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C.A. No. 543-N.

        A. Gilchrist Sparks, III, Esquire, Kenneth J. Nachbar, Esquire, R. Judson Scaggs, Jr., Esquire, Megan Ward Cascio, Esquire, Andrew H. Lippstone, Esquire, MORRIS, NICHOLS, ARSHT & TUNNELL, Wilmington, Delaware; Nathan P. Eimer, Esquire, David M. Stahl, Esquire, Andrew G. Klevorn, Esquire, Vanessa G. Jacobsen, Esquire, EIMER, STAHL, KLEVORN AND SOLBERG, LLP, Chicago, Illinois; Attorneys for Plaintiffs.

        David C. McBride, Esquire, Bruce L. Silverstein, Esquire, Rolin P. Bissell, Esquire, Christian Douglas Wright, Esquire, Glenn C. Mandalas, Esquire, Karen E. Keller, Esquire, YOUNG CONAWAY STARGATT & TAYLOR, LLP, Wilmington, Delaware; Martin Flumenbaum, Esquire, Daniel J. Kramer, Esquire, Robert A. Atkins, Esquire, Robert N. Kravitz, Esquire, PAUL, WEISS, RIFKIND, WHARTON & GARRISON, LLP, New York, New York; Attorneys for Defendant.

        STRINE, Vice Chancellor.

        If the questions resolved in this lengthy opinion could be distilled to three, they would be as follows:

        1. Has the judiciary transmogrified the words "substantially all" in § 271 of the Delaware General Corporation Law into the words "approximately half"?

        2. Does a controlling stockholder whose own involvement in misconduct has resulted in legal inhibitions on its exercise of control nonetheless have a non-statutory, "natural right" in equity to veto the good faith business decisions of the independent board it has elected?

        3. Should the room for risk taking afforded to disinterested directors by Delaware's adoption of a gross negligence standard for duty of care claims be severely constricted through a finding that directors likely breached their duty of care by deciding to sell an asset after a serious exploration of other strategic alternatives, after a full and fair auction, and after receiving advice that the price they were receiving exceeded the present value of the future cash flows that the asset was likely to generate?

        This opinion answers each question in the same way: no.

        Hollinger Inc.¹ (or "Inc.") seeks a preliminary injunction preventing Hollinger International, Inc. (or "International") from selling the Telegraph Group Ltd. (England) to Press Holdings International, an entity controlled by Frederick and David Barclay (hereinafter, the "Barclays"). The Telegraph Group is an indirect, wholly owned subsidiary of International and publishes the Telegraph newspaper and the Spectator magazine. The Telegraph newspaper is a leading one in the United Kingdom, both in terms of its circulation and its journalistic reputation.

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        The key question addressed in this decision is whether Inc. and the other International stockholders must be provided with the opportunity to vote on the sale of the Telegraph Group because that sale involves "substantially all" the assets of International within the meaning of 8 Del. C. § 271. The sale of the Telegraph followed a lengthy auction process whereby International and all of Hollinger's operating assets were widely shopped to potential bidders. As a practical matter, Inc.'s vote would be the only one that matters because although it now owns only 18% of International's total equity, it, through high-vote Class B shares, controls 68% of the voting power.

        Inc. argues that a preliminary injunction should issue because it is clear that the sale of the Telegraph satisfies the quantitative and qualitative test used to determine whether an asset sale involves substantially all of a corporation's assets. The Telegraph Group is one of the most profitable parts of International and is its most prestigious asset. After its sale, International will be transformed from a respected international publishing company controlling one of the world's major newspapers to a primarily American publishing company whose most valuable remaining asset, the Chicago Sun-Times, is the second leading newspaper in the Second City.

        As a secondary argument, Inc. argues that a preliminary injunction ought to issue against the Telegraph sale even if § 271 does not require a vote. Because Inc.-affiliated directors have been excluded from the International board committee that approved the Telegraph sale, Inc. claims that its rights as a controlling stockholder have been inequitably denuded. Facing potential consequences if it replaces the International board

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majority, Inc. argues that it is unfair that it should be reduced to the same position as the International public stockholders, who must rely upon the business judgment of the International board in increasing stockholder welfare. Instead, this court, Inc. contends, must step in and ensure that the special equitable rights of controlling stockholders are vindicated by requiring International to obtain stockholder approval even if the DGCL does not require it.

        Inc. argues that an equitable right to vote should be recognized here because the International board majority is rushing to sell the Telegraph Group during an unusual period in which Inc. is inhibited from wielding the full power that usually comes with controlling 68% of the vote. Rather than pursue more sensible options that might involve a stockholder vote, such as the sale of the whole company, or simply managing the company's current assets more effectively, the incumbent board has supposedly put its desire to effect a major business decision while Inc. has diminished power ahead of its duty to the stockholders. In so doing, the International board Inc. argues was grossly negligent and failed to rationally consider its options, including whether the upside of retaining the Telegraph was more beneficial than reaping the monetary benefits of its expected cash flow now by taking the auction price.

        In response to these arguments, International makes several points.

        Initially, it contends that the sale of the Telegraph Group does not trigger § 271. However prestigious the Telegraph Group, International says its sale does not involve, either quantitatively or qualitatively, the sale of substantially all International's assets.

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Whether or not the Chicago Sun-Times is as prestigious as the Daily Telegraph, it remains a profitable newspaper in a major city. Along with a group of profitable Chicago-area community newspapers, the Chicago Sun-Times has made the "Chicago Group" International's most profitable operating segment in the last two years and its contribution to International's profits has been comparable to that of the Telegraph Group for many years. Moreover, International retains a number of smaller newspapers in Canada and the prestigious Jerusalem Post. After the sale of the Telegraph Group, International therefore will quantitatively retain a sizable percentage of its existing assets and will qualitatively remain in the same business line. Although the Telegraph sale is admittedly a major transaction, International stresses that § 271 does not apply to every major transaction; it only applies to transactions that strike at the heart of a corporation's existence, which this transaction does not. Only by ignoring the statute's language, International argues, can this court determine that International will have sold substantially all its assets by divesting itself of the Telegraph Group.

        As an alternative argument, International contends that § 271 is inapplicable for another reason. International argues that none of its assets are being sold at all, because the Telegraph Group is held through a chain of wholly owned subsidiaries and it is only the last link in that chain which is actually being sold to the Barclays.

        Finally, International contends that Inc. has no equitable right as a controlling stockholder to vote on the Telegraph sale if § 271's vote requirement is found not to apply. It points out that Inc. is a corporation that is in turn controlled by Conrad Black,

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who has been found to have breached important obligations he owed to International in connection with the very strategic process that gave rise to the Telegraph sale. As a consequence of Black's behavior (which involved conduct Black undertook at a time when for all intents and purposes he personally dominated Inc.), and its own complicity in that behavior, Inc. was subjected to an injunction of this court, and to restrictions by a federal court. In view of Black's behavior in concert with Inc., those International directors who were affiliated with Inc. were largely excluded from the International strategic process, which was directed by the other directors on the International board through the Corporate Review Committee or "CRC". And by virtue of the federal court order, Inc. faced certain consequences if it replaced International board members and has chosen not to seek to elect a new board majority. Because any inhibitions or restrictions Inc. confronted in involving itself in the International board's deliberations or in replacing the board derive from its own involvement in improper conduct directed towards International, International contends that there is no basis in equity for Inc. to claim special treatment for itself, above and beyond what the Delaware General Corporation Law ("DGCL") requires. Having had the only real voice in selecting the current International board, Inc. faces no inequity if it, like other stockholders, must live with the consequences of good-faith business decisions that those directors make.

        Furthermore, International argues that Inc.'s due care claim lacks any force. The decision to sell the Telegraph followed an exhaustive and careful consideration of strategic alternatives, including a sale of the whole company. Before voting to sell, the

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International directors considered relevant risks and received considerable information about the value of the Telegraph Group. Only after considering this information did the CRC vote to accept the Barclays' bid, which exceeded the top range of the valuation analyses of the directors' financial advisors.

        In this opinion, I conclude that Inc.'s motion for a preliminary injunction motion should be denied as neither its § 271 nor its equitable claims have a reasonable probability of success.

        As to the § 271 claim, I choose not to decide whether International's technical statutory defense has merit. It is common for public companies to hold all of their operating assets through indirect, wholly owned subsidiaries. International wants me to hold that a parent company board may unilaterally direct and control a process by which its indirect, wholly owned subsidiary sells assets that would, if held directly by the parent, possibly comprise substantially all of the parent's assets and by which the sale proceeds under a contract that the parent corporation itself negotiates, signs, and fully guarantees. In that circumstance, International says that § 271 would have no application unless the selling subsidiary has no corporate dignity under the strict test for veil piercing. A ruling of that kind would, as a practical matter, render § 271 an illusory check on unilateral board power at most public companies. And while that ruling would involve a rational reading of § 271, it would not represent the only possible interpretation of that statute. Because this motion can be resolved on substantive economic grounds and because the policy implications of ruling on International's technical defense are

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important, prudence counsels in favor of deferring a necessarily hasty decision on the interesting question presented.

        Instead, I address the economic merits of Inc.'s § 271 claim and treat the Telegraph Group as if it were directly owned by International. An application of the governing test, which was originally articulated in Gimbel v. Signal Cos.,² to the facts demonstrates that the Telegraph Group does not come close to comprising "substantially all" of International's assets. Although the Telegraph Group is a very important asset of International's and is likely its most valuable asset, International possesses several other important assets. Prominent among these is its so-called Chicago Group, a valuable collection of publications that, by any objective standard approaches the Telegraph Group in economic importance to International. In fact, earlier this year, Inc. based its decision to try to sell itself to the Barclays on advice that the Chicago Group was worth more than the Telegraph Group. And the record is replete with evidence indicating that the Chicago Group's recent performance in outperforming the profitability of the Telegraph Group was not anomalous and that many reasoned observers including Inc.'s controlling stockholder, Conrad Black believe that the Chicago Group will continue to generate EBITDA at levels akin to those of the Telegraph Group.

        Put simply, after the Telegraph Group is sold, International will retain considerable assets that are capable of generating substantial free cash flow. Section 271

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does not require a vote when a major asset or trophy is sold; it requires a vote only when the assets to be sold, when considered quantitatively and qualitatively, amount to "substantially all" of the corporation's assets.

        Inc.'s inability to meet this economically focused test has led it to place great weight on the greater journalistic reputation of the Telegraph newspaper when compared to the Sun-Times and the social importance of that newspaper in British life. The problem with this argument is that § 271 is designed as a protection for rational owners of capital and its proper interpretation requires this court to focus on the economic importance of assets and not their aesthetic worth. The economic value of the Telegraph's prestige was reflected in the sales process for the Telegraph Group and in the cash flows projected for that Group. The Barclays' bid includes the economic value that bidders place on the Telegraph's social cachet and does not approach a price that puts the Telegraph Group close to being substantially all of International's assets. Nor does the sale of the Telegraph Group break any solemn promise to International stockholders. During its history, International has continually bought and sold publishing assets, and no rational investor would view the Telegraph Group as immune from the company's ongoing M & A activity.

        After rejecting Inc.'s § 271 claim, I address its so-called equitable claim for a vote. Originally, this claim was premised largely on the unfairness to Inc. of its affiliates' exclusion from the CRC. That argument, however, obviously lacks logical or equitable force. Whatever inhibitions Inc. suffers as a controlling stockholder are self-inflicted and

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provide no basis for it to interfere with the managerial discretion invested in International's board by the DGCL.

        Likewise, the record does not bear out Inc.'s alternative argument that equity demands an injunction because the International board was grossly negligent in its decisionmaking process. Contrary to Inc.'s protestations that the CRC rushed its process and ruled out reasonable opportunities to sell the company or do nothing, the record reveals that the CRC and its bankers performed an aggressive market canvass that was rationally designed to elicit favorable bids for the entire company and for its various components. Only after that real-world market check showed that selling the whole company or other parts was not an optimal strategy did the CRC focus exclusively on a sale of the Telegraph. At that point, the CRC held a final round of bidding and received what it believed was a very favorable price of $1.2 billion. That price will enable the company to pay down considerable debt and to deliver, through a dividend or share repurchase program, an immediate return to International's stockholders. Before voting to approve the sale, the CRC possessed a great deal of evidence about the relative utility of selling the Telegraph Group versus retaining it. That evidence included the results of an open auction as well as a detailed presentation that showed that the sale price exceeded the top range of the valuation analyses including a discounted cash flow analysis by the CRC's investment banker. After discovery, moreover, it was revealed that a strategy economically similar to that which the CRC has chosen is one that Inc.'s

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controlling stockholder, Conrad Black, believes could generate a "startlingly high return" because of the future profits of the Chicago Group.³

        Stated bluntly, if Smith v. Van Gorkom⁴ was a surprise in 1984, a ruling twenty years later that the International independent directors acted with grossly deficient care by approving a post-auction sale of the Telegraph Group after receiving reasoned advice that the sale price exceeded the value that would be generated by the Group's expected cash flows would be stunning and path-breaking and not in a positive, responsible way. The CRC made a classic business judgment in deciding to sell an important asset to a third party in an arms'-length transaction at the end of an exhaustive examination of strategic alternatives. No gross deviation from expected standards of director conduct is involved here.

        Because Inc.'s merits-based arguments lack force, its request for a preliminary injunction is denied.

        Because of the subject matter of this motion, it is important to understand what kind of company Hollinger International was, what kind of company it now is, and what kind of company it will become if the Telegraph sale is consummated. I will therefore endeavor to set forth the factual conclusions about these issues that I draw from the preliminary injunction record without burdening the reader with exhausting detail.

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        I will begin with International's origins and its corporate structure and move forward chronologically to the present. Because Inc. has also brought fiduciary duty claims based in equity, I must also discuss the events leading to the International board's decision to sell the Telegraph Group, and the facts bearing on the equitable considerations that Inc. contends are at stake.

        International cannot be understood without appreciating its relationship with Conrad Black. Black is an accomplished man who, through various entities, came to control a large number of newspaper publications. Over time, he chose to control the holdings he had assembled through the plaintiff in this matter, Hollinger Inc., a publicly traded Canadian company.

        Black controlled Inc. through another private company, of which he was the controlling stockholder, The Ravelston Corporation Limited. Ravelston controlled a majority of Inc.'s voting power.

        In 1994, Inc. decided to bring American Publishing Company, one of its subsidiaries, public. When American Publishing's initial public offering was made, it owned assets including the Chicago Sun-Times, a group of newspapers in the Chicago area, and The Jerusalem Post. It did not own the Telegraph then.

        A year later, American Publishing changed its name to Hollinger International, Inc. ("International"). Inc. then transferred its interests in certain other publications to International. These included the Daily Telegraph and related papers in London; a group

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of prominent Canadian newspapers including The Ottawa Citizen, the Calgary Herald, The Vancouver Sun, The Edmonton Journal, and The Gazette (of Montreal); and various Australian publications, including the The Sydney Morning Herald, The Age (of Melbourne), and The Australia Financial Review.

        The addition of these newspapers to International did not represent a fundamental and lasting commitment to a static and synergistically integrated array of publications. Rather, it merely represented a temporary grouping of publishing assets that would be, as we will now see, subject to a great deal of change over time, as part of the ongoing operations of International. Put simply, International regularly acquired and disposed of sizable publishing assets.

        During the years 1995 to 2000, for example, International engaged in the following large transactions:

         The 1996 and 1997 sales of the company's Australian newspapers for more than $400 million.

         The 1998 acquisition of the Post-Tribune in Gary, Indiana and the sale of approximately 80 community newspapers, for gross cash proceeds of approximately $310 million.

         The 1998 acquisitions of The Financial Post (now The National Post), the Victoria Times Colonist, and other Canadian newspapers for a total cost of more than $208 million.

         The 1999 sale of 78 community newspapers in the United States, for more than $500 million.

         The 2000 sale of other United States community newspapers for $215 million.

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         The 2000 acquisition of newspapers in and around Chicago, for more than $230 million.

         The 2000 sale of the bulk of the company's Canadian newspaper holdings to CanWest for over $2 billion.⁵

        The last of the cited transactions is particularly notable for present purposes. As of the year 2000, the so-called "Canadian Newspaper Group" most of its metropolitan and community newspapers were in Canada accounted for over 50% of International's revenues and EBITDA.⁶ The EBITDA measure is significant because it is a measure of free cash flow that is commonly used by investors in valuing newspaper companies.

        Notably, International sold the bulk of the Canadian Newspaper Group to CanWest for $2 billion without a stockholder vote (the "CanWest sale"). And Inc. then controlled by the same person who controls it now never demanded one.

        The CanWest sale had an effect that is still lingering. International remains subject to a potential tax liability of $376 million in connection with the sale. Although the record provides no basis to make a probabilistic assessment of the extent of liability International will eventually face in connection with that sale, the liability of $376 million is carried on the company's books and is a genuine economic risk.

        The CanWest sale left International with the set of operating assets it now controls. These operating assets fall into four basic groups, which I label in a readerfriendly

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manner as: the Canada Group; the Chicago Group, the Jerusalem Group, and the Telegraph Group. A brief description of each is in order, beginning with the Group that contributed the least to International's 2003 revenues and working towards the Group that contributed the most. The Groups operate with great autonomy and there appear to be negligible, if any, synergies generated by their operation under common ownership.

        The Jerusalem Group owns four newspapers that are all editions of the Jerusalem Post, which is the most widely read English-language newspaper published in the Middle East and is considered a high-quality, internationally well-regarded source of news about Israel. The Jerusalem Group also owns the Jerusalem Report, a magazine, and Internet assets associated with its newspapers and magazine.

        The Jerusalem Group makes only a very small contribution to International's revenues. In 2003, it had revenues of approximately $10.4 million, a figure amounting to only around 1% of International's total revenues, and its EBITDA was nearly $3 million in the red. This poor performance is attributed by management to economic conditions in Israel, a decrease in that nation's English-speaking population, and the loss of a contract to print Israel's national phone directory. Management has reduced costs in order to address these factors and hopes that the Group will soon return to profitability. Even if that happens, the Group will obviously not be a major driver of International's future profitability.

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        The Canada Group is the last of the Canadian publishing assets of International. It operates through three main businesses: 1) HP Newspapers, which publishes 29 daily and community newspapers in British Columbia and Quebec; 2) Business Information Group, which publishes dozens of trade magazines, directories and websites in 17 different markets, addressed to various industries (such as the insurance and automotive industries) and professions (such as dentists); and 3) Great West Newspaper Group Ltd., a publisher of 17 community newspapers and shopping guides in Alberta, which is 70% owned by International and its subsidiaries.

        The Canada Group is expected to generate over $80 million in revenues⁷ this year, a figure similar to last year. But certain retiree benefit issues impair its profitability, and its EBITDA is expected to be slightly negative.

        The Chicago Group is one of the two major operating asset groups that International controls. The Chicago Group owns more than 100 newspapers in the greater Chicago metropolitan area. Its most prominent newspaper is the Chicago Sun-Times, a daily tabloid newspaper that might be thought of as the "Second Newspaper In

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the Second City." That moniker would not be a slight, however, when viewed from a national or even international perspective.

        Even though it ranks behind the Chicago Tribune in terms of overall circulation and readership, the Sun-Times has traditionally been and remains one of the top ten newspapers in the United States in terms of circulation and readership. Even though it is a tabloid, the Sun-Times is not an undistinguished paper. Its sports coverage is considered to be excellent, its film critic Roger Ebert is nationally prominent, and its pages include the work of many well-regarded journalists.

        That said, the Sun-Times is not the New York Times and it fills a niche within the Chicago area similar to the niche filled by tabloids in other areas. Tabloids are useful for commuters, sports fans, and for readers who are interested in a quicker portrayal of news than broadsheets, as well as for folks who care about what's going on in City Hall. For these reasons, the Sun-Times actually has a greater weekday readership within the City of Chicago itself than the Tribune.

        By contrast, its tabloid format and focus leaves the Sun-Times more vulnerable in the greater Chicago area, whose affluent suburbs are filled with readers who lean heavily towards the Tribune and its broadsheet format. And on Sunday, a day of the week that is important to the profitability of American newspapers, the Sun-Times runs behind the Tribune even within Chicago.

        Regardless of whether it lags the Tribune, the Sun-Times has generated very healthy EBITDA for International on a consistent basis during the recent past, producing

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$40 million in EBITDA in 2003, out of a total of nearly $80 million for the entire Chicago Group.

        As will be explained in more detail later, the Sun-Times recently suffered an embarrassment that could impair its profitability in the short term. In April 2004, the Sun-Times' publisher (who had just assumed his duties in late autumn 2003) discovered that the Sun-Times had been inflating its circulation numbers through various practices. This discovery, which was promptly investigated and publicly disclosed in June 2004, had a negative effect on International's stock price and credibility. It also came on the heels of an initiative to raise the newsstand price of the Sun-Times, a measure that was expected to reduce circulation for some period. Although the best evidence in the record suggests that the Sun-Times will weather the storm and not lose its readership's loyalty, this development might stall immediate profit growth as advertisers use it as leverage to resist price increases and as the Sun-Times incurs costs to address class action litigation commenced on behalf of certain advertisers as a result of the disclosure.

        The Sun-Times is only one aspect of the Chicago Group, however. The Chicago Group also owns a valuable group of community newspapers that are published in the greater Chicago metropolitan area. These newspapers include seven daily newspapers, seventy-five weekly newspapers, a magazine, and a variety of shopping guides. Collectively, these publications have a paid daily circulation of over 200,000 copies and even more on Sundays. The geographic coherence of these newspapers is a marketing advantage as advertisers can purchase packages that cover multiple papers in their target

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markets and get a better rate than dealing with individually owned papers in those markets.

        These community papers have important economic value to the Chicago Group and to International. Their revenues and EBITDA, taken together, are roughly equal to that of the Sun-Times:

        In recent years, the Chicago Group as a whole has run neck-and-neck with the Telegraph Group in terms of generating EBITDA for International. In 2003, it won the race and its over $79 million in EBITDA was the largest contribution to EBITDA of any of International's four operating groups.

        The Telegraph Group includes the Internet site and various newspapers associated with the Daily Telegraph, including the Sunday Telegraph, as well as the magazines The

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Spectator and Apollo. The Spectator is the oldest continually published English-language magazine in the world and has an impressive reputation as a journal of opinion for the British intelligentsia, but it is not an economically significant asset. Rather, the Telegraph newspaper is the flagship of the Telegraph Group economically.

        The Telegraph is a London-based newspaper but it is international in importance and readership, with a reputation of the kind that U.S. papers like the New York Times, the Washington Post, and the Wall Street Journal enjoy. It is a high-quality, broadsheet newspaper that is noted for its journalistic excellence, with a conservative, establishment-oriented bent. Its daily circulation of over 900,000 is the largest among English broadsheets but it trails the London Sunday Times in Sunday circulation by a sizable margin. Several London tabloids also outsell the Telegraph by very large margins. London may be the most competitive newspaper market in the world and that market continues to involve a vigorous struggle for market share that has existed since the early 1990s, when the Times' owner, Rupert Murdoch, initiated a price war.

        The Telegraph's readers are older than the U.K. average but also much more affluent. To capitalize on its reputation and the wealth of its readers, the Telegraph Group has initiated businesses that market goods and services to readers. But it also faces the threat that it could lose readership as younger readers have tended to favor tabloids.

        The Telegraph also faces a business difficulty related to its printing facilities, which are half-owned by Richard Desmond, who owns the Daily Express, another

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newspaper. The Telegraph had delayed making a needed investment in a printing facility that will meet its long-term needs and have upgraded color capacity. The cost of that investment is estimated to be over $185 million.

        On balance, however, there is no question that the Telegraph Group is a profitable and valuable one. In the year 2003, it had over a half billion dollars in revenues and produced over $57 million in EBITDA.

        International also has approximately $400 million of other assets, including cash, a real estate venture with Donald Trump in Chicago, the private papers of Franklin Delano Roosevelt,¹⁰ investments in securities, venture investments, intangibles and receivables from shareholder affiliates. These assets more or less offset International's liabilities, other than the potential CanWest tax liability. This also does not include the potential value of International's claims against Black and others, described below.

        As of the middle of last year, International was firmly under the central control of Conrad Black who, in turn, dealt with the company's four operating groups, which functioned autonomously of each other. Black was the Chairman and CEO of International and possessed ultimate voting control over the company. The manner in

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which he did so is notable because there was a stark disparity between the extent of Black's voting control and his actual equity ownership in International. Through his majority ownership of Ravelston, Black controlled a majority of the voting power of Inc., which in turn controlled a majority of the voting power of International. The voting control that Black wielded, however, consisted largely of high-vote stock. Thus, as of late 2003, Inc. owned only a bit over 30% of International's total equity while wielding nearly 73% of the votes. Because Ravelston owned 78% of Inc.'s common shares and Black owned 65% of Ravelston, Black's personal economic stake as an equity owner (on an imputed basis) in International comprised less than 16% of the company's equity. As a result, Black arguably stood to gain more on a yearly basis from his managerial perquisites at International (i.e., from the control rights his ownership afforded him) than he did from increasing the value of International's profits and share price.

        In this regard, Black's private holding company, Ravelston, was paid substantial sums by International (as well as several of its subsidiaries) to provide it with headquarter-level services. The human beings who actually provided these services for International and its subsidiaries were directly employed by Ravelston and also provided services to Inc.

        Black personally spent more time focused on the Telegraph Group, the group that comprised the publications with the most prestige and social cachet, than he did on the other groups at International. His long-time subordinate, David Radler, who was

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International's Deputy Chairman and Chief Operating Officer, served as publisher of the Sun-Times and led the Chicago Group, subject to Black's managerial supervision.

        Consistent with the editorial philosophy he brought to International's various publications, Black filled the International board with a number of distinguished conservatives who had impressive careers serving in government in the United States and Canada. Black hand picked these outside directors, several of whom were his personal friends. They comprised the International board along with an equal number of inside directors who held management and ownership positions at Ravelston.

        Despite their distinguished careers, the outside directors of International were not, to put it in an understated way, universally perceived as effective monitors of Black. This perception triggered the course of events that resulted in this (and other) cases. I now describe this course of events.

        In May 2003, one of International's largest stockholders, Tweedy Brown Company, LLC, demanded that the board investigate over $70 million in so-called "non-competition payments" (the "Non-Compete Payments") to Black and certain of his managerial subordinates. The Non-Compete Payments had allegedly been made in connection with sales by International of certain assets. Tweedy Browne later expanded its demand to include certain management contracts between International and Ravelston and other instances of alleged self-dealing.

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        As a result of the Tweedy Browne demand letter, International's board decided to form a "Special Committee." That was because Tweedy Browne's letter focused not only on the recipients of the Non-Compete Payments and other benefits, but also on the conduct of the existing outside directors who had permitted their receipt. Therefore, a new outside director, Gordon Paris, an experienced and successful investment banker, was initially made a one-person committee, and soon after was joined by two more new outside directors, Raymond Seitz, a distinguished former diplomat who had recently served as Vice Chairman for Lehman Brothers in Europe, and Graham Savage, a prominent Canadian business executive. The special committee soon engaged Richard Breeden and the law firm of O'Melveny & Meyers to assist it in its work.

        By October 2003, the Special Committee concluded that over $30 million in Non-Compete Payments had been made without proper authorization. Of that amount, nearly $16.5 million went to Inc. and $7.2 million went to Black personally. Radler received an amount identical to that which Black received.

        As troubling to the Special Committee, it believed that International's public disclosures contained false and misleading statements regarding the Non-Compete Payments.

        After these conclusions were reached, the Special Committee negotiated with Black over how to address these findings. These negotiations coincided with consideration by Black of having International embark on a "Strategic Process" involving the possible sale of the company or some of its key assets. To that end, Black had been

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discussing with Lazard, Freres & Co. the idea of retaining it as International's financial advisors in the process. In connection with negotiations with the Special Committee, Black pledged that the Strategic Process would endeavor to find a transaction that would be for the "equal and ratable" benefit of all of International's shareholders and that he would not favor Inc. over the public stockholders of International.

        After negotiation, International reached accord with Black on a contractual resolution, which took the form of a publicly announced "Restructuring Proposal." That proposal had certain key elements that are pertinent for present purposes. These included:

         A requirement that Black and the other managers repay the Non-Compete Payments they had received by June 1, 2004, with 10% due by December 31, 2003;

         A requirement that Inc. repay the $16.5 million in Non-Compete Payments it had received by June 1, 2004, which was backed up by assurances by Black that Inc. would pay because he would and could ensure that it did;

         A statement that the Non-Compete Payments had not been properly authorized and a commitment to correct the company's public filings;

         Termination of International's management agreement with Ravelston on June 1, 2004;

         The negotiation of a lower interim management fee with Ravelston for the first half of 2004;

         The resignation of Black as International's CEO and his replacement by Paris as interim CEO, and the reconstitution of the company's Executive Committee, with Seitz becoming the Chairman and Black remaining a member along with Paris; and

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         Radler's resignation from all his offices, including as a director of International;

         The resignation of certain of Black's management subordinates from all their offices, which also resulted in the departure of another Inc.-affiliated International inside director;

         The continuation of the Special Committee's work in investigating self-dealing at the company.

        For purposes of this opinion, the most notable aspects of the Restructuring Proposal dealt with the contemplated Strategic Process to be conducted by the International board, which, by virtue of the required removal of two inside directors and the recent addition of new outside directors, now had a clear outside majority. In connection with the Strategic Process, the Restructuring Proposal stated:

        6. The full Board of Directors will engage Lazard as financial advisor to pursue a range of alternative strategic transactions ("Strategic Process"). The Chairman of the Company will devote his principal time and energy to pursuing the Strategic Process with the advice and consent of the Executive Committee and overall control by the Board. Lazard will be directed to give regular reports of progress and developments in the Strategic Process to Lord Black and Gordon Paris; in addition, Lazard will be directed to give periodic reports to the Company's Executive Committee or upon request of the Executive Committee.

        7. During the pendency of the Strategic Process, in his capacity as the majority stockholder of HLG [i.e., Inc.], Lord Black will not support a transaction involving ownership interests in HLG if such transaction would negatively affect the Company's ability to consummate a transaction resulting from the Strategic Process unless the HLG transaction is necessary to enable HLG to avoid a material default or insolvency. In any such event, Lord Black shall give the Company as much advance notice as reasonably possible of any such proposed HLG transaction.¹²

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        International announced the Restructuring Proposal in a press release that Black helped craft. It stated in part that:

        Hollinger International Inc. ("Hollinger") . . . today announced that its board of directors has retained Lazard LLC ("Lazard") to review and evaluate its strategic alternatives, including a possible sale of the company, a sale of one or more of its major properties or other possible transactions (the "Strategic Process").

        In addition to commencing the Strategic Process, Hollinger also announced a series of management changes. Lord Conrad M. Black of Crossharbour ("Lord Black") has advised the board that, in light of the Strategic Process, he will retire as Chief Executive Officer effective November 21, 2003, and that he will devote his time and attention primarily to pursuing the Strategic Process. Lord Black will remain as non-executive Chairman of Hollinger, and he will continue unchanged his role as Chairman of The Telegraph Group, Ltd. (the "Telegraph"), a wholly-owned subsidiary of Hollinger.

        Lord Black said: "Now is the appropriate time to explore strategic opportunities to maximize value for all shareholders of Hollinger International. We are delighted that Bruce Wasserstein and his team at Lazard will be working with us to ensure the market is well aware of the substantial value of the Company's assets. Reflecting my full support of this process, I will be devoting my attention in coming months to achieving a successful outcome for all Hollinger shareholders. The present structure of the group clearly must be renovated. As the Strategic Process proceeds we will continue to cooperate entirely with the Special Committee to resolve corporate governance concerns."

        . . . .

        Lord Black has also agreed that during the pendency of the Strategic Process, in his capacity as the majority shareholder of HLG, he will not support a transaction involving ownership interests in HLG if such transaction would negatively affect Hollinger's ability to consummate a transaction resulting from the Strategic Process unless any such transaction involving HLG meets certain limited conditions, and after reasonable prior notice to Hollinger.¹³

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        The wording of the Restructuring Proposal and the press release was also designed, as Black desired, to encourage market observers and regulators to believe that International was taking care of its own problems and moving forward in a responsible manner that would benefit its public stockholders.

        Even before the Restructuring Proposal was inked, Black had begun to undermine the Strategic Process it contemplated and to ignore his fiduciary duties to International. Over the course of 2003, Black had received inquiries from the Barclays about whether the Telegraph Group was for sale. When bad press about International came out, they would contact Black and ask about the Telegraph. Black would tell them to go away and did not inform the International board of their interest.

        When the Restructuring Proposal was executed, Black did not perform the duties he had undertaken. Instead of assisting International which had retained Lazard, the bankers Black had suggested Black began trading for himself and Inc., which had some liquidity problems. To that end, Black diverted the Barclays from an interest in buying the Telegraph Group to a deal focused on buying Inc. itself. For the Barclays, the purchase of Inc. was as Black well knew merely a means to the end of controlling the Telegraph and he led them to believe he held the key to that asset. During his dealings with the Barclays, Black kept the rest of the International board in the dark, and made false protestations of loyalty to the Strategic Process.

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        In January 2004, International's board whiffed the strong smell of Black's betrayal and began to try to rein him back in. Their efforts failed and Black announced a deal whereby the Barclays would purchase Inc. Effectively, this stopped the nascent Strategic Process which had been proceeding at a responsible pace in its tracks. Had the Barclays' transaction with Black been consummated, the Barclays would have been recent buyers and therefore there would have been no reason for market players to perceive them as sellers, particularly of the Telegraph Group, the Barclays' ardent desire for which was widely known.

        In the same period, Black reneged on his contractual commitment to repay 10% of the Non-Compete Payments he received and made unsubstantiated statements indicating that he had evidence of proper approval of those payments.

        When all this came to a head, the International board majority scrambled to react. Paris asked Lazard to explore strategic options that International's board might take, including in particular a sale of the Telegraph Group. Meanwhile, Black was directing Inc.'s every activity and caused Inc. to file a bylaw amendment that essentially gave him unilateral veto power over any action of the International board. Ignoring that amendment, the International board took action of its own, to address Black's conduct all of which he had taken as both Inc.'s principal and agent. Indeed, by this time, Inc. was devoid of independent directors with any experience, as they had all resigned when Black refused their request that he give up his managerial posts in the wake of the Restructuring Proposal. Only in the middle of January 2004 did Inc. add replacement

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outside directors, Gordon Walker and Richard Rohmer, and (at least during this period) these directors did not take any action to impede Black from causing Inc. to do whatever he wished.

        To address Black's and Inc.'s actions, International's board adopted a shareholder rights plan and formed a Corporate Review Committee. The CRC was to exercise power over the Strategic Process and the Special Committee process and was comprised of all the members of the board, save the inside directors affiliated with Inc., who included Black and his wife, Barbara Amiel Black.

        During this same period, International also acceded to the Securities and Exchange Commission's demand that the company assent to the entry of a "federal Consent Order" in federal district court in Illinois or face suit by it. The federal Consent Order put in place a mechanism whereby a special monitor who was to be the Special Committee's advisor, Richard Breeden would be appointed if International's outside directors were replaced without the support of 80% of the incumbent board. The Special Monitor would have the power to prosecute actions on International's behalf and to, in essence, complete the work of the Special Committee if a change in board composition prevented the Committee from doing that. Upon appointment, the Special Monitor would be empowered to protect International's non-controlling stockholders but only to the extent permitted by law, which suggests that the Special Monitor could seek judicial relief to stop action to their detriment. By its own terms, the federal Consent Order is time limited and is focused on the period necessary for the Special Committee to complete its work.

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        In the wake of these events, International brought suit in this court to enjoin the sale of Inc. to the Barclays and to invalidate the bylaw amendments by which Inc. proposed to paralyze the International board. Black and Inc. responded by, among other things, filing counterclaims seeking to invalidate the Restructuring Proposal, the CRC, and the shareholder rights plan. After expedited proceedings, this court held that Black (acting in concert with and on behalf of Inc.) had violated his fiduciary duties to International by misusing confidential information of International's for his and Inc.'s own purposes, diverting a corporate opportunity of International's (the possible sale of the Telegraph) to Inc., and other improper conduct (including misrepresentations by Black to the other International directors). The court also found that Black, operating as principal and agent of Inc., had violated the Restructuring Proposal. It also rejected Black and Inc.'s arguments that they were fraudulently induced into entering the Restructuring Proposal.¹⁴

        On the basis of these findings, the court enjoined the sale of Inc. to the Barclays, invalidated the bylaw amendments proposed by Inc. at Black's instance, and upheld the adoption of the shareholder rights plan by the International board. Moreover, a preliminary injunction was put in place that enjoined Black and Inc. from acting in concert to pursue or consummate any transaction in violation of 6 and 7 of the Restructuring Proposal, and that enjoined Black and any person or entity working in concert with him from committing further breaches of fiduciary duty or the Restructuring

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Proposal, including by taking action that would undermine the Strategic Process or by failing to inform International candidly and completely of all opportunities within the scope of the Strategic Process that came to their attention.

        By that time, the Special Committee had also brought an action against Black, Inc., and other of Black's compatriots and Inc. affiliates. Among the claims was that the defendants had engaged in massive self-dealing with International's assets. In total, the suit sought over $380 million in damages, an amount that the Special Committee sought to treble through use of the federal Racketeer Influenced and Corrupt Organizations ("RICO") statute. That suit remains pending in the U.S. District Court for the Northern District of Illinois. In that same court, a motion by Inc. to lift the federal Consent Order was denied by Judge Blanche Manning. Her written decision was issued in May 2004.¹⁵

        In the same period, this court entered a money damage judgment in favor of International against Black and Inc., totaling around $30 million collectively. The award was in the amount of the Non-Compete Payments that the Restructuring Proposal required them to pay back by June 1, 2004, but which they did not pay. Recently, they paid the judgment amount but filed an appeal. The amount Black and Inc. have paid is an additional asset of the company although that judgment, like any judgment from which an appeal is taken, is at risk of reversal.

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        Before litigation erupted, the Strategic Process had gotten underway. From the get-go, a variety of options were on the table. These ranged from a sale of International as a whole to a sale of one or more of the operating groups to a merger with Inc. and elimination of the dual-class voting structure to simply continuing to operate the company but trying to do so more profitably. Options such as the issuance of a special dividend or a share repurchase for the use of potential transactional proceeds were also identified.

        Early on, Lazard also began to focus on certain issues that would affect the practicability and financial advisability of various options. These issues included:

         The $376 million in potential tax liability in connection with the CanWest sale and ongoing, disputed tax audits for 1998 and 1999;

         The tax implications of separating International's American and U.K. assets;

         The tax implications of a sale of the Chicago Group;

         The timing and effect of the ongoing Special Committee investigation;

         The timing and effect of the SEC's investigation of International;

         The need for audited financial statements in order to sell the whole company, a need International was not as of then able to meet because of its corporate governance controversies;

         The possible need for stockholder approval of certain transactions; and

         The distributional issues that might arise between the high-vote (i.e., those held by Inc.) Class B shares and the low-vote (largely publicly held) Class A shares in a sales scenario.

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        During this early period, Lazard also advised that if the Strategic Process did not result in a significant transaction, there was the possibility that Inc. would take unilateral steps if necessary to protect itself against a default (a safety valve permitted Inc. under the Restructuring Proposal). Contrary to Inc.'s arguments, the awareness of this risk did not impel either Lazard or the International outside directors to take imprudent or hasty action. Rather, in December and early January, Lazard proceeded deliberatively to develop marketing materials, assess key risks, and to publicize the company's interest in receiving bids from potential bidders.

        When Inc. announced that it intended to sell itself to the Barclays on January 20, 2004, the International outside directors for understandable reasons asked Lazard to accelerate its work, for fear that the Strategic Process would be undermined before it had really begun in earnest. To prevent that, the board formed the CRC to lead the Strategic Process and direct Lazard's work. During this period, Paris encouraged Lazard to look hard at options that the International board might pursue unilaterally that would deliver value to the public stockholders. This included a possible sale of the Telegraph Group.

        Notably, that encouragement did not involve a direction by Paris or the CRC as a whole to focus exclusively on that option. To the contrary, the CRC also encouraged the Barclays to make a bid for the entirety of International. Although the Barclays at one point orally mentioned a potential willingness to pay $18 per share for all of

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International's public shares, they never made any concrete offer to that effect or a concrete offer of any kind despite knowing full well how to do so. When encouraged by Lazard to pair up with another investor who had expressed an interest in International's American assets, the Blackstone Group, and make a joint bid, the Barclays ultimately declined and Inc.'s continued argument that International's bankers rebuffed an offer from the Barclays during this period remains contrary to the evidence.¹⁶

        Moreover, as a practical matter, Inc. and Black had greatly curtailed International's ability to seek out other buyers for the whole company, as these buyers would rightly be discouraged from taking the time to consider a bid when it appeared possible that Inc. would be sold to the Barclays and when Inc. (International's controlling stockholder) was engaged in litigation combat with the independent board majority it had elected at International. For that reason, it made perfect sense for the CRC and Lazard to concentrate on generating interest by buyers who might wish to buy either the Telegraph Group or the Chicago Group, in a transaction that would not involve a stockholder vote.

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To that end, Lazard solicited non-binding indications of interest for the Chicago and Telegraph Groups. These were received in mid-February.

        Sixteen expressions of interest were received for the Chicago Group, with the top-end preliminary bid being in the range of $1 billion. Eleven preliminary bids were received for the Telegraph Group, with a top-end bid near $1.2 billion. The dollar value difference between the top-end bids for the two Groups was significant. Because the Chicago Group's assets had a low tax basis, a sale of that group would result in higher taxes (what Lazard calls "tax leakage") than a sale of the Telegraph Group. As a result, Lazard perceived the bids for the Chicago Group to be disappointing because they would not result in an attractive post-tax payoff for International and its stockholders. By contrast, Lazard was pleased with the Telegraph Group offers, which it believed were at an attractive level.

        On February 26, 2004, this court enjoined the proposed sale of Inc. to the Barclays and soon put in place other injunctive relief to protect the intended operation of the Strategic Process. As a result, a wider range of bidders were interested in International and its assets and the Strategic Process was essentially started anew. Lazard took advantage of this opening and had contact with many potential bidders, 116 of whom signed confidentiality agreements. Over 150 marketing books were sent to bidders.

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        By March 23, 2004, Lazard had received the first-round indications of interest. These included bidders interested in the entire company and those interested in particular of its operating groups:

         4 to 6 all-cash indications of interest were received for the entire company, ranging from $17.96 to $24.39 per share (not reflecting reductions for certain liabilities, including income taxes payable and IRS disputes);

         10 indications of interest were received for the Chicago Group with a high bid of $1.16 billion;

         9 indications of interest were received for the Telegraph Group with a high bid of $1.2 billion;

         22 indications of interest from 16 parties were received for the Canada Group with a high bid of $117 million;

         9 indications of interest were received for the Jerusalem Group with a high bid of $25 million.¹⁷

        On their face, these expressions of interest in the whole company were more encouraging than at second-blush. By this time, Lazard recognized that there were real barriers to a successful sale of the whole company. Prominent among these was the CanWest tax liability and the IRS audit disputes because any buyer of the entire company would assume these liabilities. Another substantial deterrent to bidders for the entire company was the controversy that was still ongoing related to the conduct of Black and his managerial subordinates. This controversy contributed to an inability to issue audited financial statements, a factor that would understandably deter certain bidders (particularly

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public companies). Any sale of the company would raise the question of what would happen with the Special Committee's pending litigation against Black and others, and what would happen to its still-ongoing investigation, and to other investigations that were ongoing or might be undertaken by regulatory authorities. Quite obviously, there was also the risk that these legal disputes with Black which also involved Inc. could lead him and Inc. to have economic interests that were not aligned with other International stockholders in voting on a sale of the company. That is, their interest might be influenced by their desire to extricate themselves from legal entanglements with the Special Committee and regulatory authorities or by their desire to reap a control premium for Inc. that would not be shared ratably with International's public stockholders. This reality was, of course, known to Lazard and the CRC, too. But unlike Inc., I find no persuasive evidence that this led the CRC and Lazard to abandon a vigorous pursuit of a buyer for the whole company.

        To the contrary, there is every indication that they ardently pursued bids for all of International. To that end, Lazard spent a good deal of time developing the concept of contingent value rights (or "CVRs") that would address legal and tax risks, and that could give bidders a way of managing risk while providing an upside for International stockholders.

        At its March 29, 2004 meeting, the CRC directed Lazard to invite 9 of the first round bidders to advance to a next stage. These bidders included parties interested in

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buying the whole company, as well as the four operating groups. Draft contracts were sent to bidders in early May and a bid deadline of May 20, 2004 was set. Bidders were asked to submit a final bid with a mark-up of the proposed contracts.

        When the second round of bids came in, none of the bidders for the entire company complied with the bidding instructions or made a firm bid. Instead, Lazard only received oral expressions of interest, the best of which offered $13 per share plus a $4 CVR the value of which would be dependent on the future outcome of tax and legal proceedings.

        By contrast, Lazard did receive firm bids for the Chicago and Telegraph Groups. As to the Chicago Group, Lazard received bids ranging from $900 to $950 million. As to the Telegraph Group, Lazard received bids ranging from $1.039 billion to $1.182 billion.

        After meetings to review the bids, the CRC determined to proceed with a final round of bidding focusing solely on the Telegraph Group. The CRC ruled out the option of selling the entire company for reasons that have been stated, as well as the facts that there was no attractive firm bid and no obvious way to deal with the impediments to receiving one. It was that reality, and not any desire to avoid a stockholder vote on a merger, that led the CRC to abandon the idea of selling the whole company. Although there were firm bids for the Chicago Group, the tax implications of the sale of that Group did not make that option attractive, as it would not generate post-tax proceeds that would

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permit the company to undertake a serious initiative to deliver immediate value to stockholders.

        The CRC also considered the option of retaining both the Chicago and Telegraph Groups and selling the smaller Canada and Jerusalem Groups plus some other company assets. Through this strategy, the company could reduce debt and focus on improving its operations. This option, however, had its own risks as there were impediments to realizing value from a sale of the Canada Group. Perhaps more important, the CRC was aware that the public stockholders of International expected that the Strategic Process would result in a major transaction and that an end to the Process without such a transaction could cause a significant drop in the company's share price.

        Inc. argues vociferously that the CRC rejected a "no sale" option because it was dead set on consummating some sort of transaction before the expiration of the Strategic Process and the injunction preventing Inc. and Black from improperly interfering with that Process. Again, I discern no evidence that the CRC harbored any illicit motive. Rather, it was rational for the CRC to give weight to the interest of International stockholders in a significant transaction that would deliver immediate value if International were to receive an attractive bid for one of its key assets. Furthermore, to the extent that the CRC factored in the desirability of undertaking a transaction that could deliver actual returns to the public stockholders on a pro rata basis with Inc., that consideration was not illegitimate given Inc.'s prior behavior (at the direction of Black)

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and the intended purpose of the Strategic Process as Black himself had articulated (to deliver "equal and ratable benefits" to all of International's stockholders).

        The exclusion of these options left the option that the CRC decided to pursue: a sale of the Telegraph Group. The tax leakage from such a sale was half as much as from a sale of the Chicago Group in percentage terms. Moreover, the CRC and Lazard believed that the bids were at a very favorable price relative to the intrinsic value of the Telegraph Group. After taxes, the proceeds from such a sale would enable International to retire significant debt and issue a sizable special dividend or to undertake a share repurchase program. Meanwhile, the company would retain the profitable Chicago Group and its other operating groups and would therefore continue to have significant operational assets. In considering this option, the CRC also took into account the substantial capital needs of the Telegraph Group (the need for a $185 million capital investment in a new printing facility) and the continuing, intense competition it faced in the British newspaper market.

        On May 27, 2004, International announced the decision of the CRC to focus on a sale of the Telegraph Group. On June 22, 2004, the final bids were received. One bidder, 3i, bid $1.195 billion. The other bidder, the Barclays, bid $1.213 billion. The CRC believed the Barclays to be the preferable buyer, not only because they bid more and offered better contractual terms, but because they were experienced in the newspaper

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industry and would be good stewards of the Telegraph and their ownership would meet with the approval of the Group's employees and management.

        Lazard advised the CRC that the price received was fair. It prepared a valuation analysis that, if given credence, showed that International would receive a price in excess of what was justified by a DCF valuation of the Telegraph Group. Notably, this DCF was premised in large measure on estimated 2008 EBITDA at the Telegraph Group of $125.8 million, and estimated 2009 EBITDA of $136.9 million.¹⁸ The reason for this premium, International argues, has to do with the nature of the Telegraph Group and the desire of the Barclays to possess that Group for reasons that are not simply economic, but that have to do with the stature that the Telegraph has in Great Britain. To prevail in the auction, moreover, the Barclays had to outbid several other credible bidders, several of whom dropped out at prices well below the ultimate winning bid price. The resulting $1.2 billion price involved a multiple of 13.6 times the Telegraph Group's estimated EBITDA for 2004. This was a much higher multiple than the trading multiple of the Telegraph Group's British competitors and was higher than the top end of Lazard's comparable transactions analysis. Notably, it was significantly higher than the multiple 10X that Inc.'s own COO and director, Peter White, testified was a reasonable one for a newspaper company.¹⁹ Actually, the price was just under 10X the Telegraph

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Group's projected 2008 cash flow even before any discount to present value.

        In their reply papers and at oral argument, Inc.'s so-called equitable argument had largely transformed into an argument that the International board committed gross negligence by agreeing to the sale of the Telegraph Group without seriously examining the upside prospects of retaining and operating that business. It based that assertion on snippets of deposition testimony that did not relate to a direct question about whether the CRC had considered whether the price the Barclays offered for the Telegraph Group was attractive in light of that Group's future prospects. While that testimony provided a basis for good lawyers to make arguments, it is overwhelmed by the evidence in the record that indicates that the CRC considered a great deal of information that focused directly on the question of whether the price that International was receiving for the Telegraph was attractive in light of its future prospects.

        Although Inc. slights Lazard's input on this point, the fairness opinion it gave was precisely targeted to that issue. Its financial analyses considered the present value of the expected cash flows of the company, based on the input of the Telegraph's management that prepared the projections that Lazard used. Nothing in the record persuades me that the management projections were not reasonable ones and they projected very healthy growth in EBITDA. In fact, that growth was comparable to that set forth in an e-mail upon which Inc. has placed great reliance. That e-mail, prepared by Andrew Neil, an advisor to the Barclays, indicated that the Telegraph Group's EBITDA could grow to $120 million in 2009 by deploying best practices that the Barclays had used elsewhere

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(the "Neil E-mail").²⁰ Of course, the Lazard DCF showed that the Barclays' bid was at 10X that EXPECTED BUT NOT GUARANTEED number, a healthy multiple even if it were applied to current cash flows. Indeed, the Lazard DCF used a higher EBITDA number in 2008 than the Neil E-mail suggested the Telegraph Group could earn in 2009. Furthermore, the CRC was also apprised of the risks (e.g., continued savage competition) and costs (e.g., the $185 million printing investment) associated with generating these future cash flows. It also was aware of the risk that a status quo posture might not result in the selection of the best managers to run the Telegraph Group but rather a possible return to the practices that existed when Inc.'s controlling stockholder, Conrad Black, dominated that Group. Nothing in the record suggests that Black's management style was designed to extract maximum value for International's stockholders from the Telegraph Group.²¹

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        For all these reasons, it is clear that the CRC considered a great deal of information that bore on the question of whether it was more attractive to monetize its investment in the Telegraph Group immediately or to retain the Telegraph Group. While rational persons can obviously disagree with the choice the CRC made, it cannot fairly be said that the CRC did not undertake a rational decision-making process or consider relevant information. Its views of the future prospects of the Telegraph Group were informed not only by a thorough and rational valuation analysis that was premised on management projections and market multiples whose integrity Inc. has not called into reasonable question but also by the results of a thorough auction process whereby the Group's upside potential was exposed to all possible buyers and a present value was established for the Telegraph Group's expected cash flows. It is, of course, true, as Inc. says, that the Barclays must view the upside of the Telegraph Group to them as being worth more than the $1.2 billion they are paying. But that is true of any sale. The value that the Barclays are paying may also reflect non-economic considerations as well as synergistic opportunities that exist for them but not for International. The bottom line, however, is that the CRC received valuation information that allowed it to compare the value of the Barclays' bid against the value of the cash flows expected from the Telegraph Group and to know that the bid it was analyzing resulted from an open auction process.

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        Finally, the CRC was also apprised of possible options for the use of the post-tax sale proceeds from the Telegraph Group. These included the possibility of issuing a large dividend (of nearly $10 per share) to International stockholder's coupled with an initiative to reduce some of the company's higher-cost debt. Alternatively, the CRC could consider a share repurchase program involving the repurchase of shares at an attractive price. In either event, the CRC could deliver current value to International stockholders while retaining for them the future benefits expected from profitably operating the Chicago Group and from maximizing the returns on the rest of the company's remaining assets. A Lazard analysis showed that such strategies could generate a total value materially in excess of the share price that existed before the initiation of the Strategic Process, which had had the effect of inflating the market price based on arbitrage related to the potential outcome of that Process.²²

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        On June 15, 2004, International announced that its audit committee was investigating practices at the Chicago Sun-Times that had the effect of overstating the paper's circulation. These practices had been put in place when David Radler was the paper's publisher and when he reported to Conrad Black. The precise nature of the practices is unimportant but they essentially involved "paying for circulation" by distributing a number of newspapers that the Sun-Times knew would not be sold.

        The practices were exposed by the new publisher of the Sun-Times, John Cruickshank, who had taken over from Radler after Radler departed his offices in accordance with the Restructuring Proposal. Cruickshank discovered these practices in the spring of 2004. The discovery was poorly timed as it coincided with a newsstand price increase for the Sun-Times, a measure that Cruickshank knew would have at least a short-term detrimental effect on circulation.

        The announcement of the circulation problems caused a sharp drop in International's share price. While much of this drop undoubtedly related to concerns about the profitability of the Sun-Times itself, it is fair to infer that there was a multiplier effect on this reaction due to the overall situation at International. With its dominating founder, Black, under a cloud; with an inability to file audited financial statements; with a parent company, Inc., that was unable to file its own financial statements, that had worked with Black to violate fiduciary and contractual duties to International, and whose

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directors were under trading bans in their own country; and with ongoing Special Committee and governmental investigations, any announcement by International that suggested that relevant economic information about the company's operations could not be trusted was likely to cause a profound reaction among investors.

        As a consequence of the discontinuation of the improper circulation practices and of the price increase, the Sun-Times has suffered a 23% decline in circulation and it now faces class action suits from plaintiffs purporting to represent advertisers. The ultimate consequences of the end of these improper practices is unclear. As International notes, there will be cost savings as it will no longer spend money to generate phony circulation, a practice that was actually quite costly. International also notes that the Sun-Times' readership figures (based on the newspaper equivalent of Nielsen ratings or Gallup polls) are unaffected by this problem and argues that for advertisers in tabloids, it is readership and not circulation that matters. But the reality, of course, is that this embarrassment is, at the very least, a short-term negative that has some real costs.

        That said, there is no reason to believe that the exposure and end of these practices which were initiated at a time when Inc. affiliates controlled the Sun-Times' management will diminish the economic value of the Chicago Group as a whole in a material way. Indeed, Black encouraged International not to make a big deal out of the circulation practices, as they, in his view, were not unique to the Sun-Times. And, the Sun-Times' competitor, the Tribune, announced that it was ending similar practices at papers it controlled. Black's close friend and Inc.'s COO and director, Peter White, even

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wrote a passionate public letter to the Sun-Times claiming that Inc. (and Radler) were unaware of any improper practices at the Sun-Times and noting that during "Radler's tenure .... we purchased five additional daily newspapers in the greater Chicago area that have afforded strong commercial protection and buttressing of the Sun-Times and have helped it thrive as never before. . . . [T]he Sun-Times is today a good paper, with gifted journalists . . ., popular with readers, leading in city circulation and a good buy for advertisers."²³ White concluded with the statement that Inc. had made the "Sun-Times strong and prosperous."

        Supporting White's view is the actual bidding process. During that process, bidders were told that the Sun-Times was expecting a 15% drop in circulation due to the price increase and the termination of some practices that w