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?
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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.
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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