Hurwitz testimony before Congress

[Witnesses sworn.]
Mr. DINGELL. You may each consider yourself under oath.
Mr. Hurwitz, who came up with the idea‹do you have a statement?

TESTIMONY OF CHARLES HURWITZ, CHAIRMAN, MAXXAM CORP., ACCOMPANIED BY
STUART EIZENSTAT, COUNSEL; AND JOHN CAMPBELL, EXECUTIVE VICE PRESIDENT,
PACIFIC LUMBER CO.

Mr. HURWITZ. Yes, sir, I do.
Mr. DINGELL. Then we will recognize you for a statement.
Mr. HURWITZ. Mr. Chairman, I have a brief statement, and it is broken
into two parts.
Mr. DINGELL. That is entirely appropriate.
Mr. HURWITZ. John Campbell will give the second part.
Mr. DINGELL. Very well, Mr. Campbell will be recognized after we
recognize you.
Mr. HURWITZ. Good morning, Mr. Chairman and members of the subcommittee.
I am Charles Hurwitz, Chairman of the Board of MAXXAM Group, and I appear
here this morning voluntarily in response to the subcommittee’s letter of
invitation to discuss the recent acquisition of The Pacific Lumber Co. by
MAXXAM. I am accompanied by Stu Eizenstat, counsel, and Mr. John
Campbell, Executive Vice President of Pacific Lumber for Forest Products
Operations.
Mr. Chairman, when MAXXAM learned of the subcommittee’s interest in this
transaction, we set out to be as cooperative and forthcoming as possible.
We instructed our attorneys to meet with the subcommittee staff and
indicate that we intended to cooperate fully.
That meeting took place on Monday, September 28. We provided the staff
with a briefing on the details of the transaction on Thursday, October 1.
We had extensive telephone conferences with the staff that day, as well,
and we provided other information.
Throughout our extensive contact with the staff, we understood that the
MAXXAM-Pacific Lumber transaction was being used as a kind of ³case
study,” to illuminate some of the important policy issues now before the
Congress in its consideration of legislation governing the tender offer
process.
On Friday morning, I began receiving telephone calls from reporters
seeking my reaction to reports of possible insider trading and other
allegations in connection with this transaction. It became evident that
the focus of this morning’s hearing was going to be very different.
It is difficult enough, Mr. Chairman, to prepare adequately in the time
normally permitted for appearances such as this. The events I have just
described have made that task even more difficult; very difficult in
fact, given that this weekend was a holiday for many of us. Nevertheless,
we have worked hard to prepare for today¹s hearing, and we will try to be
as helpful as we can.
MAXXAM was advised at every turn by highly competent and experienced
legal counsel, and we complied with the Williams Act, the
Hart-Scott-Rodino Act, and all other laws.
As I will describe in a moment, there was some unusual movement in the
price of Pacific Lumber stock. To my knowledge, however, no one at MAXXAM
or any of the people working for us were responsible for leaking any
information about this transaction or responsible for any illegal
trading.
Mr. Chairman, MAXXAM’s acquisition of Pacific Lumber in late 1985 was
good for the company, good for its shareholders, good for its employees,
and good for the somewhat depressed North Coast California logging
community.
The all cash tender offer at $40 per share for all outstanding shares
was at a 30-percent premium over the previous market price of Pacific
Lumber shares. Among the shareholders profiting from this transaction
were Pacific Lumber employees, community residents and thousands of
others across the Nation.
Since the merger, Pacific has added 300 new employees, with the result
that some $10 million annually in additional employee compensation has
been pumped into the local economy.
Pacific has sold a cutting and welding subsidiary at a profit, just as
Mr. Bertain suggested, and disposed of an unneeded headquarters facility
in San Francisco. It made some $34 million in major capital expenditures
in the Scotia area in 1986, and by the end of 1987, we expect to have
made another $22 million in such expenditures.
Pacific Lumber has cultivated timber in California since 1869. It now
owns 194,000 acres of timberlands containing Douglas fir, coastal
redwoods, and other timber species in Humboldt County, CA.
Pacific Lumber is an institution that has contributed greatly to
northern California in its 100-plus years of existence. It was not
operating up to its potential, however, from the point of view of its
shareholders and employees and the surrounding community.
In response to Congressman Oxley, the tender offer document says that
its intention was to double the current cut.
MAXXAM’s evaluation of possible acquisition candidates began in late
1984. MAXXAM has just sold its pattern business, and with the cash on
hand, publicly announced that it was interested in purchasing
acquisitions.
At this point, Pacific Lumber was only one of several companies under
review. The investment banking firm of Drexel Burnham Lambert began to
analyze various forest products companies for MAXXAM, and Pacific Lumber
was among the companies that Drexel Burnham included in its analysis.
MAXXAM’s attention was also drawn to Pacific because Pacific made an
oversubscribed offer to purchase its own stock during September 1984.
In addition to the work that MAXXAM itself did to analyze and evaluate
acquisition candidates, MAXXAM also found that many of the large Wall
Street investment banking firms were calling to offer their services in
helping MAXXAM to find appropriate acquisition candidates. While Drexel
Burnham was doing its analysis concerning the merits of various
investments or potential acquisition candidates, MAXXAM was itself
raising additional funds and looking at other potential candidates.
In May 1985, MAXXAM raised $150 million with an offering of high-yield
securities which was intended, as was disclosed at the time, to finance
future acquisitions. We raised this money in part so that we could
increase the amount of cash we could pay to the shareholders of any
company for which we decided to make a tender offer.
MAXXAM was then approached by representatives of AMF, Inc., to explore
whether MAXXAM would be interested in acquiring that company. After
retaining the investment banking firm of Shearson Lehman Brothers to
assist us, we made an offer to AMF¹s board to commence a tender offer to
be followed by a merger.
In the middle of June, we were outbid by another company. Had the AMF
transaction been consummated, it is highly unlikely that we would have
acquired Pacific Lumber afterwards.
Having lost our bid, we began to focus in more detail on Pacific Lumber.
Looking at Pacific Lumber, we saw a company with little debt, no
concentration of ownership, and some timber assets that appeared to be
essentially free from foreign competition. Starting on June 24,1985,
MAXXAM began to purchase shares.
As a result of our lawyers’ analysis of Pacific Lumber’s charter and
bylaws, we concluded that MAXXAM should keep its purchases of Pacific
Lumber stock under 5 percent. We came to that conclusion because under
these corporate provisions, it was more difficult to consummate a merger
after the tender offer if the acquiror owned more than 5 percent of
Pacific Lumber’s outstanding shares before the Board approved this
merger.
In that event, a super-majority vote of 80 percent of the shareholders
and the Board would have been required to approve the merger. Pacific
Lumber’s charter and bylaws thus contained a defense mechanism against a
takeover. We therefore made a conscious decision to keep our holdings of
Pacific Lumber below 5 percent, and in fact, we owned less than 5 percent
of the stock until we purchased shares pursuant to the tender offer.
By August 1985, MAXXAM had purchased approximately 450,000 shares of
Pacific Lumber. MAXXAM stopped at that level to permit us to continue to
evaluate the feasibility and desirability of the transaction, and because
under the Hart-Scott-Rodino Antitrust Act, MAXXAM could not purchase
shares valued at more than $15 million without obtaining antitrust
clearance.
There were, of course, no antitrust issues in this transaction, since
MAXXAM owned no forest products assets. Nevertheless, we were careful to
comply with this law.
In early August 1985, I had discussions with Jefferies & Co. concerning
the possibility of entering into a put/call option agreement with
Jefferies for the purchase of a block of approximately 500,000 shares of
Pacific Lumber stock.
I learned from them for the first time of this option technique when
Jefferies and Minstar used it in the AMF transaction in which MAXXAM had
been an unsuccessful bidder. We were advised by our attorneys that MAXXAM
could, consistent with the Hart-Scott-Rodino Act, enter into a
Minstar-type option agreement for the purchase of an additional block of
Pacific Lumber shares.
I therefore told Jefferies that if he could accumulate a block of
approximately 500,000 shares of Pacific Lumber stock, we were interested
in entering into this type of an option arrangement, subject to an
agreement when the time came on the price and other terms of sale.
Sometime during the week of September 23, Jefferies indicated that he
had accumulated the block of stock we had discussed. He told me that he
would be willing to sell the shares at $29.10. I told him that the price
was acceptable, but that he should send over a draft of the option
agreement to our attorneys so that the other terms of the agreement could
be worked out.
Jefferies’ attorneys, in fact, sent us a form of a proposed option
agreement, without names or certain other terms, late in the day on
Thursday, September 26. That document, however, called for a
representation that there were no plans for a tender offer for Pacific
Lumber.
We could not make that representation, of course. On Friday, September
27, we told Jefferies that we would be unable to enter into the option
agreement on the terms he proposed Instead, we proposed that MCO holdings
and MAXXAM would buy shares outright at the $29.10 price.
Jefferies agreed, and as a result of the purchases on that day, MCO and
MAXXAM owned a total of approximately 4.6 percent of Pacific Lumber Co.’s
outstanding shares, while neither entity owned shares with a market value
of more than $15 million.
I think it may be helpful to the subcommittee to clarify the way in
which these purchases were made. First, our purchases of Pacific Lumber
shares were always under 5 percent of the total shares outstanding. That
includes the shares purchases from Jefferies. We were never in a posture
that would have required the filing of a Schedule 13D.
Second, until we agreed to purchase the shares on September 27, we did
not own or control them.
Third, we were advised by our attorneys that MAXXAM could enter into an
option agreement, like that employed in Minstar and in many other
subsequent transactions, consistent with the Hart-Scott-Rodino Act. We
were also advised by our attorneys that MCO and MAXXAM could have
purchased the shares outright, as they subsequently did.
This arrangement, we were told by our attorneys, complied with the
Hart-Scott-Rodino Act, and all other applicable laws. And when our offer
was announced, we made all filings appropriate under the
Hart-Scott-Rodino Act in a timely manner and obtained the necessary
clearance under that statute before purchasing any shares pursuant to our
tender offer.
On Thursday, September 26, 1985, as the lawyers and investment and
commercial bankers were working on the papers to structure the terms of
the offer, the price of Pacific Lumber shares suddenly jumped from
approximately $29 per share to $33 per share in the last hours of
trading.
This price jump has raised concerns about possible insider trading. I
share those concerns. Insider trading is illegal and distorts the market.
MAXXAM and I remain vitally interested in the results of any governmental
investigation relating to improper trading in Pacific Lumber shares. If
there has been any illegal trading, we will of course consider proceeding
on our own against the individuals involved.
All of us at MAXXAM were highly disturbed by the price jump, to say the
least, and it nearly caused us to abort our bid, which we had planned to
announce on Tuesday, October 1. Considering that there were roughly 21
million shares of Pacific Lumber stock then outstanding, the price jump
may have cost MAXXAM upwards of $60 million.
In preparing for the tender offer, we had maintained strict
confidentiality, and we tried to limit the people who knew the name of
the target company to those who needed to know to help us effect the
transaction.
We were also concerned that if there had in fact been a leak, the market
would run away from us when it reopened on Friday morning. Hurricane
Gloria hit New York, however, and the stock exchange did not open.
MAXXAM had a reprieve, and we decided to take advantage of that Friday
and the weekend to prepare to announce our offer the following Monday,
September 30, 1985, before the markets reopened, thereby moving up by 1
day the time of the proposed tender offer.
In light of interest that has recently been expressed, I want to state
that I do not recall ever discussing Pacific Lumber stock as an
investment with Stanley Cohen, although it is possible that the company’s
name may have come up in a conversation between us about a number of
different investments.
I know for a certainty that I never told or suggested in any way, shape
or form to Mr. Cohen, or indeed anyone else, that MAXXAM was
contemplating making a tender offer for Pacific Lumber shares.
I did not hear that Transcontinental Services Group or anyone affiliated
with it might have purchased shares prior to our tender offer until long
after the tender offer, when we received regulatory inquiries mentioning
its name.
I would like to turn over, Mr. Chairman, if I may, the second half of
this to John Campbell. Thank you.
Mr. DINGELL. MR. Campbell.

[see TESTIMONY OF JOHN CAMPBELL]

The Chair is going to recognize himself first. Mr. Hurwitz, who came up
with the idea of taking over Pacific Lumber‹was it you or was it some
other person such as Drexel Burnham Lambert?
Mr. HURWITZ. Mr. Chairman, I think it was probably a combination. I have
looked, I am somewhat of a student of companies that are listed on the
various national exchanges‹I have had an interest in the forest product
industry for some period of time.
In our New York office, another gentleman, not myself, did ask a fellow
named Bob Quirk, who was a security analyst in the forest product
industry at Drexel Burnham Lambert to look at the industry for us, and it
was one of, I think, 8 to 10 companies that was in the list, and out of
that, Pacific Lumber is the one that was eventually picked.
Mr. DINGELL. You are saying you came up with the idea you were to take
over forest products company, and then Drexel Burnham Lambert identified
it for you?
Mr. HURWITZ. I wouldn’t say that we came up with the idea that we were
going to take one over. It was an industry that we had an interest in. We
were trying to get more familiar, and we asked Drexel Burnham to do some
work in that industry.
Mr. DINGELL. To identify a company in which you might acquire an
interest?
Mr. HURWITZ. Yes, sir. They did not come up and pick out Pacific Lumber
and say, this is the most attractive. They gave us a list, and I think
combined that we determined that Pacific Lumber was an attractive
company.
Mr. DINGELL. They said it was a good company?
Mr. HURWITZ. Yes sir.
Mr. DINGELL. Did you then decide to take the company over?
Mr. HURWITZ. A lot goes in between there. There are a lot of
companies that look interesting. We look at many of them.
Mr. DINGELL. There were others who were involved in this judgment?
Mr. HURWITZ. Well, sir, during this period of time, as I testified, we
almost took over AMF and we were asked by the company to come in, and
they had someone else trying to take it over, and we came, I think,
within maybe 25 cents a share of being a successful owner of that
company.
Mr. DINGELL. Now, who all participated in that judgment when it was
made‹just you or did Drexel Burnham Lambert participate in the judgment?
Mr. HURWITZ. We had a fellow in New York, and he spent most of his time,
a fellow named Robert Rosen, and most of this work, virtually all of it
was done in New York City.
Mr. DINGELL. Did any of the other companies that you own or have
interest in participate in those judgments?
Mr. HURWITZ. No, sir, other than myself.
Mr. DINGELL. Mr. Hurwitz, the documents provided to the subcommittee by
the Irving Trust Co. show that a great deal of effort was expended by
MAXXAM to keep secret the identify of the target company, Pacific Lumber.

Is that level of secrecy in a takeover attempt such as Pacific Lumber
the normal and orderly course, or does it go beyond the orderly course of
acquisitions?
Mr. HURWITZ. I do want to say, Mr. Chairman, that this is the only
hostile takeover that I have personally ever been involved with. Now that
I have said that, I think there is secrecy and should be, and I know that
we went to great lengths to make sure that no one was involved that
didn’t have to be involved.
And one of the things we did is we tried to do what we call a timber put
with Lloyd¹s of London, and my personal largest concern was that they¹d
have to take the company over there to Lloyd’s and disclose it to people
that we didn’t know, and that had a great deal of concern.
Mr. DINGELL. Can you tell us why such secrecy is necessary to accomplish
a takeover on financial terms that are favorable to the acquiring
company?
Mr. HURWITZ. Mr. Chairman, I think what would happen if the information
got out, that the stock would probably go up, and it would go up to a
point where it would not be economically feasible to take over the
company.
Mr. DINGELL. Are there legal requirements that takeover of the company
be kept secret until a public announcement of the takeover is made?
Mr. HURWITZ. Yes, sir. I don’t think that legally you can announce that
you are taking over a company unless you have the financing and documents
ready to do so.
Mr. DINGELL. What are the statutory requirements that require that the
name of the target company be kept secret until the takeover process
commences?
Mr. HURWITZ. I am not a lawyer and I don’t know that I can quote that.
Mr. DINGELL. As a matter of fact, you are not aware of any, are you?
Mr. HURWITZ. It is my understanding that you are not supposed to
disclose anything, particularly if you are going to make a takeover of a
company.
Mr. DINGELL. On what basis?
Mr. HURWITZ. I would guess to avoid insider trading.
Mr. DINGELL. That is only to avoid insider trading, but if you announce
it publicly, everybody knows.
Mr. HURWITZ. Yes Sir.
Mr. DINGELL. Then what is the purpose of the secrecy in this case? Was
it to avoid insider trading problems? Was it to avoid alerting the target
company? Was it to comply with some particular statute-you were obviously
advised by lawyers. Why did your lawyers advise you to maintain this high
level of secrecy?
Mr. HURWITZ. Well, certainly for the reasons you mentioned, to avoid
insider trading and two, I assume, having the company not know about it
until you are ready.
Mr. DINGELL. You didn’t want the company to know about it?
Mr. HURWITZ. No, Sir.
Mr. DINGELL. According to the time line prepared by your company, the
takeover of Pacific Lumber was considered and studied by MAXXAM for a
period of about 10 months, from December 1984 until public announcement
of a tender offer on September 30, 1985.
The effort by MAXXAM involved company firms of MAXXAM and it involved
persons at Drexel Burnham Lambert, and it also involved personnel at at
least three law firms; is that correct?
Mr. HURWITZ. Yes, Sir.
Mr. DINGELL. Can you tell us what procedures were used to keep secret
the identify of Pacific Lumber as a takeover target?
Mr. HURWITZ. Well, I don’t know that I can tell you the exact procedures
except we were certainly advised all along the way that insider trading
would be bad for this, and that we shouldn’t talk to anyone about the
possibility of taking over the company, plus the fact is that we didn’t
know until right at the end whether we were ever going to make a tender
offer for it.
Mr. DINGELL. Were there ever any written instructions made in your
company or by letter to any of your associates or the other companies
that were associated with your corporation or with regard to the lawyers
with regard to this point, or did the lawyers ever make any responses to
you with regard, or to any of the other corporations, with regard to
silence on these points?
Mr. HURWITZ. No, Sir, not that I recall.
Mr. DINGELL. When was the decision made that MAXXAM would attempt a
takeover of Pacific Lumber?
Mr. HURWITZ. You mean what date?
Mr. DINGELL. Yes, Sir.
Mr. HURWITZ. We worked on it in late August and all the way through
September.
Mr. DINGELL. This is of 1984 or 1985?
Mr. HURWITZ. This is 1985. And we didn’t know until approximately that
time whether it was even a good candidate, and we had gone out and had a
new cruise made to see if it was something we really had an interest in.
Mr. DINGELL. Did you buy any Pacific Lumber stock before the decision to
actually effect a takeover was made?
Mr. HURWITZ. Yes, sir, we did.
Mr. DINGELL. Can you tell us how much stock you purchased and on what
date?
Mr. HURWITZ. Yes, sir. I think we purchased approximately 450,000
shares–
Mr. DINGELL. That was bought on what date?
Mr. HURWITZ. I am checking here. We started buying in June. I am trying
to see when we finished here.
Mr. DINGELL. You say that began in June?
Mr. HURWITZ. Yes, sir.
Mr. DINGELL. And when was it completed?
Mr. HURWITZ. I think in early August.
Mr. DINGELL. Now, can you tell us when the decision was made to commit
MAXXAM to the takeover, and how was a decision made?
Mr. HURWITZ. Well, I think that we worked on financing. You mentioned
Irving Trust. We had a lot of conversations with them, and they had to
tell us whether, in fact, they could put together a bank syndicate. You
mentioned that we went to great lengths to make sure it didn’t leak out
of Irving Trust. We asked them not to contact other banks during that
period of time, even though we had to disclose the name of Pacific Lumber
to them.
Mr. DINGELL. When did those discussions with Irving Trust take place?
Mr. HURWITZ. I think those were in September.
Mr. DINGELL. September.
Mr. HURWITZ. Yes, sir.
Mr. DINGELL. Like what day in September.
Mr. HURWITZ. Mr. Chairman, I am searching for it. I did not have those
conversations with Irving Trust. They were done all in New York, and I
was in Houston.
Mr. DINGELL. Would it be fair to say that you actually began your
discussions with Irving Trust as early as August 23?
Mr. HURWITZ. Yes, sir, that is certainly possible.
Mr. DINGELL. So that is before September.
Mr. HURWITZ. Yes, sir. I didn’t know the date.
Mr. DINGELL. And those discussions continued through August, through
October 2?
Mr. HURWITZ. Again, I don’t know the dates on that.
Mr. DINGELL. What were the initial discussions with Irving Trust?
Mr. HURWITZ. Again, I didn’t attend any of those meetings with Irving
Trust. Maybe I attended one. But all of the negotiations were handled in
New York, and I think the conversations were: “Would they be willing to
put up some type of loan to take over Pacific Lumber?”
Mr. DINGELL. Did you make those discussions?
Mr. HURWITZ. Did I personally?
Mr. DINGELL. Yes.
Mr. HURWITZ. No, sir.
Mr. DINGELL. Who did?
Mr. HURWITZ. It was handled by Robert Rosen and Glen Kassan.
Mr. DINGELL. Robert Rosen, who is he please?
Mr. HURWITZ. Vice Chairman of the Board of MAXXAM.
Mr. DINGELL. Could you identify the persons at MAXXAM and other
organizations under control of yourself or MAXXAM who knew Pacific Lumber
was a takeover target prior to the public announcement?
Mr. HURWITZ. You said inside of MAXXAM?
Mr. DINGELL. Yes, sir. Who were at MAXXAM or associated with MAXXAM or
you who knew of the takeover?
Mr. HURWITZ. Lillian Affinito, she was President of MAXXAM. I mentioned
Robert Rosen, he was Vice Chairman; Glen Kassan, he was the Chief
Financial Officer.
Mr. DINGELL. Could you give us the dates on which they became aware
also, if you please?
Mr. HURWITZ. I don’t know, sir.
Mr. DINGELL You don’t know the dates?
Mr. HURWITZ. No.
Mr. DINGELL. Who else at MAXXAM or in companies associated with MAXXAM
knew this?
Mr. HURWITZ. There were two other people in MAXXAM’s office, a fellow
named Walter Fitzgerald and Seth Mandel.
Mr. DINGELL. Who else.
Mr. HURWITZ. I believe that is it at MAXXAM, in MCO holdings.
Mr. DINGELL. You said Owens?
Mr. HURWITZ. No, sir. No, sir. MCO holdings, another company. We have
MCO holdings, Dr. William Leone, Bill Leone knew.
Mr. DINGELL. When did that company, and who were the officers in that
company who became aware of this?
Mr. HURWITZ. We had a Board of Directors meeting in July.
Mr. DINGELL. July?
Mr. HURWITZ. Yes, sir. And we informed the Board that we were looking at
Pacific Lumber, and the Board of Directors knew we were looking at it,
but they also knew that we were interested in other things as well. It
was very preliminary. So the Board of Directors of MAXXAM, as well .
Would you like those names, sir?
Mr. DINGELL. If you would read them quickly please.
Mr. HURWITZ. George Kosmetsky, David Lerner, John Sands, Bob Johnson,
and the other names I had already mentioned knew about it.
Mr. DINGELL. MCO holdings is an affiliate of MAXXAM?
Mr. HURWITZ. No, sir, MCO holdings owned at the time approximately 37
percent of MAXXAM.
Mr. DINGELL. So they are part owner of MAXXAM?
Mr. HURWITZ. Yes, sir.
Mr. DINGELL. Thirty-seven percent?
Mr. HURWITZ. Yes, sir, approximately 37 percent. And there were some
other people at MCO holdings that knew. Jim Iaco, the Chief Financial
Officer; and Paul Schwartz, Senior Vice President; and Howard Bressler,
General Counsel.
Mr. DINGELL. They were all aware of that?
Mr. HURWITZ. Yes, sir.
Mr. DINGELL. The Chair notes that my time has expired. I will return to
these questions later. The gentleman from Oregon. I am sorry, the Chair
is going to recognize the gentleman from Virginia, Mr. Bliley.
Mr. BLILEY. Thank you, Mr. Chairman.
Mr. Hurwitz, how did MAXXAM intend to go about undertaking the tender
offer?
Mr. HURWITZ. We announced it was an all-cash offer for 100 percent of
the shares.
Mr. BLILEY. Was the first step to acquire a stake in Pacific Lumber
without public disclosure?
Mr. HURWITZ. I didn’t get the last part.
Mr. BLILEY. Was the first step in this takeover process to acquire a
stake in Pacific Lumber without public disclosure?
Mr. HURWITZ. Yes, sir.
Mr. BLILEY. How big a stake did you intend to acquire?
Mr. HURWITZ. We decided we did not want to go over 5 percent of the
bylaws and that triggered 80 percent of the people who had to vote for
the merger. So what we wanted to accomplish is to buy up to 5 percent.
Mr. BLILEY. How did you go about acquiring the shares, how did MAXXAM go
about acquiring the shares?
Mr. HURWITZ. Sir, it involves approximately 450,000 shares, and in late‹

Mr. BLILEY. Who bought the shares?
Mr. HURWITZ. MAXXAM Group purchased them.
Mr. BLILEY. On the open market?
Mr. HURWITZ. They bought 450,000 shares in the open market, yes, sir,
and then‹
Mr. BLILEY. What brokerage houses handled the accounts?
Mr. HURWITZ. I just don’t recall, sir. I know Drexel Burnham purchased
some shares, sir, and there may have been other brokers.
Mr. BLILEY. But you don’t know who, and you don’t know how many?
Mr. HURWITZ. I don’t recall at this time.
Mr. BLILEY. Will you provide that for the record?
Mr. HURWITZ. Yes, sir. [See appendix A, p. 141.]
Mr. BLILEY. Thank you.
When were the shares purchased? When did it begin, and when did they
end?
Mr. HURWITZ. June 24 is when we started purchasing, and sometime in
early August that 450,000 shares was purchased.
Mr. BLILEY. That accounts for about half of the 994,300 shares that
MAXXAM owned on the day the tender offer was announced. What about the
rest?
Mr. HURWITZ. Well, the balance of that, sir, was purchased in late
September, of which MCO holding bought approximately 500,000 shares,
slightly less than that.
Mr. BLILEY. Is not MCO holding under your control, Mr. Hurwitz?
Mr. HURWITZ. Sir, I am the Chairman of the Board and Chief Executive
Officer, yes, sir.
Mr. BLILEY. And the bulk of those 494,900 shares were purchased from one
seller?
Mr. HURWITZ. Yes, sir.
Mr. BLILEY. The date of that sale?
Mr. HURWITZ. I think that was September 27.
Mr. BLILEY. Were they purchased from Jefferies and Co.?
Mr. HURWITZ. Yes, sir.
Mr. BLILEY. How did the sale come to take place? In other words, how did
MCO know Jefferies had this large block of Pacific Lumber sales?
Mr. HURWITZ. In early August, I talked with Jefferies and Co. and told
them that I had an interest in purchasing approximately 500,000 shares of
stock under a put-and-call option agreement. And subject to the terms of
that agreement and the price and the number of shares that I had an
interest in doing that, and I became aware of that in the transaction
with AMF. They had done that transaction with the other party, a company
called Minstar, so I asked them if they would do such a transaction. They
said that they would.
Their lawyers, on August, I think August 5, contacted our lawyers, and
our lawyers informed me that this type of transaction was legal, and if
we wanted to, we could certainly enter into such an agreement. I talked
to Jefferies, I told him that, and told him if in fact he could show us a
large block of stock‹
Mr. BLILEY. You talked to Jefferies personally?
Mr. HURWITZ. Yes, sir.
Mr. BLILEY. Do you remember what day?
Mr. HURWITZ. No, sir. It was in early August.
Mr. BLILEY. It was in August, 1985?
Mr. HURWITZ. Yes, sir.
Mr. BLILEY. How much did you pay Jefferies for those shares on September
27?
Mr. HURWITZ. $29.10.
Mr. BLILEY. How was this price arrived at?
Mr. HURWITZ. From the time that I originally talked to Jefferies and
told him that I had an interest in this put-call option, which my lawyers
reviewed and said it was legal, and that many people were doing them, I
talked to Jefferies during that period of time, and he did inform me in
late September that he had in fact approximately 500,000 shares of stock,
and I told him would he please send the documents under such arrangements
to our lawyers, and that we would like in fact to enter into such an
agreement; and he told me at that time that his, the price would be
$29.10 a share, which was the approximate market at that time.
They did, in fact, send the papers over to my lawyers, and the lawyers
looked at it, and they found that there was a great deal of difficulty
and the difficulty came that in the agreement that Jefferies sent over,
it said that they would not enter into such agreement if there was a
contemplated tender offer.
Mr. BLILEY. I am aware of that in your other testimony. Were you aware
at any time that Jefferies was buying stock himself?
Mr. HURWITZ. Yes, sir.
Mr. BLILEY. At what point?
Mr. HURWITZ. During this period from August he had mentioned from time
to time that he may be purchasing stock with the idea, and we told him
that we certainly had an interest in a large‹500,000 shares, roughly
500,000 shares if he could give it to us under this option agreement at
the right price.
Mr. BLILEY. Now, you bought this on September 27 at $29.10 a share.
Mr. HURWITZ. Yes, sir.
Mr. BLILEY. Do you know that the stock actually closed that day at $33 a
share?
Mr. HURWITZ. Yes, sir. The market was closed that date Congressman, as
you know.
Mr. BLILEY. You got quite a deal.
Mr. HURWITZ. Well, sir, when I talked to Jefferies earlier that week, we
had determined the price, and we were riding in agreement. That was the
price we had agreed to.
Mr. BLILEY. Mr. Jefferies, I am sure, had been involved in these type
operations a lot of times. I can’t understand why a knowledgeable player,
such as Mr. Jefferies, would be willing to sell you this large block of
shares at $29.10 in a rapidly rising market. Do you know?
Mr. HURWITZ. Yes, sir, I do know that he had agreed with me earlier that
week that we were going to attempt to do this put-call arrangement, which
I mentioned to you, and that was the price that was going to be in it.
Mr. BLILEY. But did you actually do a put-call or did you do a straight
sale?
Mr. HURWITZ. We had found out we couldn’t do the put-call, and so we
called him up, I asked my lawyers what alternatives we had, and they said
the other alternative which we had discussed all along was for MCO
holdings just to purchase the shares, and by doing that, that they would
enter into an agreement with MAXXAM in case we were unsuccessful in the
tender offer that it would be for a sum of the costs.
Mr. BLILEY. Did you have any explicit or implicit agreement with Boyd
Jefferies to acquire and hold Pacific Lumber stock for you.,
Mr. HURWITZ. No, sir.
Mr. BLILEY. I would be happy to yield, Mr. Chairman.

Mr. DINGELL. In your statement, you said, ³This arrangement, we were
told by our attorneys, complied with the Hart-Scott-Rodino Act and all
other applicable laws. When our offer was announced, we made all filings
appropriate under the Hart-Scott-Rodino Act and obtained the necessary
clearance under that statute before purchasing any shares pursuant to our
tender offer.² Is that correct?
Mr. HURWITZ. Yes, sir.
Mr. DINGELL. You also said earlier, ³We were advised by our attorneys
that MAXXAM could enter into an option agreement like that employed in
Minstar and in many other subsequent transactions consistent with
Scott-Hart-Rodino. We were also advised by our attorneys MCO and MAXXAM
could have purchased the shares outright², as they subsequently did. Did
you function then under an option arrangement, or did you function by
simply purchasing outright?
Mr. HURWITZ. MCO purchased the shares outright.
Mr. DINGELL. Now, why did you purchase them at $29 a share when the
market price was $33 or $34 a share?
Mr. HURWITZ. MCO purchased the shares outright.
Mr. DINGELL. Now, why did you purchase them at $29 a share when the
market price was $33 or $34 a sham?
Mr. HURWITZ. I talked to Mr. Jefferies earlier that week and told him
that we wanted to go ahead with the put-call option arrangement.
Mr. DINGELL. And did you go through with the put-call option
arrangement?
Mr. HURWITZ. He sent the papers, and when we found out in the papers
there was a statement we couldn’t sign and that statement was, if we were
contemplating a tender offer, he wouldn’t do that, we had not seen that
before in the papers.
Mr. DINGELL. He said that he wouldn’t do it or couldn’t do it, which?
Mr. HURWITZ. I don’t know. I just know that it was in the papers
Mr. DINGELL. He may have said he wouldn’t and he may have said he
couldn’t. Now, the question is: Which did he say?
Mr. HURWITZ. My attorneys talked to him.
Mr. DINGELL. He probably said he couldn’t because it was illegal. Isn’t
that right?
Mr. HURWITZ. I don’t know that. Nor do I–
Mr. DINGELL. It is possible it was an illegal arrangement, is it not?
Mr. HURWITZ. Possible what?
Mr. DINGELL. It is possible that it was an illegal arrangement, and that
is the reason he said he wouldn’t or couldn’t, isn’t that right?
Mr. HURWITZ. No, this was a sample of other documents that he had used
before.
Mr. DINGELL. He couldn’t‹if he was going to make you or himself disclose
the arrangement, that was one of the things in the agreement he asked you
to sign, is that not so?
Mr. HURWITZ. If we had signed the document, it certainly would have been
disclosable. The fact we purchased the stock, that was also disclosable.
Mr. DINGELL. The gentleman’s time has expired.