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G. THE SALE TO THE FANGS

The first concrete proposal from the Fangs, to be discussed in more detail hereafter, was made on December 2, 1999, and called for a subsidy of $210 million payable over six years. (PX 100.) This occurred before the filing of this lawsuit and any negotiations between Hearst and plaintiff. Once plaintiff began discussions with Hearst, the Fangs reduced their demands. (PX 29.) On March 10, 2000, three days after plaintiff’s March 7 proposal, knowing from press reports that plaintiff was in discussions with Hearst, the Fangs secured an agreement from Hearst to negotiate exclusively with them for a 15-day period. (PX 34; T. Fang Depo., pp. 157-58.) Plaintiff had no notice of this agreement to negotiate exclusively with the Fangs. (Reilly trial testimony.)

On March 16, Hearst and the Fangs executed an agreement to transfer certain Examiner assets to the Fangs, including The Examiner name, computer hardware and software, various news service and features contracts, newsracks, and subscription lists. For these assets, the Fangs paid $100. In addition, Hearst agreed to provide to the Fangs (1) printing, distribution, advertising, and business services from the Agency for a four-month transition period; (2) for the next eight months reimbursement of actual expenses up to $16 and 2/3 million; and (3) for each of the next two years reimbursement of actual expenses up to $25 million. (PX 35.) The total subsidy agreed to by Hearst was $67 million over three years.

The agreement also included disincentives for the Fangs to make the expenditures necessary to operate the paper. For example, during years two and three, if the expenses for which the Fangs seek reimbursement from Hearst are less than $25 million, Hearst will pay the Fangs one-half the difference up to a total of $5 million. A similar prorated provision applies to the first year. This provision is intended as an incentive for the Fangs to spend only $15 million on The Examiner and then pocket the extra $5 million from Hearst. (T. Fang Depo., pp. 162-65.) Similarly, the agreement purports to limit the salary Ted Fang may take as publisher of The Examiner to $500,000 per year, which is four times his combined current compensation as publisher of The Independent and CEO of Grant Printing (T. Fang Depo., pp. 168-70) and almost double the salary of The Examiner’s current publisher. Finally, the Fangs have agreed to limit reimbursable capital expenditures to $3.3 million annually (PX 35; T. Fang Depo., pp. 165-66), not nearly enough to create the infrastructure for a viable daily newspaper. The agreement with the Fangs amounts to a subsidy not to publish a competing newspaper, instead of a subsidy meant to ensure competition.

 

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