The president of a Kentucky company that bought 27 community newspapers from Hollinger International Inc. conceded Monday he may have received “some legal protection” by paying $2 million to a Canadian holding company owned by former press lord Conrad M. Black.
But David Paxton, president and CEO of Paducah, Ky.-based Paxton Media Group Inc., said the non-competition agreement he received from Toronto-based Hollinger Inc., a sister of Hollinger International, was largely valueless in a business sense.
Prosecutors who have charged the 62-year-old Black with racketeering and fraud claim such non-competition payments were merely a device he used to siphon millions of dollars from the far-flung Hollinger media empire.
Paxton, who testified last week, returned to the stand Monday as week three of Black’s trial began. He said that, when buying the newspapers for $59 million, he wanted a promise that Hollinger International wouldn’t move back into the markets where the papers circulated and compete with him.
Under cross examination by defense attorneys, Paxton said he had not been interested in a non-competition deal with Hollinger Inc.
“Adding Inc. to the agreement certainly did not hurt us, but as a business person we certainly did not think it added value,” Paxton said.
Ronald Safer, an attorney for Black co-defendant Mark Kipnis, asked Paxton about grand jury testimony in which he said: “I was happy to include Inc. because this provided some additional protection at no additional cost.”
“Did you say that?” Safer asked.
“Correct,” Paxton said, adding: “It might have given us some legal protection.”
But he reiterated that he saw no business value in having the non-competition agreement with the Canadian holding company, which Black used to control the much larger Hollinger International Inc.
Black is accused of swindling Hollinger International by billing the company for a lavish birthday party for his wife, a vacation on the Pacific island of Bora Bora and a Park Avenue apartment in New York.
But the heart of the charges against him involve non-competition agreements that he made in selling hundreds of community newspapers owned by Hollinger International across the United States and Canada.
Most of the buyers were willing to pay for promises from Hollinger International that it would not move back into their markets and compete with the community papers that Hollinger International had sold them.
But none so far have said they wanted similar promises from Hollinger Inc. Paxton came the closest when pressed by Safer and other defense attorneys he said the agreements might have offered some legal protection.
Prosecutors say the non-competition payments, which are not taxable in Canada, were nothing but a scheme to siphon money out of Hollinger International. Prosecutors have said the money should have gone to Hollinger shareholders.
Black was also obliged under an agreement with his bankers to use the proceeds from the sale of newspapers to pay off more than $600 million in debt hanging over the Hollinger media empire.
But non-competition payments were exempted from that requirement.