A History Of Controversy Personal Bankruptcy, Failed Deals Mark Career Of Wismer’s Ronald Holden

Detroit businessman Ronald L. Holden has displayed an uncanny knack, over the past 20 years, for grabbing starring roles in investment schemes that involve little if any of his own money.

The man who now finds himself majority shareholder, chief executive officer and board chairman of Spokane’s Wismer Martin Corp., is described by past business associates as a “riverboat gambler” and “a man who could sell ice cubes to Eskimos.”

Prior to acquiring Wismer Martin, Holden survived bankruptcy, lawsuits and angry business associates.

And through it all, he has continued to make deals.

In exchange for a $100,000 promissory note executed in June of 1993 - just five months after he emerged from a personal bankruptcy - Holden obtained 4.5 million shares of stock in Wismer Martin, as well as ownership of a California company called Integrated Health Systems Inc. (IHS).

Then in February of 1994, as Wismer Martin’s majority shareholder and board chairman, Holden convinced the other members of Wismer’s board of directors that the Spokane company should buy IHS from him for $2.5 million in convertible debt.

If Holden doesn’t convert the debt to stock before Jan. 31, 1999, Wismer Martin will pay Holden the $2.5 million. In the meantime, Holden earns about $175,000 a year in interest on that debt in addition to the $200,000 salary he earns as Wismer Martin’s CEO.

And now, Wismer Martin, a healthy company only a year ago, appears to be struggling. During much of the past 12 months, it was bled of cash by IHS losses, according to a report prepared by one of its former chief financial officers.

Although Holden says IHS was Wismer Martin’s only profitable business unit during the past quarter, in 1994 IHS did not come close to matching the performance that was projected for it at the time of the acquisition.

At the company’s annual meeting in March, Holden denied reports that Wismer Martin was in financial trouble. But he nonetheless promised shareholders he would register a $2 million stock offering to infuse capital into the company, whose stock has fallen from $3.25 a share in February 1994, to about 65 cents a share today. Holden implied that the registration was imminent, saying that “on a fast track” the offering could inject the needed capital into Wismer Martin in “60 to 90 days.”

Only a week after the annual meeting, though, Wismer Martin’s longtime independent auditing firm Coopers & Lybrand abruptly resigned, expressing doubt to the federal Securities and Exchange Commission whether it could any longer certify Wismer Martin as “a going concern” for the purposes of the stock offering. The company was without an auditor until last week when Holden announced that BDO Seidman had signed on to replace Coopers & Lybrand.

So no stock offering has yet been registered with the SEC. Now that a new auditor has been retained, Holden says preparations for the stock offering will go ahead.

Others turn to Holden for help

“These people came to me,” Holden said last week in explaining his history of inclusion in big business deals financed with other people’s money.

“Dick Montgomery came to me in a situation where he had a small company and needed help. My relationship with (Ron) Aprahamian was the same. And every one of these businesses, at a shareholder level, was immensely successful.”

Montgomery and Aprahamian represent later chapters in Holden’s business career. The first of these people who Holden says turned to him for help was a man named George Nidiffer.

Holden, the son of a Ford Motor Co. executive, went to work in 1971 as a certified public accountant for Ernst & Whinney in Detroit. Nidiffer was one of his clients.

Nidiffer spent his working career building a small engineering company in Birmingham, a Detroit suburb where Holden still lives.

In the late 1970s, Nidiffer wanted to retire. He’d managed to build a company with $510,000 in liquid assets. But he was convinced that he’d lose too much of that to taxes if he simply took the money out of the company.

So Nidiffer sold his business to his accountant.

Holden paid Nidiffer $1,000, and signed a promissory note for $509,000.

Bankruptcy records retrieved from the federal archive in Chicago, and documents on file with the U.S. Securities and Exchange Commission, show that Nidiffer was Holden’s largest unsecured creditor in a Chapter 11 reorganization filed in March 1989, with a debt of $509,000. While he made interest payments on the promissory note to Nidiffer, Holden never paid anything on the principal.

When Holden voluntarily converted his Chapter 11 filing to a Chapter 7 liquidation in 1990, Nidiffer did not appear in the account of the final disposition of Holden’s assets.

Holden says he subsequently sold Nidiffer’s business to a group of longterm employees. He can’t recall how much they paid him, but he says the business has been very successful.

He says he never paid anything on the principal because the promissory note was assigned not to Nidiffer but to Nidiffer’s estate, so the note doesn’t come due until Nidiffer’s death. “In spite of the (bankruptcy) proceeding,” Holden said, “my obligation to George remains intact.”

The elderly Nidiffer, who lives in retirement in northern Michigan, is reluctant to discuss his dealings with Holden. All he would say is, “Five hundred thousand dollars is a bundle of money. A loss like that would hurt anybody.”

Holden ventures have mixed results

Holden’s next stop, in 1981, was Compucare Inc., a Virginia company owned by Ronald V. Aprahamian, whom sources indicate was Holden’s boyhood friend and college roommate.

Aprahamian was president and majority shareholder of Compucare, a computerized information services company in the health care industry. Aprahamian assembled a team of executives at Compucare, several of whom - Holden, Richard A. Montgomery and John Perez - would come to figure significantly years later in the Wismer Martin saga.

Aprahamian’s team grew Compucare and took it public. In 1985, Aprahamian sold the company to Baxter Travenol Laboratories, one of the nation’s largest health care industry suppliers. Sources say Compucare executives like Holden came out of the transaction with $1 million or more apiece.

“When we started out,” Holden says, “it was a $10 million business with no net worth. We sold it for $70 million.”

Aprahamian and Holden soon teamed up again, but this time, the outcome wasn’t nearly as profitable.

In the late 1980s, with the leveraged takeover frenzy creating and demolishing fortunes daily all around them, Aprahamian and Holden set their sights on an Atlanta firm called HBO & Co. They formed the Andover Group and began buying up stock in HBO, another health care computer services company.

Holden established himself as a principal player in the game - a 25 percent partner in Andover Group - without putting up any of his own money.

“My capital contributions to Andover Group to finance Andover Group’s purchases of HBO stock were borrowed from Ronald V. Aprahamian,” Holden told the SEC in April of 1987. “Such borrowings are evidenced by five promissory notes which I have executed in favor of Mr. Aprahamian, representing a total principal amount of $4,045,544.25.”

HBO resisted the takeover attempt, and the result was a proxy fight for control of HBO’s board of directors which Andover lost in June 1987.

“When we won,” Walter S. Huff Jr., who was chairman and CEO of HBO in 1987, recalled recently “our stock price really took a dive, and they took a bath.”

Andover was trying to regroup when the stock market crashed in October 1987. Soon after, Holden refused to honor the promissory notes to his former partner, who sources indicate was badly damaged in the market crash. So Aprahamian sued Holden in U.S. District Court in Virginia to force repayment of the millions Holden had borrowed to buy HBO stock.

Holden says he didn’t voluntarily repay the debts because, “There were other matters in dispute. This was a dispute between two partners. I ultimately paid him about $6 million, as I recall, in principal and interest.”

Under the court’s order, Holden paid two of the five notes, but then filed his Chapter 11. Aprahamian and the mortgage holder on Holden’s house were the principal secured creditors. Nidiffer was listed as the largest unsecured creditor. Besides the house and HBO stock, Holden’s assets amounted to $62,000 in bank deposits and $80,000 in stocks. Holden’s HBO stock was still held by Andover Group, which Holden also put into Chapter 11.

The Chapter 11s sheltered Holden for a year, but bankruptcy documents show his HBO stock was the collateral that secured his remaining debt to Aprahamian. When the stock price took a dive, rather than risk further devaluation of the collateral, the courts allowed Aprahamian to seize the stock.

So in October of 1990, Holden converted his Chapter 11 to a Chapter 7, and the court began the process of liquidating his remaining assets.

According to court documents, Holden and his wife emerged from bankruptcy in February 1993 with a total of $15,000 and some personal possessions.

Holden gains control of Wismer

About the time Holden was converting his Chapter 11 into a Chapter 7, he joined with fellow Compucare veteran Richard A. Montgomery in a project that would eventually leave Holden in control of Spokane’s Wismer Martin.

Montgomery joined with Merle Ryland in 1986 to found a California company that serviced health carerelated computer systems. By 1990, Montgomery Ryland Inc. (MRI) was thriving.

“We did MRI on a shoestring,” Ryland recalled recently, “and we got really lucky with some good clients. When I left we were up to $20 million (in revenues) and I think the company had a bright future for growth beyond that. I think we were on a very nice track.”

Holden says he bought into the company, although he had just converted his Chapter 11 into a Chapter 7. He could afford the purchase, he said, because “the company wasn’t worth much. I purchased my stock in a couple of different chunks, all for cash.”

Holden, Montgomery and Ryland formulated a plan to use Montgomery Ryland as a base from which to duplicate the success of Compucare. The plan was to make acquisitions and take the company public. They formed a corporation called National Healthtech Inc. to own Montgomery Ryland and whatever other companies they would acquire.

They focused their attention on Integrated Health Systems (IHS), another California company that was owned by a Boston company called Dynatech USA Inc. IHS was a software manufacturer, which specialized in the computerization of hospitals. IHS had performed well for Dynatech, and Montgomery was anxious to buy it, sources said.

At that point, April of 1991, Ryland bowed out of the picture.

“I wasn’t in favor of acquiring IHS, so I left,” he explained.

Montgomery, who still lives in Southern California, will not comment on what happened after that. Friends say he was hurt both financially and personally by what was to follow. All he wants to do now, close friends say, is put the whole episode behind him.

Other insiders of Montgomery’s companies during that period would not allow their names to be used. But this is their account of National Healthtech’s problems:

Holden and Montgomery negotiated a deal with Dynatech to purchase IHS for about $6 million. National Healthtech signed promissory notes to Dynatech for the purchase price and paid interest on the debt.

Almost immediately, the problems began. Some of the accounts that looked good on IHS books didn’t produce the revenues that were expected. Some customers were having problems with IHS software, and the company incurred costs repairing those problems. The sales staff was reconfigured and sales dropped. Unclear signals from management regarding philosophy and direction of the company alienated clients and potential customers.

And steep interest payments on the Dynatech debt compounded IHS’s problems.

As IHS losses mounted, Montgomery had to drain resources from the healthy Montgomery Ryland to keep National Healthtech afloat.

Late in 1991, National Healthtech acquired Wismer Martin, a Spokane software manufacturer that specialized in the computerization of doctor’s offices.

National Healthtech bought 52 percent of Wismer Martin’s stock from company founders Glen and Judy Martin for $1.7 million. That money was supplied by a Scottish investment company called Ivory and Sime, PLC.

In 1992, the IHS losses continued, and by early 1993, sources say, Montgomery Ryland was depleted of cash. Friends say Montgomery wanted out, and he told Holden to find a buyer.

Holden disputes that the conditions of the companies created a situation where Montgomery felt he had to sell. Although he agrees that both IHS and Wismer Martin were losing money, he denies that IHS was responsible for creating any kind of crisis for National Healthtech.

But they did find a buyer.

Affiliated Computer Services (ACS), a Dallas company, wanted Montgomery Ryland. It did not want IHS or Wismer Martin.

ACS paid $12.4 million for National Healthtech and the Montgomery Ryland subsidiary. According to the purchase agreement between ACS and Montgomery, $3.15 million of those funds went to settle the Dynatech debt. Another $2.9 million went to Ivory & Sime to pay off their investment in the acquisition of Wismer Martin.

Montgomery, who owned 629,000 shares of National Healthtech, got $1.25 million in cash plus stock options and a position with ACS. Holden, who owned 400,000 shares, got $1.36 million, and more. He also got Wismer Martin and IHS. He signed a $100,000 promissory note to National Healthtech for all of IHS and the 52 percent of Wismer Martin’s stock owned by National Healthtech. In June 1993, Wismer Martin’s stock was trading at 28 cents a share, giving Holden’s stock a face value of $1.2 million.

In a report to the SEC dated June 18, Holden told the SEC that he “will use paid $100,000 in personal funds” to acquire the two companies. And, he said, the price of the Wismer Martin stock was discounted because that stock served as collateral securing the indebtedness of National Healthtech to Dynatech and Ivory & Sime.

“The approximate amount of the indebtedness is $6 million,” Holden stated in his report. “Because of this lien, the purchase price is not reflective of the current fair market value of the shares of common stock of Wismer Martin Inc.”

Holden says that despite his role in negotiating the sale of National Healthtech to ACS, he didn’t know at the time of his report to the SEC that the debt would be paid off under terms of that sale, which closed 12 days later.

“It was a condition of the sale to ACS that IHS and Wismer Martin had to be sold prior to that deal,” Holden said. “Any buyer faced the very real possibility that they were buying nothing because Dynatech and Ivory & Sime could have kept the collateral. So nobody else was going to buy those businesses.”

In any case, Holden had once again, with little money out of his own pocket, found himself in control of companies built with other peoples’ investments.

MEMO: This sidebar appeared with the story: Management shuffle Wismer Martin has shuffled its officers and directors since Ron Holden acquired controlling interest in February 1994. Wismer Martin’s board and officers in February 1994: Chairman - Ron Holden Board members John Perez Stan Hatch Glen Martin Clarence Barnes Larry Eidemiller President and Chief Executive Officer - Stan Hatch Chief Financial Officer - Robert Wilson Wismer Martin’s board and officers today: Chairman - Ron Holden Board members John Perez Glen Martin Clarence Barnes Larry Eidemiller William Engle Chief Executive Officer - Ron Holden President - John Perez Chief Financial Officer - Doug Willford In February 1994, Ron Holden was board chairman of Integrated Health Systems; John Perez was CEO of Integrated Health Systems; Doug Willford was CFO of Integrated Health Systems. Source: Staff research