Hollinger International Inc. said Saturday it has removed Conrad Black as its chairman hours after it announced a $200-million (U.S.) lawsuit against Lord Black and companies he controls, alleging that parties had "diverted and usurped assets and opportunities."
The company said late in the day that the executive committee of its board removed Lord Black from his position as non-executive chairman effective immediately.
The Chicago-based newspaper chain -- which is controlled by Lord Black through Hollinger Inc. -- announced earlier Saturday that a special committee of its board of directors has filed a complaint in the U.S. District Court for the Southern District of New York.
It is targetting related-party transactions, in particular the non-competition agreements and and "excessive" management fees.
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The Chicago-based chain named in its complaint Toronto-based Hollinger Inc., Lord Black, former president David Radler and Lord Black's closely held Ravelston Management Inc.
"This litigation marks a substantial step towards returning to our shareholders the value that was inappropriately taken from this company," Gordon Paris, Hollinger International's interim CEO, said in a statement.
"Our objective is to recover all wrongfully diverted amounts, while we continue to investigate other areas of possible improper conduct."
Lord Black stepped down as Hollinger International's chief executive last November, but had resisted suggestions he give up the chairmanship. Lord Black's spokesman, Jim Badenhausen, told Reuters Saturday night that he "has no plans to resign."
A lawyer for Lord Black, John Warden, said in a statement that lawsuit was an attempt by the special committee to draw attention away from new evidence that contradicts earlier statements by independent board members concerning certain payments to Lord Black.
"We believe this lawsuit is an attempt by the special committee now to divert attention from the fallacy of their earlier claims," Mr. Warden said, according to Associated Press.
In the complaint, the company alleges there was "systematic breaches of fiduciary duties" owed to the company and its other shareholders.
It also alleges "conduct including paying unauthorized, unjustified or unwarranted amounts to various defendants." It also alleges the company's books and records were altered, and as a result the company incurred "excessive, unreasonable and unjustifiable fees" to the defendants for management services.
SEC action
The move comes a day after the U.S. Securities and Exchange Commission launched a pre-emptive strike against Lord Black by filing an unusual court action that severely limits his power at Hollinger International Inc.
The regulator also alleged for the first time that Hollinger's books were tampered with and material information not disclosed. The SEC obtained an injunction in Chicago that ensures a special committee of the company's board can continue its job of investigating $32-million in alleged unauthorized payments to Lord Black and several of his colleagues.
The current crisis also affects Lord Black's Toronto-based holding company Hollinger Inc. through which he controls Hollinger International. Hollinger Inc. is facing a cash crunch, with $7-million in interest payments on a bond issue due on March 1.
Non-competition payments, management fees
In the complaint disclosed Saturday, Hollinger Internatioal says it seeks to recover $90-million in "non-competition" agreements that were given in payments to Lord Black, Mr. Radler and Hollinger Inc. The amount includes $32-million in what it called unauthorized payments and the disgorgement of all payments, including more than $50-million related to the sale of assets to CanWest Communications Corp.
It it seeking all non-competition payments -- whether or not they were authorized -- because Hollinger International alleges that none of them "took place on terms that were fair to the company's non-controlling shareholders.
Hollinger International also alleges that management fees paid to Hollinger Inc. or Ravelston -- more than $224-million -- were "far in excess of the cost" to the two companies for providing the services. It alleges it was a "breach of fiduciary duty" of controlling shareholers to charge such fees, which the complaint says resulted in tens or hundreds of millions in excessive fees.
The newspaper company alleges that Lord Black and Mr. Radler's control of voting shares allowed them to "require" that Hollinger International use Ravelston and Hollinger Inc. to provide managmeent services. The complaint said the company was "in effect, forced into dependence on [Hollinger Inc.] and Ravelston for management servies when it could otherwise have easily hired its own management team ... at far lower cost."
Hollinger International Inc. publishes English-language dailies in the United States, Great Britain, and Israel. Its assets include The Daily Telegraph, The Sunday Telegraph and The Spectator magazine in Great Britain, the Chicago Sun-Times and The Jerusalem Post.
With a report from Associated Press
