Case Documents

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No. CT-90/1 COMPETITION TRIBUNAL IN THE MATTER OF an application by the Director of Investigation and Research for orders pursuant to section 92 of the Competition Act, R.S.C. 1985, c.C-34, as amended;

AND IN THE MATTER OF the direct and indirect acquisitions by Southam Inc. of equity interests in the businesses of publishing The Vancouver Courier, the North Shore News and the Real Estate Weekly B E T W E E N THE DIRECTOR OF INVESTIGATION AND RESEARCH Applicant -and-

SOUTHAM INC., LOWER MAINLAND PUBLISHING LTD., RIM PUBLISHING INC., YELLOW CEDAR PROPERTIES LTD., NORTH SHORE FREE PRESS LTD., SPECIALTY PUBLISHERS INC., ELTY PUBLICATIONS LTD.

Respondents

NOTICE OF APPLICATION FOR AN INTERIM ORDER UNDER SECTION 104 OF THE COMPETITON ACT

TAKE NOTICE THAT the Applicant, the Director of Investigation and Research (the "Director") will make an application to the Competition Tribunal on Thursday, the 7th day of March, 1991 at 10:00 a.m. or as soon after that time as the application can be heard, at the Competition Tribunal Hearing Room

-2-in the Royal Bank Centre, 90 Sparks Street, Ottawa, Ontario.

1. This application is made pursuant to section 104 of the Competition Act, section 11 of the Competition Tribunal Act and section 20 of the Competition Tribunal Rules for an interim order against all Respondents except Yellow Cedar Properties Ltd. in the form attached hereto as Appendix I.

2. The grounds for this application are: a. there is a serious issue to be determined by the Competition Tribunal, that is, whether the acquisition by the Respondent Southam Inc. of direct and indirect control of, or, a significant interest in the businesses of publishing The Vancouver Courier, the North Shore News, and the Real Estate Weekly prevents or lessens, or is likely to prevent or lessen, competition substantially in relevant markets within the meaning of sections 91 and 92 of the Competition Act;

b. irreparable harm will result if an interim order is not made and if as a result, the Respondents proceed to partially or fully implement the challenged acquisitions, the Tribunal's ability to remedy the effects of the acquisitions will be substantially impaired; and 2

-3-c. the balance of convenience favours the granting of an interim order, in that, the public interest in maintaining and encouraging competition outweighs any inconvenience or harm to the Respondents that may result.

3. The material facts are stated in the Notice of Application under section 92 filed on November 29, 1990.

AND TAKE NOTICE THAT in support of this application will be read the Affidavit of Andre Brantz sworn the 4th day of March, 1991 and filed.

AND TAKE NOTICE THAT the Director wishes to use English at the hearing of this application.

DATED at the City of Hull in the Province of Quebec, this 4th day of March, 1991.

of Investigation and Research TO: Registrar, Competition Tribunal Royal Bank Centre Suite 600 90 Sparks Street Ottawa, Ontario KlP 5B4 3

-4-AND TO: Glenn F. Leslie John J. Quinn Neil Finkelstein Blake, Cassels & Graydon Barristers and Solicitors Box 25, Commerce Court West Toronto, Ontario MSL 1A9 Counsel for the Respondents

4

APPENDIX :I DRAFT INTERIM ORDER WHEREAS the purpose of this Interim Order is to preserve the Bu~inesses (as hereinafter defined) ~s independent, viable, on­going and competitive businesses in order to preserve the Tribunal's ability to order appropriate relief, pending the final disposition by the Competition Tribunal of the Application of the Director of Investigation and Research dated and filed November 29, 1990.

THIS TRIBUNAL ORDERS AGAINST ALL RESPONDENTS EXCEPT YELLOW CEDAR PROPERTIES LTD. THAT:

Definitions 1. In this Interim Order, the following definitions will apply: a) "Businesses" means the businesses of publishing the newspapers called the North Shore News and The Vancouver Courier and the real estate advertising publication called the Real Estate Weekly (comprised of 14 zoned editions), and "Business" means one of them;

b) "Company" means each of North Shore Free Press Ltd. ("NSFP"), Rim Publishing Inc. ("Rim"), Elty Publications Ltd. ("Elty"), Specialty Publishers Inc. ("Specialty") and Lower Mainland Publishing Ltd. ("LMPL"), and Companies means all of them;

c) "Confidential Information" means competitively sensitive or proprietary information of the Businesses not independently known to Southam Inc. or LMPL from sources other than the Southam Group and includes, but is not limited to, costs of production, printing, materials procurement, marketing and distribution, prices, advertising rates, marketing methods, strategic plans and other trade secrets; d) "divest" means to sell, transfer, assign, grant any option for the purchase of, pledge or otherwise dispose of or encumber; e) "Managers" means the managers of each of the Businesses who are specified in Schedule "A"; f) "person" means any natural person, corporation, association, firm, partnership or other business or legal entity; 5

-2-g) "Southam Group" means Southam Inc. and all of its directly and indirectly-owned subsidiaries; h) "Supervisors" means the supervising managers to be appointed to supervise the Businesses.

Maintain Current Ownership 2. Southam Inc. will not directly or indirectly di vest its interests in the Businesses, NSFP will not divest the North Shore News, Rim will not divest The Vancouver Courier and Elty will not divest the Real Estate weekly, and neither Southam Inc. nor any of the Companies will directly or indirectly divest any shares of any body corporate which owns or operates any of the Businesses.

3. Neither Southam Inc. nor any of the Companies will issue, or cause to be issued, any additional securities, or options to acquire additional securities, of any of the Companies, amend the articles, by-laws, memorandum or other constating documents of any of the Companies, or do any other act which may directly or indirectly alter the ownership of the Companies or the Businesses from that which existed on May 8, 1990 in the case of Rim, Elty, Specialty, The Vancouver Courier and the Real Estate Weekly and February 1, 1991 in the case of LMPL, NSFP and the North Shore News.

Maintain Competitiveness of the Businesses 4. Neither Southam Inc. nor any of the Companies will directly or indirectly take any action that could adversely affect the competitiveness, assets, operations or financial status of any of the Businesses or jeopardize the divestiture of any of the Businesses, including, but not limited to: a) relocating, destroying or dismantling any fixed assets of any of the Businesses unless, due to circumstances beyond the control of Southam Inc. or the Companies, a Business is forced to move, relocate or dismantle any of its assets to preserve such assets and Southam Inc. has notified the Director; b) divesting any assets of any of the Businesses to any person other than in the ordinary course of business; c) entering into any agreement to lease any assets of any of the Businesses, or real property upon which the facilities of the Businesses are located, to any other person; G

-3-d) reducing any aspect of the Businesses' level of service to any customers for advertising services; e) terminating any lines of credit for, or financial guarantees on behalf of, any of the Businesses;

f) curtailing marketing, activities of any of the Businesses in connection with the solicitation of existing or prospective newspaper advertising services;

g) except in the ordinary course of business or as is necessary to comply with the terms of this Interim Order, terminating or altering any current employment, salary or benefit agreements for any executive, managerial, sales or marketing personnel of any of the Businesses, without the consent of the Director. Maintain Independent and Separate Businesses 5. Southam Inc. and the Companies will take all steps necessary to ensure that each of the Businesses is maintained as a separate and independent business and will not take any steps toward integrating the assets, management, operations or books and records of any of the Businesses with those of Southam Inc. or any other person. 6. Southam Inc. and LMPL will not influence or attempt to influence, directly or indirectly, any operational or financial decisions of any of the Businesses.

7. Southam Inc. and LMPL will not receive, have access to, or use any Confidential Information relating to the Businesses, except as is necessary to comply with the terms of this Interim Order and except for confidential financial information required by the auditors of Southam Inc. and LMPL to prepare their standard financial reports. 8. Notwithstanding the foregoing, Southam Inc. , the Companies and the Businesses may participate in the Vancouver Area Newspaper Network ("VanNet"). Any rights of any of the Companies or the Businesses to participate in VanNet will be fully assignable (without any consent or approval or loss of rights on transfer) to any subsequent owner or operator of the Business. Management 9. Southam Inc., LMPL and the Companies will not alter, or cause to be altered, the boards of directors, officers or managers of any of the Companies as set forth in Schedule A except:

7

sales, promotional or other customers for

-4-a) to replace directors, officers and managers who have voluntarily resigned; and

b) as is necessary to comply with the terms of this Interim Order,

provided, however, that no replacement director, officer or manager will be appointed or elected without the consent of the Director. 10. Southam Inc. and the Companies will direct the Managers: a) to operate the Businesses in the ordinary course of business in accordance with generally prevailing industry standards, to preserve the goodwill associated therewith and not to divest the assets thereof other than in the ordinary

course of business;

b) to continue to operate the Businesses independently of each other and of the businesses of the Southam Group;

c) to maintain, in accordance with generally accepted accounting principles, separate and complete financial ledger books and records of material financial information for their respective Businesses; d) not to make any material changes to the financial arrangements of any of the Businesses;

e) not to enter into or withdraw from any contracts or arrangements in regard to the Businesses or make any changes to their operation that would have the effect of materially inhibiting or unreasonably delaying the divestiture of the Businesses or materially reducing the value of the Businesses.

11. Southam Inc. and LMPL will not seek any information in connection with, or exert or attempt to exert any influence, direction or control over, the Managers or operational, sales, distribution, circulation, marketing or financial decisions of the Businesses, including without limitation, decisions relating to: a) advertising rates; b) persons who advertise in the newspapers published by the Businesses; c) production, printing, materials procurement, marketing, distribution and other costs; d) contracts with third parties; e) accounting procedures and other financial information; f) editorial policies; g) strategic planning; and h) administration. 8

-5-12. Rim, Elty and NSFP will each appoint a Supervisor for its respective Business, at its own expense, who will provide such direction to, supervision over, and control of the Managers and the Businesses as is necessary to ensure compliance with this Interim Order. The appointment of the Supervisors will be subject to the approval of the Director and if a Supervisor has not been appointed for each of the Businesses within 30 business days after the date of this Interim Order, the Director will appoint, subject to the Tribunal's approval, such Supervisor on behalf of the company. Each of the Supervisors will execute and perform all terms and conditions of a Supervisor Agreement substantially in the form attached hereto as Schedule B. None of Rim, Elty or NSFP will modify its Supervisor Agreement without the Director's prior approval. Each of Rim, Elty and NSFP will deliver an executed copy of its Supervisor Agreement to the Director of Investigation and Research and Southam Inc. In the event that any of the Supervisors is unable to perform his duties as Supervisor under his respective Supervisor Agreement because of death, disability, termination for cause, or any other reason, Rim, Elty or NSFP, as the case may be, will appoint, subject to the Director's approval, a new Supervisor on substantially the same terms and conditions, within 15 business days. Should a new Supervisor not be so appointed, the Director will appoint, subject to the Tribunal's approval, a new Supervisor on behalf of the company. The same individual may be appointed to act as the Supervisor for two of the Businesses, provided that the same individual does not act as Supervisor for both the Real Estate Weekly and the North Shore News. 13. Each of Rim, NSFP, Specialty and Elty will remove from office any director, officer or manager who currently, or at any time during the effectiveness of this Interim Order, serves as a director, officer or manager of any other company in the Southam Group. 14. In the event that the Director's approval is sought pursuant to this Interim Order and such approval is not granted, the Respondents may apply to this Tribunal for direction. 9

SCHEDULE A TO INTERIM ORDER Managers Real Estate Weekly John Collison The Vancouver courier Peter Farris Ballard Roger Phillip Hager North Shore News Peter Speck Douglas Foot Officers and Directors Lower Mainland Publishing Ltd. David W. Perks (Director, Chairman, C.E.O.) Sam Grippo (Director, President) Bruce Aunger (Director,Secretary/Treasurer) North Shore Free Press Ltd. Peter Speck (Director, President) David W. Perks (Director) Douglas Foot (Director, Vice-President, Secretary) J. William Gannon (Alternate Director) Rim Publishing Inc. Roger Phillip Hager (Director, President) Peter Farris Ballard (Director, Secretary) David w. Perks (Director) Specialty Publishers Inc. Sam Grippo (Director, President) Sam Y. Joe (Director) John Collison (Director) Elty Publishing Ltd. John Collison (Director, President, Secretary)

l· ·o

SCHEDULE B TO INTERIM ORDER THIS SUPERVISOR AGREEMENT is made as of the day of 1991, by and between > having its registered office at > Vancouver, British Columbia (the "Company") and > residing at > (the "Supervisor").

WHEREAS: A. The Company carries on the business of publishing the <newspaper> <real estate publication> called the > (the "Business");

B. Lower Mainland Publishing Ltd. Southam Inc., has <indirectly> acquired shares of the Company, which acquisition is being challenged pursuant to Section 92 of the Competition Act by the Director of Investigation and Research pursuant to an Application to the Competition Tribunal dated and filed November 29, "Application");

C. The Business is managed by > (the "Manager") pursuant to a management agreement dated >;

o. Pursuant to an Interim Order of the competition Tribunal dated ,.' ,,·

( "LMPL") , a subsidiary of >% of the outstanding 1990 (the

-2->,a copy of which is attached hereto (the "Interim Order"), the Company was ordered to appoint the Supervisor to provide direction to, supervision over, and control of the Manager as is necessary to ensure compliance by the Company and the Manager with the terms of the Interim Order;

E. Pursuant to the Interim Order, the Company wishes to retain the Supervisor and the Supervisor wishes to be retained, as the supervisor of the Business, on the terms and conditions contained in this Agreement;

F. It is the intention of the parties that the Business will be maintained as a competitive and economically viable on-going business, with its assets, management and operations separate and distinct from those of Southam Inc. and all of the directly and indirectly-owned subsidiaries of Southam Inc. (Southam Inc. and its direct and indirect subsidiaries other than the Company being hereinafter collectively referred to as the "Southam Group").

NOW THEREFORE in consideration of the mutual promises contained in this Agreement, the Company and the Supervisor agree as follows:

ARTICLE ONE - RETAINER AND DUTIES 1.01. The Company hereby retains the Supervisor as the supervisor of the Business and of the Manager. The Supervisor hereby accepts such retainer and agrees that he will devote as much of his '. ·' • ·- ,h..J

-3-business time, skill and attention to the Business as is necessary to ensure that the Business will be continued and advanced as a competitive, economically viable and on-going business, separate and distinct from the other businesses of the Southam Group.

1.02 The Supervisor will have supervisory responsibility for the Business and the Manager, with a view to ensuring that the terms of the Interim Order are complied with, that the profitability and competitiveness of the Business are maximized, and that the Business is conducted and maintained as an independent business, separate and distinct from the other businesses of the Southam Group.

1.03 The Supervisor will be entitled to approve all decisions of the Manager which are not of a day-to-day nature and all expenditures of the Business in an individual amount greater than $10,000.

1.04 The Supervisor will be entitled to review and approve all material contracts being entered into by the Company, with a view to ensuring that they comply with the terms of the Interim Order.

1.05 The Company agrees to give the Supervisor unlimited access to the premises of the Company and the Business and any information relating to the operations and assets of the Company and the Business as is required by the Supervisor to supervise the Manager ',. - ·. ... ,_,·

-4-and otherwise fulfill his duties under this Agreement.

1.06 The Supervisor will not take any action which would cause the Company to breach any of its obligations under the Interim Order.

ARTICLE TWO - REPORTING 2.01 The Supervisor will report to the Board of Directors of the Company (the "Board").

2.02 In the event that: a) the Supervisor determines, in his reasonable opinion, that the Company or the Manager is in default of the terms of the Interim Order, which default has not been cured by the Manager or the Board upon reasonable notice thereof; or

b) the Board directs the Supervisor to take any action which would, in the Supervisor' s reasonable opinion, result in a breach of the Company's obligations under the Interim Order,

the Supervisor will notify the Director of Investigation and Research and Southam Inc. of such breach or direction from the Board, and may refuse to take any further action with respect to

-5-such breach or direction from the Board, unless required to do so by an order of a court of competent jurisdiction or the Competition Tribunal.

ARTICLE THREE - RESTRICTED RELATIONSHIP AND CONFIDENTIALITY 3.01 During the term of this Agreement, the Supervisor will not consult with Southam Inc. or any other member of the Southam Group except as is necessary to ensure compliance with the Interim Order.

3.02 During the term of this Agreement, the Supervisor will not communicate confidential information about the operations or assets of the Company or the Business to any member of the Southam Group except for confidential financial information required by the auditors of Southam Inc. and LMPL to prepare their standard financial reports.

3.03 The Supervisor acknowledges and agrees that upon termination of this Agreement, his relationship with the Company and the Southam Group will end and he will not work with or for any member of the Southam Group in any capacity, for a period of two years.

3.04 Except as permitted by the terms of the Interim Order or this Agreement, the Supervisor will not use for his own account or disclose or cause to be disclosed to any other person, confidential information concerning the business or affairs of the Business.

any , t._· . k . .J

-6-ARTICLE FOUR - TERM AND TERMINATION 4.01 The term of this Agreement (the "Term") will commence on the date hereof and continue, unless terminated in accordance with Section 4.02, until the later of:

a) the date on which the Application in respect of the Company and the Business, and all appeals thereof, if any, are dismissed or the time for the filing of appeals has lapsed;

b) the date on which the Company has complied with the terms of any order granted by the Competition Tribunal in respect of the Company or the Business, which order disposes of the Application in respect of the Company and the Business; and

c) the date on which the Company has complied with the terms of any order in respect of the Company or the Business, which order disposes of the Application in respect of the Company and the Business, granted by a court of competent jurisdiction on appeal from, or in respect of, a decision of the Competition Tribunal.

4.02 Notwithstanding Section 4.01, the Company may terminate this Agreement at any time for cause by giving the Supervisor notice

-7-specifying the date of termination. The Company will deliver immediately a copy of the notice to the Director of Investigation and Research. "Cause" will mean any act of gross negligence, bad faith or wilful misconduct in the performance of the Supervisor's duties under this Agreement which materially and adversely affects the business or reputation of the Business, or the death of the Supervisor, or disability of the Supervisor if such disability will, in the opinion of the Company, prevent the Supervisor from fully performing his duties under this Agreement for 45 consecutive days.

ARTICLE FIVE - COMPENSATION 5.01 During the Term of this Agreement, or until this Agreement is terminated in accordance with Section 4.02, the Company will pay the Supervisor an annual fee of $> , payable in equal monthly instalments of $> each.

5.02 During the Term, or until this Agreement is terminated in accordance with Section 4. 02, the Company will reimburse the Supervisor for all ordinary, necessary and reasonable business and travel expenses incurred by him in connection with the performance of his duties hereunder. All such expenses will be paid upon presentation of receipts for such expenses in reasonable detail.