FOLLOWS:
22 THE CLERK: THANK YOU. PLEASE BE SEATED.
23 PLEASE STATE YOUR FULL NAME AND SPELL YOUR LAST NAME
24 FOR THE RECORD.
25 THE WITNESS: MY FULL NAME IS JOHN SCOTT SCHMIDT,
1160
SCHMIDT - DIRECT / SHULMAN
1 S-C-H-M-I-D-T.
2 THE COURT: ARE YOU FROM CHICAGO?
3 THE WITNESS: YES.
4 THE COURT: GO AHEAD, MR. SHULMAN.
5 MR. SHULMAN: MAY IT PLEASE THE COURT.
6 DIRECT EXAMINATION
7 BY MR. SHULMAN:
8 Q. MR. SCHMIDT, WOULD YOU STATE YOUR HOME ADDRESS, PLEASE.
9 A. 1242 BERKELEY STREET, SANTA MONICA, CALIFORNIA.
10 Q. AND WHAT IS YOUR AGE, MR. SCHMIDT?
11 A. 63.
12 Q. CAN YOU STATE, PLEASE, YOUR EDUCATIONAL BACKGROUND.
13 A. I AM SIX HOURS SHORT OF A DEGREE.
14 Q. OKAY. AND WHERE AND IN WHAT?
15 THE COURT: WHAT DEGREE?
16 THE WITNESS: I STARTED MY EDUCATION AT BRADLEY
17 UNIVERSITY IN PEORIA, ILLINOIS, AND THEN CONTINUED MY EDUCATION
18 WITH -- AT NORTHWESTERN UNIVERSITY IN CHICAGO. I MAJORED IN
19 POLITICAL SCIENCE AND JOURNALISM AT BOTH PLACES, AND PROBABLY
20 WOULD HAVE COMPLETED IF WE HAD NOT HAD CHILDREN AND I COULD
21 HAVE PASSED FRENCH.
22 (LAUGHTER)
23 BY MR. SHULMAN:
24 Q. ARE YOU EMPLOYED AT THIS TIME, MR. SCHMIDT?
25 A. YES, I AM.
1161
SCHMIDT - DIRECT / SHULMAN
1 Q. AND WHAT IS YOUR EMPLOYMENT?
2 A. I AM GROUP PUBLISHER AT A COMPANY CALLED 101
3 COMMUNICATIONS IN CHATSWORTH, CALIFORNIA.
4 Q. AND WHAT IS THE NATURE OF THE BUSINESS OF THAT COMPANY?
5 A. THE COMPANY OWNS MAGAZINES, CONFERENCE COMPANIES AND
6 WEBSITES.
7 Q. OKAY.
8 MR. SHULMAN: MAY I APPROACH THE WITNESS, YOUR
9 HONOR?
10 THE COURT: YES.
11 BY MR. SHULMAN:
12 Q. MR. SCHMIDT, I AM GOING TO HAND YOU WHAT HAS BEEN MARKED
13 AS CHRONICLE EXHIBIT 349.
14 CHRONICLE EXHIBIT 349 IS ENTITLED "DECLARATION OF J.
15 SCOTT SCHMIDT," AND IT IS DATED APRIL 19, 2000. THERE'S A
16 SIGNATURE ON THE LAST PAGE.
17 MR. SHULMAN: DOES YOUR HONOR HAVE THIS?
18 THE COURT: I'M SURE THAT I -- I HAVEN'T LOOKED, BUT
19 I'M SURE IT'S THERE. IF IT'S NOT, I'LL INTERRUPT YOU.
20 BY MR. SHULMAN:
21 Q. DO YOU RECOGNIZE THIS AS YOUR DECLARATION, SIR?
22 A. YES, SIR.
23 MR. SHULMAN: I DON'T BELIEVE THIS HAS BEEN RECEIVED
24 IN EVIDENCE YET, SO I WOULD OFFER EXHIBIT 349.
25 MR. LINDSTROM: NO OBJECTION, YOUR HONOR.
1162
SCHMIDT - DIRECT / SHULMAN
1 THE COURT: VERY WELL, 349 WILL BE ADMITTED.
2 (PLAINTIFF'S EXHIBIT 349
3 RECEIVED IN EVIDENCE)
4 MR. LINDSTROM: DOES THE COURT HAVE A COPY?
5 THE COURT: BY GOLLY, I DO NOT.
6 MR. LINDSTROM: I HAVE AN EXTRA ONE.
7 THE COURT: IT'S NOT IN THIS BINDER. THANK YOU.
8 BY MR. SHULMAN:
9 Q. OKAY. THE DECLARATION READS IN PARAGRAPH 1:
10 "I AM THE FORMER PRESIDENT AND CHIEF
11 EXECUTIVE OFFICER OF THE LOS ANGELES DAILY NEWS
12 AND TRIBUNE NEWSPAPERS WEST FROM 1975 TO 1983."
13 DO YOU SEE THAT?
14 A. YES, SIR.
15 Q. IS THAT CORRECT?
16 A. YES, IT IS.
17 Q. CAN YOU TELL US WHAT TRIBUNE NEWSPAPERS WEST IS?
18 A. TRIBUNE NEWSPAPERS WEST CONSISTED OF THREE SEPARATE
19 NEWSPAPERS. ONE WAS THE PALO ALTO TIMES TRIBUNE, THE LOS
20 ANGELES DAILY NEWS AND THE ESCONDIDO TIMES ADVOCATE.
21 Q. AND AS PRESIDENT AND CHIEF EXECUTIVE OFFICER OF THE LOS
22 ANGELES DAILY NEWS AND TRIBUNE NEWSPAPERS WEST, WHAT WERE YOUR
23 DUTIES AND RESPONSIBILITIES?
24 A. WELL, I WAS RESPONSIBLE FOR ALL THREE PROPERTIES. THE
25 PALO ALTO NEWSPAPER AND THE ESCONDIDO NEWSPAPER HAD THEIR OWN
1163
SCHMIDT - DIRECT / SHULMAN
1 PUBLISHERS WHO REPORTED TO ME, AND I IN EFFECT WAS NOT ONLY
2 PRESIDENT OF THE TRIBUNE NEWSPAPERS WEST BUT I WAS ALSO
3 PRESIDENT AND PUBLISHER OF THE LOS ANGELES DAILY NEWS.
4 Q. OKAY. WHEN DID YOU FIRST GO INTO THE NEWSPAPER BUSINESS?
5 A. WHEN I WAS ABOUT 15 YEARS OLD.
6 Q. AND HAVE YOU BEEN IN THE NEWSPAPER BUSINESS SINCE THAT
7 TIME?
8 A. YES, OR FORMS OF IT. BUT I STARTED AS A SPORTS WRITER AND
9 ADVANCED THROUGH THE EDITORIAL DEPARTMENT OF THE NEWSPAPERS,
10 AND IN 1975 ACTUALLY BECAME A GENERAL EXECUTIVE OF A NEWSPAPER.
11 Q. CAN YOU GIVE US A BRIEF OVERVIEW OF YOUR BACKGROUND IN
12 NEWSPAPERS BEFORE YOU BECAME PRESIDENT AND CEO OF THE LOS
13 ANGELES DAILY NEWS?
14 A. I WORKED AT THE AFTERNOON NEWSPAPER IN CHICAGO. AT THAT
15 TIME IT WAS OWNED BY THE CHICAGO TRIBUNE. IT WAS CALLED
16 CHICAGO TODAY. I HAVE BEEN A WRITER AND AN EDITOR THERE; AND
17 WHEN THE PAPER FOLDED, I WAS THE EDITOR OF THAT NEWSPAPER.
18 WHEN THE PAPER FOLDED IN SEPTEMBER, 1974, I MOVED OVER TO THE
19 CHICAGO TRIBUNE AS MANAGING EDITOR FOR FEATURES.
20 AFTER THAT, IN JULY OF 1975, I WAS ASKED TO MOVE TO
21 CALIFORNIA TO BE PRESIDENT OF WHAT WAS THEN KNOWN AS THE VALLEY
22 NEWS AND GREEN SHEET, WHICH WAS CONSIDERED THE WORLD'S LARGEST
23 SHOPPER. IT WAS FOUR DAYS A WEEK. WE USED TO HAVE A SAYING
24 THAT: 50,000 PEOPLE PAID A DOLLAR AND A HALF A MONTH FOR IT
25 AND 50,000 PEOPLE PAID A DOLLAR AND A HALF A MONTH TO THE
1164
SCHMIDT - DIRECT / SHULMAN
1 CARRIER TO NOT DELIVER IT.
2 BUT WE SUDDENLY -- YOU KNOW, IN THE NEXT EIGHT YEARS
3 WE CONVERTED IT FROM A SHOPPER INTO A SEVEN-DAY A WEEK DAILY
4 NEWSPAPER, WHICH IT IS TODAY.
5 Q. PAID DAILY NEWSPAPER?
6 A. PAID DAILY NEWSPAPER, YES.
7 Q. AND YOU WERE IN CHARGE OF THAT EFFORT?
8 A. YES.
9 Q. OKAY. AND WHAT WAS THE CIRCULATION OF THE PAPER AT THE
10 TIME YOU LEFT?
11 A. ROUGHLY 145,000.
12 Q. OKAY. NOW, YOU SAY:
13 "I ALSO SERVED AS PRESIDENT OF THOMSON
14 NEWSPAPERS WEST FROM 1992 TO 1995."
15 DO YOU SEE THAT?
16 A. YES, SIR.
17 Q. OKAY. THERE'S A GAP FROM 1983 TO 1992 THAT IS NOT
18 ACCOUNTED FOR. CAN YOU TELL US WHAT YOU WERE DOING IN THOSE
19 YEARS?
20 A. I WAS TRANSFERRED BACK TO CHICAGO IN SEPTEMBER OF 1983 TO
21 BECOME VICE PRESIDENT OF NEWS AND INFORMATION FOR THE ENTIRE
22 TRIBUNE CORPORATION. I STAYED THERE UNTIL AUGUST OF 1984.
23 MOVED BACK TO CALIFORNIA. PURCHASED A PUBLICATION
24 CALLED CALIFORNIA FASHION PUBLICATIONS. I OWNED THAT FOR ABOUT
25 TWO AND A HALF YEARS, SOLD IT.
1165
SCHMIDT - DIRECT / SHULMAN
1 DID SOME CONSULTING WORK, INCLUDING FOR VARIOUS
2 CLIENTS, INCLUDING THE ARCH DIOCESES OF LOS ANGELES, A COUPLE
3 OF MAGAZINES.
4 AND THEN I BOUGHT ANOTHER PUBLICATION CALLED
5 "YOUTH," A NATIONAL COLLEGE NEWSPAPER, AND RAN THAT FOR ANOTHER
6 FEW YEARS UNTIL A FRIEND OF MINE BECAME THE U.S. PRESIDENT OF
7 THOMSON NEWSPAPERS AND HE ASKED ME TO GO TO WORK FOR THOMSON,
8 WHICH I DID.
9 Q. OKAY.
10 THE COURT: NOW, THIS THOMSON IN YOUR DECLARATION IS
11 SPELLED T-H-O-M-P-S-O-N. IS THIS THE THOMSON NEWSPAPERS FROM
12 CANADA?
13 THE WITNESS: I'M SORRY, YOUR HONOR, IT'S
14 MISSPELLED. IT SHOULD BE T-H-O-M-S-O-N.
15 THE COURT: ALL RIGHT. ANOTHER SCOTTISH SPELLING.
16 WE'VE HAD TWO OF THOSE IN THIS CASE.
17 MR. SHULMAN: RIGHT.
18 Q. TELL US WHAT THE -- DESCRIBE THE BUSINESS AND OPERATIONS
19 OF THOMSON NEWSPAPERS WEST, PLEASE.
20 A. THOMSON NEWSPAPERS WEST OWNED THREE NEWSPAPERS IN THE SAN
21 GABRIEL VALLEY, EASTERN PART OF THE CITY OF LOS ANGELES. ONE
22 WAS IN PASADENA. ANOTHER WAS A PLACE CALLED WEST COVINA. THE
23 THIRD ONE WAS IN WHITTIER. WE OWNED, I BELIEVE, IF I REMEMBER
24 CORRECTLY, 12 WEEKLY NEWSPAPERS AS PART OF THIS UNIT.
25 IN ADDITION, THE COMPANY OWNED A NEWSPAPER IN
1166
SCHMIDT - DIRECT / SHULMAN
1 OXNARD, CALIFORNIA, ONE IN EUREKA, CALIFORNIA, AND ONE IN ST.
2 GEORGE, CALIFORNIA -- ST. GEORGE, UTAH, AND I WAS RESPONSIBLE
3 FOR ALL OF THOSE PUBLICATIONS.
4 Q. NOW, YOU HAVE BEEN RETAINED BY MR. REILLY IN CONNECTION
5 WITH THIS LAWSUIT; IS THAT CORRECT?
6 A. THAT'S CORRECT.
7 Q. OKAY. CAN YOU EXPLAIN THE CIRCUMSTANCES THAT LED TO YOUR
8 BEING RETAINED BY MR. REILLY?
9 A. I RECEIVED A TELEPHONE CALL FROM AN OLD COLLEAGUE OF MINE
10 NAMED JOSEPH BARLETTA ASKING ME IF I WOULD BE INTERESTED IN
11 SERVING AS AN EXPERT WITNESS IN THIS CASE. I INDICATED TO HIM
12 THAT MY TIME WAS LIMITED BECAUSE OF THE POSITION I'M IN, BUT
13 THAT I WOULD BE WILLING TO DO IT.
14 Q. OKAY. AND YOUR DECLARATION IS DATED APRIL 19, 2000.
15 APPROXIMATELY HOW LONG PRIOR TO THAT TIME WERE YOU RETAINED?
16 A. I WAS -- I WAS RETAINED -- I WAS ASKED IF I WANTED TO
17 PARTICIPATE AT ABOUT THE SAME TIME AS MR. REILLY CALLED --
18 BROUGHT A GROUP OF EXPERTS TOGETHER TO FORMULATE HIS PLANS TO
19 PURCHASE THE EXAMINER.
20 I WAS UNABLE TO DO THAT BECAUSE OF PROFESSIONAL
21 COMMITMENTS AT THAT TIME. SO I KNEW ABOUT THAT, BUT I TOLD
22 MR. BARLETTA AT THAT TIME THAT WHEN THE TRIAL CAME, OR
23 WHENEVER, I WOULD BE WILLING TO -- I WOULD BE WILLING TO HELP.
24 Q. OKAY. WHAT HAVE YOU DONE SINCE YOU'VE BEEN RETAINED IN
25 YOUR EFFORTS TO ASSIST?
1167
SCHMIDT - DIRECT / SHULMAN
1 A. I WAS CONTACTED THE WEEK PRIOR TO THE DATE OF MY
2 DECLARATION BY YOUR ASSOCIATE, MR. HILBERT, WHEN I WAS AT A
3 CONFERENCE IN CHICAGO AND INDICATED THAT HE WANTED ME TO COME
4 TO SAN FRANCISCO TO BE DEPOSED.
5 AT THAT TIME HE SENT ME A COUPLE OF DECLARATIONS
6 FROM OTHER PEOPLE WHO HAD BEEN DEPOSED ALREADY. THE FOLLOWING
7 WEEK I CAME -- LET ME BACKTRACK A BIT.
8 I READ THOSE ON MY TRIP BACK FROM CHICAGO. ON A
9 SUNDAY NIGHT AT HOME I SAT DOWN AND WROTE MY DECLARATION AND
10 FAXED IT UP TO HIM, AND LATER THAT WEEK CAME UP AND WAS
11 DEPOSED.
12 Q. OKAY. NOW, IN PARAGRAPHS -- I'LL SHOW YOU -- 2 AND 3 OF
13 YOUR DECLARATION ON THE SECOND PAGE YOU SET FORTH CERTAIN
14 INFORMATION THAT YOU SAY YOU WERE INFORMED OF OR YOU WERE AWARE
15 OF; CORRECT?
16 A. CORRECT.
17 Q. AND THAT'S INFORMATION THAT WAS GIVEN TO YOU AND THAT YOU
18 KNEW ABOUT?
19 A. CORRECT.
20 Q. OKAY. I WANT TO -- BEFORE I ASK YOU ABOUT PARAGRAPH 4, I
21 WANT TO SKIP DOWN TO PARAGRAPH 5. YOU SAY IN PARAGRAPH 5:
22 "BASED ON MY EXPERIENCE, THE EXAMINER WILL
23 HAVE TO GROW BY 200,000 ADDITIONAL CIRCULATION
24 TO EXIST AS A COMPETITOR TO THE CHRONICLE AND
25 EARN ANY KIND OF ADVERTISING SUPPORT."
1168
SCHMIDT - DIRECT / SHULMAN
1 DO YOU SEE THAT?
2 A. YES, SIR.
3 Q. OKAY. AND IS THAT YOUR OPINION?
4 A. YES.
5 Q. IT'S STILL YOUR OPINION?
6 A. YES.
7 Q. OKAY. WHY DO YOU THINK THAT THE EXAMINER WILL HAVE TO
8 GROW BY 200,000 ADDITIONAL CIRCULATION TO EXIST AS A COMPETITOR
9 TO THE CHRONICLE AND EARN ANY KIND OF ADVERTISING SUPPORT?
10 A. I BELIEVE THAT IT HAS TO GROW BY THAT NUMBER TO BE ABLE TO
11 GAIN ANY KIND OF NATIONAL LARGE RETAIL AND CLASSIFIED
12 ADVERTISING. IT WILL PUT IT AT A CIRCULATION LEVEL WHERE IT IS
13 A WORTHY COMPETITOR, AS I'VE SAID IN THE DECLARATION. I THINK
14 ANYTHING LESS THAN THAT THE ADVERTISING OPPORTUNITIES DIMINISH.
15 Q. NOW, DOES THE LEVEL OF CIRCULATION THAT YOU BELIEVE WILL
16 BE REQUIRED, DOES THAT BEAR ANY RELATIONSHIP TO THE EDITORIAL
17 OR NEWS FUNCTIONS OF THE NEWSPAPER?
18 A. WELL, THERE'S CERTAINLY A REQUIREMENT OF THE NEWSPAPER
19 WITH 300,000 CIRCULATION TO HAVE A NEWS STAFF OF A SIGNIFICANT
20 NUMBER TO BE ABLE TO DO ITS JOB PROPERLY.
21 Q. ARE YOU FAMILIAR WITH THE STAFFING OF THE EXAMINER TODAY
22 GENERALLY, THE NEWS AND EDITORIAL STAFFING?
23 A. GENERALLY.
24 Q. OKAY. AND IS IT YOUR UNDERSTANDING THAT THE EDITORIAL
25 SIDE OF THE PAPER EMPLOYS IN THE RANGE OF TWO TO 300 PEOPLE?
1169
SCHMIDT - DIRECT / SHULMAN
1 A. IT'S MY UNDERSTANDING THAT IT'S POSSIBLY A LITTLE BIT MORE
2 THAN THAT.
3 Q. OKAY.
4 A. WE'RE TALKING ABOUT THE CHRONICLE?
5 Q. NO, THE EXAMINER.
6 A. OH, THE EXAMINER? YES, SIR, THAT'S CORRECT, TWO TO 300
7 PEOPLE.
8 Q. NOW, IS THAT -- IN YOUR EXPERIENCE, IS THAT TYPE OF
9 STAFFING COMMENSURATE WITH A PAPER THAT HAS A CIRCULATION OF A
10 HUNDRED THOUSAND?
11 A. NO, SIR, IT IS NOT. IT'S ONE MUCH LARGER THAN A PAPER
12 THAT WOULD HAVE A HUNDRED THOUSAND CIRCULATION.
13 Q. WHAT IS THE BASIS FOR THAT OPINION?
14 A. THE STANDARD RULE IN THE NEWSPAPER INDUSTRY, GIVE OR TAKE
15 A LITTLE BIT HERE, BUT IT'S ONE PER THOUSAND CIRCULATION. MOST
16 NEWSPAPERS THAT I AM AWARE OF, IF THEY HAVE 700,000
17 CIRCULATION, THEY WILL HAVE IN THE VICINITY OF SIX TO 750
18 PEOPLE IN THE EDITORIAL DEPARTMENT. SOME OF THIS HAS CHANGED
19 IN THE LAST FEW YEARS BECAUSE OF PAGINATION MOVING INTO
20 NEWSROOMS, ET CETERA, BUT IT IS STILL BASICALLY A HARD-AND-FAST
21 RULE.
22 Q. SO WHAT IS YOUR UNDERSTANDING OF WHAT ACCOUNTS FOR THE
23 EXAMINER TODAY, WITH A CIRCULATION OF A HUNDRED THOUSAND,
24 EMPLOYING TWO TO 300 PEOPLE ON THE EDITORIAL SIDE?
25 MR. HALLING: OBJECTION, LACK OF FOUNDATION.
1170
SCHMIDT - DIRECT / SHULMAN
1 THE COURT: OVERRULED. THE WITNESS IS TESTIFYING AS
2 AN OPINION WITNESS.
3 THE WITNESS: WOULD YOU RESTATE THAT, PLEASE?
4 BY MR. SHULMAN:
5 Q. YES. IF THE RULE IN THE INDUSTRY IS ONE PERSON ON THE
6 EDITORIAL SIDE FOR EVERY THOUSAND OF CIRCULATION, WHAT IN YOUR
7 VIEW ACCOUNTS FOR THE ABILITY OF THE EXAMINER WITH A
8 CIRCULATION OF A HUNDRED THOUSAND TO EMPLOY TWO TO 300 PEOPLE?
9 A. MY ONLY BELIEF WOULD BE THAT BECAUSE OF THE JOINT
10 OPERATING AGREEMENT, THEY HAVE THE FUNDS TO DO THIS TO PUT OUT
11 A COMPETITIVE NEWSPAPER.
12 Q. WHAT DO YOU MEAN "A COMPETITIVE NEWSPAPER"?
13 A. I BELIEVE IT'S A NEWSPAPER THAT COVERS ITS COMMUNITY,
14 COVERS -- COVERS THE ARTS, COVERS SPORTS, COVERS EVERYTHING
15 THAT IS NECESSARY.
16 YOU KNOW, ONE OF THE REASONS THAT THE EXAMINER MAY
17 HAVE THAT LARGE A STAFF IS, I BELIEVE, THEY PUT OUT THE SUNDAY
18 NEWSPAPER THEMSELVES. SO THAT COULD BE ONE REASON FOR THE FACT
19 THAT THEY HAVE THAT, BUT IT IS A VERY LARGE STAFF FOR A
20 CIRCULATION OF 104,000.
21 Q. OKAY. WITHOUT THE JOA, DO YOU BELIEVE THAT A NEWSPAPER OF
22 A HUNDRED THOUSAND CAN SUSTAIN AN EDITORIAL STAFF LIKE THAT AND
23 PRODUCE A COMPARABLE NEWSPAPER?
24 A. NO, SIR.
25 Q. AND IS THAT ONE OF THE REASONS WHY YOU SAY THAT THE
1171
SCHMIDT - DIRECT / SHULMAN
1 EXAMINER WILL NEED TO GROW BY 200,000 ADDITIONAL CIRCULATION TO
2 EXIST AS A COMPETITOR TO THE CHRONICLE?
3 MR. HALLING: OBJECTION, LEADING.
4 THE COURT: WELL, IT WAS LEADING BUT I ASSUME
5 MR. SHULMAN IS USING THAT AS A PRELIMINARY. I WON'T LET HIM
6 LEAD TOO MUCH.
7 THE WITNESS: WOULD YOU RESTATE THE QUESTION?
8 BY MR. SHULMAN:
9 Q. OKAY.
10 THE COURT: THIS WILL GIVE YOU AN OPPORTUNITY TO --
11 THE WITNESS: MY ATTENTION SPAN IS A LITTLE SHORT
12 TODAY, I'M AFRAID.
13 THE COURT: WELL, SO IT IS OF ALL OF US.
14 ALL RIGHT, GO AHEAD, MR. SHULMAN.
15 MR. SHULMAN: OKAY.
16 Q. DOES THE SIZE OF THE EDITORIAL STAFF HAVE ANYTHING TO DO
17 WITH YOUR BELIEF THAT THE EXAMINER WILL HAVE TO GROW BY 200,000
18 CIRCULATION TO EXIST AS A COMPETITOR TO THE CHRONICLE?
19 A. MR. SHULMAN, I DON'T THINK I UNDERSTAND THE QUESTION.
20 Q. OKAY. LET ME --
21 THE COURT: THE QUESTION WASN'T LEADING ENOUGH
22 APPARENTLY.
23 (LAUGHTER)
24 MR. SHULMAN: RIGHT. WELL, LET ME TRY TO FIND A
25 HAPPY MEDIUM.
1172
SCHMIDT - DIRECT / SHULMAN
1 MR. ALIOTO: LET ME TRY, JUDGE.
2 (LAUGHTER)
3 BY MR. SHULMAN:
4 Q. IF THE EXAMINER IS TO CONTINUE TO PRODUCE AN EDITORIAL
5 PRODUCT SIMILAR TO WHAT IT'S PRODUCING NOW WITH AN EDITORIAL
6 STAFF SIMILAR TO WHAT IT HAS NOW, DO YOU BELIEVE THAT IT WILL
7 HAVE TO INCREASE ITS CIRCULATION BY 200,000?
8 A. I BELIEVE THAT SIZE EDITORIAL STAFF IS ADEQUATE ENOUGH TO
9 GET IT STARTED TOWARDS INCREASING ITS CIRCULATION BY 200. I
10 THINK IT WOULD PROBABLY REQUIRE MORE PEOPLE IF THEY DO IT --
11 WERE INDEED ABLE TO INCREASE IT BY 200,000.
12 Q. DO YOU BELIEVE THAT IF THE CHRONICLE -- IF THE EXAMINER
13 DOES NOT INCREASE BY 200,000, IT WILL BE ABLE TO MAINTAIN AN
14 EDITORIAL STAFF OF THAT SIZE?
15 A. NO.
16 MR. HALLING: OBJECTION, LEADING.
17 THE COURT: OVERRULED.
18 THE WITNESS: NO.
19 BY MR. SHULMAN:
20 Q. NOW, YOU CONTINUE IN PARAGRAPH 5:
21 "THAT LEVEL OF CIRCULATION WILL REQUIRE A
22 MINIMUM ANNUAL OPERATING BUDGET OF 125 TO
23 $150 MILLION AND A STAFF OF AT LEAST 700 TO 800
24 EMPLOYEES," END OF QUOTE.
25 DO YOU SEE THAT?
1173
SCHMIDT - DIRECT / SHULMAN
1 A. YES, SIR.
2 Q. AND THAT'S YOUR OPINION?
3 A. YES.
4 Q. OKAY. NOW, THE STAFF OF AT LEAST 700 TO 800 EMPLOYEES,
5 DOES THAT INCLUDE ALL EMPLOYEES NOT JUST EDITORIAL?
6 A. YES, IT DOES.
7 Q. OKAY. WHAT IS THE BASIS FOR YOUR OPINION THAT THE PAPER
8 WOULD -- THAT CIRCULATION WOULD HAVE A MINIMUM ANNUAL OPERATING
9 BUDGET OF 125 TO $150 MILLION?
10 A. MY OPINION IS BASED ON THE OPERATING BUDGET OF THE LOS
11 ANGELES DAILY NEWS, WHICH I WAS ABLE TO REVIEW A COUPLE YEARS
12 AGO WHEN THE PAPER WAS SOLD. IT HAD APPROXIMATELY 200,000
13 CIRCULATION AND HAD AN OPERATING BUDGET OF 100 -- I'M SORRY, IT
14 HAD AN OPERATING BUDGET OF 100 MILLION.
15 Q. AND THEN YOU SAY, QUOTE:
16 "I WOULD ESTIMATE THAT PRINTING AND
17 NEWSPRINT WILL CONSUME $45 MILLION ANNUALLY."
18 I'M GOING TO STOP THERE. ON WHAT DO YOU BASE THAT?
19 A. ON MY GENERAL EXPERIENCE AS TO WHAT PERCENTAGE IN AN
20 OVERALL OPERATING BUDGET GOES TO PRINTING AND NEWSPRINT, AND
21 THAT'S VERY FLEXIBLE BECAUSE OF THE CHANGES IN NEWSPRINT
22 PRICES.
23 Q. THEN YOU SAY PAYROLL, $50 MILLION. WHAT'S THE BASIS FOR
24 THAT?
25 A. I JUST TOOK AN AVERAGE SALARY, WHAT I THOUGHT IT WAS IN
1174
SCHMIDT - DIRECT / SHULMAN
1 SAN FRANCISCO, AND MULTIPLIED IT BY THE SEVEN TO 800. ROUND
2 FIGURING.
3 Q. OKAY. GENERAL AND ADMINISTRATIVE, $25 MILLION, WHAT IS
4 THE BASIS FOR THAT?
5 A. SAME.
6 Q. AND DELIVERY ANOTHER $20 MILLION.
7 A. THAT'S CORRECT.
8 Q. HOW DID YOU ARRIVE AT THAT?
9 A. SAME. SAME WAY.
10 Q. OKAY. NOW, YOU SAY:
11 "THE EXAMINER TO BE VIABLE WILL HAVE TO
12 SPEND $20 MILLION ANNUALLY IN MARKETING,
13 PROMOTION AND CIRCULATION PROCUREMENT TO GROW
14 THE PRESENT CIRCULATION TO A POINT WHERE IT IS
15 COMPETITIVE," END OF QUOTE.
16 DO YOU SEE THAT?
17 A. YES, SIR.
18 Q. OKAY. WHAT DO YOU MEAN BY "MARKETING, PROMOTION AND
19 CIRCULATION PROCUREMENT"?
20 A. I MEAN TELEVISION, RADIO, BUS ADVERTISING OF THE NEW -- OF
21 THE NEW EXAMINER. I MEAN WHATEVER PROMOTIONAL THINGS THEY
22 WOULD HAVE TO DO TO OBTAIN THE CIRCULATION AND THE PROCUREMENT
23 COSTS THAT GO INTO OBTAINING A HOME DELIVERY CIRCULATION, A
24 HOME DELIVERY COPY OR CUSTOMER.
25 AS YOU'LL PROBABLY NOTICE, IN MY DEPOSITION MY MATH
1175
SCHMIDT - DIRECT / SHULMAN
1 WAS OFF BY $10 MILLION AND I WANTED TO MAKE THE POINT AT THE
2 MOMENT. AND WHEN I WAS ASKED WHERE I WOULD TAKE THE
3 $10 MILLION, I TOOK IT BACK AND DOWNGRADED THE AMOUNT OF MONEY
4 SPENT ON DELIVERY.
5 MY KNOWLEDGE OF THE SAN FRANCISCO MARKET IS NOT, I
6 GUESS, EXACT ENOUGH TO KNOW IF THE DRIVERS AND DELIVERY PEOPLE
7 IN CIRCULATION ARE STILL INDEPENDENT CONTRACTORS THE WAY THEY
8 USED TO BE OR IF THAT HAS BEEN CHANGED.
9 BUT I DO STAND BY THE 20-MILLION-DOLLAR MARKETING
10 FIGURE OR A PERIOD OF YEARS. I THINK IT'S VERY HARD -- I THINK
11 IT'S VERY, VERY HARD TO CONVINCE PEOPLE IN MOST MAJOR MARKETS
12 IN THE COUNTRY -- ANYBODY THAT CAN READ, WILL GET SOLICITED
13 ONCE A YEAR OR MORE, ONCE A MONTH PROBABLY, BY A NEWSPAPER, AND
14 THEY WILL TAKE A NEWSPAPER ONCE FROM THESE PEOPLE.
15 EVERY MAJOR PAPER THAT I KNOW REPLACES 100 PERCENT
16 OF ITS HOME DELIVERY CIRCULATION EVERY YEAR. SO THERE'S
17 ENORMOUS COSTS IN BEING ABLE TO MAINTAIN THE CIRCULATION, AND
18 EVEN GREATER COSTS IN GROWING IT.
19 Q. OKAY. LET ME -- I WANT TO GO BACK NOW TO PARAGRAPH 4.
20 PARAGRAPH 4, WHICH COMES AFTER YOU'VE RECITED THE INFORMATION
21 THAT YOU'RE AWARE OF ABOUT THE HEARST TRANSACTION WITH THE
22 FANGS SAYS, QUOTE:
23 "BASED UPON THOSE FACTS AND MY EXPERIENCE IN
24 THE INDUSTRY, THE PRESENT SUBSIDY BY HEARST WILL
25 NOT UNDER ANY CIRCUMSTANCES BE ABLE TO SUPPORT
1176
SCHMIDT - DIRECT / SHULMAN
1 THE PROBABILITY OR EVEN THE POSSIBILITY OF A
2 VIABLE PAPER THAT WOULD BE A WORTHY COMPETITOR
3 TO THE CHRONICLE," END OF QUOTE.
4 WHAT DO YOU MEAN BY "A WORTHY COMPETITOR"?
5 A. IF YOU'RE IN A COMPETITIVE MARKET, YOU HAVE TO GIVE PEOPLE
6 A CHOICE AS TO WHAT KIND OF COMPLETE METROPOLITAN NEWSPAPER YOU
7 WANT TO PURCHASE.
8 I BELIEVE A WORTHY COMPETITOR IS ONE THAT WHEN
9 SOMEONE WANTS TO MAKE A CHOICE AS TO THE NEWSPAPER THEY WANT,
10 THERE ARE SPECIFIC THINGS THEY'RE LOOKING FOR IN THEIR
11 NEWSPAPER. THEY'RE LOOKING FOR COMPLETENESS. THEY'RE LOOKING
12 FOR SPORTS COVERAGE. THEY'RE LOOKING FOR BUSINESS COVERAGE.
13 THEY'RE LOOKING FOR ALL OF THE THINGS THAT DESIGNATE A
14 METROPOLITAN NEWSPAPER.
15 Q. OKAY. AND DO YOU BELIEVE THAT THAT CHOICE EXISTS TODAY IN
16 SAN FRANCISCO?
17 A. YES, I DO BELIEVE IT EXISTS TODAY BECAUSE THE EXAMINER IS
18 A FINE EDITORIAL PRODUCT.
19 Q. OKAY. NOW, YOU SAY -- YOUR OPINION IS THAT THE PRESENT
20 SUBSIDY BY HEARST WILL NOT UNDER ANY CIRCUMSTANCES BE ABLE TO
21 SUPPORT THE PROBABILITY OR EVEN THE POSSIBILITY OF A VIABLE
22 PAPER THAT WOULD BE A WORTHY COMPETITOR TO THE CHRONICLE. THEN
23 YOU CONTINUE:
24 "I BELIEVE A SUBSIDY OF AT LEAST $50 MILLION
25 ANNUALLY FOR THREE TO FIVE YEARS WILL BE
1177
SCHMIDT - CROSS / HOCKETT
1 NECESSARY TO OPERATE THE EXAMINER."
2 AND THEN, "IF IT IS" -- YOU'VE HANDWRITTEN IN AT THE
3 BOTTOM. IS THAT YOUR HANDWRITING?
4 A. YES, IT IS.
5 Q. "IF IT IS TO BE A WORTHY COMPETITOR TO THE CHRONICLE."
6 THAT'S YOUR OPINION?
7 A. YES.
8 Q. AND WHAT IS THE BASIS FOR THAT?
9 A. MY EXPERIENCE.
10 Q. HAVE YOU TESTIFIED ABOUT THAT HERE?
11 A. YES.
12 MR. SHULMAN: THANK YOU. I HAVE NO FURTHER
13 QUESTIONS.
14 THE COURT: VERY WELL. WHO IS TAKING THIS WITNESS
15 ON CROSS? MR. HOCKETT, YOU MAY PROCEED.
16 CROSS-EXAMINATION
17 BY MR. HOCKETT:
18 Q. GOOD MORNING, MR. SCHMIDT.
19 A. GOOD MORNING, SIR.
20 Q. MY NAME IS CHRISTOPHER HOCKETT AND I REPRESENT EXIN LLC.
21 YOUR ESTIMATES THAT ARE IN YOUR DECLARATION THAT WE
22 JUST SAW, CHRONICLE EXHIBIT 349, ARE BASED ON AN ASSUMPTION
23 THAT YOU NEED TO TRIPLE THE CURRENT CIRCULATION OF THE EXAMINER
24 FROM A HUNDRED THOUSAND OR SO TO 300,000; CORRECT?
25 A. YES, SIR.
1178
SCHMIDT - CROSS / HOCKETT
1 Q. AT A COST, I THINK YOU'VE TESTIFIED, OF 125 TO
2 $150 MILLION PER YEAR?
3 A. YES, SIR.
4 Q. NOW, YOU WERE RETAINED TO ASSIST MR. REILLY IN CONNECTION
5 WITH THIS LITIGATION; CORRECT?
6 A. THAT'S CORRECT.
7 Q. YOU DID NOT SERVE ON THE TEAM OF ADVISORS WHO WERE
8 ASSEMBLED TO CONSULT WITH MR. REILLY IN CONNECTION WITH HIS
9 POTENTIAL BID FOR THE EXAMINER; CORRECT?
10 A. I WAS NOT ON THAT TEAM.
11 Q. MR. WEAVER IS A COLLEAGUE OF YOURS AT 101 COMMUNICATIONS?
12 A. YES.
13 Q. AND MR. WEAVER WAS SUCH AN ADVISOR TO MR. REILLY IN
14 CONNECTION WITH HIS POTENTIAL PURCHASE OF THE EXAMINER?
15 A. YES.
16 Q. AND YOU SPOKE WITH HIM ABOUT YOUR PRESENT WORK FOR
17 MR. REILLY; HAVE YOU NOT?
18 A. YES, I HAVE.
19 Q. AND MR. WEAVER'S NUMBERS THAT HE DEVELOPED FOR MR. REILLY
20 IN CONNECTION WITH MR. REILLY'S POSSIBLE PURCHASE OF THE
21 EXAMINER AND HIS POSSIBLE OPERATION OF THE EXAMINER WERE BASED
22 ON A MUCH SMALLER CIRCULATION NEWSPAPER THAN WHAT YOU TALK
23 ABOUT IN YOUR DECLARATION; IS THAT CORRECT, SIR?
24 A. THAT'S CORRECT.
25 Q. AND MR. WEAVER TOLD YOU, DID HE NOT, THAT HIS AND
1179
SCHMIDT - CROSS / HOCKETT
1 MR. OSBORN'S WORK WAS DONE IN CONNECTION WITH MR. REILLY'S
2 POTENTIAL PURCHASE AND DID NOT CONCERN WHAT YOU WERE HIRED TO
3 TALK ABOUT; CORRECT?
4 A. THAT'S CORRECT.
5 Q. NOW, YOU HAVE NO INFORMATION, OTHER THAN NEWS STORIES,
6 ABOUT WHAT THE FANG FAMILY'S PLANS ARE OR INTENTIONS ARE FOR
7 OPERATING THE EXAMINER; CORRECT?
8 A. I HAVE NO INFORMATION.
9 Q. AND YOU DON'T KNOW WHETHER, FOR EXAMPLE, EXIN INTENDS TO
10 SELL ADVERTISING AS A PACKAGE WITH THE SAN FRANCISCO
11 INDEPENDENT; DO YOU?
12 A. I DO NOT KNOW THAT, SIR.
13 Q. BUT YOU DO BELIEVE THAT THE SAN FRANCISCO INDEPENDENT,
14 AMONG OTHER NEWSPAPERS, CURRENTLY COMPETES WITH THE EXAMINER
15 FOR ADVERTISING; CORRECT?
16 A. I DON'T KNOW THAT, SIR. I HAVE NEVER SEEN THE SAN
17 FRANCISCO INDEPENDENT.
18 Q. LET ME SHOW YOU YOUR DEPOSITION, SIR. PLEASE TURN TO PAGE
19 101.
20 MR. LINDSTROM: IF IT PLEASE THE COURT, I HAVE THE
21 ORIGINAL OF THE TRANSCRIPT.
22 MR. HOCKETT: THANK YOU, YOUR HONOR. WE'RE PASSING
23 UP THE ORIGINAL.
24 THE COURT: PAGE 101?
25 MR. HOCKETT: PAGE 101 AT THE VERY BOTTOM, LINE 25,
1180
SCHMIDT - CROSS / HOCKETT
1 AND I PROPOSE TO READ THROUGH LINE 5 OF PAGE 102. THE QUESTION
2 IS ASKED:
3 "Q. OKAY. SO WHEN YOU SAID EARLIER THAT
4 SAN FRANCISCO IS A HIGHLY-COMPETITIVE MARKET
5 WITH RESPECT TO ADVERTISERS, CAN YOU IDENTIFY
6 WHO ARE THE EXAMINER'S COMPETITORS?
7 "ANSWER" --
8 THE COURT: I DON'T THINK THIS IS IMPEACHING OF THE
9 WITNESS' TESTIMONY.
10 BY MR. HOCKETT:
11 Q. LET ME ASK YOU THE QUESTION AGAIN. DO YOU BELIEVE THAT
12 THE SAN FRANCISCO INDEPENDENT NEWSPAPER, AMONG OTHERS, COMPETES
13 WITH THE EXAMINER FOR ADVERTISERS?
14 A. YES.
15 Q. THANK YOU.
16 NOW, YOUR WORK ON THIS CASE, I WANT TO TALK ABOUT
17 THAT. YOU EXECUTED THE DECLARATION ON THE 19TH OF APRIL, THE
18 DECLARATION THAT HAS BEEN MARKED AND RECEIVED INTO EVIDENCE AS
19 CHRONICLE 349.
20 A. CORRECT.
21 Q. AND TO PREPARE YOURSELF TO GIVE THE OPINIONS IN THAT
22 DECLARATION, YOU REVIEWED THE DECLARATIONS OF MR. OSBORN,
23 MR. FLOOD AND MR. WEAVER; CORRECT?
24 A. CORRECT.
25 Q. AND YOU SPENT 50 MINUTES OR SO DOING THAT; CORRECT?
1181
SCHMIDT - CROSS / HOCKETT
1 A. CORRECT.
2 Q. AND YOU REVIEWED SOME HANDWRITTEN NOTES TAKEN BY
3 MR. OSBORN; CORRECT?
4 A. CORRECT.
5 Q. AND YOU SPENT NO MORE THAN 15 MINUTES DOING THAT; CORRECT?
6 A. CORRECT.
7 Q. AND THAT'S IT, RIGHT, BEFORE YOU BEGAN DRAFTING YOUR
8 DECLARATION?
9 A. THAT'S CORRECT.
10 Q. SO ALL TOLD YOU SPENT ABOUT A HALF HOUR ON THIS MATTER
11 BEFORE YOU STARTED TO WRITE YOUR DECLARATION?
12 A. CORRECT.
13 Q. NOW, YOU SAY, AND I'M TURNING TO PAGE 2, TO EXIST AS A
14 COMPETITOR TO CHRONICLE AND EARN ANY KIND OF ADVERTISING
15 SUPPORT THAT THE EXAMINER WOULD HAVE TO ADD 200,000 IN
16 CIRCULATION; CORRECT?
17 A. CORRECT.
18 Q. AND ARE YOU AWARE THAT THE EXAMINER'S DAILY CIRCULATION
19 HAS NOT BEEN AS HIGH AS 300,000 SINCE 1964?
20 A. I'M AWARE THAT IT HAS NOT BEEN HIGH FOR MANY YEARS.
21 Q. ALL OF YOUR EXPENSE NUMBERS ASSUME THAT TRIPLING THE
22 EXAMINER'S CURRENT CIRCULATION IS A PREREQUISITE FOR THE
23 EXAMINER TO COMPETE WITH THE CHRONICLE; CORRECT?
24 A. MY EXPENSE NUMBERS ARE BASED ON THE EXAMINER COMPETING
25 WITH THE CHRONICLE I BELIEVE, AS I PUT IT, AS A WORTHY
1182
SCHMIDT - CROSS / HOCKETT
1 COMPETITOR.
2 Q. AND YOU LIST VARIOUS CATEGORIES OF EXPENSE IN YOUR
3 DECLARATION IN PARAGRAPH 5 AND YOU WENT OVER THOSE.
4 A. YES.
5 Q. 45 MILLION OF PRINTING AND NEWSPRINT, 50 MILLION IN
6 PAYROLL, 25 MILLION IN GENERAL AND ADMINISTRATIVE, AND DELIVERY
7 ANOTHER 20, AND THEN ANOTHER 20 IN CIRCULATION PROCUREMENT;
8 CORRECT?
9 A. CORRECT.
10 Q. AND AT YOUR DEPOSITION YOU REALIZED YOU'D MADE A MATH
11 ERROR IN THAT THOSE NUMBERS ADD UP TO $160 MILLION, AND TO
12 ADDRESS THAT POINT YOU SIMPLY CUT THE DELIVERY BUDGET FROM 20
13 TO 10 MILLION; CORRECT?
14 A. CORRECT.
15 Q. NOW, I WANT TO FOCUS ON THE 20 MILLION-DOLLAR SUM THAT YOU
16 SAY IS NECESSARY FOR THE NEW EXAMINER TO SPEND ANNUALLY IN
17 MARKETING AND CIRCULATION PROCUREMENT.
18 MR. HOCKETT: MAY I APPROACH THE EASEL, YOUR HONOR?
19 THE COURT: YES, YOU MAY.
20 (PAUSE IN PROCEEDINGS.)
21 BY MR. HOCKETT:
22 Q. NOW, THIS 20 MILLION-DOLLAR NUMBER, THIS WAS SOMETHING
23 THAT YOU PARTICULARLY WANTED TO DISCUSS WITH MR. WEAVER,
24 CORRECT, BEFORE YOU EXECUTED YOUR DECLARATION?
25 A. I WANTED TO DISCUSS ALL THE NUMBERS THAT I HAD PUT DOWN
1183
SCHMIDT - CROSS / HOCKETT
1 WITH MR. WEAVER.
2 Q. AND THIS IS ONE OF THE ONES THAT YOU WANTED TO DISCUSS
3 WITH HIM; CORRECT?
4 A. CORRECT.
5 Q. AND YOU DID DISCUSS IT WITH MR. WEAVER; CORRECT?
6 A. YES, I DID.
7 Q. AND HE TOLD YOU THAT THAT 20 MILLION-DOLLAR NUMBER THAT
8 YOU HAD COME UP WITH WAS, IN HIS JUDGMENT, A REASONABLE NUMBER;
9 CORRECT?
10 A. HE SAID MY NUMBERS WERE REASONABLE.
11 Q. AND THIS WAS AN EXPENSE ITEM THAT YOU THOUGHT WAS
12 PARTICULARLY IMPORTANT; DID YOU NOT?
13 A. YES, I DID.
14 Q. BECAUSE OF THE NEED THAT YOU SAW TO TRIPLE THE EXAMINER'S
15 CIRCULATION?
16 A. YES, SIR.
17 Q. AND YOU WANTED TO MAKE SURE YOU HAD GOTTEN YOUR ESTIMATE
18 RIGHT; CORRECT?
19 A. YES.
20 Q. YOU WANTED TO BE CAREFUL?
21 A. YES.
22 Q. AND YOU TESTIFIED HERE TODAY THAT YOU STAND BEHIND THIS
23 20 MILLION-DOLLAR NUMBER?
24 A. YES.
25 MR. HOCKETT: MAY I APPROACH THE EASEL, YOUR HONOR?
1184
SCHMIDT - CROSS / HOCKETT
1 THE COURT: YES.
2 BY MR. HOCKETT:
3 Q. NOW I BELIEVE AT YOUR DEPOSITION YOU TESTIFIED THAT YOU
4 ARRIVED AT THIS NUMBER BY FIGURING THAT IT WOULD COST AN
5 AVERAGE OF $20 PER EACH NEW SUBSCRIPTION PROCURED FOR HOME
6 DELIVERY; CORRECT?
7 A. THAT'S CORRECT.
8 Q. LET'S PUT THAT -- THAT'S CALLED A START IN THE NEWSPAPER
9 BUSINESS?
10 A. YOU GOT IT.
11 Q. $20 PER START.
12 AND YOU SAID THAT YOU FIGURED YOU WOULD NEED A
13 HUNDRED THOUSAND NEW HOME DELIVERY SUBSCRIBERS PER YEAR;
14 CORRECT?
15 A. TO STAY EVEN, YES.
16 Q. TO STAY EVEN; CORRECT?
17 A. YES.
18 Q. WE'LL CALL THOSE A HUNDRED THOUSAND STARTS; CORRECT?
19 A. CORRECT.
20 Q. AND THEN YOU MULTIPLIED THOSE TWO NUMBERS TOGETHER AND
21 WHAT DID YOU GET?
22 A. WHAT IS IT, $2 MILLION?
23 Q. WHAT DID YOU GET?
24 A. WHEN I MULTIPLIED THEM?
25 Q. YES.
1185
SCHMIDT - CROSS / HOCKETT
1 A. SIR, I DON'T REMEMBER AT THE MOMENT.
2 Q. THAT'S YOUR 20 MILLION-DOLLAR FIGURE; ISN'T IT?
3 A. NO, NO, NO. THAT IS NOT MY 20 MILLION-DOLLAR FIGURE
4 BECAUSE YOU'RE NOT INCLUDING MONEY YOU SPEND ON RADIO AND
5 TELEVISION AND ALL THE REST OF THE THINGS THAT GO INTO A
6 PROMOTION PROGRAM.
7 Q. SIR, AT YOUR DEPOSITION DID YOU NOT TESTIFY THAT YOU
8 MULTIPLIED $20 PER START TIMES A HUNDRED THOUSAND STARTS TO
9 YIELD THE NUMBER $20 MILLION?
10 A. NO, SIR.
11 Q. WOULD YOU PLEASE TURN TO PAGE 52 AND 53 OF YOUR
12 DEPOSITION?
13 A. (WITNESS EXAMINES DOCUMENT.)
14 Q. AND I'M GOING TO READ FROM LINE 20 OF PAGE 52 TO LINE 4 OF
15 PAGE 53:
16 "Q. AND WOULD YOU WALK ME THROUGH THAT
17 CALCULATION?
18 "A. WELL, TO GET TO 200,000 I FIGURED
19 50 PERCENT OF IT WOULD BE SINGLE COPY AND
20 50 PERCENT OF IT WOULD BE HOME DELIVERY, AND I
21 USED THE $20 A START ONLY FOR THE HOME DELIVERY
22 ASPECT OF IT.
23 "Q. ALL RIGHT. SO YOU WOULD MULTIPLY $20
24 PER START TIMES THE 100,000 NEW SUBSCRIBERS FOR
25 HOME DELIVERY TO YIELD $20 MILLION?
1186
SCHMIDT - CROSS / LINDSTROM
1 "A. THAT'S RIGHT."
2 WERE YOU ASKED THOSE QUESTIONS AND DID YOU GIVE
3 THOSE ANSWERS?
4 A. YES, SIR.
5 Q. AND $20 TIMES 100,000 DOES NOT EQUAL 20 MILLION; DOES IT,
6 SIR?
7 A. CORRECT.
8 Q. IT EQUALS 2 MILLION; DOESN'T IT?
9 A. CORRECT.
10 Q. SO WHAT WE HAVE IS ANOTHER MATH ERROR; ISN'T IT, SIR?
11 A. CORRECT.
12 MR. HOCKETT: I HAVE NO FURTHER QUESTIONS.
13 THE COURT: VERY WELL. ANY OTHER QUESTIONS OF THIS
14 WITNESS? MR. LINDSTROM?
15 MR. LINDSTROM: THANK YOU, YOUR HONOR.
16 CROSS-EXAMINATION
17 BY MR. LINDSTROM:
18 Q. GOOD MORNING, MR. SCHMIDT.
19 A. GOOD MORNING.
20 Q. NOW, WE'VE HEARD FROM A NUMBER OF NEWSPAPER INDUSTRY
21 CONSULTANTS DURING THE COURSE OF THIS TRIAL, AND SOME OF THOSE
22 INDIVIDUALS HAVE WORKED FOR YOU; HAVE THEY NOT?
23 A. TWO OF THEM HAVE, YES.
24 Q. WELL, FOR EXAMPLE, MR. WEAVER WORKED FOR YOU AS A CFO;
25 ISN'T THAT RIGHT?
1187
SCHMIDT - CROSS / LINDSTROM
1 A. CORRECT.
2 Q. AND WHO WAS THE OTHER?
3 A. MR. OSBORN.
4 Q. THE GREAT SCOT? THE OTHER SCOTTISH --
5 THE COURT: THAT'S AN INSIDE JOKE.
6 THE WITNESS: OKAY. YES, MR. OSBORN DID WORK FOR
7 ME, YES.
8 BY MR. LINDSTROM:
9 Q. YOU HAVE TO HAVE BEEN HERE FOR THE LONG HAUL.
10 AND MR. OSBORN, HIS EXPERTISE IS IN WHAT AREA?
11 A. CIRCULATION.
12 Q. AND WHAT YOU BRING TO THE MIX IS THE PERSPECTIVE THAT A
13 CEO OR A PUBLISHER HAS SITTING ON TOP OF ALL THESE DIFFERENT
14 DISCIPLINES; ISN'T THAT FAIR TO SAY?
15 A. THAT'S FAIR, YES.
16 Q. AND BASED ON YOUR BACKGROUND, TRAINING AND EXPERIENCE IN
17 THIS INDUSTRY SINCE YOU WERE 15 YEARS OLD, IT'S YOUR OPINION
18 THAT THE CURRENT EXAMINER WOULD LOSE MONEY IF OPERATED OUTSIDE
19 THE JOA; ISN'T THAT RIGHT?
20 A. YES, SIR.
21 Q. IN FACT, I THINK YOU TOLD ME IT WOULD LOSE LOTS OF MONEY;
22 ISN'T THAT RIGHT?
23 A. YES, SIR.
24 Q. AND IT'S YOUR BEST ESTIMATE THE AMOUNT OF MONEY TODAY'S
25 EXAMINER WOULD LOSE, IF OPERATED OUTSIDE THE JOA, IS
1188
SCHMIDT - CROSS / LINDSTROM
1 $75 MILLION; ISN'T THAT TRUE, SIR?
2 A. THAT WAS AN ESTIMATE, MY ESTIMATE, YES.
3 Q. NOW, IN YOUR MIND THE EXAMINER OPERATES IN A
4 HIGHLY-COMPETITIVE MARKETPLACE; IS THAT NOT RIGHT?
5 A. YES, SIR.
6 Q. WHAT IS THAT MARKET IN YOUR JUDGMENT?
7 A. IT IS THE CITY AND COUNTY OF SAN FRANCISCO, THE
8 NORTHERN -- THE NORTHERN END OF SAN MATEO COUNTY, MARIN COUNTY
9 AND THE EAST BAY.
10 Q. IN YOUR JUDGMENT, THE MARKET DOESN'T STOP WITH THE
11 BOUNDARIES OF THE CITY AND COUNTY OF SAN FRANCISCO; DOES IT?
12 A. IT DOES NOT.
13 Q. NOW, IN ORDER FOR THE EXAMINER TO BE A WORTHY COMPETITOR
14 OF THE CHRONICLE IN THIS HIGHLY-COMPETITIVE MARKET, IT'S YOUR
15 VIEW THAT IT'S GOING TO HAVE TO HAVE CIRCULATION OF 300,000 OR
16 GREATER; ISN'T THAT RIGHT?
17 A. YES, SIR.
18 Q. AND YOU'RE AWARE, AREN'T YOU, THAT AT PRESENT THE EXAMINER
19 ONLY HAS CIRCULATION OF AROUND 100,000?
20 A. YES, SIR.
21 Q. AND IT IS YOUR PROFESSIONAL JUDGMENT THAT FOLLOWING THE
22 EXPIRATION OF THE JOA, IF THE EXAMINER DID NOT INCREASE ITS
23 CIRCULATION BY NEARLY 200,000, IT WAS DOOMED TO FAILURE; ISN'T
24 THAT RIGHT?
25 A. YES, SIR.
1189
SCHMIDT - CROSS / LINDSTROM
1 Q. AND THAT WOULD BE TRUE NO MATTER WHO RAN THE EXAMINER;
2 ISN'T THAT RIGHT?
3 A. YES, SIR.
4 Q. WHETHER IT BE REILLY OR THE FANGS OR HEARST ITSELF; ISN'T
5 THAT TRUE?
6 A. YES, SIR.
7 Q. AND IN ORDER TO MAINTAIN THAT THRESHOLD LEVEL OF 300,000
8 CIRCULATION, IN YOUR JUDGMENT IT'S GOING TO REQUIRE A TOTAL
9 OPERATING BUDGET OF 125 TO 150 MILLION; ISN'T THAT RIGHT?
10 A. YES, SIR.
11 Q. AND I THINK YOU TOLD ME IN YOUR DEPOSITION THAT YOU THINK
12 IT WOULD PROBABLY BE AT THE HIGHER END OF THAT RANGE; ISN'T
13 THAT RIGHT?
14 A. I DON'T REMEMBER SAYING THAT, BUT IF YOU RECALL IT. I
15 DON'T REMEMBER.
16 Q. WELL, AS YOU SIT HERE TODAY, YOU THINK $150 MILLION TO PUT
17 OUT A WORTHY COMPETITOR OF THE CHRONICLE IS ABOUT RIGHT?
18 A. I THINK THAT'S A REASONABLE FIGURE.
19 Q. AND WHAT YOU HAVE IN MIND AS A WORTHY COMPETITOR IS A
20 METROPOLITAN DAILY NEWSPAPER; RIGHT?
21 A. YES, SIR.
22 Q. WITH THE FEATURES THAT YOU DESCRIBED, THE COMPLETENESS,
23 THE SPORTS AND BUSINESS COVERAGE, AND THE LIKE; CORRECT?
24 A. CORRECT.
25 Q. NOW, I WAS A LITTLE BIT CONFUSED BY YOUR TESTIMONY
1190
SCHMIDT - CROSS / HALLING
1 REGARDING THE SIZE OF THE CURRENT EXAMINER STAFF. I BELIEVE
2 YOU TESTIFIED UNDER EXAMINATION BY MR. SHULMAN THAT THE CURRENT
3 SIZE OF THE STAFF IS LARGE FOR A PAPER WITH 100,000
4 CIRCULATION; IS THAT RIGHT?
5 A. CORRECT.
6 Q. IS IT NOT TRUE THAT IN ORDER TO BE A WORTHY COMPETITOR OF
7 THE CHRONICLE IN THE FUTURE, FOLLOWING THE EXPIRATION OF THE
8 JOA, THAT THE EXAMINER WOULD HAVE TO MAINTAIN THAT SIZE STAFF
9 OR LARGER?
10 A. CORRECT.
11 MR. LINDSTROM: THANK YOU, YOUR HONOR. I HAVE NO
12 FURTHER QUESTIONS.
13 THE COURT: VERY WELL. THANK YOU, MR. LINDSTROM.
14 MR. HALLING?
15 CROSS-EXAMINATION
16 BY MR. HALLING:
17 Q. GOOD MORNING, MR. SCHMIDT.
18 A. GOOD MORNING.
19 Q. WHEN THE VALLEY GREEN SHEET WAS TRANSFORMED INTO THE DAILY
20 NEWS, YOU WERE THE CEO; IS THAT RIGHT?
21 A. THAT'S CORRECT.
22 Q. HOW MUCH MONEY WAS INVESTED BY TRIBUNE COMPANY TO MAKE
23 THAT TRANSITION?
24 A. SIR, I DON'T RECALL. THE PAPER WAS MARGINALLY PROFITABLE
25 WHEN WE STARTED THE PROJECT. THEY OBVIOUSLY BROUGHT US THE
1191
SCHMIDT - CROSS / HALLING
1 COMPUTERS AND WHATEVER CAPITAL WE NEEDED, BUT WE DID NOT HAVE
2 TO GO BACK TO THE CHICAGO BANK TO GET ADDITIONAL MONEY TO
3 OPERATE. WE WERE ABLE TO OPERATE WITH WHAT WE BROUGHT IN IN
4 ADVERTISING REVENUE.
5 Q. WHEN YOU SOLD THE DAILY NEWS, WHAT DID YOU GET FOR IT?
6 A. I WAS GONE BY THEN; BUT IF I REMEMBER CORRECTLY, THE
7 FIGURE WAS $175 MILLION.
8 Q. AND THE PURCHASER WAS SINGLETON?
9 A. NO. IT WAS JACK KENT COOK.
10 Q. WAS THE PAPER SUBSEQUENTLY SOLD?
11 A. YES, IT WAS SOLD. AFTER MR. COOK DIED, IT WAS SOLD TO
12 WILLIAM D. SINGLETON.
13 Q. AND HIS COMPANY IS MEDIA NEWS, IS THAT RIGHT?
14 A. YES.
15 Q. NOW, THE EXAMINER WHEN IT WAS PUT UP FOR SALE, MR.
16 SINGLETON LOOKED AT IT; DIDN'T HE?
17 A. I HAVE NO IDEA.
18 Q. MR. SINGLETON OPERATES PAPERS IN THE BAY AREA; DOES HE
19 NOT?
20 A. YES, HE DOES.
21 Q. NOW, IF A PUBLISHER WERE TO NOT ACCEPT THE EXAMINER FOR
22 FREE, I ASSUME YOU WOULD AGREE THAT THAT SUGGESTS IT'S NOT MUCH
23 OF A BUSINESS?
24 A. SIR, WOULD YOU RESTATE THAT?
25 Q. YOU UNDERSTAND THAT THE TRANSACTIONS THAT ARE AT ISSUE
1192
SCHMIDT - REDIRECT / SHULMAN
1 HERE INVOLVE HEARST PAYING A SUBSIDY TO THE PURCHASER OF THE
2 EXAMINER; IS THAT CORRECT?
3 A. YES, I DO.
4 Q. THAT'S WHAT MR. REILLY WANTED; CORRECT?
5 A. I DON'T -- I DON'T KNOW THAT, BUT I DO UNDERSTAND THE
6 SUBSIDY INVOLVED IN THIS CASE.
7 Q. A NEWSPAPER THAT CANNOT BE SOLD WITHOUT A SUBSIDY IS NOT
8 MUCH OF A BUSINESS; IS THAT RIGHT?
9 A. I THINK THAT'S A FAIR STATEMENT, YES.
10 Q. NOW, YOU USED THE TERM "METROPOLITAN DAILY NEWSPAPER."
11 THAT HAS A MEANING IN THE INDUSTRY; DOES IT NOT?
12 A. YES, IT DOES.
13 Q. ARE YOU FAMILIAR WITH A TREND TOWARDS A DECLINE IN
14 COMPETING METROPOLITAN DAILY NEWSPAPERS?
15 A. YES, SIR.
16 MR. HALLING: I HAVE NOTHING FURTHER, YOUR HONOR.
17 THE COURT: VERY WELL. MR. SHULMAN, REDIRECT.
18 MR. SHULMAN: YES, YOUR HONOR.
19 REDIRECT EXAMINATION
20 BY MR. SHULMAN:
21 Q. YOU SAID "METROPOLITAN DAILY NEWSPAPER" HAS A MEANING IN
22 THE INDUSTRY?
23 A. YES.
24 Q. WHICH IS WHAT?
25 A. IT'S A NEWSPAPER THAT HAS A CORE MARKET BUT SERVES -- IT
1193
SCHMIDT - REDIRECT / SHULMAN
1 SERVES A MUCH LARGER MARKET OUTSIDE OF ITS CORE MARKET.
2 Q. OKAY. WHAT DO YOU MEAN BY A "CORE MARKET"?
3 A. GENERALLY NEWSPAPERS ARE DESIGNATED BY WHAT IS CALLED
4 THEIR CITY ZONE AND THEIR TOTAL ZONE I GUESS UNDER ABC
5 PARLANCE. CORE MARKET IS IF THE PAPER HAS A NAME ON IT THAT
6 SAYS THE "SAN FRANCISCO EXAMINER," GENERALLY SAN FRANCISCO IS
7 THE CORE MARKET.
8 Q. OKAY. NOW, YOU'VE SAID THAT THE LOS ANGELES DAILY NEWS
9 WAS SOLD FOR $175 MILLION AT ONE POINT?
10 A. CORRECT.
11 Q. WHAT WAS THE CIRCULATION AT THAT TIME?
12 A. 200,000.
13 Q. AND WAS IT SOLD LATER AGAIN?
14 A. IT WAS SOLD AGAIN, YES.
15 Q. DO YOU KNOW THE PRICE?
16 A. I DO NOT.
17 Q. OKAY. I HAVE TO ASK YOU ABOUT THE $20 MILLION ON THE
18 MARKET. YOU SAID THAT -- WELL, YOU SAID EARLIER YOU STAND BY
19 THE $20 MILLION AS A NUMBER THAT'S GOING TO BE NEEDED FOR
20 MARKETING TO INCREASE THE CIRCULATION. DO YOU STILL STAND BY
21 IT?
22 A. YES.
23 Q. OKAY. AND WOULD YOU EXPLAIN WHAT IS INVOLVED IN THAT
24 $20 MILLION?
25 A. WELL, THE SO-CALLED STARTS THAT WE DISCUSSED, WHICH ARE
1194
SCHMIDT - RECROSS / HOCKETT
1 ILLUSTRATED ON THE EASEL, IS A PROCUREMENT COST TO OBTAIN HOME
2 DELIVERY CUSTOMERS. WHEN I'M TALKING ABOUT $20 MILLION, I AM
3 TALKING ABOUT THE MEDIA CAMPAIGN, THE PROMOTION AND EVERYTHING
4 THAT MUST BE DONE TO INFORM THE PUBLIC THAT THE EXAMINER IS A
5 NEW NEWSPAPER, IT'S A DIFFERENT NEWSPAPER, AND YOU SHOULD TRY
6 IT AND YOU SHOULD MAYBE SUBSCRIBE TO IT.
7 Q. OKAY. NOW, YOU WERE ALSO ASKED IF YOU WERE AWARE OF THE
8 FANGS' PLANS FOR THE EXAMINER. DO YOU REMEMBER THAT?
9 A. YES.
10 Q. OKAY. WERE YOU IN COURT EARLIER WHEN I READ MR. FANG'S
11 DEPOSITION TESTIMONY THAT HE HAS NOT PREPARED ANYTHING THAT HE
12 WOULD CALL A BUSINESS PLAN FOR THE EXAMINER?
13 A. YES, I WAS.
14 MR. SHULMAN: OKAY. THANK YOU. I HAVE NO FURTHER
15 QUESTIONS.
16 MR. HOCKETT: I JUST HAVE A COUPLE OF FOLLOWUPS,
17 YOUR HONOR.
18 THE COURT: VERY WELL.
19 RECROSS-EXAMINATION
20 BY MR. HOCKETT:
21 Q. MR. SCHMIDT, YOU JUST SAID YOU STILL STAND BY THE COST
22 NUMBERS IN YOUR DECLARATION; CORRECT?
23 A. YES.
24 Q. AND BY MY CALCULATION THIS MORNING, WE HAVE IDENTIFIED
25 $38 MILLION (SIC) IN MATH ERRORS; IS THAT CORRECT? 10 MILLION
1195
SCHMIDT - RECROSS / HOCKETT
1 IN YOUR ADDITION OF THE VARIOUS AMOUNTS AND 18 MILLION IN THE
2 ERROR IN MULTIPLICATION REGARDING STARTS; IS THAT CORRECT?
3 A. THAT'S CORRECT.
4 MR. HOCKETT: I HAVE NOTHING FURTHER.
5 THE COURT: MR. SCHMIDT, YOU SAID IN YOUR TESTIMONY
6 THAT YOU REGARDED THE EXAMINER AS A FINE EDITORIAL PRODUCT.
7 THE WITNESS: THAT'S CORRECT.
8 THE COURT: WHY, THEN, IN YOUR OPINION HAS THE
9 EXAMINER EXPERIENCED A STEADY DECLINE IN ITS CIRCULATION?
10 THE WITNESS: FIRST OF ALL, IT IS AN AFTERNOON
11 NEWSPAPER AND IN MOST MAJOR CITIES TODAY -- IN FACT, I'M TRYING
12 TO THINK IF I CAN THINK OF ANY AFTERNOON NEWSPAPERS IN MAJOR
13 CITIES. I DON'T BELIEVE THERE ARE ANY. AND IT'S PART OF A
14 JOINT OPERATING AGREEMENT.
15 YOU KNOW, IN MY EXPERIENCE, YOUR HONOR, WHEN JOINT
16 OPERATING AGREEMENTS OCCUR AND ONE NEWSPAPER MUST GO IN THE
17 AFTERNOON, THEY ALWAYS ARE THE SMALLEST IN CIRCULATION.
18 THE COURT: CAN YOU THINK OF JOINT OPERATING
19 AGREEMENTS IN WHICH THE EVENING PAPER BECAME THE DOMINANT
20 NEWSPAPER?
21 THE WITNESS: NO, SIR.
22 THE COURT: DOES SEATTLE COME TO MIND?
23 THE WITNESS: SEATTLE WAS THE -- WAS THE DOMINANT
24 AFTERNOON -- IT WAS THE DOMINANT NEWSPAPER IN THE MARKETPLACE
25 PRIOR TO THE JOINT OPERATING AGREEMENT.
1196
1 THE COURT: THE SEATTLE TIMES WAS THE DOMINANT
2 PAPER?
3 THE WITNESS: YES, IT WAS; BUT AS YOU MAY OR MAY NOT
4 KNOW, IT HAS JUST BECOME A MORNING NEWSPAPER AND THE
5 CIRCULATION BETWEEN THE TWO PAPERS IS PRETTY EQUAL NOW.
6 THE COURT: WHAT ABOUT DETROIT? WASN'T THE NEWS AN
7 EVENING PAPER AND THE DOMINANT NEWSPAPER?
8 THE WITNESS: YES, IT WAS. YOU'RE CORRECT.
9 THE COURT: CAN YOU THINK OF ANY OTHER INSTANCE IN
10 WHICH NEWSPAPERS WENT INTO A JOINT OPERATING AGREEMENT AND THE
11 EVENING PAPER EITHER WAS OR BECAME OR MAINTAINED ITS STATUS AS
12 THE DOMINANT PAPER?
13 THE WITNESS: IF MY MEMORY SERVES ME CORRECTLY,
14 THERE WAS A PERIOD OF TIME THAT THE NEWSPAPER IN HONOLULU WAS
15 THE DOMINANT NEWSPAPER AND IT WAS THE AFTERNOON NEWSPAPER, BUT
16 BY -- BUT I DON'T BELIEVE IT ANY LONGER IS.
17 THE COURT: OKAY. YOU SPOKE ABOUT METROPOLITAN
18 DAILY NEWSPAPER AS A TERM OF ART IN THE INDUSTRY AND THEN IN
19 YOUR FURTHER EXAMINATION YOU SPOKE OF A NEWSPAPER THAT HAD A
20 CORE MARKET AND FROM THAT CORE MARKET REACHED OUT TO SERVE A
21 LARGER METROPOLITAN MARKET.
22 WHAT ARE THE METROPOLITAN DAILY NEWSPAPERS IN SAN
23 FRANCISCO BAY AREA?
24 THE WITNESS: IN MY JUDGMENT?
25 THE COURT: YES.
1197
1 THE WITNESS: THE CHRONICLE, THE EXAMINER AND THE
2 MERCURY NEWS.
3 THE COURT: HOW ABOUT THE INDEPENDENT JOURNAL IN
4 MARIN COUNTY?
5 THE WITNESS: I WOULD NOT CONSIDER THAT A
6 METROPOLITAN NEWSPAPER.
7 THE COURT: THE CONTRA COSTA TIMES?
8 THE WITNESS: NO. I CONSIDER THOSE SUBURBAN
9 NEWSPAPERS.
10 THE COURT: HOW ABOUT ANY OF THE EAST BAY
11 NEWSPAPERS, THE OAKLAND TRIBUNE, THE HAYWARD DAILY REVIEW?
12 THE WITNESS: THERE WAS A TIME THAT THE OAKLAND
13 TRIBUNE WAS, BUT IT NO LONGER IS, I DON'T BELIEVE, IN MY
14 JUDGMENT.
15 THE COURT: IF YOU CONSIDER THE CHRONICLE AND THE
16 EXAMINER TOGETHER, THEN THERE ARE ONLY TWO METROPOLITAN
17 NEWSPAPERS IN THE SAN FRANCISCO BAY AREA; IS THAT CORRECT?
18 THE WITNESS: I WOULD CONSIDER THE MERCURY NEWS.
19 THE COURT: WELL, IF YOU CONSIDER THE EXAMINER AND
20 THE CHRONICLE AS ONE ENTITY --
21 THE WITNESS: YES, SIR. YES.
22 THE COURT: -- THEN --
23 THE WITNESS: YES, YOUR HONOR.
24 THE COURT: -- THEN IT HAS ONLY ONE OTHER
25 METROPOLITAN NEWSPAPER THAT COMPETES IN THE BAY AREA?
1198
FLOOD - DIRECT / SHULMAN
1 THE WITNESS: THAT'S CORRECT.
2 THE COURT: THANK YOU, MR. SCHMIDT, FOR YOUR
3 TESTIMONY, SIR. YOU MAY STEP DOWN. YOU'RE EXCUSED.
4 THE WITNESS: THANK YOU, YOUR HONOR.
5 (WITNESS EXCUSED.)
6 THE COURT: MR. SHULMAN, YOUR NEXT WITNESS, PLEASE.
7 MR. SHULMAN: MAY IT PLEASE THE COURT, THE PLAINTIFF
8 CALLS FRANK FLOOD.
9 THE COURT: FRANK FLOOD?
10 MR. SHULMAN: YES.
11 (PAUSE IN PROCEEDINGS.)
12 THE CLERK: PLEASE RAISE YOUR RIGHT HAND TO BE
13 SWORN.
14 FRANK FLOOD,
15 CALLED AS A WITNESS FOR THE PLAINTIFF, HAVING BEEN DULY SWORN,
16 TESTIFIED AS FOLLOWS:
17 THE CLERK: PLEASE STATE YOUR FULL NAME AND SPELL
18 YOUR LAST NAME FOR THE RECORD.
19 THE WITNESS: FRANK FLOOD, F-L-O-O-D.
20 MR. SHULMAN: MAY IT PLEASE THE COURT.
21 DIRECT EXAMINATION
22 BY MR. SHULMAN:
23 Q. WHAT IS YOUR ADDRESS?
24 POUR YOUR WATER FIRST, THEN I'LL ASK YOU.
25 A. MY ADDRESS IS 108 BROOKLINE, ALL ONE WORD,
1199
FLOOD - DIRECT / SHULMAN
1 B-R-O-O-K-L-I-N-E, MORAGA, CALIFORNIA.
2 Q. AND WHAT IS YOUR -- GO AHEAD.
3 A. THANK YOU.
4 Q. WHAT IS YOUR AGE, MR. FLOOD?
5 A. 71 YEARS OLD.
6 Q. AND CAN YOU STATE, PLEASE, YOUR EDUCATIONAL BACKGROUND?
7 A. SOME UNIVERSITY, TWO YEARS, INCOMPLETE.
8 Q. AND WHERE WAS THAT?
9 A. THAT WAS IN DUBLIN, IRELAND.
10 Q. OKAY. IS THAT WHERE YOU'RE FROM?
11 A. YES.
12 Q. ARE YOU EMPLOYED AT THIS TIME?
13 A. I AM AN INDEPENDENT CONSULTANT.
14 Q. OKAY. AND WHAT IS THE NATURE OF THE CONSULTING WORK THAT
15 YOU DO?
16 A. MOSTLY MEDIA WORK IN VARIOUS MEDIUM.
17 MR. SHULMAN: MAY I APPROACH THE WITNESS, YOUR
18 HONOR?
19 THE COURT: YES, YOU MAY.
20 BY MR. SHULMAN:
21 Q. MR. FLOOD, I HAVE PUT IN FRONT OF YOU PLAINTIFF EXHIBIT 56
22 IN EVIDENCE, WHICH IS THE DECLARATION OF FRANK FLOOD IN SUPPORT
23 OF PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION. DO YOU
24 RECOGNIZE THIS AS THE DECLARATION THAT YOU SIGNED IN THIS CASE?
25 A. YES, I DO.
1200
FLOOD - DIRECT / SHULMAN
1 Q. OKAY. PARAGRAPH 1 STATES:
2 "I AM THE FORMER ADVERTISING MANAGER OF THE
3 SAN FRANCISCO NEWSPAPER PRINTING CO., INC., DBA,
4 SAN FRANCISCO NEWSPAPER AGENCY (SFNA), WHICH
5 PERFORMS ALL COMMERCIAL OPERATIONS OF THE SAN
6 FRANCISCO EXAMINER AND THE SAN FRANCISCO
7 CHRONICLE. I HELD THAT POSITION FOR THREE AND A
8 HALF YEARS, FROM 1991 TO 1994. I WORKED FOR
9 SFNA FROM 1984 TO 1994 MANAGING VARIOUS ASPECTS
10 OF THE ADVERTISING OPERATIONS."
11 DO YOU SEE THAT?
12 A. YES.
13 Q. WHEN DID YOU FIRST GO INTO THE NEWSPAPER BUSINESS?
14 A. 1959.
15 Q. OKAY. NOW, YOUR DECLARATION PICKS UP WITH YOUR WORK ON
16 THE -- IN THE NEW YORK DAILY NEWS BEGINNING IN 1976. I'M GOING
17 TO ASK YOU ABOUT THAT, BUT LET ME ASK YOU FIRST TO TELL US WHAT
18 YOU DID BRIEFLY FROM 1959 UNTIL YOU JOINED THE DAILY NEWS OR
19 UNTIL YOU BECAME DISPLAY ADVERTISING MANAGER OF THE NEW YORK
20 DAILY NEWS IN 1976.
21 A. I WORKED FOR THE HOLLYWOOD CITIZEN NEWS IN HOLLYWOOD,
22 CALIFORNIA, WHERE I WAS A SALESPERSON SELLING RETAIL
23 ADVERTISING.
24 I WAS THEN HIRED BY THE LOS ANGELES TIMES WITH WHOM
25 I WORKED FOR ABOUT 14 YEARS, BUT INITIALLY I WORKED FOR THE
1201
FLOOD - DIRECT / SHULMAN
1 TIMES AS A RETAIL SALESPERSON AND THEN AS A NATIONAL
2 SALESPERSON. THAT WAS FOR FIVE YEARS, APPROXIMATELY FIVE
3 YEARS.
4 I WAS THEN TRANSFERRED BY THE NEW YORK TIMES --
5 CORRECTION, LOS ANGELES TIMES TO THE NEW YORK OFFICE OF THE LOS
6 ANGELES TIMES WHERE I BECAME ADVERTISING MANAGER FOR THE SUNDAY
7 MAGAZINE.
8 AFTER ABOUT TWO YEARS IN THAT POSITION, MAYBE THREE,
9 I WAS PROMOTED TO THE EASTERN ADVERTISING MANAGER IN CHARGE OF
10 ALL THE ADVERTISING THAT CAME OUT OF THE EASTERN TERRITORIES.
11 IN 1971 I WAS MOVED BACK TO LOS ANGELES AND THE LOS
12 ANGELES TIMES, AND I BECAME NATIONAL ADVERTISING MANAGER FOR
13 THE L.A. TIMES.
14 IN 1976 I WAS HIRED BY THE CHICAGO -- CORRECTION, I
15 WAS HIRED BY THE NEW YORK DAILY NEWS, WHICH WAS OWNED BY THE
16 CHICAGO TRIBUNE. I WENT BACK TO NEW YORK AND I BECAME GENERAL
17 ADVERTISING MANAGER FOR THE NEW YORK DAILY NEWS.
18 Q. OKAY. NOW, YOUR LAST POSITION WITH THE LOS ANGELES TIMES
19 WAS AS NATIONAL ADVERTISING MANAGER?
20 A. YES.
21 Q. WHAT DID YOU DO IN THAT POSITION?
22 A. I WAS RESPONSIBLE FOR ALL OF THE NATIONAL ADVERTISING THAT
23 RAN IN THE NEWSPAPER AND IN THE MAGAZINES. MY RESPONSIBILITIES
24 WERE A NATIONAL SALES STAFF IN LOS ANGELES OF ABOUT 20 PEOPLE
25 AND RESPONSIBILITY FOR THREE OUTSIDE SALES OFFICES: CHICAGO,
1202
FLOOD - DIRECT / SHULMAN
1 NEW YORK AND SAN FRANCISCO.
2 I WAS ALSO RESPONSIBLE FOR THE INDEPENDENT SALES
3 REPRESENTATIVES THAT WE HAD IN VARIOUS OTHER CITIES AS WELL AS
4 OVERSEAS.
5 Q. OKAY. NOW, YOU SAY AT LINE 26:
6 "BETWEEN 1976 AND 1981 I WAS THE DISPLAY
7 ADVERTISING MANAGER OF THE NEW YORK DAILY NEWS,
8 THE LARGEST CIRCULATION NEWSPAPER IN THE UNITED
9 STATES," END OF QUOTE.
10 CAN YOU TELL US -- WELL, WHAT WAS THE CIRCULATION OF
11 THE DAILY NEWS WHEN YOU WERE THE DISPLAY ADVERTISING MANAGER?
12 A. AS I RECALL, THE DAILY CIRCULATION WAS 2,400,000.
13 Q. AND WHAT IS DISPLAY ADVERTISING?
14 A. DISPLAY ADVERTISING IS ALL ADVERTISING THAT RUNS IN
15 NEWSPAPERS OTHER THAN THE CLASSIFIED LINER TYPE OF ADVERTISING.
16 Q. SO WHAT WERE YOUR DUTIES AND RESPONSIBILITIES AS DISPLAY
17 ADVERTISING MANAGER OF THE NEW YORK DAILY NEWS?
18 A. I WAS RESPONSIBLE FOR THE NATIONAL ADVERTISING THAT RAN IN
19 THE NEWSPAPERS AS WELL -- IN THE NEWSPAPER, AS WELL AS THE
20 RETAIL ADVERTISING THAT RAN IN THE NEWSPAPER.
21 Q. THEN IT SAYS NEXT, IF WE GO BACK TO PAGE 1 AT LINE 24, IT
22 SAYS:
23 "FROM 1981 TO 1984 I WAS THE VICE PRESIDENT
24 OF ADVERTISING OF THE DENVER POST WITH AN ANNUAL
25 ADVERTISING REVENUE OF APPROXIMATELY
1203
FLOOD - DIRECT / SHULMAN
1 $100 MILLION A YEAR."
2 IS THAT CORRECT?
3 A. THAT'S CORRECT.
4 Q. AND WHAT WERE YOUR DUTIES AND RESPONSIBILITIES AS VICE
5 PRESIDENT OF ADVERTISING FOR THE DENVER POST?
6 A. RESPONSIBILITIES FOR ALL ADVERTISING THAT RAN IN THE
7 NEWSPAPER.
8 Q. WHICH INCLUDES WHAT, WHAT KINDS?
9 A. WHICH INCLUDES NATIONAL, RETAIL AND CLASSIFIED.
10 Q. NOW, WHEN YOU WERE IN NEW YORK, THE DAILY NEWS WAS IN
11 COMPETITION WITH OTHER NEWSPAPERS IN NEW YORK?
12 A. YES.
13 Q. WHICH ONES?
14 A. PRINCIPALLY THE NEW YORK TIMES, THE NEW YORK -- THE NEWS
15 DAY ON LONG ISLAND, THE NEW YORK NEWS, STATEN ISLAND NEWSPAPER,
16 THE NEW YORK POST, AND SOME OTHER PAPERS THAT WERE IN THE OUTER
17 BOUNDARIES.
18 Q. OKAY. YOU SAY -- ALL RIGHT.
19 AND IN DENVER WAS THERE ANOTHER DAILY NEWSPAPER IN
20 COMPETITION WITH THE POST?
21 A. YES.
22 Q. AND THAT WAS?
23 A. THAT WAS THE ROCKY MOUNTAIN NEWS.
24 Q. OKAY. NOW, IN LINE 22 YOU SAY:
25 "I WORKED FOR SFNA FROM 1984 TO 1994
1204
FLOOD - DIRECT / SHULMAN
1 MANAGING VARIOUS ASPECTS OF THE ADVERTISING
2 OPERATIONS. AS ADVERTISING MANAGER, I WAS
3 RESPONSIBLE FOR ALL ADVERTISING FOR SFNA."
4 ALL RIGHT. TELL US FROM '84 -- WHEN YOU JOINED THE
5 NEWSPAPER AGENCY HERE IN 1984, WHAT WAS YOUR POSITION?
6 A. GENERAL ADVERTISING MANAGER WAS THE TITLE, AND THE
7 RESPONSIBILITY WAS NATIONAL ADVERTISING.
8 Q. AND DID THAT CHANGE AT SOME POINT?
9 A. YES, IT DID. IT CHANGED --
10 Q. HOW DID THAT CHANGE?
11 A. THAT CHANGED TO FIRST RETAIL ADVERTISING MANAGER AND THEN
12 DISPLAY ADVERTISING MANAGER AND THEN ADVERTISING MANAGER.
13 Q. AND THAT WAS IN 1991 YOU BECAME THE ADVERTISING MANAGER
14 FOR THE ENTIRE AGENCY?
15 A. YES.
16 Q. AND YOU HELD THAT UNTIL 1994?
17 A. YES.
18 Q. AND WERE YOU RESPONSIBLE FOR THE SALES OF ADVERTISING FOR
19 BOTH THE EXAMINER AND THE CHRONICLE?
20 A. YES.
21 Q. CAN YOU -- WAS ANY OF THE ADVERTISING FOR THE CHRONICLE OR
22 THE EXAMINER SOLD SEPARATELY BY THE AGENCY?
23 A. YES, IT COULD BE SOLD SEPARATELY.
24 Q. WERE THERE -- WAS -- CAN YOU GIVE US THE BREAKDOWN IN
25 TERMS OF WHAT PERCENTAGE -- WELL, LET ME BACK UP A BIT.
1205
FLOOD - DIRECT / SHULMAN
1 WHEN ADVERTISING WAS SOLD, WERE THE ADS FOR THE TWO
2 PAPERS SOLD IN COMBINATION AT ALL?
3 A. YES.
4 Q. CAN YOU EXPLAIN HOW THAT WORKED?
5 A. THERE WAS ONE RATE THAT AN ADVERTISER WOULD PAY TO BE IN
6 BOTH NEWSPAPERS. THAT WAS THE COMBINATION RATE.
7 Q. OKAY. AND IF THE ADVERTISER BOUGHT ADVERTISING UNDER THE
8 COMBINATION RATE, THEN WOULD THE ADVERTISEMENTS APPEAR IN BOTH
9 NEWSPAPERS?
10 A. YES, THEY WOULD.
11 Q. WHAT PERCENTAGE OF THE ADVERTISING SOLD BY THE AGENCY WAS
12 SOLD UNDER THE COMBINATION RATE AS OPPOSED TO SEPARATE SALE?
13 A. ABOUT 98 PERCENT WAS SOLD IN COMBINATION.
14 Q. WERE THERE EMPLOYEES OF THE AGENCY WHO HAD RESPONSIBILITY
15 FOR SELLING ONLY SEPARATELY? FOR EXAMPLE, WAS THERE AN AD
16 SALESMAN JUST FOR EXAMINER ADS OR JUST FOR CHRONICLE ADS?
17 A. NOBODY SPECIFICALLY APPOINTED TO DO THAT, BUT EACH MEMBER
18 OF THE SALES STAFF HAD THE AUTHORITY AND RESPONSIBILITY, IF THE
19 ADVERTISER WANTED TO DO SO, TO BUY EACH PAPER SEPARATELY.
20 Q. SO WAS THERE A SEPARATE SALES STAFF CREATED FOR
21 ADVERTISING SALES FOR THE EXAMINER?
22 A. ONLY IN THE CASE OF THE SUNDAY MAGAZINE.
23 Q. EXPLAIN HOW THAT WORKED.
24 A. SUNDAY MAGAZINE IS AN EXAMINER PRODUCT IN WHICH THE
25 CHRONICLE HAS NO PART OF THE EDITORIAL CONTENT. AS A RESULT OF
1206
FLOOD - DIRECT / SHULMAN
1 THAT BEING THE CASE, WE DID ESTABLISH A SMALL SALES FORCE WITH
2 A MANAGER TO SELL ADVERTISING SPECIFICALLY INTO THAT SUNDAY
3 MAGAZINE, AND THAT GROUP SOLD NOTHING ELSE.
4 Q. OKAY. SO APART FROM THE SUNDAY MAGAZINE, WAS THERE ANY
5 SALES FORCE THAT SOLD ONLY FOR THE EXAMINER?
6 A. NO.
7 MR. SHULMAN: YOUR HONOR, I AM KIND OF AT A BREAKING
8 POINT. I KNOW YOU HAVE A CALL. IS THIS --
9 THE COURT: ALL RIGHT. THIS WOULD BE A GOOD TIME
10 FOR US TO TAKE THAT RECESS. WE WILL DO THAT AND WHAT WE'LL DO,
11 THEN, IS RESUME WITH FURTHER TESTIMONY OF MR. FLOOD AT
12 12:30 AND WE'LL GO UNTIL ABOUT 2:00 O'CLOCK.
13 ALL RIGHT. THANK YOU.
14 (LUNCHEON RECESS WAS TAKEN AT 11:50 A.M.)
15 AFTERNOON SESSION 12:45 P.M.
16 THE COURT: VERY WELL, MR. FLOOD, IF YOU'D BE SO
17 GOOD AS TO RESUME THE STAND.
18 MR. HOCKETT: YOUR HONOR, I JUST HAVE ONE SMALL
19 ADMINISTRATIVE MATTER. A FEW DAYS AGO WE ATTEMPTED TO OFFER
20 INTO EVIDENCE BY STIPULATION A NUMBER OF THE EXIN PROPOSED
21 TRIAL EXHIBITS, AND NOW ALL PARTIES HAVE HAD A CHANCE TO REVIEW
22 THAT LIST AND HAVE STIPULATED TO THE ADMISSION OF THE EXHIBITS
23 AND I'D LIKE FOR THE RECORD TO IDENTIFY THEM.
24 THE COURT: WHY DON'T WE DO THIS AT THE END TODAY.
25 MR. HOCKETT: OKAY.
1207
FLOOD - DIRECT / SHULMAN
1 THE COURT: MR. SHULMAN.
2 MR. SHULMAN: MAY IT PLEASE THE COURT.
3 Q. MR. FLOOD, WHEN WE -- AT THE TIME WE BROKE, I WAS ASKING
4 YOU ABOUT EXHIBIT 56, YOUR DECLARATION, AND I WAS ASKING YOU
5 ABOUT THE WAY THAT ADVERTISING WAS SOLD WHEN YOU WERE AT THE
6 AGENCY. AND I THINK YOU SAID THAT THERE WAS NO -- SUNDAYS
7 APART, THERE WAS NO SEPARATE SALES FORCE FOR SELLING
8 ADVERTISING FOR THE EXAMINER. DO YOU REMEMBER THAT?
9 A. YES.
10 Q. AND THAT 98 PERCENT OF THE ADVERTISING WAS SOLD UNDER A
11 COMBINATION RATE.
12 A. YES.
13 Q. OKAY. NOW, WERE THERE, FOR THE ADVERTISING THAT WAS NOT
14 SOLD UNDER A COMBINATION RATE, THAT LITTLE BIT THAT WAS SOLD
15 SEPARATELY FOR THE EXAMINER, WERE THERE ADVERTISING CONTRACTS
16 FOR THAT?
17 A. YES.
18 Q. AND SO APPROXIMATELY HOW MANY ADVERTISING CONTRACTS ARE WE
19 TALKING ABOUT?
20 A. PROBABLY FOUR, SIX, SOMEWHERE IN THAT AREA.
21 Q. OKAY. THE REST OF THE ADVERTISING, THE CONTRACTS WITH THE
22 ADVERTISERS WOULD BE UNDER THE COMBINATION RATE; IS THAT RIGHT?
23 A. CORRECT.
24 Q. NOW, IF THE EXAMINER WERE TRANSFERRED TO THE FANGS, WHAT
25 PROBLEMS WOULD THE -- IF ANY, WOULD THE FANGS HAVE IN TERMS OF
1208
FLOOD - DIRECT / SHULMAN
1 STARTING TO GENERATE ADVERTISING REVENUE FOR THE NEW EXAMINER?
2 A. THE PROBLEMS REALLY WOULD BE THAT THEY WOULD START FROM
3 SCRATCH TO TRY AND CONVERT THE EXAMINER REVENUES THAT ARE PART
4 OF THE COMBINATION TO BECOME AVAILABLE FOR ADVERTISING
5 CAMPAIGNS THAT MIGHT RUN IN THE NEW EXAMINER.
6 THE PROBLEM REALLY WOULD BE THAT THERE ARE NO, WITH
7 THE EXCEPTION OF THE TWO OR THREE CONTRACTS, MAYBE FOUR, MAYBE
8 A HALF A DOZEN THAT I JUST MENTIONED, THERE ARE NO CONTRACTS
9 SEPARATELY FOR THE EXAMINER OVER AND ABOVE THAT, WHICH IN MY
10 OPINION IS A GREAT DETRIMENT TO THE SUCCESS OF THE START UP OF
11 THE NEWSPAPER IN THAT YOU DON'T INHERIT ANY CONTRACTS FROM THE
12 PREVIOUS OWNER OF THAT NEWSPAPER FOR ADVERTISING SALES.
13 CONTRACTS THAT SPECIFY REVENUE ARE LINEAGE TO BE RUN IN THIS
14 CASE THE EXAMINER. SO THAT WOULD BE A BIG, BIG DIFFICULT
15 SITUATION.
16 IN MOST SITUATIONS WHERE A NEWSPAPER IS SOLD, THE
17 NEW BUYER, THE NEW OWNER DOES INHERIT THE EXISTING CONTRACTS
18 BECAUSE THEY ARE THE ASSETS, SOME OF THE ASSETS THAT A NEW
19 BUYER IS GOING TO GET FOR WHATEVER HE PAYS FOR THE NEWSPAPER.
20 SO IN MY OPINION IT'S GOING TO BE PRETTY DIFFICULT
21 TO STARTING AT A LOW LEVEL, ALMOST SCRATCH TO PUT TOGETHER A
22 VERY HIGH VOLUME OF ADVERTISING THAT'S GOING TO BE NEEDED TO
23 SUSTAIN THE EXAMINER IN ITS NEW FORMAT.
24 Q. NOW, IF YOU LOOK AT PARAGRAPH 5 OF YOUR DECLARATION ON THE
25 SECOND PAGE, AND I'M GOING TO GET INTO THIS LITTLE IN A LITTLE
1209
FLOOD - DIRECT / SHULMAN
1 MORE DETAIL, DID YOU MAKE SOME EFFORT TO DETERMINE WHAT IT
2 WOULD TAKE IN ORDER TO DEVELOP THE TYPE OF STAFF THAT WOULD BE
3 NEEDED IN ORDER TO HAVE AN ADVERTISING DEPARTMENT FOR A
4 START-UP EXAMINER?
5 A. YES, I DID.
6 Q. OKAY. NOW, YOU SAY, BEGINNING IN PARAGRAPH 5:
7 "BASED UPON MY EXPERIENCE, ADVERTISING IN
8 NEWSPAPERS IS SEPARATED INTO THREE CATEGORIES:
9 RETAIL, CLASSIFIED AND NATIONAL, EACH OF WHICH
10 REQUIRES SEPARATE STAFFING."
11 IS THAT CORRECT?
12 A. CORRECT.
13 Q. AND YOU'VE HAD EXPERIENCE WITH ALL THREE CATEGORIES?
14 A. YES.
15 Q. OKAY. THEN YOU SAY:
16 "FOR CLASSIFIED THE EXAMINER WOULD REQUIRE
17 AT LEAST 19 OUTSIDE SALESPEOPLE, 12
18 TELEMARKETERS AND THREE GENERAL STAFF MEMBERS IN
19 OBITUARIES," END OF QUOTE.
20 WHAT DOES ADVERTISING HAVE TO DO WITH OBITUARIES?
21 THAT'S THE FIRST QUESTION.
22 A. THERE IS A PART OF THE NEWSPAPER THAT RUNS PAID OBITUARY
23 NOTICES, WHICH IS A LAST-MINUTE -- NO CONTRACTS ARE OUT ON
24 OBITUARIES. YOU HAVE TO HAVE A STAFF AVAILABLE TO TAKE THE
25 INFORMATION FROM THE MORTICIAN IMMEDIATELY AND PUBLISH IT PRIOR
1210
FLOOD - DIRECT / SHULMAN
1 TO THE FUNERAL. SO YOU HAVE TO STAFF THAT SMALL DEPARTMENT ON
2 USUALLY A 24-HOUR BASIS.
3 Q. OKAY. NOW, HOW DID YOU ARRIVE AT THE OPINION THAT THE
4 EXAMINER WOULD REQUIRE AT LEAST 19 OUTSIDE SALESPEOPLE, 12
5 TELEMARKETERS AND THREE GENERAL STAFF MEMBERS IN OBITUARIES?
6 A. IN SEEKING TO FIND A NEWSPAPER OR NEWSPAPERS THAT WOULD BE
7 VERY SIMILAR IN SIZE TO WHAT WE ENVISION OR I ENVISIONED THE
8 EXAMINER TO BE IN ITS NEW FORMAT, I FOCUSED ON TWO NEWSPAPERS
9 THAT HAD ABOUT A HUNDRED THOUSAND CIRCULATION EACH, AND I USED
10 ONE OF THOSE NEWSPAPERS AS THE BASIS FOR THESE NUMBERS THAT
11 YOU'VE JUST READ. THAT IS WHAT IT TAKES THIS NEWSPAPER IN
12 CALIFORNIA TO DEVELOP THE SORT OF ADVERTISING THAT A HUNDRED
13 THOUSAND CIRCULATION SHOULD DEVELOP.
14 Q. WHAT NEWSPAPER IS THAT?
15 A. THAT IS THE VENTURA STAR.
16 Q. ALL RIGHT. THEN YOU SAY:
17 "FOR NATIONAL ADVERTISING THE EXAMINER WILL
18 REQUIRE AT LEAST THREE OR FOUR GENERAL STAFF
19 MEMBERS AND ONE NATIONAL SALES MANAGER."
20 DO YOU SEE THAT?
21 A. YES.
22 Q. AND THE NATIONAL ADVERTISING IS WHAT?
23 A. NATIONAL ADVERTISING IS ONE OF THE CATEGORIES OF
24 ADVERTISING. WE TALKED ABOUT THREE CATEGORIES: NATIONAL,
25 RETAIL AND CLASSIFIED. NATIONAL IS THE BUSINESS THAT MOSTLY
1211
FLOOD - DIRECT / SHULMAN
1 COMES THROUGH ADVERTISING AGENCIES AND IT IS MAJOR NATIONAL
2 CORPORATIONS USUALLY THAT PLACE THAT TYPE OF ADVERTISING.
3 Q. IS THAT AN IMPORTANT SOURCE OF REVENUE?
4 A. THAT IS VERY IMPORTANT.
5 Q. OKAY. AND HOW DID YOU -- WHAT LED YOU TO BELIEVE OR
6 CONCLUDE THAT THE EXAMINER WOULD REQUIRE AT LEAST THREE OR FOUR
7 GENERAL STAFF MEMBERS AND ONE NATIONAL SALES MANAGER FOR
8 NATIONAL ADVERTISING?
9 A. THAT IS THE TEAM THAT IT TAKES IN THIS NEWSPAPER THAT I
10 EXAMINED, THIS HUNDRED THOUSAND NEWSPAPER, THE VENTURA STAR.
11 THAT IS HOW THEY ARE STAFFED AT THAT PAPER.
12 Q. OKAY. THEN YOU SAY:
13 "FOR RETAIL THE EXAMINER WILL REQUIRE AT
14 LEAST 20 GENERAL STAFF MEMBERS."
15 OKAY. AND RETAIL IS?
16 A. RETAIL IS A LOCAL ADVERTISING FROM RETAIL STORES.
17 Q. OKAY. AND HOW DID YOU ARRIVE AT THE 20 GENERAL STAFF
18 MEMBERS?
19 A. THAT ALSO CAME OUT OF THE MANNING INFORMATION THAT I
20 DEVELOPED FROM THE VENTURA NEWSPAPER.
21 Q. WHY DO YOU THINK THAT'S AN APPROPRIATE COMPARABLE?
22 A. I'M SORRY?
23 Q. WHY DO YOU THINK THAT'S AN APPROPRIATE YARDSTICK OR
24 MEASURE TO USE?
25 A. WHY DO I THINK THE PAPER IS?
1212
FLOOD - DIRECT / SHULMAN
1 Q. YES, THE VENTURA PAPER.
2 A. WELL, CIRCULATION IS SIMILAR TO THE CIRCULATION THAT THE
3 EXAMINER POSSIBLY COULD HAVE IN THE FUTURE AND DOES HAVE NOW AS
4 PART OF THE COMBINATION. IT IS ALSO A CALIFORNIA NEWSPAPER AND
5 IT ALSO HAS THE SAME -- BASICALLY THE SAME COST FACTORS FROM
6 THE POINT OF VIEW OF SALARIES AND BENEFITS AND EVERYTHING THAT
7 GOES INTO THE EXPENSE OF RUNNING AN ADVERTISING DEPARTMENT.
8 Q. OKAY. AND THEN YOU SAY:
9 "IN ORDER TO PRODUCE A VIABLE COMPETITIVE
10 PAPER, THE EXAMINER WILL REQUIRE AT A MINIMUM 98
11 FULL-TIME STAFF IN ADVERTISING INCLUDING
12 ADMINISTRATION."
13 SO HOW DO YOU GET TO THAT NUMBER INCLUDING
14 ADMINISTRATION?
15 A. THAT'S ALSO FROM THE SAME NEWSPAPER. THEY HAVE A SEPARATE
16 ITEM THAT SAYS ADMINISTRATION.
17 Q. OKAY. WHAT IS ADMINISTRATION IN AN ADVERTISING
18 DEPARTMENT?
19 A. ADMINISTRATION WOULD BE SCHEDULING, BILLING, RATE
20 STRUCTURE DEVELOPMENT, CONTROL OF EXPENSES IN THE AREA OF
21 PROMOTION. IT WOULD ALSO INCLUDE SALARIES FOR THE PEOPLE WHO
22 ARE ADMINISTRATING THAT FUNCTION.
23 Q. ALL RIGHT. DO YOU HAVE IN -- YOU DID A SECOND DECLARATION
24 IN THIS CASE; CORRECT?
25 A. YES.
1213
FLOOD - DIRECT / SHULMAN
1 Q. AND THAT'S EXHIBIT 62 IN EVIDENCE. DO YOU HAVE THAT IN
2 FRONT OF YOU? I THINK I GAVE THAT TO YOU.
3 A. NO. I JUST HAVE THE DECLARATION EXHIBIT 56.
4 MR. SHULMAN: OKAY. MAY I APPROACH THE WITNESS,
5 YOUR HONOR?
6 THE COURT: YES, YOU MAY.
7 BY MR. SHULMAN:
8 Q. OKAY. MR. FLOOD, I PUT IN FRONT OF YOU WHAT IS MARKED AS
9 EXHIBIT 62. AND DO YOU RECOGNIZE THIS AS A SECOND DECLARATION
10 THAT YOU DID IN CONNECTION WITH THIS CASE?
11 A. YES.
12 Q. OKAY. WHAT LED TO YOUR DOING A SECOND DECLARATION AFTER
13 YOU HAD DONE YOUR FIRST?
14 A. BETWEEN THE FIRST DECLARATION AND THIS SECOND GENERATION
15 DECLARATION, I WAS ABLE TO DEVELOP A LOT OF NEW INFORMATION ON
16 THE MARKET, NEW INFORMATION ON THE STATUS OF MAJOR ACCOUNTS
17 THAT ARE RUNNING IN THIS MARKET, AND OTHER INFORMATION THAT
18 BECAME IMPORTANT TO ME SO THAT I COULD PROJECT A GOOD PRO
19 FORMA.
20 Q. OKAY. IF YOU'LL LOOK AT PAGE 2 OF THE DECLARATION, IN THE
21 SECOND PARAGRAPH YOU SAY, QUOTE:
22 "I HAVE REVIEWED THE YEAR-END STUDY OF
23 ADVERTISING AND LINEAGE FOR 1999 PUBLISHED BY
24 COMPETITIVE MEDIA REPORTING (CMR). I RECEIVED
25 THE STUDY TUESDAY, MARCH 28, 2000. THE YEAR-END
1214
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1 ADVERTISING STUDIES PUBLISHED BY CMR ARE RELIED
2 UPON BY NUMEROUS MAJOR NEWSPAPERS FOR BUDGETING
3 AND ANALYZING THE ADVERTISING REVENUE OF
4 COMPETITOR NEWSPAPERS."
5 DO YOU SEE THAT?
6 A. YES.
7 Q. NOW, IS THAT THE ADDITIONAL INFORMATION YOU'RE REFERRING
8 TO OR WAS THERE MORE THAN THAT?
9 A. PRINCIPALLY THAT SORT OF INFORMATION.
10 Q. OKAY. AND WHAT -- OKAY.
11 IN THE THIRD PARAGRAPH YOU SAY:
12 "ACCORDING TO CMR'S STUDY FOR 1999, THE
13 REVENUE GENERATED FROM ADVERTISING IN THE
14 INDEPENDENT LAST YEAR WAS APPROXIMATELY
15 $6 MILLION. BY CONTRAST, THE COMBINED
16 ADVERTISING REVENUE GENERATED BY THE EXAMINER
17 AND THE CHRONICLE UNDER THE JOINT OPERATING
18 AGREEMENT LAST YEAR WAS APPROXIMATELY
19 $307 MILLION."
20 DO YOU SEE THAT?
21 A. YES.
22 Q. OKAY. WHAT WAS THE SIGNIFICANCE OF THAT TO YOU, THAT THE
23 INDEPENDENT'S REVENUE FOR 1999 FROM ADVERTISING WAS $6 MILLION,
24 WHEREAS THE REVENUE OF THE EXAMINER AND THE CHRONICLE WAS
25 307 MILLION?
1215
FLOOD - DIRECT / SHULMAN
1 A. THE SIGNIFICANCE IS THAT THE INDEPENDENT PUBLISHING THREE
2 TIMES A WEEK, AS I UNDERSTAND IT, GENERATED $6 MILLION WORTH OF
3 ADVERTISING, WHICH IS A VERY LOW AMOUNT OF REVENUE GENERATED IN
4 THIS MARKET. AND IT TOLD ME THAT THE EXPERTISE THAT'S GOING TO
5 BE NEEDED TO MAKE THE EXAMINER SUCCEED DOES NOT EXIST IN THE
6 PRESENT INDEPENDENT SET UP.
7 WE ALSO EXAMINED THE PENETRATION OF MAJOR
8 ADVERTISERS BY BOTH NEWSPAPERS AND FOUND THAT -- AND THIS IS
9 WHERE A LOCAL PAPER -- REALLY IT'S VERY IMPORTANT THAT THE
10 RETAIL ADVERTISING, THE LOCAL ADVERTISING IS A LARGE PART OF
11 THE PAPER'S BUSINESS AND YOU SHOULD BE ABLE TO GENERATE A LOT
12 OF THAT SORT OF BUSINESS.
13 SO WHAT THIS TOLD ME WAS THAT THE EXISTING
14 INDEPENDENT DOES NOT HAVE, IN MY OPINION, THE CONTACTS WITHIN
15 THESE MAJOR ADVERTISERS TO GET A GOOD, FAST START TO PUBLISHING
16 A NEW EXAMINER BY CONVERTING THESE ADVERTISERS TO THE NEW
17 EXAMINER.
18 Q. OKAY. YOU MENTIONED SOMETHING ABOUT A STUDY OF THE
19 PENETRATION WITH MAJOR ADVERTISERS.
20 A. YES.
21 Q. EXPLAIN WHAT YOU MEANT BY THAT.
22 A. WHAT I MEANT BY THAT WAS AN ANALYSIS OF THE MAJOR
23 ADVERTISERS IN THIS MARKET THAT ARE CURRENTLY CARRIED BY THE
24 EXAMINER AND CHRONICLE COMBINATION AS COMPARED TO THOSE CARRIED
25 BY THE INDEPENDENT.
1216
FLOOD - DIRECT / SHULMAN
1 Q. DID YOU HAVE A LIST OF WHO THE MAJOR ADVERTISERS WERE FOR
2 THE CHRONICLE AND THE EXAMINER?
3 A. YES.
4 Q. AND DID YOU HAVE A LIST OF WHO THE ADVERTISERS WERE FOR
5 THE INDEPENDENT?
6 A. YES.
7 Q. AND DID YOU SEE WHAT NAMES APPEARED ON BOTH LISTS?
8 A. YES.
9 Q. OKAY. AND WHAT DID YOU FIND?
10 A. WE FOUND THAT SOME DID APPEAR. AND NOW WE'RE TALKING
11 ABOUT SPECIFIC ACCOUNTS, NOT VOLUME OF ADVERTISING --
12 Q. RIGHT.
13 A. -- FOR THESE MAJORS.
14 WE FOUND THAT -- I DON'T RECALL WITHOUT LOOKING AT
15 SOME NOTES THAT I HAD, EXACTLY WHAT THE BREAKDOWN WAS, BUT I DO
16 RECALL THAT THE ADVERTISERS THAT ARE GOING TO MAKE THE NEW
17 EXAMINER A SUCCESSFUL NEWSPAPER WERE NOT ON THE EXISTING LIST
18 OF THE INDEPENDENT. IN OTHER WORDS, THERE WAS NO PENETRATION
19 OF THE ACCOUNTS LIKE BLOOMINGDALES, LIKE NORDSTROM, LIKE THE
20 TYPES OF UPSCALE ADVERTISING THAT A METROPOLITAN NEWSPAPER DOES
21 NEED TO BE ABLE TO PUBLISH IN THIS NEWSPAPER TO BE SUCCESSFUL.
22 Q. OKAY. NOW, PARAGRAPH 4 OF YOUR SECOND DECLARATION SAYS,
23 QUOTE:
24 "BASED ON MY EXPERIENCE, IN ORDER TO PRODUCE
25 A VIABLE COMPETITIVE DAILY NEWSPAPER, THE
1217
FLOOD - DIRECT / SHULMAN
1 EXAMINER WILL INCUR AT A MINIMUM APPROXIMATELY
2 $7.5 MILLION IN ANNUAL COSTS JUST TO COVER
3 EXPENSES FOR ITS ADVERTISING DEPARTMENT," END OF
4 QUOTE.
5 HOW DID YOU ARRIVE AT THE SEVEN AND A HALF MILLION
6 DOLLARS OF ANNUAL COSTS IN ORDER TO STAFF THE ADVERTISING
7 DEPARTMENT?
8 A. USING THE 98 PEOPLE ON STAFF THAT WE IDENTIFIED PREVIOUSLY
9 IN THE HUNDRED THOUSAND CIRCULATION NEWSPAPER, AND USING A
10 NUMBER WHICH IS ACCEPTED IN THIS MARKET, THAT IT COSTS ABOUT
11 $65,000 PER EMPLOYEE, THAT INCLUDES SALARY, BENEFITS,
12 COMMISSIONS, VACATION, ALL THE OTHER ITEMS THAT GO INTO THE
13 COST OF AN EMPLOYEE, BY TAKING THE 98 EMPLOYEES AND TAKING THAT
14 65,000, WE CAME UP WITH A NUMBER TO WHICH WE ADD THE
15 PROMOTIONAL MONIES THAT WOULD HAVE TO BE SPENT IN ORDER TO
16 PROMOTE THE ADVERTISING TO THE ADVERTISING COMMUNITY IN THE
17 MARKET AND OTHER EXPENSES, SUCH AS TRAVEL EXPENSES TO OTHER
18 MARKETS TO SECURE NATIONAL ADVERTISING.
19 Q. OKAY. THEN YOU SAY:
20 "BASED UPON MY," PARAGRAPH 5, "BASED UPON MY
21 EXPERIENCE IN THE INDUSTRY AND THE INFORMATION
22 CITED IN MY PREVIOUS DECLARATION REGARDING THE
23 REPORTED TRANSACTION BETWEEN THE HEARST
24 CORPORATION AND PAN ASIA AFTER THE FOUR-MONTH
25 TRANSITION PERIOD ENDS, PAN ASIA IS MOST LIKELY
1218
FLOOD - DIRECT / SHULMAN
1 TO GENERATE ONLY APPROXIMATELY $6 MILLION FROM
2 ADVERTISING PLACED IN THE EXAMINER DURING THE
3 FIRST YEAR."
4 NOW, CAN YOU EXPLAIN WHERE THAT $6 MILLION COMES
5 FROM?
6 A. YES. THE 6 MILLION COMES FROM AN EXTRAPOLATION OF THE
7 REVENUE THAT THE EXAMINER CONTRIBUTES TO THE COMBINATION ON A
8 YEARLY BASIS, WHICH IS ABOUT 42, $43 MILLION.
9 AND THEN WE LOOKED AT THE POSSIBILITIES OF
10 DEVELOPING -- AND THIS IS BASED ON EXPERIENCE THAT I'VE HAD IN
11 THIS BUSINESS, IT IS NOT A FORMULA -- BUT I LOOKED AND I SAID
12 THAT IN PUTTING TOGETHER THIS SORT OF A NEW NEWSPAPER AND
13 GENERATING WHATEVER REVENUE YOU POSSIBLY CAN, THE 43 OR
14 $42 MILLION THAT WAS PART OF THE COMBINATION, THAT WOULD NOT
15 BECOME AVAILABLE.
16 SO WHAT I SAID WAS IF SOME OF IT BECAME AVAILABLE,
17 LET'S TAKE A LOOK AT 15 PERCENT OF THAT 40 SOME ODD MILLION
18 DOLLARS, AND THAT'S WHERE THE 6 MILLION COMES FROM.
19 Q. OKAY. WHY DID YOU CHOOSE 15 PERCENT?
20 A. THE FACT THAT A NEW PUBLICATION WITHOUT ANY CONTRACTS IN
21 PLACE WHEN THEY START, EXCEPT THE FOUR TO SIX WE TALKED ABOUT,
22 THE SUPPORT FOR ADVERTISING STARTS VERY, VERY SLOWLY AND THIS
23 PREVAILS IN NEWSPAPERS AND MAGAZINES AND ANY OTHER MEDIA YOU
24 CAN THINK OF BECAUSE THE ADVERTISER WILL SIT BACK AND SAY,
25 "TELL ME WHAT'S GOING TO HAPPEN, WHAT'S YOUR CIRCULATION GOING
1219
FLOOD - DIRECT / SHULMAN
1 TO BE, WHAT ARE YOUR DEMOGRAPHICS GOING TO BE, WHAT ARE ALL THE
2 PIECES OF INFORMATION THAT I NEED IN ORDER TO MAKE AN
3 INTELLIGENT ADVERTISING DECISION."
4 WELL, YOU DON'T HAVE THAT ON A NEW PUBLICATION FROM
5 THE WORD GO, AND THE ADVERTISER -- AND I'VE BEEN THERE BECAUSE
6 WE DID LAUNCH A NEW PRODUCT IN NEW YORK FOR THE L.A. TIMES, AND
7 WE FOUND THIS EXACTLY SAME SITUATION -- THEY SAY, "WE LOVE YOUR
8 PROTOTYPE. WE LOVE WHAT YOU'RE SHOWING US, BUT COME BACK IN
9 SIX OR EIGHT OR TEN OR A YEAR AND GIVE US THE DETAILED
10 INFORMATION THAT WE NEED ON DEMOGRAPHICS AND ON CIRCULATION
11 THAT WE NEED IN ORDER TO MAKE A DECISION."
12 FOR THAT REASON I SAID 15 PERCENT OF THE PRESENT
13 BUSINESS THAT IS GOING INTO THE EXAMINER -- INTO THE
14 COMBINATION IS PROBABLY A REASONABLE NUMBER, AND THAT'S BASED
15 ON EXPERIENCE, IT'S BASED ON SOME OF THE BACKGROUND INFORMATION
16 THAT I KNOW ABOUT HOW ADVERTISERS BUY ADVERTISING.
17 Q. WHAT WAS THIS PRODUCT THAT YOU TRIED TO DO IN NEW YORK FOR
18 THE DAILY NEWS?
19 A. THIS WAS A PRODUCT FOR THE L.A. TIMES.
20 Q. SORRY, FOR THE L.A. TIMES.
21 A. YES.
22 Q. WHAT WAS THAT PRODUCT?
23 A. IT WAS CALLED WEST MAGAZINE.
24 Q. AND WHAT WAS THE -- AND YOU MENTIONED THE EXPERIENCE YOU
25 HAD WITH ADVERTISERS WAS THAT THEY WANTED TO KNOW ABOUT THE
1220
FLOOD - DIRECT / SHULMAN
1 CIRCULATION FIRST?
2 A. WELL, THEY KNEW THE CIRCULATION BECAUSE IT WAS RUNNING IN
3 A SUNDAY PAPER AND THAT WAS DIFFERENT FROM WHAT WE'RE TALKING
4 ABOUT NOW.
5 BUT WHAT THEY REALLY WANTED TO KNOW WAS, WHAT WAS
6 THE EDITORIAL SENSE, THE EDITORIAL DIRECTION, THE TYPES OF
7 FEATURES THAT WOULD RUN IN THIS MAGAZINE; AND THEY ALSO WANTED
8 TO KNOW IF THE DEMOGRAPHICS FOR THIS MAGAZINE WILL BE DIFFERENT
9 FROM THE NEWSPAPER ITSELF. SO THESE ARE SOME OF THE THINGS
10 THAT WERE REQUIRED IN ORDER TO GET THAT MAGAZINE GOING, WHICH
11 WE DID GET IT GOING EVENTUALLY.
12 Q. NOW, I THINK YOU SAID THAT YOU TOOK A FIGURE OF
13 $42 MILLION AS WHAT YOU -- YOU DEEMED THAT TO BE THE
14 CONTRIBUTION OF THE EXAMINER TO THE ADVERTISING REVENUES OF THE
15 AGENCY.
16 A. YES.
17 Q. OKAY. AND YOU HAD SAID BEFORE THAT 98 PERCENT OF THE
18 ADVERTISING WAS SOLD IN COMBINATION; RIGHT?
19 A. RIGHT.
20 Q. AND THE TOTAL WAS 307 MILLION OF REVENUE.
21 A. RIGHT.
22 Q. OKAY. HOW DID YOU COME UP, THEN, WITH THE $42 MILLION AS
23 BEING WHAT YOU TOOK AS THE EXAMINER'S CONTRIBUTION TO THE
24 AGENCY? BECAUSE THAT'S CERTAINLY MORE THAN 2 PERCENT; RIGHT?
25 A. OH, YES, IT IS.
1221
FLOOD - DIRECT / SHULMAN
1 Q. OKAY. OKAY. EXPLAIN HOW YOU GOT THERE.
2 A. THE RATE DIFFERENTIAL BETWEEN BUYING THE CHRONICLE ALONE
3 AND BUYING THE COMBINATION IS ABOUT 14 PERCENT. IN OTHER
4 WORDS, THE ADVERTISER THAT IS CONTEMPLATING BUYING THE
5 CHRONICLE ONLY, AND THIS IS THE SALES STRATEGY THAT THE STAFF
6 AT THE AGENCY ALWAYS USED, IN WHICH THEY SAID THAT YOU CAN ADD
7 THE OTHER NEWSPAPER FOR ABOUT 14 PERCENT EXTRA REVENUE OVER AND
8 ABOVE WHAT YOU'RE GOING TO PAY TO GET INTO THE CHRONICLE, AND
9 THAT'S WHERE THAT 14 PERCENT CAME FROM.
10 Q. SO THE SINGLE -- FOR AN ADVERTISER PAYING 14 PERCENT
11 MORE -- AN ADVERTISER WHO WANTED TO ADVERTISE IN THE CHRONICLE,
12 IF THE ADVERTISER PAID 14 PERCENT MORE, THE ADVERTISER COULD
13 HAVE BOTH PAPERS; IS THAT --
14 A. YES.
15 Q. SO THAT'S WHY YOU TOOK -- THAT'S -- SO YOU TOOK THAT
16 14 PERCENT?
17 A. RIGHT.
18 Q. AND YOUR FURTHER CALCULATION WAS THAT IF THE FANGS GOT THE
19 EXAMINER AND STARTED NEW, THEY MIGHT BE ABLE TO KEEP 15 PERCENT
20 OF THAT?
21 A. RIGHT.
22 Q. OKAY. NOW, IN YOUR --
23 THE COURT: 15 PERCENT OF?
24 MR. SHULMAN: THE 42.
25 THE COURT: THE 42?
1222
FLOOD - DIRECT / SHULMAN
1 MR. SHULMAN: MILLION DOLLARS.
2 THE WITNESS: THAT'S THE FIRST YEAR. THE FIRST
3 YEAR.
4 BY MR. SHULMAN:
5 Q. AND THAT WOULD GIVE THEM $6 MILLION?
6 A. RIGHT.
7 Q. ALL RIGHT. IN YOUR FIRST DECLARATION, PARAGRAPH 4, THIS
8 IS EXHIBIT 56, SECOND PAGE, PARAGRAPH 4, YOU SAY:
9 "BASED UPON THOSE FACTS, IN MY EXPERIENCE IN
10 THE INDUSTRY THE PRESENT SUBSIDY BY HEARST WILL
11 NOT UNDER ANY CIRCUMSTANCES BE ABLE TO SUPPORT
12 THE PROBABILITY OR EVEN THE POSSIBILITY OF A
13 VIABLE PAPER WHICH WOULD BE COMPETITIVE TO THE
14 CHRONICLE. IN ORDER TO PRODUCE A VIABLE
15 COMPETITIVE PAPER, ANY BUYER OF THE EXAMINER
16 WOULD NEED A SUBSIDY OF $50 MILLION FOR FIVE
17 YEARS OR A ONE-TIME PAYMENT OF $250 MILLION."
18 DO YOU SEE THAT?
19 A. YES.
20 Q. OKAY. AND THAT IS YOUR OPINION?
21 A. YES.
22 Q. AND HAVE YOU TOLD US ON THE WITNESS STAND HERE IN COURT
23 TODAY THE BASIS FOR THAT OPINION?
24 A. SOME OF THE INFORMATION THAT WE'VE ALREADY DISCUSSED FED
25 INTO THIS DECISION.
1223
FLOOD - CROSS / HUSTON
1 Q. IS THERE ANYTHING ELSE?
2 A. NOTHING ELSE, NO.
3 MR. SHULMAN: THANK YOU. I HAVE NO FURTHER
4 QUESTIONS, YOUR HONOR.
5 THE COURT: THANK YOU, MR. SHULMAN.
6 MR. HUSTON: MR. HUSTON, YOUR HONOR.
7 THE COURT: YES, MR. HUSTON.
8 MR. HUSTON: YOUR HONOR, MAY I APPROACH THE WITNESS?
9 THE COURT: YES, YOU MAY.
10 CROSS-EXAMINATION
11 BY MR. HUSTON:
12 Q. GOOD AFTERNOON, MR. FLOOD.
13 A. GOOD AFTERNOON.
14 Q. YOU WERE AT THE MARCH 25TH MEETING, IT WAS AN ALL DAY
15 MEETING OF THE NEWSPAPER EXPERTS ASSEMBLED BY MR. REILLY; IS
16 THAT CORRECT?
17 A. YES.
18 Q. AND THE COURT HAS ALREADY HEARD FROM A NUMBER OF THOSE
19 PEOPLE, MR. CLANCY AND MR. PAGE, MR. OSBORN. WERE YOU IN COURT
20 LAST WEEK FOR MR. OSBORN'S TESTIMONY?
21 A. NO. THIS IS MY FIRST TIME IN COURT.
22 Q. WELCOME.
23 MR. OSBORN TESTIFIED THAT EVERYONE AT THAT MEETING
24 WAS EMPHATIC THAT THE EXAMINER WAS CURRENTLY OPERATING AT A
25 LOSS. IS THAT YOUR RECOLLECTION AS WELL?
1224
FLOOD - CROSS / HUSTON
1 A. YES.
2 Q. AND IT'S YOUR OPINION THAT THE EXAMINER WOULD NEED A
3 SUBSIDY OF 250 MILLION SPREAD OVER FIVE YEARS IN ORDER TO BE
4 ABLE TO SURVIVE; IS THAT CORRECT?
5 A. CORRECT.
6 Q. AND HEARST ITSELF WOULD NEED THAT SORT OF SUBSIDY IF IT
7 TRIED TO OPERATE THE EXAMINER WITHOUT THE JOINT OPERATING
8 AGREEMENT; IS THAT CORRECT? ISN'T THAT WHAT YOU TOLD ME IN
9 YOUR DEPOSITION, MR. FLOOD?
10 A. YES.
11 Q. AND THAT'S WHAT YOU BELIEVE TODAY?
12 A. YES.
13 Q. AND AT LEAST PART OF THE REASON THAT THE EXAMINER COULD
14 NOT SURVIVE WITHOUT A HUGE SUBSIDY, AS YOU'VE DISCUSSED TODAY,
15 IS THE INABILITY IT WOULD HAVE IN ATTRACTING ADVERTISING
16 REVENUE; CORRECT?
17 A. CORRECT.
18 Q. AND YOU, AS YOU'VE JUST DISCUSSED, WENT THROUGH A
19 CALCULATION WHEREBY YOU ATTRIBUTED ADVERTISING REVENUE TO THE
20 EXAMINER AND TO THE CHRONICLE; CORRECT?
21 A. YES.
22 Q. AND YOU BELIEVE THAT THAT ANALYSIS IS RELIABLE; DO YOU
23 NOT?
24 A. YES.
25 Q. AND YOU CAME TO THE CONCLUSION THAT THE ADVERTISING
1225
FLOOD - CROSS / HUSTON
1 REVENUE THAT IS CURRENTLY ATTRIBUTABLE TO THE EXAMINER IS
2 14 PERCENT?
3 A. YES.
4 Q. AND THE PRIMARY BUY, AS THAT TERM IS USED IN THE
5 ADVERTISING WORLD, IS THE CHRONICLE AND THE SECONDARY BUY IS
6 THE EXAMINER; IS THAT CORRECT?
7 A. PARTIALLY CORRECT.
8 Q. IF YOU BOUGHT THE CHRONICLE, THAT'S WHAT THE ADVERTISERS
9 ARE REALLY AFTER AND THEN THEY ADD ON THE EXAMINER FOR A
10 NOMINAL CHARGE; ISN'T THAT RIGHT?
11 A. YES.
12 Q. AND EVEN THOUGH THE EXAMINER WAS OFFERED AT A DISCOUNT TO
13 ADVERTISERS, WHILE YOU WORKED AT THE AGENCY, YOU HAD A
14 DIFFICULT TIME SELLING ADVERTISEMENTS IN THE EXAMINER; IS THAT
15 CORRECT?
16 A. CORRECT.
17 Q. YOU'VE STATED THAT WHEN YOU WERE SELLING ADVERTISING AT
18 THE SAN FRANCISCO NEWSPAPER AGENCY, FROM TIME TO TIME YOU HAD
19 TO GO OUT WITH A FIRE EXTINGUISHER TO PUT OUT THE FLARE-UPS
20 FROM ADVERTISERS WHO WANTED TO DROP THE EXAMINER; ISN'T THAT
21 RIGHT?
22 A. YES.
23 Q. AND IN YOUR OPINION A STAND-ALONE EXAMINER WOULD REQUIRE
24 $45 MILLION IN ADVERTISING REVENUE TO HAVE A CHANCE AT SUCCESS;
25 ISN'T THAT RIGHT?
1226
FLOOD - CROSS / HUSTON
1 A. RIGHT.
2 Q. AND YOU BELIEVE THAT WOULD BE VERY, VERY DIFFICULT FOR THE
3 EXAMINER TO DO THAT ON A STAND-ALONE BASIS; CORRECT?
4 A. YES, VERY DIFFICULT.
5 Q. NOW, ADVERTISING REVENUE IS DRIVEN BY CIRCULATION; ISN'T
6 THAT RIGHT?
7 A. TO A CERTAIN EXTENT.
8 Q. AND ON THE CIRCULATION FRONT, THE EXAMINER FACES
9 COMPETITION FROM A NUMBER OF SOURCES; CORRECT?
10 A. YES.
11 Q. AND THOSE INCLUDE THE SUBURBAN DAILY NEWSPAPERS?
12 A. YES.
13 Q. AND THOSE WOULD INCLUDE NATIONAL PAPERS LIKE THE NEW YORK
14 TIMES?
15 A. YES.
16 Q. IT WOULD ALSO INCLUDE RADIO, LOCAL RADIO?
17 A. YES.
18 Q. AND CABLE TELEVISION?
19 A. YES.
20 Q. BROADCAST TELEVISION?
21 A. SPOT TELEVISION AND BROADCAST, YES.
22 MR. HUSTON: I HAVE NO FURTHER QUESTIONS, YOUR
23 HONOR.
24 THE COURT: VERY WELL. MR. HOCKETT.
25
1227
FLOOD - CROSS / HOCKETT
1 CROSS-EXAMINATION
2 BY MR. HOCKETT:
3 Q. GOOD AFTERNOON, MR. FLOOD.
4 A. GOOD AFTERNOON.
5 Q. I'M CHRIS HOCKETT. I REPRESENT EXIN LLC.
6 YOU HAVE GIVEN SWORN TESTIMONY IN TWO PREVIOUS
7 DISPUTES; HAVE YOU NOT?
8 A. YES.
9 Q. AND BOTH TIMES YOU TESTIFIED, THE FANG FAMILY WAS ON THE
10 OTHER SIDE; CORRECT?
11 A. YES.
12 Q. YOU WERE FIRST HIRED TO HELP MR. REILLY WITH HIS POTENTIAL
13 BID FOR THE EXAMINER; IS THAT CORRECT?
14 A. YES.
15 Q. AND THEN THAT ASSIGNMENT CHANGED INTO HELPING, AS YOU PUT
16 IT IN YOUR DEPOSITION, EXPOSE THE DEAL THAT THE FANG FAMILY
17 MADE WITH HEARST AS A SITUATION WHERE IT WOULD BE DIFFICULT FOR
18 THE EXAMINER TO SUCCEED; RIGHT?
19 A. CORRECT.
20 Q. SO YOU'RE HERE TO TRY TO EXPOSE THE DEAL?
21 A. NOT EXPOSE THE DEAL. EXPOSE THE FACT THAT THE DEAL IS NOT
22 WORKABLE.
23 Q. LET'S LOOK AT PLAINTIFF'S EXHIBIT 56, YOUR DECLARATION.
24 THAT IS THE FIRST DECLARATION.
25 YOU EXECUTED THAT DECLARATION AT THE MEETING WE'VE
1228
FLOOD - CROSS / HOCKETT
1 HEARD SO MUCH ABOUT ON MARCH 25TH AMONG MR. REILLY'S EXPERTS?
2 A. YES.
3 Q. AND THE NUMBERS IN THAT DECLARATION WITH REGARD TO THE
4 SUBSIDY, AND I DRAW YOUR ATTENTION TO PARAGRAPH 4, YOU DIDN'T
5 COME UP WITH THOSE NUMBERS YOURSELF; DID YOU, SIR?
6 A. THE 50 MILLION?
7 Q. YES.
8 A. I DO AGREE WITH THAT 50 MILLION NUMBER.
9 Q. YOU DIDN'T COME UP WITH THEM YOURSELF; DID YOU, SIR?
10 A. NO.
11 Q. AND YOU PERFORMED NO CALCULATIONS RELATING TO THOSE
12 NUMBERS; CORRECT?
13 A. CORRECT.
14 Q. YOU RELIED ON THE OTHERS INPUT FOR YOUR CONCLUSIONS;
15 CORRECT?
16 A. ON THE $50 MILLION.
17 Q. YES. CORRECT?
18 A. CORRECT.
19 Q. AND THAT INPUT WAS, AS I GATHER, YOU WERE DISCUSSING THE
20 FINANCIAL SUPPORT THAT WAS TO BE MADE AVAILABLE FOR THE FANG
21 FAMILY INTERESTS BY HEARST AND SOMEONE SAID THAT IT WOULD HAVE
22 TO BE DOUBLED. DO YOU RECALL THAT?
23 A. WORDS TO THAT EFFECT, YES.
24 Q. AND EVERYBODY PRESENT AGREED; CORRECT?
25 A. YES.
1229
FLOOD - CROSS / HOCKETT
1 Q. AND THAT INCLUDED MR. PAGE, MR. OSBORN, MR. INGRAM,
2 MR. CLANCY, MR. WEAVER, MR. BARLETTA, MR. REILLY AND, OF
3 COURSE, HIS ATTORNEYS; CORRECT?
4 A. YES.
5 Q. NOW, YOU HAVE RELIED ON THE CMR REPORT AS A BASIS FOR YOUR
6 ASSESSMENT THAT PAN ASIA WOULD HAVE DIFFICULTY GENERATING
7 SUFFICIENT AD REVENUE IN ITS FIRST YEAR; CORRECT?
8 A. CORRECT.
9 Q. BUT YOU DON'T KNOW HOW CMR GETS ITS DATA; CORRECT?
10 A. I DO NOT KNOW SPECIFICALLY, BUT IT IS ACCEPTED BY ALL THE
11 NEWSPAPER CHAINS AND NEWSPAPERS.
12 Q. BUT YOU DON'T KNOW HOW IT'S GATHERED; CORRECT?
13 A. I DON'T KNOW SPECIFICALLY WHAT THE FORMULA IS.
14 Q. AND WOULD YOU AGREE WITH ME IF THE CMR DATA IS FOR SOME
15 REASON NOT ACCURATE, NEITHER WOULD BE ANY CONCLUSIONS THAT YOU
16 DREW THAT WERE BASED ON THAT DATA; CORRECT?
17 A. MY CONCLUSIONS WERE ONLY PARTIALLY BASED ON THE CMR DATA.
18 IT WAS BASED ON OTHER THINGS ALSO.
19 Q. SO TO THE EXTENT THAT YOUR CONCLUSIONS ARE BASED ON THE
20 CMR DATA, IF THE CMR DATA TURNED OUT TO BE WRONG, SO WOULD YOUR
21 CONCLUSIONS; CORRECT?
22 A. AS FAR AS THAT PIECE OF THE PUZZLE IS CONCERNED.
23 Q. NOW, MR. REILLY IS NOT IN THE NEWSPAPER BUSINESS; IS HE?
24 A. NOT THAT I KNOW OF.
25 Q. SO HIS NEWSPAPER ADVERTISING REVENUES IN 1999 WOULD BE
1230
FLOOD - CROSS / HOCKETT
1 ZERO; WOULDN'T THEY?
2 A. YES.
3 Q. AND HE WOULD HAVE NO ADVERTISING RELATIONSHIPS WITH
4 NEWSPAPER ADVERTISERS, MAJOR OR MINOR; CORRECT?
5 A. I DON'T KNOW THAT.
6 Q. DO YOU KNOW OF ANY SUCH RELATIONSHIPS?
7 A. I THINK I WOULD BE SPECULATING, BUT I WOULD IMAGINE THAT
8 IN HIS PREVIOUS PROFESSION AS A POLITICAL CONSULTANT HE WOULD
9 HAVE HAD A LOT OF INVOLVEMENT WITH NEWSPAPERS.
10 Q. AND DO YOU BELIEVE -- DO YOU HAVE ANY REASON TO BELIEVE
11 THAT MR. REILLY HAS RELATIONSHIPS WITH ADVERTISING PEOPLE AT
12 MACY'S?
13 A. I DON'T HAVE ANY REASON.
14 Q. OR ANY OTHER ADVERTISERS, SIR?
15 A. NO.
16 Q. WITH REGARD TO PAN ASIA, YOU HAVE NO PERSONAL KNOWLEDGE OF
17 THE INDEPENDENT'S OPERATIONS, CORRECT, THE SAN FRANCISCO
18 INDEPENDENT?
19 A. I'VE SEEN THE PRODUCT.
20 Q. OTHER THAN THAT, YOU HAVE NO PERSONAL KNOWLEDGE OF HOW
21 IT'S OPERATED?
22 A. NO.
23 Q. AND YOU HAVE NO INFORMATION ABOUT THE FANG FAMILY'S
24 INTENTIONS FOR THE NEW EXAMINER; DO YOU?
25 A. NO, I DON'T.
1231
FLOOD - CROSS / HOCKETT
1 Q. AND YOU HAVE NO INFORMATION ABOUT THE CURRENT COST
2 STRUCTURE OF THEIR OPERATIONS; CORRECT?
3 A. CORRECT.
4 Q. AND YOU HAVE NO IDEA WHAT SORT OF NEWSPAPER IT WOULD TAKE
5 TO BE COMPETITIVE WITH THE CHRONICLE; CORRECT?
6 A. YES, I DO HAVE SOME IDEAS OF WHAT IT WOULD TAKE.
7 Q. TAKE A LOOK AT PAGE 68 OF YOUR DEPOSITION, PLEASE. I
8 WOULD LIKE TO READ LINES 20 THROUGH 22.
9 THE COURT: PAGE REFERENCE AGAIN, COUNSEL?
10 MR. HOCKETT: PAGE 68.
11 THE COURT: THANK YOU.
12 MR. HOCKETT: "Q. DO YOU HAVE AN IDEA OF WHAT SORT
13 OF NEWSPAPER IT WOULD TAKE TO BE COMPETITIVE
14 WITH THE CHRONICLE?
15 "A. NO, I DON'T."
16 Q. WERE YOU ASKED THAT QUESTION AND DID YOU GIVE THAT ANSWER?
17 A. YES, I DID.
18 Q. ONE THING YOU ARE SURE OF IS THAT IT WOULD TAKE A
19 50 MILLION-DOLLAR SUBSIDY FROM HEARST FOR WHATEVER THE
20 NEWSPAPER PRODUCT WOULD LOOK LIKE TO SUCCEED; IS THAT CORRECT?
21 A. CORRECT.
22 Q. NOW, YOU HAVE NEVER DONE A PROFIT AND LOSS STATEMENT FOR
23 THE CIRCULATION DEPARTMENT OF A NEWSPAPER; CORRECT?
24 A. CORRECT.
25 Q. AND YOU HAVE NEVER DONE A PROFIT AND LOSS STATEMENT FOR
1232
FLOOD - CROSS / HOCKETT
1 THE DISTRIBUTION FUNCTION OF A NEWSPAPER; CORRECT?
2 A. CORRECT.
3 Q. AND THE SAME QUESTION FOR THE NEWSROOM FUNCTIONS OF THE
4 NEWSPAPER?
5 A. CORRECT.
6 Q. YOU HAVE ASSUMED IN YOUR CALCULATIONS AN AD DEPARTMENT
7 CONSISTING OF AT LEAST 98 PERSONS; IS THAT RIGHT?
8 A. YES.
9 Q. AND FROM THAT YOU DERIVE AN ANNUAL COST OF AROUND SEVEN
10 AND A HALF MILLION; CORRECT?
11 A. YES.
12 Q. IF THERE WERE FEWER PEOPLE, THE EXPENSES WOULD BE LOWER;
13 WOULDN'T THEY?
14 A. THE EXPENSES WOULD BE LOWER, BUT THE RESULTS WOULD BE ALSO
15 LOWER.
16 Q. THE EXPENSES WOULD BE LOWER; WOULDN'T THEY?
17 A. YES.
18 Q. AND YOUR CALCULATIONS DO NOT ALLOW FOR ANY SYNERGIES THAT
19 THE FANGS MIGHT BE ABLE TO ACHIEVE IN OPERATING THEIR EXISTING
20 NEWSPAPERS AND THE EXAMINER TOGETHER; DO THEY? THAT'S A
21 YES-OR-NO QUESTION.
22 A. I NEED SOME INFORMATION ON THE QUESTION. ARE YOU
23 REFERRING TO THE ADVERTISING DEPARTMENT OR TO THE WHOLE
24 OPERATION?
25 Q. ANY PART OF THE OPERATION.
1233
FLOOD - CROSS / HOCKETT
1 A. COULD YOU STATE THE QUESTION AGAIN, PLEASE?
2 Q. YOUR CALCULATIONS DO NOT ALLOW FOR ANY SYNERGIES THAT THE
3 FANGS MIGHT BE ABLE TO ACHIEVE IN OPERATING THEIR EXISTING
4 PAPERS AND THE EXAMINER?
5 A. THEY DO NOT.
6 Q. NOW, MR. INGRAM PROPOSED AN ADVERTISING REVENUE OF
7 $47 MILLION, AND I'LL SHOW YOU THE PAGE FROM HIS REPORT, WHICH
8 IS PLAINTIFF'S 20 AT PAGE 177, R177.
9 EXHIBIT 20 AT PAGE R177 STATES THAT THE
10 ADVERTISING -- TOTAL ADVERTISING REVENUE WOULD BE 47 MILLION
11 AND CHANGE. DO YOU SEE THAT?
12 A. YES.
13 Q. THESE WERE NUMBERS THAT MR. INGRAM TESTIFIED HE GOT FROM
14 MR. BEIHOFF.
15 A. YES.
16 Q. AND HE TESTIFIED THAT HE ARBITRARILY REDUCED THEM BY
17 25 PERCENT. DO YOU RECALL THAT TESTIMONY?
18 A. I DID NOT HEAR HIS TESTIMONY.
19 Q. OKAY.
20 MR. HOCKETT: MAY I APPROACH THE EASEL, YOUR HONOR?
21 THE COURT: YES, YOU MAY.
22 BY MR. HOCKETT:
23 Q. MR. INGRAM DID TESTIFY THAT HE REDUCED THE BEIHOFF NUMBERS
24 BY 25 PERCENT. I'M JUST GOING TO PUT "AD REVENUE, BEIHOFF."
25 IF YOU BUILD THAT 25 PERCENT BACK IN TO THE
1234
FLOOD - CROSS / HOCKETT
1 47 MILLION-DOLLAR NUMBER, YOU GET ABOUT $64 MILLION.
2 MR. INGRAM ARBITRARILY REDUCED THAT BY 25 PERCENT TO
3 $47 MILLION.
4 AND CAN YOU TELL ME WHAT YOUR ASSUMPTION IS FOR THE
5 ANNUAL AD REVENUES?
6 A. FOR THE NEW EXAMINER?
7 Q. YES.
8 A. FIRST YEAR APPROXIMATELY $6 MILLION.
9 Q. 6 MILLION. NOW, THIS (INDICATING) REPRESENTS A 25 PERCENT
10 REDUCTION FROM THE BEIHOFF NUMBERS. DO YOU HAVE ANY IDEA WHAT
11 THAT (INDICATING) REPRESENTS TO GO FROM THE BEIHOFF NUMBER OF
12 64 MILLION TO 6 MILLION? IT'S OVER 90 PERCENT; ISN'T IT?
13 A. LOOKS THAT WAY, YEAH.
14 Q. BUT IN SPITE OF ALL THOSE DIFFERENCES IN THE AD REVENUE
15 ASSUMPTIONS, MR. FLOOD, EVERYBODY AGREES, DON'T THEY, ALL THE
16 EXPERTS FOR MR. REILLY, THAT THE PROPER SUBSIDY IS $50 MILLION
17 A YEAR OR $250 MILLION UPFRONT PAYMENT?
18 A. YES.
19 MR. HOCKETT: I HAVE NOTHING FURTHER, YOUR HONOR.
20 THE COURT: VERY WELL. MR. HALLING, ANYTHING?
21 MR. HALLING: NO QUESTIONS, YOUR HONOR.
22 THE COURT: REDIRECT, MR. SHULMAN?
23 MR. SHULMAN: YES, YOUR HONOR.
24
25
1235
FLOOD - REDIRECT / SHULMAN
1 REDIRECT EXAMINATION
2 BY MR. SHULMAN:
3 Q. AS LONG AS WE'VE GOT IT UP THERE, MR. FLOOD, DO YOU THINK
4 THERE'S ANY WAY IN THE WORLD THAT THE FANGS ARE GOING TO BE
5 ABLE TO GENERATE $64 MILLION IN AD REVENUE FOR THE EXAMINER?
6 A. NO, I DON'T.
7 Q. $47 MILLION?
8 A. NO.
9 Q. OKAY. NOW, YOU WERE ASKED ABOUT WHAT YOU KNEW ABOUT THE
10 INTENTIONS OF THE FANGS OR PLANS OF THE FANGS WITH REGARD TO
11 THE EXAMINER.
12 WERE YOU IN COURT WHEN I READ THE TESTIMONY OF
13 MR. FANG IN HIS DEPOSITION AT PAGE 27 THAT HE HAS NOT PREPARED
14 ANYTHING THAT HE WOULD CALL A BUSINESS PLAN FOR THE EXAMINER?
15 A. IF THAT WAS LATE THIS MORNING, I WAS HERE.
16 Q. OKAY. YOU WERE ALSO ASKED ABOUT SYNERGIES, WHETHER YOU
17 HAD CONSIDERED ANY SYNERGIES THAT THE INDEPENDENT MIGHT HAVE IF
18 IT -- WHEN IT TOOK OVER THE EXAMINER. DO YOU REMEMBER BEING
19 ASKED THAT?
20 A. YES, I DO.
21 Q. OKAY. I WANT TO READ YOU SOME TESTIMONY THAT MR. FANG
22 GAVE IN HIS DEPOSITION, THEN I'M GOING TO ASK YOU WHETHER THAT
23 LEADS YOU TO BELIEVE THERE ARE OR ARE NOT ANY SYNERGIES. AND
24 IT'S AT PAGE 155, LINE 11, OF HIS DEPOSITION.
25 THE COURT: GO AHEAD.
1236
FLOOD - REDIRECT / SHULMAN
1 MR. SHULMAN: QUESTION -- WELL, LET'S START AT LINE
2 7 JUST FOR CONTEXT:
3 "Q. OKAY. MR. FANG, I THINK YOU TESTIFIED
4 THIS MORNING THAT IT WAS YOUR DREAM TO OWN A
5 DAILY NEWSPAPER.
6 "A. YES, SIR.
7 "Q. OKAY. WHY DIDN'T YOU JUST MAKE THE
8 INDEPENDENT A DAILY NEWSPAPER?"
9 AND THE ANSWER BEGINS ON LINE 17:
10 "A. YES, THE INDEPENDENT IS IN A DIFFERENT
11 MARKET THAN THE DAILY NEWSPAPER. IT'S DELIVERED
12 TO EVERY HOME FREE OF CHARGE; AND AS I SAID
13 BEFORE, NEWSPAPERS ARE ADVERTISING DRIVEN. THE
14 ADVERTISERS OF THE INDEPENDENT LOOK TO ADVERTISE
15 IN A NEWSPAPER THAT REACHES AS MANY HOMES AS
16 POSSIBLE. THESE ADVERTISERS ARE ADVERTISERS
17 SUCH AS GROCERY STORES AND DRUGSTORES BECAUSE
18 EVERYBODY NEEDS TO BUY FOOD AND EVERYBODY NEEDS
19 TO BUY SHAMPOO OR ASPIRIN.
20 "DAILY NEWSPAPERS DEPEND ON A DIFFERENT TYPE
21 OF ADVERTISER. THOSE ADVERTISERS ARE LOOKING
22 FOR SUBSCRIBERS. SO IF I TURNED THE INDEPENDENT
23 INTO A SUBSCRIPTION-ONLY VEHICLE, I WOULD LOSE
24 MY CURRENT ADVERTISING ACCOUNTS OR A LOT OF MY
25 CURRENT ADVERTISING ACCOUNTS THAT REACH -- THAT
1237
FLOOD - REDIRECT / SHULMAN
1 WISH TO REACH A MASS DISTRIBUTION. SO THAT'S
2 WHY I DON'T WANT TO JEOPARDIZE MY OPERATIONS AT
3 THE INDEPENDENT AND I'M NOT GOING TO HAVE THAT
4 AS A DAILY NEWSPAPER."
5 Q. NOW, WHAT DOES THAT TELL YOU ABOUT WHETHER THERE ARE OR
6 ARE NOT SYNERGIES?
7 A. IT TELLS ME THERE ARE NONE.
8 MR. SHULMAN: THANK YOU. I HAVE NO FURTHER
9 QUESTIONS.
10 THE COURT: VERY WELL. THANK YOU, MR. FLOOD, SIR,
11 FOR YOUR TESTIMONY. YOU MAY STEP DOWN AND ARE EXCUSED.
12 (WITNESS EXCUSED.)
13 THE COURT: PLEASE CALL YOUR NEXT WITNESS.
14 MR. SHULMAN: MAY IT PLEASE THE COURT, PLAINTIFF
15 CALLS MICHAEL WEAVER.
16 THE CLERK: PLEASE RAISE YOUR RIGHT HAND TO BE
17 SWORN.
18 MICHAEL ROGER WEAVER,
19 CALLED AS A WITNESS FOR THE PLAINTIFF, HAVING BEEN DULY SWORN,
20 TESTIFIED AS FOLLOWS:
21 THE CLERK: THANK YOU. PLEASE BE SEATED.
22 PLEASE STATE YOUR FULL NAME FOR THE RECORD AND SPELL
23 YOUR LAST NAME.
24 THE WITNESS: MICHAEL ROGER WEAVER, W-E-A-V-E-R.
25 MR. SHULMAN: MAY IT PLEASE THE COURT.
1238
WEAVER - DIRECT / SHULMAN
1 DIRECT EXAMINATION
2 BY MR. SHULMAN:
3 Q. MR. WEAVER, WOULD YOU PLEASE STATE YOUR HOME ADDRESS.
4 A. 28218 REY DE COPAS LANE, MALIBU, CALIFORNIA.
5 Q. AND WHAT IS YOUR AGE, MR. WEAVER?
6 A. 54.
7 Q. AND WOULD YOU STATE, PLEASE, YOUR EDUCATIONAL BACKGROUND.
8 A. I HAVE A B.A. IN ECONOMICS FROM THE UNIVERSITY OF
9 CALIFORNIA BERKELEY AND AN M.B.A. FROM THE AMOS TUCK SCHOOL OF
10 BUSINESS ADMINISTRATION AT DARTMOUTH COLLEGE.
11 Q. OKAY. ARE YOU EMPLOYED AT THIS TIME?
12 A. YES.
13 Q. AND WHAT IS THE -- WHO IS YOUR EMPLOYER?
14 A. 101 COMMUNICATIONS LLC.
15 Q. AND IS THAT THE SAME COMPANY THAT MR. SCHMIDT WORKS FOR?
16 A. YES.
17 Q. OKAY. WHAT IS YOUR POSITION WITH 101?
18 A. I'M A SENIOR ADVISOR.
19 Q. OKAY. WHAT DOES THAT MEAN? WHAT DO YOU DO?
20 A. MY CURRENT POSITION WITH 101 IS THAT I ADVISE THE CEO AND
21 THE COO ON POTENTIAL ACQUISITIONS AND ON THE PROGRESS OF THE
22 COMPANY.
23 Q. HOW LONG HAVE YOU BEEN WITH 101?
24 A. I WAS A FOUNDER OF 101. WE BEGAN -- A GROUP OF THREE OF
25 US BEGAN PUTTING TOGETHER THE PLAN FOR 101 TWO YEARS AGO. WE
1239
WEAVER - DIRECT / SHULMAN
1 GOT FUNDING FOR 101 COMMUNICATIONS IN DECEMBER OF 1998. AT
2 THAT TIME I WAS CHIEF FINANCIAL OFFICER OF 101 COMMUNICATIONS.
3 Q. OKAY. AND WAS MR. SCHMIDT ONE OF THE THREE?
4 A. NO, HE WAS NOT.
5 Q. OKAY. WHO ARE THE OTHER TWO JUST FOR THE RECORD?
6 A. BILL SLAPIN AND KURT HESSLER.
7 Q. OKAY.
8 MR. SHULMAN: MAY I APPROACH THE WITNESS, YOUR
9 HONOR?
10 THE COURT: YES, YOU MAY.
11 BY MR. SHULMAN:
12 Q. MR. WEAVER, I HAVE PUT IN FRONT OF YOU WHAT HAVE BEEN
13 MARKED -- WHAT ARE IN EVIDENCE AS ACTUALLY PLAINTIFF'S EXHIBIT
14 60, PLAINTIFF'S EXHIBIT 46 AND WHAT HAS BEEN MARKED AS 166. I
15 DON'T KNOW WHETHER THAT'S IN EVIDENCE OR NOT.
16 ALL RIGHT. LET'S TAKE EXHIBIT 60. IF YOU WILL TURN
17 TO THAT, PLEASE.
18 A. (WITNESS EXAMINES DOCUMENT.)
19 Q. EXHIBIT 60 IS ENTITLED "DECLARATION OF MICHAEL R. WEAVER
20 IN SUPPORT OF PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION."
21 DO YOU RECOGNIZE THIS AS A DECLARATION THAT YOU
22 SIGNED IN THIS CASE?
23 A. YES, I DO.
24 Q. OKAY. IT BEGINS IN PARAGRAPH 1:
25 "I AM THE FORMER CHIEF FINANCIAL OFFICER OF
1240
WEAVER - DIRECT / SHULMAN
1 THE ORANGE COUNTY REGISTER, WHICH HAS A DAILY
2 CIRCULATION OF MORE THAN 300,000 AND IS SECOND
3 IN CALIFORNIA IN TOTAL ADVERTISING LINEAGE. I
4 HELD THAT POSITION FOR SIX YEARS FROM 1987 UNTIL
5 1983 (SIC)." '93, SORRY.
6 IS THAT CORRECT?
7 A. YES, IT IS.
8 Q. OKAY.
9 MR. SHULMAN: OH, THIS IS NOT IN. I'M REMINDED THIS
10 IS NOT IN EVIDENCE. I WOULD OFFER EXHIBIT 60.
11 MR. LINDSTROM: NO OBJECTION, YOUR HONOR.
12 MR. HOCKETT: WE HAVE NO OBJECTION.
13 THE COURT: VERY WELL. EXHIBIT 60 WILL BE ADMITTED.
14 (PLAINTIFF'S EXHIBIT 60
15 RECEIVED IN EVIDENCE)
16 BY MR. SHULMAN:
17 Q. WHO'S --
18 THE COURT: JUST OUT OF CURIOSITY, WHO'S FIRST?
19 MR. SHULMAN: I WAS JUST GOING TO ASK.
20 Q. WHO'S FIRST?
21 A. PARDON?
22 Q. WHO'S FIRST? YOU SAY THE ORANGE COUNTY REGISTER IS SECOND
23 IN CALIFORNIA IN TOTAL ADVERTISING LINEAGE.
24 A. THE LOS ANGELES TIMES.
25 Q. AS THE CHIEF FINANCIAL OFFICER OF THE ORANGE COUNTY
1241
WEAVER - DIRECT / SHULMAN
1 REGISTER, WHAT WERE YOUR DUTIES AND RESPONSIBILITIES?
2 A. MY DUTIES AND RESPONSIBILITIES AS CHIEF FINANCIAL OFFICER
3 WERE TO MANAGE THE ACCOUNTING DEPARTMENT, PREPARE BUDGETS,
4 PREPARE FINANCIAL REPORTS FOR THE MANAGEMENT AND TO MAKE SURE
5 THAT THE MONEY THAT WAS SPENT WAS SPENT PROPERLY.
6 Q. OKAY. YOU SAY:
7 "FROM 1981 TO 1987, I WAS THE CHIEF
8 FINANCIAL OFFICER OF THE LOS ANGELES DAILY NEWS,
9 WHICH HAS A DAILY CIRCULATION OF APPROXIMATELY
10 150,000."
11 WHAT WERE YOUR DUTIES AND RESPONSIBILITIES IN THAT
12 POSITION?
13 A. THE DUTIES AND RESPONSIBILITIES WERE VERY SIMILAR. THE
14 ONLY DIFFERENCE I CAN REMEMBER IS THAT DURING THAT TIME I WAS
15 WORKING FOR THE TRIBUNE COMPANY AND THEY REQUIRED MONTHLY
16 REPORTS, WHICH I AUTHORED.
17 Q. OKAY. THEN YOU SAY:
18 "FROM 1978 TO 1981 I WAS THE CHIEF FINANCIAL
19 OFFICER OF THE PALO ALTO TIMES."
20 WHAT DID YOU DO IN THAT POSITION?
21 A. SAME THING AS I DID WITH THE LOS ANGELES DAILY NEWS.
22 Q. WHEN DID YOU FIRST GO INTO THE NEWSPAPER BUSINESS?
23 A. I JOINED TRIBUNE COMPANY, CALLED THE CHICAGO TRIBUNE IN
24 THIS TRIAL, IN 1973 AS A BUDGET DIRECTOR IN ORLANDO, FLORIDA,
25 WITH THE ORLANDO SENTINEL STAR.
1242
WEAVER - DIRECT / SHULMAN
1 Q. OKAY. NOW, FROM -- AND WERE YOU THERE FROM '73 TO '78?
2 A. NO. I WAS IN ORLANDO FROM '73 TO '75. I WAS IN CHICAGO
3 ON THE CORPORATE STAFF FROM '75 UNTIL '78, THEN PALO ALTO, THEN
4 LOS ANGELES.
5 Q. OKAY. NOW, YOU SAY:
6 "IN ADDITION, FROM 1995 TO 1997, I WAS THE
7 CHIEF FINANCIAL OFFICER OF TV GUIDE, WHICH HAS
8 THE LARGEST WEEKLY CIRCULATION FOR A MAGAZINE IN
9 THE COUNTRY."
10 DO YOU SEE THAT?
11 A. YES.
12 Q. WHAT DID YOU DO AS THE CHIEF FINANCIAL OFFICER OF TV
13 GUIDE?
14 A. AS CHIEF FINANCIAL OFFICER OF TV GUIDE, I OVERSAW THE
15 ACCOUNTING AND FINANCE DEPARTMENT AND PREPARED BUDGETS AND
16 REPORTED ON THOSE BUDGETS.
17 Q. AND WHERE WERE YOU LOCATED?
18 A. RADNOR, PENNSYLVANIA.
19 Q. OKAY. NOW, AT SOME POINT DID YOU COME TO BE RETAINED BY
20 MR. REILLY IN CONNECTION WITH THIS CASE?
21 A. YES.
22 Q. AND WOULD YOU DESCRIBE FIRST WHEN THAT OCCURRED?
23 A. EARLY FEBRUARY.
24 Q. AND CAN YOU RELATE, PLEASE, THE CIRCUMSTANCES SURROUNDING
25 YOUR BEING RETAINED TO ASSIST MR. REILLY?
1243
WEAVER - DIRECT / SHULMAN
1 A. I WAS CONTACTED BY JOE BARLETTA AND ASKED IF I WOULD BE
2 INTERESTED IN WORKING WITH MR. REILLY TO HELP HIM PREPARE A BID
3 TO POSSIBLY PURCHASE THE EXAMINER.
4 Q. AND WHAT WAS YOUR RESPONSE?
5 A. I TOOK ON THAT CHALLENGE.
6 Q. OKAY. AND WHAT DID YOU DO AFTER YOU AGREED TO ASSIST?
7 A. THE FIRST THING THAT I DID WAS I MET WITH MR. REILLY AND
8 MR. FLAHERTY IN SAN FRANCISCO AT MR. REILLY'S OFFICE, AND WE
9 DISCUSSED THE NEWSPAPER BUSINESS AND THE SAN FRANCISCO EXAMINER
10 IN PARTICULAR.
11 Q. OKAY. AS A RESULT OF THAT MEETING, WAS THERE SOME --
12 WELL, CAN YOU IDENTIFY MR. FLAHERTY FOR US?
13 A. ALAN FLAHERTY IS A CONSULTANT IN THE NEWSPAPER INDUSTRY.
14 Q. OKAY. AS A RESULT OF THAT MEETING, WAS THERE SOME
15 ASSIGNMENT YOU WERE GIVEN OR TASK THAT YOU UNDERTOOK?
16 A. AS A RESULT OF THAT MEETING, AND A MEETING THE FOLLOWING
17 DAY WITH LARRY INGRAM AND MR. REILLY, MR. REILLY ASKED US TO
18 PREPARE FOR HIM AN ANALYSIS OF WHAT IT WOULD TAKE FOR HIM TO
19 BUY THE EXAMINER, THOSE THINGS THAT WE FELT WERE IMPORTANT IN A
20 POTENTIAL PURCHASE OF THE EXAMINER.
21 Q. AND SO WHAT DID YOU DO?
22 A. MR. INGRAM, MR. FLAHERTY AND I MET THE FOLLOWING WEEK IN
23 ORANGE COUNTY, CALIFORNIA, AND WE SPENT THE DAY PUTTING
24 TOGETHER AN OUTLINE, IF YOU WILL, OF A POTENTIAL APPROACH TO
25 HEARST THAT MR. REILLY MIGHT TAKE.
1244
WEAVER - DIRECT / SHULMAN
1 Q. WERE THERE ANY MATERIALS THAT YOU USED THAT WERE PROVIDED
2 TO YOU IN CONNECTION WITH THE WORK YOU DID?
3 A. YES. I HAD A COPY OF THE VERONIS AND SUHLER REPORT.
4 Q. YOU MEAN THE OFFERING MEMORANDUM?
5 A. I'M SORRY, THE OFFERING MEMORANDUM.
6 Q. OKAY.
7 A. AND --
8 Q. ANYTHING ELSE?
9 A. YES. I BELIEVE THAT WHILE I WAS IN SAN FRANCISCO ON THAT
10 VISIT, THAT I WENT TO THE LAWYER'S OFFICE AND REVIEWED THE
11 INFORMATION THAT WAS AVAILABLE TO THE POTENTIAL PURCHASERS OF
12 THE EXAMINER AND TOOK DOWN INFORMATION REGARDING PROFIT AND
13 LOSS STATEMENT FOR THE SAN FRANCISCO NEWSPAPER AGENCY AND MAJOR
14 ADVERTISERS AT THE SAN FRANCISCO NEWSPAPER AGENCY.
15 Q. WHEN YOU REFER TO THE LAWYER'S OFFICE, YOU'RE REFERRING TO
16 COUNSEL FOR HEARST?
17 A. YES.
18 Q. OKAY. IF YOU COULD TURN TO EXHIBIT 46 BEFORE YOU. I
19 BELIEVE -- IS THAT IN EVIDENCE? YES, OKAY, 46 IN EVIDENCE.
20 THE FIRST PAGE -- IT'S A MULTIPAGE DOCUMENT
21 CONSISTING OF A NUMBER OF SCHEDULES AND THE FIRST PAGE IS
22 ENTITLED "SUNDAY EDITION COSTS." THE LAST PAGE HAS A DATE OF
23 FEBRUARY 10. WE'LL GET TO THAT AS WE GO THROUGH IT.
24 BUT CAN YOU IDENTIFY WHAT THIS IS?
25 A. YES.
1245
WEAVER - DIRECT / SHULMAN
1 Q. GO AHEAD.
2 A. THE FIRST PAGE ENTITLED "SUNDAY EDITION COSTS" WAS
3 PREPARED BY LARRY INGRAM. IT WAS E-MAILED TO ME, AND I BELIEVE
4 THIS PARTICULAR ITERATION COMES OFF OF MY COMPUTER SYSTEM WHERE
5 I BASICALLY PUT SOME OF THE COLUMNS TOGETHER. AND I BELIEVE I
6 PUT THE BOLD AROUND THE "TOTAL BEFORE TV BOOK" AND "TOTAL WITH
7 TV BOOK." BUT THIS INFORMATION WAS BASICALLY PREPARED BY LARRY
8 INGRAM.
9 THE NEXT PAGE --
10 Q. AND THIS PURPORTS TO SHOW THE COSTS OF DOING A SUNDAY
11 EDITION OF THE EXAMINER?
12 A. THAT'S CORRECT.
13 Q. WITH A CIRCULATION OF A HUNDRED THOUSAND?
14 A. AS A PRINT ORDER OF A HUNDRED THOUSAND, 80 PAGES, 40 PAGES
15 IN THE MAIN SECTION, 40 PAGES ADVANCE SECTION. IT ASSUMES
16 PAYROLL, FTE'S AND EDITORIALS, CIRCULATION COSTS, DELIVERY
17 COSTS, PRODUCTION COSTS, PAPER, PLATES AND INK COSTS, AND THE
18 COST OF SUPPLEMENTS.
19 Q. AND THIS IS FOR ONE YEAR?
20 A. YES, THIS IS ONE YEAR.
21 THE COURT: WHEN YOU SPEAK OF AN ADVANCE, A PAGE
22 ADVANCE AND PAGE MAIN, YOU MEAN 40 PAGES OF THE 80 PAGES WOULD
23 BE PUBLISHED IN ADVANCE OF THE NORMAL PUBLICATION DATE OR IN
24 ADVANCE OF THE PUBLICATION DATE FROM THE MAIN PART OF THE
25 PAPER? IS THAT WHAT IT REFERS TO?
1246
WEAVER - DIRECT / SHULMAN
1 THE WITNESS: THAT'S WHAT IT REFERS TO. THE
2 DATEBOOK SECTION OR THE PINK SECTION WOULD BE PRODUCED THREE OR
3 FOUR DAYS EARLY IN SAN FRANCISCO.
4 THE COURT: OKAY.
5 BY MR. SHULMAN:
6 Q. YOU ALSO -- THERE'S A TERM A HUNDRED THOUSAND PRINT ORDER.
7 IS PRINT ORDER DIFFERENT FROM CIRCULATION?
8 A. YES. PRINT ORDER IS THE NUMBER OF PAPERS THAT ARE
9 ACTUALLY PRINTED AND PROBABLY 99 PERCENT OF THOSE ARE
10 DISTRIBUTED. HOWEVER, THOSE THAT ARE DISTRIBUTED TO SINGLE
11 COPY OUTLETS, THERE ARE RETURNS; IN OTHER WORDS, UNSOLD PAPERS.
12 SO 20, 25 PERCENT OF THE DISTRIBUTION OF SINGLE COPY PAPERS
13 COME BACK AS RETURNS, AND THAT WOULD REDUCE THE TOTAL
14 CIRCULATION.
15 Q. SO THE PRINT ORDER IS SOMETHING MORE THAN THE CIRCULATION?
16 A. THAT'S CORRECT.
17 Q. ALL RIGHT. NOW, IF YOU TURN TO THE SECOND PAGE -- WELL,
18 ACTUALLY LET'S GO TO THE LAST PAGE BECAUSE THAT'S THE EARLIEST
19 IN TIME, I THINK. THAT IS A -- IT SAYS "SAN FRANCISCO EXAMINER
20 PROJECTED P & L THREE YEARS AFTER PURCHASE" AND IT'S DATED IT
21 LOOKS LIKE FEBRUARY 10. WILL YOU TELL US WHAT THAT IS, PLEASE?
22 A. YES. THAT WAS A PROJECTED PROFIT AND LOSS STATEMENT FOR
23 THE SAN FRANCISCO EXAMINER THAT I PRINTED ON FEBRUARY 10TH
24 FOLLOWING THE MEETING THAT MR. FLAHERTY, MR. INGRAM AND I HAD
25 IN ORANGE COUNTY.
1247
WEAVER - DIRECT / SHULMAN
1 Q. WHO PUT -- WERE YOU THE ONE WHO PUT THIS TOGETHER?
2 A. YES.
3 Q. WHAT DATA DID YOU USE TO PUT IT TOGETHER?
4 A. WELL, THE INFORMATION IN THE RIGHT-HAND COLUMN SAYS
5 "CURRENT EXPENSE STREAM." AND THAT DATA COMES FROM IN THE
6 OFFERING MEMORANDUM THAT WAS PREPARED BY HEARST OR PRESENTED BY
7 HEARST, AND THERE ARE TWO OR THREE BACK-UP PAGES TO THIS
8 SIMILAR TO THOSE YOU'LL SEE ALSO IN THIS REPORT.
9 SO THAT'S THE INFORMATION THAT, TO THE BEST OF OUR
10 UNDERSTANDING, WAS WHAT IS CURRENTLY SPENT BY THE SAN FRANCISCO
11 NEWSPAPER AGENCY TO PRODUCE THE SAN FRANCISCO EXAMINER AND IT
12 ALSO INCLUDES UNDER "EDITORIAL" THE COST OF EDITORIAL AND G & A
13 EXPENSES SHOWN IN THE OFFERING MEMORANDUM.
14 Q. OKAY. AND YOU TOOK THIS FROM THE HEARST INFORMATION
15 PROVIDED BY VERONIS SUHLER?
16 A. THAT'S CORRECT.
17 Q. AND THAT SHOWS A CURRENT COST FOR THE EXAMINER OF
18 $81 MILLION?
19 A. IF YOU ADD IN THE NINETEEN MILLION NINE THAT IS SPECIFIC
20 EXAMINER COSTS, YES.
21 Q. YOU MEAN THE EDITORIAL, WHERE IT SAYS EDITORIAL, PAYROLL,
22 OTHER, TOTAL?
23 A. YES. THE AGENCY DOES NOT INCUR THOSE COSTS.
24 Q. OKAY. WHERE DID YOU FIND THAT INFORMATION?
25 A. THAT INFORMATION IS ALSO IN THE OFFERING MEMORANDUM.
1248
WEAVER - DIRECT / SHULMAN
1 Q. OKAY. NOW, TELL ME WHAT THE NEXT TWO COLUMNS ARE. ONE
2 SAYS "OPTIMISTIC YEAR THREE" AND THE OTHER "REALISTIC YEAR
3 THREE." TELL ME WHAT YOU WERE TRYING TO SHOW THERE.
4 A. WE WERE LOOKING AT TRYING TO PUT TOGETHER TWO THINGS.
5 ONE -- WE MIGHT AS WELL START WITH THE REVENUE THAT'S ON TOP.
6 THE REVENUE NUMBERS ARE NOT SO MUCH PROJECTIONS BUT AN EXAMPLE
7 OF WHAT THE REVENUE WOULD BE IN ADVERTISING GIVEN AN ASSUMPTION
8 ABOUT THE NUMBER OF PAGES THAT WERE PRINTED EVERY DAY, AN
9 AVERAGE RATE THAT YOU CHARGE FOR ADVERTISING AND THE AMOUNT OF
10 ADVERTISING YOU WOULD HAVE IN THE PAPER.
11 Q. OKAY. LET ME STOP YOU THERE.
12 YOU MADE AN ASSUMPTION ABOUT THE NUMBER OF PAGES IN
13 THE NEWSPAPER. IN THE -- IS THIS AFTER THREE YEARS OR IN THE
14 THIRD YEAR?
15 A. IT SAYS YEAR THREE, SO I WOULD SAY THAT WE WERE THINKING
16 IN THE THIRD YEAR.
17 Q. OKAY. YOU MADE AN ASSUMPTION ABOUT THE NUMBER OF PAGES?
18 A. YES. THE MODEL WAS BUILT SUCH THAT YOU COULD CHANGE THE
19 ASSUMPTION -- YOU COULD CHANGE THE NUMBER OF CHANGES AND THE
20 PERCENTAGE OF ADVERTISING AND THE AVERAGE REVENUE PER INCH OF
21 ADVERTISING AND PUSH THOSE THROUGH AND DO AN ANALYSIS TO SAY,
22 "WHAT WOULD IT TAKE TO BRING IN $30 MILLION WORTH OF REVENUE OR
23 HOW MUCH -- HOW BIG WOULD THE PAPER HAVE TO BE, WHAT RATE WOULD
24 WE HAVE TO HAVE AND WHAT PERCENTAGE OF ADVERTISING WOULD WE
25 HAVE TO HAVE TO BRING IN $50 MILLION IN REVENUE?" IT WAS A WAY
1249
WEAVER - DIRECT / SHULMAN
1 TO DO WHAT IFS. IT'S A MODEL.
2 Q. AND THEN YOU MADE AN ASSUMPTION -- AFTER YOU MADE AN
3 ASSUMPTION ABOUT THE NUMBER OF PAGES, YOU MADE AN ASSUMPTION
4 ABOUT THE PERCENTAGE OF THOSE PAGES THAT WOULD BE FILLED WITH
5 ADVERTISING?
6 A. THAT'S CORRECT.
7 Q. AND THEN DID YOU MAKE AN ASSUMPTION ABOUT THE RATE YOU
8 WOULD BE ABLE TO CHARGE FOR THE ADVERTISING?
9 A. THAT'S CORRECT.
10 Q. OKAY. NOW, IN DOING THIS, DID YOU MAKE ANY -- DID YOU
11 COME TO ANY OPINIONS OR CONCLUSIONS THAT YOU WOULD, IN FACT, BE
12 ABLE TO GET THIS REVENUE?
13 A. NO. WE DID NOT ATTEMPT TO DO THIS. WE THOUGHT IT WAS
14 REALISTIC TO GET $30 MILLION IN REVENUE.
15 Q. OKAY. YOU LOOKED AT IT TO SEE WHAT YOU WOULD NEED TO DO
16 IN ORDER TO GET THAT REVENUE?
17 A. THAT'S CORRECT.
18 Q. ALL RIGHT. THEN CONTINUE WITH YOUR EXPLANATION OF WHAT IS
19 SHOWN ON THIS AFTER THE REVENUE.
20 A. OKAY. NEWSPRINT AND INK AND SUPPLEMENTS DEPEND ON THE
21 NUMBER OF PAGES IN THE TOTAL PRINT ORDER. THE MORE YOU PRINT,
22 THE MORE NEWSPRINT AND INK YOU USE. AND THE MORE -- AND THE
23 LARGER THE CIRCULATION OR THE DISTRIBUTION, THE MORE YOU HAVE
24 TO PAY FOR SUNDAY OR WEEKEND SUPPLEMENTS.
25 WE THEN MADE ASSUMPTIONS ABOUT STAFFING AND IN MOST
1250
WEAVER - DIRECT / SHULMAN
1 AREAS CERTAINLY A RELATIONSHIP BETWEEN TOTAL PAYROLL COSTS AND
2 ALL OTHER COSTS IN THAT DEPARTMENT.
3 IN CIRCULATION WE ATTEMPTED TO LOOK AT SOME OF THE
4 COSTS ASSOCIATED WITH MAINTAINING YOUR CIRCULATION. THEREFORE,
5 YOUR OTHER COSTS ARE HIGHER.
6 ADVERTISING WAS A PERCENTAGE OF PAYROLL.
7 EDITORIAL, WE DID HAVE INFORMATION. I BELIEVE MOST
8 OF THAT IS I BELIEVE G & A COSTS.
9 AND I WOULD HAVE TO LOOK BACK TO SEE HOW I PULLED
10 THE OTHER TOGETHER.
11 Q. OKAY. BUT YOU -- AND YOU CAME UP WITH WHAT YOU ESTIMATED
12 TO BE TOTAL EXPENSES FOR DOING THE PAPER IN THE THIRD YEAR?
13 A. YES.
14 Q. AND THOSE ARE SHOWN ON THE TOTAL EXPENSES LINE?
15 A. YES, UNDER REALISTIC YEAR THREE, THAT'S 57,000,963.
16 Q. OKAY. NOW, WHAT DOES IT MEAN -- AND THEN AT THE BOTTOM
17 YOU HAVE AN OPERATING PROFIT AND LOSS; RIGHT?
18 A. YES.
19 Q. OKAY. WHAT'S THE DIFFERENCE BETWEEN THE OPTIMISTIC --
20 TELL ME WHAT YOU MEANT BY OPTIMISTIC, TELL ME WHAT YOU MEANT BY
21 REALISTIC.
22 A. REALISTIC BASICALLY LOOKED AT THE EXPENSES THAT PROBABLY
23 80 PERCENT MY NUMBERS WOULD BE INCURRED TO OPERATE A
24 COMPETITIVE NEWSPAPER IN SAN FRANCISCO. AND I BELIEVE WE JUST
25 BACKED INTO THE ADVERTISING REVENUE NUMBERS BASED UPON WHAT
1251
WEAVER - DIRECT / SHULMAN
1 SIZE AND HOW MANY PAGES WE FELT IT WOULD BE NECESSARY TO HAVE
2 TO BE COMPETITIVE.
3 THE OPTIMISTIC WAS REALLY LOOKING AT THE SORT OF
4 NUMBERS IT WOULD TAKE TO BREAK EVEN. IT DOES INCREASE THE
5 CIRCULATION NUMBER SIGNIFICANTLY; AND I BELIEVE THAT IF WE HAD
6 THE BACK-UP PAGES, YOU WOULD SEE THAT THE RATE PER INCH OF
7 ADVERTISING WOULD GO UP ACCORDINGLY.
8 BUT IT WAS A LOOK AT WHAT WOULD BE A BREAK-EVEN
9 SCENARIO, AN OPTIMISTIC SCENARIO.
10 Q. AND WAS THIS INFORMATION PROVIDED TO MR. REILLY?
11 A. YES.
12 Q. ALL RIGHT. NOW, IF YOU TURN TO THE PAGE IN FRONT OF THAT,
13 IT'S ENTITLED "SAN FRANCISCO NEWSPAPER NEWSPAPER AGENCY,"
14 YOU'VE GOT TWO "NEWSPAPERS" THERE, "PROFIT AND LOSS ANALYSIS IN
15 MILLIONS" -- "IN THOUSANDS," SORRY, "3/23/00." WOULD YOU
16 IDENTIFY THIS? TELL US WHAT THIS IS.
17 A. THIS IS THE INFORMATION THAT I GATHERED WHEN I WENT TO
18 HEARST'S LAWYER'S OFFICE ABOUT THE REVENUE AND EXPENSES OF THE
19 SAN FRANCISCO NEWSPAPER AGENCY IN 1996, 1997, 1998.
20 Q. OKAY. THEN THE PAGE -- AND GROSS EXCESS -- THERE'S A LINE
21 THAT SAYS "GROSS EXCESS." CAN YOU EXPLAIN WHAT THAT IS?
22 A. THAT'S A NEWSPAPER AGENCY -- SAN FRANCISCO NEWSPAPER
23 AGENCY TERM THAT SUGGESTS WHAT THE DIFFERENCE IS BETWEEN THE
24 REVENUE THAT THEY TOOK IN AND THE EXPENSES THEY INCURRED. THEY
25 CALL IT GROSS EXCESS.
1252
WEAVER - DIRECT / SHULMAN
1 Q. ALL RIGHT. IF YOU LOOK AT THE PAGE IN FRONT OF THAT --
2 WAIT A MINUTE. I'M A LITTLE BIT LOST HERE.
3 (PAUSE IN PROCEEDINGS.)
4 BY MR. SHULMAN:
5 Q. -- THAT IS -- AGAIN, IT'S ENTITLED "SAN FRANCISCO
6 NEWSPAPER NEWSPAPER AGENCY PROFIT AND LOSS 1998 TO 1996." WHAT
7 IS THAT AND HOW IS IT DIFFERENT FROM THE PRIOR PAGE?
8 A. THIS HAS THE SAME REVENUE AND EXPENSE NUMBERS. ON THIS
9 PAGE I'VE TAKEN THE 1996, 1997, 1998 NUMBERS AND CALCULATED THE
10 PERCENTAGE OF REVENUE OF EACH ONE OF THOSE LINES. SO THAT
11 ADVERTISING IS 76.9 PERCENT OF 1998 REVENUE. NEWSPRINT AND INK
12 WAS 15.1 PERCENT OF REVENUE.
13 ON THE PRIOR PAGE I BASICALLY LOOKED AT THE CHANGE
14 IN EXPENSES OR THE CHANGE IN REVENUE, THE INCREASE OR DECREASE
15 IN EXPENSES AND REVENUE YEAR AFTER YEAR.
16 Q. AND THEN YOU ALSO TOOK THE PERCENTAGE FOR THE EXPENSES;
17 RIGHT?
18 A. THAT IS CORRECT.
19 Q. WHY DID YOU DO THAT?
20 A. IT GAVE ME A VERY QUICK LOOK AT HOW MUCH REVENUE WAS DUE
21 FROM ADVERTISING, FROM CIRCULATION AND WHAT THE EXPENSES WERE
22 IN THE VARIOUS CATEGORIES.
23 Q. ALL RIGHT. NOW, IF YOU LOOK AT THE PAGE -- NOW I WANT TO
24 GO -- SKIP TO THE THIRD PAGE OF THE EXHIBIT, WHICH IS ENTITLED
25 "SAN FRANCISCO EXAMINER EMPLOYEE ANALYSIS, 23 MARCH 00." CAN
1253
WEAVER - DIRECT / SHULMAN
1 YOU EXPLAIN WHAT THIS IS?
2 A. THIS IS ONE OF THE BACK-UP PAGES THAT WOULD HAVE BEEN
3 BEHIND THAT VERY FIRST ONE WE LOOKED AT AS WELL AS THE OTHERS.
4 IT'S PART OF THE MODEL.
5 IF YOU START IN THE CENTER, I GUESS, UNDER
6 "STAFFING" IT HAS "NOW," WHICH IS THE CURRENT LEVEL OF STAFFING
7 AS I PUT IT TOGETHER OUT OF THE VERONIS SUHLER REPORT, A BEST
8 CASE STAFFING, WHICH WOULD BE A LOW NUMBER, IF YOU WILL, AND
9 THEN A TYPICAL NEWSPAPER STAFFING LEVEL.
10 THE AVERAGE EARNINGS IN THIS CASE ARE ROUNDED TO
11 THOUSANDS. THEY'RE REPRESENTATIVE OF WHAT'S CURRENTLY BEING
12 INCURRED IN SAN FRANCISCO AT THE NEWSPAPER AGENCY.
13 TOTAL PAYROLL COST IS SIMPLY MULTIPLYING THOSE, THE
14 STAFFING AGAINST THE AVERAGE EARNINGS.
15 THE COURT: LET ME SEE IF I UNDERSTAND, IF I CAN
16 INTERRUPT.
17 MR. SHULMAN: SURE.
18 THE COURT: WHAT IS IN THE "NOW" COLUMN IS?
19 THE WITNESS: THAT'S INFORMATION THAT WAS --
20 THE COURT: THAT RELATES TO WHAT EXISTS NOW WITH
21 REFERENCE TO THE NEWSPAPER AGENCY?
22 THE WITNESS: THAT'S CORRECT.
23 THE COURT: BUT YOU'VE NOT ATTEMPTED TO DESEGREGATE
24 THOSE NUMBERS BETWEEN THE CHRONICLE AND THE EXAMINER?
25 THE WITNESS: I'M SORRY, THESE ARE THE NUMBERS THAT
1254
1 HAVE BEEN PRESENTED AS THE STAFF DEDICATED TO THE EXAMINER IN
2 THE VERONIS SUHLER REPORT.
3 THE COURT: THE STAFF OF THE NEWSPAPER AGENCY
4 DEDICATED TO THE EXAMINER?
5 THE WITNESS: THAT'S CORRECT.
6 THE COURT: SO ARE YOU SAYING THAT IF THE EXAMINER
7 WERE SHUT DOWN, THAT 681 EMPLOYEE POSITIONS WOULD BE ELIMINATED
8 FROM THE NEWSPAPER AGENCY?
9 THE WITNESS: THE INFORMATION THAT WAS GIVEN OUT IN
10 THE VERONIS AND SUHLER REPORT WOULD SUGGEST THAT 681 LESS THE
11 EDITORIAL STAFF, WHICH IS 208, WOULD BE -- ARE DEDICATED TO OR
12 ALLOCATED I SHOULD SAY, SOME OF THESE ARE ALLOCATED, TO THE SAN
13 FRANCISCO EXAMINER.
14 THE COURT: EACH IS ALLOCATED FULL TIME TO THE
15 EXAMINER; CORRECT?
16 THE WITNESS: NOT QUITE. THE REASON I HESITATE IS
17 THAT I BELIEVE IN SOMETHING LIKE INFORMATION SERVICES, TAKE
18 THAT LINE ITEM WHERE IT SHOWS 39 PEOPLE --
19 THE COURT: WHERE IS THAT, SIR?
20 THE WITNESS: THAT'S UNDER "OTHER DEPARTMENTS."
21 THE COURT: OH, YES.
22 THE WITNESS: THERE'S A NUMBER OF 39. IT'S MY
23 RECOLLECTION THAT IS AN ALLOCATION OF THE PEOPLE IN INFORMATION
24 SERVICES. NOT EACH ONE OF THOSE IS -- WORKS ONLY ON THE
25 EXAMINER, BUT WOULD BE AN ALLOCATION OF THE INFORMATION
1255
1 SERVICES DEPARTMENT.
2 THE COURT: I SEE.
3 THE WITNESS: WHEREAS, CIRCULATION --
4 THE COURT: SO YOU'RE SAYING THERE MAY BE A HUNDRED
5 PEOPLE IN INFORMATION SERVICES, BUT -- AND THEY WORK ON BOTH
6 PAPERS, BUT SPEND 39 PERCENT OF THEIR TIME ON THE EXAMINER AND,
7 THEREFORE, YOU ALLOCATE 39 POSITIONS?
8 THE WITNESS: I DIDN'T DO THE ALLOCATIONS, BUT THAT
9 WOULD BE WHAT'S IMPLIED TO ME.
10 THE COURT: OKAY.
11 THE WITNESS: WHEREAS, UNDER PRODUCTION AND UNDER
12 CIRCULATION IT'S MUCH CLEARER WHO WORKS ON WHAT PAPER, WHO
13 ACTUALLY RUNS THE PRESSES, IT'S PRETTY CLEAR WHO THAT IS.
14 THE COURT: ALL RIGHT. I THINK I UNDERSTAND AND I'M
15 SORRY FOR THE INTERRUPTION.
16 MR. SHULMAN: DOES YOUR --
17 THE COURT: ANY TIME THAT WOULD BE CONVENIENT.
18 MR. SHULMAN: THIS IS CONVENIENT, YOUR HONOR.
19 THE COURT: WE DO HAVE A CRIMINAL CALENDAR THAT I
20 NEED TO ATTEND TO THIS AFTERNOON, SO I'M AFRAID, MR. WEAVER,
21 WE'RE GOING TO HAVE TO INTERRUPT THE TESTIMONY, AND WE WILL
22 RESUME WITH FURTHER TESTIMONY OF THIS WITNESS AT 8:30 TOMORROW
23 MORNING.
24 BEFORE -- I KNOW MR. HOCKETT HAS SOME MATTERS HE
25 WISHES TO RAISE. WHAT IS THAT, MR. HOCKETT?
1256
1 MR. HOCKETT: JUST THE ONE I REFERENCED EARLIER. I
2 JUST WANTED TO READ, NOT INDIVIDUALLY I MIGHT ADD, THE EXHIBIT
3 NUMBERS THAT HAVE NOW BEEN STIPULATED INTO EVIDENCE.
4 THE COURT: IF IT'S STIPULATED TO, WHY DON'T YOU
5 SUBMIT THAT TO THE REPORTER AND MAKE IT PART OF THE RECORD.
6 MR. HOCKETT: WE'LL DO SO, YOUR HONOR.
7 THE COURT: ALL RIGHT. DOES ANYONE ELSE HAVE
8 ANYTHING BEFORE WE ADJOURN FOR THE DAY?
9 (NO RESPONSE)
10 THE COURT: MR. CONNELL --
11 MR. CONNELL: YES, SIR.
12 THE COURT: -- JUST TO CONTINUE THAT LITTLE DIALOGUE
13 THAT YOU AND I HAD EARLIER IN THE DAY.
14 MR. CONNELL: YES, SIR.
15 THE COURT: THE REGULATIONS IMPLEMENTING THE
16 NEWSPAPER PRESERVATION ACT IN TITLE 28 C.F.R. --
17 MR. CONNELL: I HAVE A COPY OF THAT.
18 THE COURT: ALL RIGHT.
19 MR. CONNELL: YES, SIR.
20 THE COURT: SECTION 48.14(A), WHAT I'M CURIOUS ABOUT
21 IS THE SECOND SENTENCE. THE FIRST SENTENCE STATES THAT:
22 "THE ATTORNEY GENERAL SHALL DECIDE ON THE
23 BASIS OF THE RECORD AS CONSTITUTED IN ACCORDANCE
24 WITH THE PRECEDING SECTION."
25 AND THEN GOES ON TO PROVIDE:
1257
1 "IN RENDERING HIS DECISION, THE ATTORNEY
2 GENERAL SHALL FILE THEREWITH A STATEMENT OF HIS
3 FINDINGS AND CONCLUSIONS AND THE REASONS
4 THEREFOR, OR WHERE A HEARING HAS BEEN HELD HE
5 MAY ADOPT THE FINDINGS AND CONCLUSIONS OF THE
6 ADMINISTRATIVE LAW JUDGE."
7 NOW, IN THIS CASE WAS THIS SECTION COMPLIED WITH?
8 MR. CONNELL: NO, SIR, IT WAS NOT APPLICABLE.
9 THE COURT: WHY NOT?
10 MR. CONNELL: BECAUSE THESE -- THIS SECTION AND MOST
11 OF THE REGULATIONS APPLY TO AN APPLICATION FOR APPROVAL OF THE
12 START, THE IMPLEMENTATION OF A JOINT NEWSPAPER OPERATING
13 ARRANGEMENT FOLLOWING THE PASSAGE OF THE NEWSPAPER PRESERVATION
14 ACT.
15 THE REGULATIONS, NEITHER THE STATUTE NOR THE
16 REGULATIONS, SAY ANYTHING ABOUT THE ATTORNEY GENERAL HAVING TO
17 APPROVE THE TERMINATION OF A JOINT NEWSPAPER OPERATING
18 ARRANGEMENT, EITHER ONE BEFORE '70, A GRANDFATHERED ONE PRIOR
19 TO '70 OR ONE THAT WAS IMPLEMENTED AFTER THE ACT WAS PASSED.
20 THE COURT: BUT I GATHER THIS SECTION WAS COMPLIED
21 WITH, OR AT LEAST COMPLIED WITH IN SPIRIT, BY ATTORNEY GENERAL
22 BAXTER IN 1983 IN THE ST. LOUIS CASE AND BY ATTORNEY GENERAL
23 RUEHL (PHONETIC) IN 1985 IN THE PENNSYLVANIA CASE.
24 MR. CONNELL: NO, SIR, I WOULDN'T AGREE WITH THAT.
25 THE COURT: ALL RIGHT. HOW IS THAT INCORRECT?
1258
1 MR. CONNELL: BECAUSE THOSE CONCLUSIONS ON THE ONE
2 HAND BY ATTORNEY GENERAL BAXTER AND ATTORNEY GENERAL --
3 ATTORNEY GENERAL BAXTER AND ON THE OTHER HAND BY ASSISTANT
4 ATTORNEY GENERAL RUEHL WERE NOT FOLLOWING -- DID NOT FOLLOW
5 HEARINGS HELD UNDER THE ACT AND DID NOT FOLLOW AN APPLICATION
6 FILED UNDER THE ACT. IN NEITHER --
7 THE COURT: WELL, THE SENTENCE WE'RE JUST TALKING
8 ABOUT IS ONE THAT DOES NOT CONTEMPLATE A HEARING.
9 MR. CONNELL: I'M SORRY, YOUR HONOR?
10 THE COURT: THE FIRST PART OF THAT SECOND
11 SENTENCE --
12 MR. CONNELL: CORRECT.
13 THE COURT: -- OF 48.14(A) CONTEMPLATES A SITUATION
14 IN WHICH THE ATTORNEY GENERAL ACTS WITHOUT A HEARING.
15 MR. CONNELL: OH, SURE. SURE.
16 THE COURT: ALL RIGHT.
17 MR. CONNELL: BUT IT ALSO CONTEMPLATES ACTING IN THE
18 CASE OF AN APPLICATION FILED IN ACCORDANCE WITH THESE
19 REGULATIONS FOR APPROVAL, AND NO APPLICATION FOR SUCH APPROVAL
20 WAS FILED IN ST. LOUIS, IN FRANKLIN/OIL CITY AND, IF YOU WANT,
21 IN TULSA, NASHVILLE, EL PASO, CHATTANOOGA, THE OTHER CITIES
22 WHERE EARLY TERMINATIONS HAVE OCCURRED AFTER FRANKLIN/OIL CITY.
23 IT JUST -- YOUR HONOR, THIS SET OF REGULATIONS, WITH WHICH I AM
24 QUITE FAMILIAR, DO NOT DEAL WITH THE TERMINATION.
25 THE COURT: THIS IS PROBABLY A RHETORICAL QUESTION.
1259
1 WHY DID BAXTER AND RUEHL ISSUE THOSE PRESS RELEASES IN THE ST.
2 LOUIS AND FRANKLIN, PENNSYLVANIA, CASES?
3 MR. CONNELL: YES, SIR. IN THE CASE OF ST. LOUIS,
4 IT WAS BECAUSE WILLIAM BAXTER DECIDED, I GUESS, THAT IT WOULD
5 BE USEFUL TO PUT OUT THE WORD AS TO WHAT HIS -- WHAT THE VIEWS
6 OF THE DIVISION WERE AS TO WHAT HAD TO BE DONE IF YOU DIDN'T
7 WANT TO GET SUED BY THE ANTITRUST DIVISION WHEN YOU SHUT DOWN A
8 JOA. THAT'S, I THINK, A FAIR READING OF WHAT WAS DONE.
9 ASSISTANT ATTORNEY GENERAL RUEHL WAS RESPONDING IN
10 FACT TO AN APPLICATION FOR A BUSINESS REVIEW LETTER, A
11 DIFFERENT ANIMAL THAN -- THERE'S A SEPARATE PROCEDURE, SEPARATE
12 REGULATIONS FOR BUSINESS REVIEW LETTERS AND THE JUSTICE
13 DEPARTMENT ROUTINELY ISSUES A PRESS RELEASE WHEN IT -- MAYBE
14 NOT INVARIABLY BUT FREQUENTLY ISSUES A PRESS RELEASE WHEN IT
15 ISSUES A BUSINESS REVIEW LETTER. SO THAT WOULD EXPLAIN THAT
16 ONE.
17 AND, AS I SAY, YOUR HONOR, THERE WERE SUBSEQUENT
18 EARLY TERMINATIONS CERTAINLY KNOWN TO THE JUSTICE DEPARTMENT
19 WHERE THERE'S NO PRESS RELEASE, THERE'S NOTHING.
20 THE COURT: DID ANY OF THOSE SITUATIONS INVOLVE AN
21 APPLICATION FOR A BUSINESS REVIEW LETTER?
22 MR. CONNELL: NO, SIR, THEY DID NOT. THEY DID NOT.
23 THE COURT: SO IN THOSE SITUATIONS WHAT OCCURRED WAS
24 THE PARTICIPANTS SIMPLY INFORMED THE DEPARTMENT OF WHAT THEY
25 WERE DOING AND HEARD NOTHING?
1260
1 MR. CONNELL: PRECISELY. THIS IS -- I MEAN, IF
2 YOU'RE AN ANTITRUST LAWYER LIKE I AM, YOUR HONOR, HAVING A FAIR
3 AMOUNT OF PRACTICE BEFORE THAT AGENCY, THAT'S WHAT YOU DO. YOU
4 DON'T EXPECT ANYTHING. THEY DON'T LIKE TO -- THEY DON'T LIKE
5 TO ISSUE STUFF USUALLY. THEY JUST RATHER DO WHAT THEY DO AND
6 GO AWAY. SO THAT'S NOT UNUSUAL.
7 THE COURT: ALL RIGHT. IT DOESN'T GIVE US MUCH
8 GUIDANCE; DOES IT?
9 MR. CONNELL: WELL, I THINK IT DOES, YOUR HONOR,
10 BECAUSE THEY NEVER TOOK ANY ACTION TO STOP THOSE OTHER
11 TERMINATIONS.
12 THE COURT: INACTION SPEAKS LOUDER THAN WORDS?
13 (LAUGHTER)
14 MR. CONNELL: PRECISELY.
15 THE COURT: ALL RIGHT. THANK YOU, SIR.
16 MR. CONNELL: YES, SIR.
17 THE COURT: I'M SURE WE'LL HAVE AN OPPORTUNITY TO
18 DISCUSS THIS A LITTLE FURTHER.
19 MR. CONNELL: YES, SIR.
20 THE COURT: THANK YOU. SEE YOU TOMORROW MORNING.
21 (WHEREUPON PROCEEDINGS ADJOURNED AT 2:08 P.M.)
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