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Hollinger was systematically manipulated and used by its controlling shareholders for their sole benefit, and in a manner that violated every concept of fiduciary duty. On dozens of occasions, Hollinger was victimised by its controlling shareholders as they transferred to themselves and their affiliates more than $400m in the past seven years. The aggregate cash taken by Hollinger’s former CEO, Conrad Black, and former COO, David Radler, and their associates represented 95.2% of Hollinger’s entire adjusted net income during 1997-2003.

Behind a constant stream of bombast regarding their accomplishments as self-described “proprietors”, Black and Radler made it their business to line their pockets at the expense of Hollinger almost every day, in almost every way they could devise. The Special Committee knows of few parallels to Black and Radler’s brand of self-righteous, and aggressive looting of Hollinger.

The problems traced in this Report are not new. In 1982, the SEC sued Black for fraud in connection with transactions relating to the stock of The Hanna Mining Company.

The events include:

– Taking $9.5m of corporate cash in late 2000 without notice to Hollinger’s Board, which was accomplished with falsified closing documents used to provide a pretext for the transfer. (Mark) Kipnis, the internal lawyer, facilitated the unauthorised transfer of cash with falsified documents and was paid a $100,000 special bonus.

– Diverting to Black and Radler through Ravelston nearly $200m in excessive and unjustifiable management fees. The requests for such fees were accompanied by misrepresentations and failures to make full disclosure of relevant information to the Audit Committee.

– Causing Hollinger to pay more than $90m in supposed consideration for the execution of non-competition agreements by Black, Radler, Boultbee, … Ravelston and HLG in connection with sales of publications belonging to Hollinger. More than $47m of this amount went directly to Hollinger officers, who should not have required any individual compensation to adhere to agreements to which Hollinger was a party … These payments were unilaterally determined by Black and Radler, who in doing so were negotiating simultaneously for themselves and for Hollinger. Evidently sitting on both sides of the table made reaching an agreement on non-compete fees easier.

– Cutting the interest rate on a $36.8m loan Hollinger had made to HLG from 13% to 4.9% without authorisation.

An unusual corporate “expense” occurred in 2000, when Black and his wife “swapped” Park Avenue apartments with Hollinger. The Blacks’ apartment (purchased for $499,000 two years earlier) was “priced” in the swap by crediting it with 70% appreciation from its acquisition cost. Hollinger’s apartment (purchased for $3m six years earlier) that the Blacks were acquiring was “priced” in the swap by crediting it with zero appreciation. Both apartments were in the same building, though the apartment owned by Hollinger was greatly superior. The Blacks obtained Hollinger’s apartment for $2.5m below its value due to the rigged appreciation assumed in the deal. The apartment Hollinger took back in the rigged swap was then used to house personal domestic staff for the Blacks, personal friends visiting New York and, on occasion, visiting executives for corporate purposes.

The Audit Committee’s performance was ineffective and careless over a prolonged period. By almost any measure, their worst failing was not performing any appreciable analysis or review of whether more than $225m in management fees they approved for payment to Black were fair and reasonable charges to Hollinger. The Audit Committee also passively acceded to Black’s demands when supposedly reviewing $60m in non-compete fees.

The countervailing factor in this analysis is that the Audit Committee was repeatedly and deliberately misled by Black, Radler and others. On balance, the Audit Committee’s ineffectiveness is primarily a consequence of its inexplicable and nearly complete lack of initiative, diligence or independent thought.