Conrad Black Trial - The Non-Compete Payments

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Conrad Black Trial. Defence: Non-Compete Payments were Legal

Prosecution: Non-Compete Payments were Inserted to Divert Money to Black and Cohorts

Witness Mr. Henson: We did not ask for Non-Compete Agreements with Hollinger Inc.

March 28, 2007. Thomas Barnes Henson took the witness stand again yesterday. Henson was a lawyer for Community Newspaper Holdings Inc., of Birmingham, Alabama, the company that bought several newspapers from Hollinger International in two separate deals, and the person who had signed the second deal on behalf of CNHI. Henson had started his testimony Monday, March 26, 2007 as a prosecution witness.

Henson testified that CNHI had asked for a non-compete agreement with Hollinger International. However, CNHI had not sought a non-compete agreement with Black's private company, Hollinger Inc. or with any of the other co-defendants. Ron Safer(left) lawyer for Mark Kipnis (right)Henson said those names were added by Mark Kipnis (seen on the left), a co-defendant with Conrad Black and the in-house lawyer for Hollinger International.

Kipnis' lawyer cross-examined Henson and pointed out that while the agreements had Kipnis' handwriting and signature, it was clear to everyone that "Mark Kipnis was not negotiating this document for Mark Kipnis - he was negotiating for Hollinger International."

Further, the final non-compete agreement stated that both Hollinger International and Hollinger Inc. were party to the non-compete agreement and that Hollinger International would decide how the money was to be allocated. In the first deal (there were two deals), $50 million in fees was to be divided into $38 million for Hollinger International and $12 million for Hollinger Inc (the private company controlled by Conrad Black).

Defence: Non-Compete Agreements Were Above Board and Legal

Kipnis' lawyer went on to maintain a previous assertion that his client, Mark Kipnis had acted correctly and legally. Kipnis had properly documented and disclosed all the transactions. He had also submitted the draft agreements for approval to various agencies: Hollinger International's reputable outside law firm - Torys LLP, the company's auditors and Hollinger's board of directors.

Regarding the second deal with Hollinger International, a deal which Henson had signed on behalf of CNHI, Henson acknowledged "The transactions have to be booked, and the auditors have to agree with the way they're booked."

In short, Kipnis' lawyer used the opportunity to inform the jury that the "non-compete" payments that are at the heart of the prosecution's case in Black's fraud trial, were legal, properly disclosed and approved. His client, Mark Kipnis, was just doing his job and had executed his responsibilities with due diligence.

Conrad Black's lawyer, Ed Genson, reminded the jury that it was David Radler and not Black who negotiated the deals for Hollinger International. Henson had testified to one meeting with Radler but had never met or spoken with Black.

Genson pointed out that regardless of Henson's testimony about who should be included in the non-compete agreement, there was nothing in the non-compete request from CNHI on who to include or exclude in the non-compete agreements. (Presumably, as a result, when Mark Kipnis was drafting the sale-purchase agreement for the newspapers, there was no way for Kipnis to know who CNHI did not want included in the non-compete agreement.)

Witness Mr. Case: Hollinger International Suggested Non-Compete Agreement

Next on the witness stand was Lloyd Case of Forum Communications, a newspaper company that owns 36 community newspapers in North and South Dakota, Minnesota and Wisconsin. Forum Communications bought one newspaper, the Jamestown Sun, from Hollinger International Inc. for US$14-million in September, 2000.

Case testified that while Forum Communications usually asks for a non-competition agreement when buying a newspaper to prevent the seller competing in the same community. However, Forum did not ask for a non-compete agreement in the purchase of the Jamestown Sun, because they did not have any concerns about Hollinger International or Lord Black coming back into the Jamestown market. Forum would have concluded the deal without a non-complete clause had it not been for a request from Hollinger International.

Hollinger, on their own volition, asked that a non-competition agreement be included in the deal with $400,000 of the purchase price apportioned as a non-competition fee. 75% of the fee would go to Hollinger International Inc. and 25% would go to Hollinger Inc., Black's private holding company.

Case said he agreed to the non-competition clause because "We'd be silly not to take it." It did not affect the purchase price and offered added protection for Forum.

Are Personal Non-Compete Agreements and Fees Illegal?

It is not clear how the non-compete agreements cross the threshold of propriety and become a crime.

It could be reasoned that Black or any other senior executive can leave the employ of Hollinger International, and not be bound by a non-compete agreement made with Hollinger International. They could then start another newspaper company in competition with a newspaper sold by Hollinger International. Ostensibly, one scenario could be that they have valuable personal contacts, feel that starting a new more profitable company with state-of-the-art technology and a few key employees, might be a better option than tinkering with an old, perhaps outdated business.

It would stand to reason that a non-competition agreement including key individuals in addition the organization, would carry greater protection from competition for a purchaser. In this case, the individuals might well seek to be remunerated in exchange for their signature.