The War Is on Between Gradco, Plenum
Gradco Systems Inc. and Plenum Publishing Corp. traded salvos Thursday as both companies sent out letters to shareholders criticizing the other’s ability to turn around the struggling manufacturer of sorters for copiers and computer printer products.
Keith B. Stewart, chairman and chief executive of Irvine-based Gradco, said in a shareholder letter that Plenum’s chairman, Martin E. Tash, and his slate of proposed board members have no experience in Gradco’s primary businesses. He said Tash is a disgruntled shareholder who made an “unprofitable speculative” short-term investment in Gradco.
Stewart has proposed to spin off the money-losing Gradco Printer Systems subsidiary, which makes computer printer products, into a separately traded and managed company as well as launch a public offering in Japan for the company’s sorter products subsidiary.
“Do not risk control of your company and the future of your investment to a slate with no apparent knowledge of Gradco’s businesses,” Stewart said.
Tash said in his letter that Gradco management is fighting an expensive campaign against Plenum with Gradco’s money. He said that Gradco management is not working to maximize shareholder value and that its spinoff plan should not be a factor in the proxy fight.
Stewart has made little investment in his own company, and a number of executives have sold their stock, reflecting a lack of confidence in the company, Tash said. “Mr. Stewart is simply a hired hand, not a shareholder,” he said.
The statements were the strongest efforts yet by both sides to win the votes of shareholders since New York-based Plenum, a small publisher of scientific journals that controls 9.6% of Gradco stock, launched a battle to take control of Gradco’s board a month ago.
Tash has filed a shareholder suit accusing Stewart and certain Gradco executives of misappropriating corporate assets by
awarding themselves warrants to buy shares in the Gradco Japan subsidiary at a discount price that could net them a windfall of more than $12 million.
Gradco said in its letter that management believes that the $26.5-million investment by Japanese investors in Gradco Japan would not have transpired without an investment by Gradco management in the subsidiary as represented by the warrant transaction. The shares granted to management were restricted and therefore were offered to management at a discount, the letter said.
Gradco also disclosed that its debt of $25.1 million at the end of March was at risk of being called due because of its failure to meet financial covenants. Management tried to sell the company, but it decided that buyers would not offer a fair price because the company had lost its largest customer, Xerox Corp., which accounted for $21 million in revenue.
