April 13, 1992
We wish to advise you that only recently we have received a copy of a letter mailed by Frederick Murphy to the other stockholders of Holden-Day dated February 18, 1992. The reason that we did not get this letter until now is that Mr. Murphy and his attorneys refused to provide a copy of that letter to us. We finally received a copy through another stockholder of Holden-Day.
Mr. Murphy's letter greatly misstates what has happened with respect to our tender offer. In the first place, we have not abandoned our tender offer. Rather, we are waiting for the courts to rule. Almost immediately after our tender offer was concluded, Mr. Murphy attempted to remove almost all of the funds in the Holden-Day corporate account at Security Pacific Bank in the form of 32 checks, including a check in the amount of $34,320 payable to himself and a check for $11,641 payable to Denise Milton, his attorney. We feel that these withdrawals or attempted withdrawals were illegal because once the date of January 6 had passed, Mr. Murphy had no further right to attempt to operate the bank accounts of the corporation. It should be obvious that there would be no purpose to our taking over the corporation, if Mr. Murphy would be allowed to continue to withdraw funds from the corporate bank accounts after we took over.
At the conclusion of our tender offer at 5:00 P. M. Eastern time (which was 2:00 P. M. California time) on January 6, 1992, we had 485,000 shares in our possession, which constituted a clear majority of the total outstanding shares, with more shares promised or on the way. At that point, we believed that the deal was "in the bag" and that there was no way that Mr. Murphy could stop us from taking control of Holden-Day. Indeed, Mr. Murphy himself had vacated the corporate premises more than two weeks earlier. Therefore, we did not anticipate further resistance.
However, it soon turned out that Mr. Murphy has seen more deeply into the situation than we had anticipated and had some tricks up his sleeve which would either make it impossible for us to take over his corporation or would make it so expensive and offer so little potential reward that nobody would be interested in taking over a company under those circumstances.
The standard law books on this subject all state that when an outside corporate raider succeeds in acquiring a majority of the outstanding shares through a tender offer, the existing management is supposed to resign immediately rather than face a lawsuit. None of the law books we have consulted have addressed the question of what happens when the entrenched management simply stonewalls and refuses to recognize the existence of a successful tender offer. Mr. Murphy apparently felt that he could remain as President indefinitely and could continue to live off of this company even after he had tendered his own shares to us.
Many stockholders who received Mr. Murphy's letter dated December 18, 1991, in which he stated that he had decided to tender his own shares, believed that it was all over and that we would be taking over the company. However, the truth was that Mr. Murphy had been forced by his board of directors to sign that letter. Moreover, the letter just turned out to be a strategic maneuver on the part of Mr. Murphy. Although he stated in his letter that he was going to tender his shares, he did not actually do so until more than three weeks later, after he knew that we already had a majority of the outstanding shares even without his own shares. Even then, prior to tendering those shares, he put a stop transfer on all of the shares still in his name by reporting them as `lost'. A few days later, he went further by placing a stop transfer on all shares of the entire corporation which had been tendered to us.
The final devious trick of Mr. Murphy was that after we had handed in all tendered shares to the transfer agent, he claimed the right to control these shares, stating that he was still the President of Holden-Day and that we had no right to oust him.
The result of this is that the 587,413 shares which were tendered by the stockholders to us were all hijacked by Mr. Murphy. We no longer had possession of or control over those shares.
Under these circumstances, it was out of the question for us to start mailing out checks to the tendering stockholders because we were told that if we did that, the shares would still not be transferred into our name without the permission of Mr. Murphy. The stock transfer agent, Manufacturers Hanover Trust, informed us that it still recognized Mr. Murphy as the president of Holden-Day and that it could not transfer any tendered Holden-Day shares into our name until Mr. Murphy agreed to this. Mr. Murphy, for his part, had a long list of demands which were absolutely unacceptable to us. His demands were the same demands he had made back in July, 1991 which were then unacceptable, plus he had some new demands. For example, Mr. Murphy demanded that we make an additional payment of some $2600 to a personal friend of his named Emanuel Parzen in Texas who had been in Europe during the entire period when this tender offer was pending, did not know about it for this reason, and therefore did not tender his shares at all.
The question which is often asked is: Why not just pay that measly $2600 to Professor Parzen, whether he was entitled to the money or not, and get it over with?
The answer is that this would not get it over with. This was just one in a long list of demands of Mr. Murphy, not the least of which was that we give him severance pay of $43,200. However, that was not all, The only promise which Mr. Murphy made was that if we paid out all this money, then, in return for that, he would "strongly consider" resigning and allowing us to take over.
We know from experience that whenever Mr. Murphy says that he will "strongly consider" doing something, this is just a trick and he will never do it. Many stockholders have had dealings with Mr. Murphy over a period of many years and have had precisely the same experience. Many of you stockholders are also authors who know that Mr. Murphy was ten years delinquent in the payment of his royalties and was often sued by his authors for back payment of royalties. There are many worse examples of individuals who have been burned by Mr. Murphy over the years. For example, one stockholder of Holden-Day worked for Mr. Murphy full time free of charge for three years believing that he had a deal under which he would eventually be allowed management control of Holden-Day. Mr. Murphy never did anything to compensate this unfortunate person.
In our case, the result was that even after a total of 587,413 shares, representing a total of 85% of the total outstanding shares, had been tendered to us, we were no closer to taking control of this company than we were back in July when we first approached Mr. Murphy.
Obviously, the only solution to this predicament was to refer this matter to the courts, which we did. That is why we filed a lawsuit in the United States District Court for the Northern District of California on February 13, 1992. However, Mr. Murphy has used the same tactic there as he did with respect to our tender offer. He has simply stonewalled, and pretended that our lawsuit does not exist.
The problem here is that Mr. Murphy still has access to the corporate treasury. In other words, he can use your stockholders money to pay lawyers to fight against our tender offer, whereas we have to pay lawyers fees out of our own pocket. Already, Mr. Murphy has paid more than $50,000 to Denise Milton alone in legal fees to defend against our tender offer. In other words, he has spent 7 cents per share of your stockholders money to stop us from paying you 40 cents per share.
Now, the question is: What to do next?
Essentially, we have spent six months pursuing this Holden-Day matter, and at the end of this, we find that we have been cheated out of which is rightfully ours, by completely illegal means, in our opinion. However, the other stockholders of Holden-Day are in an even worse position than us. Many of you stockholders have held your shares for thirty years. Not only have you received nothing in return for your investment, but you have now even lost your shares, which we no longer have and which Mr. Murphy apparently has no intention of returning to you.
We have filed our federal lawsuit which names as co-plaintiffs all stockholders of Holden-Day who have tendered their shares. Mr. Murphy and his co-defendants have not answered our suit. They are claiming that it was not properly filed and are requesting its dismissal.
We suggest that the stockholders who have tendered their shares to us should consider appearing in that case and asking United States District Court Judge Vaughn Walker to order that you be paid your 40 cents per share. That seems to be the only chance which the stockholders have of getting their money at this point.
For our part, we stand ready to pay all validly tendering stockholders their rightful 40 cents per share, providing that the following conditions are met:
1. All funds withdrawn by Mr. Murphy from the Holden-Day corporate bank accounts after the date of January 6, 1992 must be restored. This includes among many other items the checks paid to Denise Milton for $11,641 in legal fees, and the check which Mr. Murphy paid to himself for $34,320.
2. In every other respect, the situation must be restored to what it was on the close of business on January 6, 1992, the date when our tender offer expired.
3. Frederick Murphy, Tom Palmer and Denise Milton must be removed by order of the court from having any further connection with Holden-Day so that the tricks which Mr. Murphy played before and after cannot be played again.
We recognize the problem that in the meantime Mr. Murphy has so thoroughly dismantled the company that it might prove impossible to restore the company to the condition it was on January 6, 1992.
Meanwhile, we believe that we have found the real reason why Mr. Murphy resisted our tender offer so tenaciously. We have noticed that on the balance sheet of Holden-Day there is an item showing "inventory" in the amount of $9,000. However, we have discovered that this represents a total of 22,290 books, most of which have been written down to zero for tax purposes, but are still selling in the stores. Our experience is that these books retail for an average of at least $30 each. In other words, Mr. Murphy has $668,700 worth of books at retail value which he is only carrying on the books as being worth $9,000.
It should be noted that the company plan of liquidation provides for Mr. Murphy to purchase the residual assets of Holden-Day for their "fair value". Undoubtedly, this fair value will be $9,000. On other words, Mr. Murphy, under his plan which, according to him, you approved, will get more than six hundred thousand dollars worth of books essentially for free.
The last question is: If that is the case, then why don't we just take a chance and just pay the $300,000 which Mr. Murphy is demanding.
The answer is that now we know Mr. Murphy better than before. Nobody in their right mind is going to engage in a crap shoot with him. We found out during this tender offer that we were not the first suitor which Holden-Day has had. There have been many others before us, and some of them lost considerably more money than we lost trying to get this company away from Mr. Murphy. The reputation of Holden-Day in the market place has been that the company is worthless as long as Mr. Murphy is involved, and it is impossible to root Mr. Murphy out of this corporation.
Therefore, what we suggest that you do is write to Judge Vaughn Walker at the San Francisco federal district court (Case No. 92-0748), write to Gregg Corso at the S.E.C. and, perhaps most importantly of all, write to your Congressman. You can also complain to Hambrecht & Quist. It was Hambrecht & Quist who allowed Mr. Murphy to withdraw corporate funds from his money market account after the date of January 6, thereby defeating our tender offer. Perhaps between them, you can stir up enough trouble to get the courts to compel the payment to you of 40 cents per share. We would like to point out that the corporation itself had on January 6th enough cash to pay each stockholder 40 cents per share. It is therefore obvious that we would have paid you 40 cents per shares, had it not been for all of these devious tricks on the part of Mr. Murphy. However, we have been told that Mr. Murphy now intends to pay you five or ten cents per share and keep the rest of the company for himself, without returning your shares.
Meanwhile, the reason that you have not heard from us in a while is not that we have forgotten about you. Rather, we have been using this time to publish three books, which include two of the titles which we had intended to publish under the Holden-Day name. Now, instead, these books have been published under the name of the Orsden Press. Remember that if these books turn out to be best sellers, then you, as the stockholders, would have been the beneficiaries of these publications.
The book which might interest you most is
In any case, while we feel that we may be adding insult to injury, we are enclosing an order form, in case you stockholders might be interested in buying our book about tender offers, including this one.
Needless to say, this book reveals for the first time ever all the tricks we learned the hard way from doing this tender offer, so at least this unfortunate experience has produced a book.
Very Truly Yours,
Samuel H. Sloan
Samuel H. Sloan
The Orsden Press
50 Broad St., Suite 2266
New York, NY 10004
Tel: (212) 388-2869
June 29, 1992
Ida C. Wurczinger
Wiley, Rein & Fielding
1776 K Street, N.W.
Washington, D.C. 20006
Re: Holden-Day tender offer
Dear Ms. Wurczinger,
This is in response to your letter dated June 16, 1992, addressed to Mr. Richard Bozulich.
Mr. Bozulich has gone off on a trip to Aomori Prefecture, in Northern Japan, where he has dug up the bones of Jesus Christ, which will be the subject of our next book. Meanwhile, his friendly office staff has forwarded your letter to me for reply.
Your letter falls into the general category of "fraud and misconduct of an adverse party." You start off by stating that you are writing on behalf of Mr. David Sirignano and Mr. Gregg Corso of the S.E.C. However, the fact is that you are a private attorney employed by the former Holden-Day and Frederick H. Murphy. Mr. Sirignano and Mr. Corso of the S.E.C. know how to read and write. They know our address and our telephone number. If they want to communicate with us, they are perfectly capable of writing their own letter.
The fact is that you keep trying to threaten Mr. Bozulich, in an effort to gain an unfair advantage. You are well aware that Mr. Bozulich knows absolutely zero about federal securities laws. I am supposedly the expert in that field. Every time you write a threatening letter to Mr. Bozulich, he starts talking about going back to Crotia and fighting the Serbs.
Mr. Bozulich made what may or may not have been a serious error. After Fred Murphy had given several days of false testimony before the S.E.C. in Washington, D.C. in an effort to stop this tender offer, Mr. Erik Schwartz of the S.E.C. enforcement staff in January made several threatening telephone calls to Mr. Bozulich. These calls had two effects. First, Mr. Bozulich sent the two fax messages to which you allude in your letter. Second, Mr. Bozulich became extremely fearful and apprehensive about transmitting any of his hard earned money to the United States. That has contributed to the present deadlocked situation.
However, I do not disagree with the fax messages sent by Mr. Bozulich. All he said is that he would agree to have the shares returned to the stockholders, provided only that you also agree to the return of the shares to the stockholders and further that this be done "immediately and with utmost priority".
We already knew before Mr. Bozulich sent the fax that Fred Murphy and Tom Palmer would never agree to the return of the shares to the stockholders. Their plan from the beginning was to steal the shares from the stockholders, at our expense. I told both Mr. Corso and Mr. Schwartz this, but they did not believe me.
The end result is that more than five months have now passed, and not one share has been returned to the shareholders.
Mr. Murphy is notorious throughout the publishing industry for doing things exactly like this. Every deal made by Mr. Murphy over the last thirty years goes something like this: "First, you do X, and then I will do Y." The other party does X. Mr. Murphy never does Y. His counter-party is then left in the lurch.
I was at the American Booksellers Convention in Anaheim, California on May 23-26, and there I met several persons who had had personal dealings with Mr. Murphy, known in the industry as "Fred", over many years. All of them said the same thing. Fred is a person who is extremely well known in the publishing industry, and who is also a person with whom nobody wants to do business any more. This confirmed my information about Fred from many other sources, including especially his own stockholders.
Your letter states that the faxes sent by Mr. Bozulich in January had the result of "effectively terminating the tender offer". This was not true. We never withdrew the tender offer and indeed had no intention of doing so. The situation was that Mr. Murphy had hijacked the shares. We wanted to get them out of the clutches of Mr. Murphy, who was retaining control over them illegally. We still wanted to buy the shares. This is the reason that we "agreed" to the return of the shares. However, Mr. Murphy refused to agree to allow the stockholders to have their own shares back. Therefore, the faxes sent by Mr. Bozulich were of no effect.
Next, you state that "two California courts have summarily dismissed" my claims. Apparently, you have joined the long list of those taken in by the lies of Tom Palmer. My suit filed in the California Superior Court, County of Alameda, entitled Sloan v. Murphy et al, No. 691810-1, has never been dismissed. The case is still pending. Mr. Palmer has never filed an answer or responsive pleading. I keep getting notices about this case from the clerk of the court, scheduling conferences.
What actually happened is that Mr. Palmer went down to the courthouse and spoke to a legal researcher there. I was present at the time. The lady in question simply nodded her head in response to various accusations made by Mr. Palmer. However, he filed no papers and nothing was done about the case. As a result, Mr. Palmer and the other defendants are in default.
This is a typical Tom Palmer maneuver. We filed a tender offer and complied with every S.E.C. rule. In response, Mr. Palmer stonewalled and pretended that our tender offer did not exist. We then filed a lawsuit in state court. Again, Mr. Palmer stonewalled and did not respond.
Finally, I filed a case in federal court in San Francisco. I have heard that a judgment was entered against me, but I have never yet received a copy of that judgment. As far as I understand the law, a judgment has no legal effect unless it is served on the adverse party. When and if I do get a copy of the court's decision, I will decide how to respond.
I am personally hoping that the S.E.C. brings an enforcement action over this. I can assure you that I will do nothing to help Mr. Murphy get his money. As far as I am concerned, Mr. Murphy has swindled both us and the other stockholders of Holden-Day. We were going to pay 40 cents per share and indeed we would still now pay 40 cents per share, provided only that Fred be removed from management control over this company so that he cannot further loot the assets. In short, all you have to do is put Humpty Dumpty back together again, and we will gladly pay 40 cents per share.
Incidentally, you might be interested to know the reason for Mr. Murphy's tenacious refusal to allow his company to be taken over. In his balance sheet, there is an item labeled "inventory" worth $9000. However, we have found out that this represents 22,300 books in his warehouse, with an average retail price of $40 per book. Under his plan of liquidation, Mr. Murphy personally gets to keep these books and the rights to their titles, on payment of a nominal sum. In short, he has a potential asset worth in excess of a half million dollars, which his shareholders are not fully aware of.
The reason for your complaining letter is that 285,000 shares of Holden-Day were tendered to us through DTC. Of these, Mr. Murphy tendered 205,000. Another 21,000 were tendered through DTC by Professor Phoebus Drymes, a friend of Mr. Murphy. A majority of the balance were tendered by Bill Funke, Professor Haldi, Wally Shows and other associates of Mr. Murphy.
In short, an ironic situation has arisen. All of the small stockholders, who have no connection with Fred Murphy, tendered their shares by mailing them directly to me, and all of them have now received their check for 20 cents per share. Almost the only ones who did not get the 20 cents per share were Fred Murphy and the others closely connected with him.
In short, we have no intention of terminating this tender offer. I am looking forward to getting sued by you. I have no intention of agreeing to have one cent paid to Mr. Murphy, who acquired his shares illegally in the first place, according to my research. If you do decide to file a lawsuit, I will make myself available for service of process, as will Mr. Bozulich, in Zadar.
Very Truly Yours,
P. S. If you want to learn something about federal securities law, you might consider picking up a copy of my recent book, "How to Take Over an American Public Company", which has nothing good to say about Fred Murphy and Tom Palmer, except to give them full credit for teaching me every dirty trick in this field.