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peal was going to be made effective he retired from the United States Industrial Alcohol Co., as I understand it, and decided to set himself up in the business of handling warehouse receipts, buying and selling whiskies and other beverage liquors for his own account, and also to act as an importer, all of which he is doing today under the name of the Sid Klein Corporation.

Mr. PECORA. Well, what proportion of this valuation of " at least" $465,000 that you thought the assets of the Spirits Corporation were worth on August 8 last, represented the value you placed upon the contract for the exclusive services of Mr. Sid Klein ?

Mr. Brown. Well, that I do not think was decided upon at the time. Everything taken together was assumed to be of that value.

Mr. PECORA. Well, the only tangible asset was this promissory note of Mr. Knox B. Phagan, wasn't it?

Mr. Brown. Yes, sir.

Mr. PECORA. Now, was there in existence on August 8 any contract between Mr. Sid Klein and the Spirits Corporation ?

Mr. Brown. As to that, I cannot tell you offhand. I do not believe so, no, sir; not anything reduced to writing. I think the negotiations, as I remember now, with Mr. Klein were started at Atlantic City by Mr. Publicker on the Fourth of July. I remember that it was on a holiday, and it was afterwards brought up.

Mr. PECORA. Now, what was to be the business of the Sid Klein Corporation ?

Mr. Brown. Dealing in whiskies, beverage liquors, importing alcoholic beverages, dealing in warehouse receipts, and so forth.

Mr. PECORA. In the main it was to engage in the business of selling alcohol and alcoholic products, is that it?

Mr. Brown. No. Alcoholic beverages. Mr. PECORA. Alcoholic beverages, is that right? Mr. BROWN. That is correct. Mr. PECORA. What was to be the business, or what was the business of the Spirits Corporation ?

Mr. Brown. At the time when it was organized it was believed that, perhaps, the Spirits Corporation might handle the beverage business of the American Commercial Alcohol Corporation.

Mr. PECORA. Do you mean act as a sort of selling agent!

Mr. Brown. No. To handle the whole beverage end of the business, in connection with the production, sale, and distribution of beverage liquors, it being considered quite inadvisable to put on a bottle of whisky which might be produced, the name of the American Commercial Alcohol Corporation. It was felt that an outside or a separate and distinct operation was needed to conduct the beverage business.

Mr. Pecora. Well, now, you recognize, don't you, Mr. Brown, that the steps taken in connection with the formation of the Sid Klein Corporation and of the Spirits Corporation, and the arrangements for the acquisition by the Spirits Corporattion of all the capital stock, or a major part of the capital stock, of the Sid Klein Corporatiton, and then in turn the acquisittion by the American Commercial Alcohol Corporation of the capital stock of the Spirits Corporation through an exchange of shares, paralleled very considerably what was done by the American Commercial Alcohol Corporation as testified to by you last week before this committee in connection with the formation of the Maister Laboratories, Inc., and Noxon, Inc.?

Mr. BROWN. That is correct. The reason that was handled in the way it was, was because of Mr. Klein's insistence that it be handled in that way; not direct acquisition by the American Commercial Alcohol Corporation, because he felt at the time it would be better if our interests and control of the situation was not disclosed generally, for the reason that he would do business with all the different whisky purchasers, buying and selling where he could make a profit.

Mr. PECORA. What position was Mr. Klein in to dictate to the American Commercial Alcohol Corporation how the latter corporation should conduct its business, and how it should issue its capital stock?

Mr. Brown. Well, I wouldn't say that he dictated to the American Commercial Alcohol Corporation. But I think we felt at the time it was quite correct, because of the feeling that it would be better for him to appear as an independent operator.

Mr. PECORA. Now, as a matter of fact, Mr. Brown, wasn't this plan which involved the creation of the Sid Klein Corporation and of the Spirits Corporation, and which involved further the acquisition and control of the Sid Klein Corporation by the Spirits Corporation, and the acquisition of the Spirits Corporation by the American Commercial Alcohol Corporation through an exchange of stock, conceived solely for the purpose of enabling the American Commercial Alcohol Corporation to make another issue of an additional block of its common stock without first offering that stock to its stockholders of record under their preemptive rights? Mr. Brown. I shouldn't say so.

The CHAIRMAN. What was the capital stock of the Sid Klein Corporation ?

Mr. Brown. It had 5,000 shares of $100 par value noncumulative 7 percent nonvoting preferred stock, and 5,000 shares of $1 par value common stock. Of the preferred stock, 2,000 shares had been issued, and all of the common. And the earnings of that corporation for the last 2 months of the year, I think, were approximately $40,000, and the earnings for the month of January Mr. Klein advises mé were approximately $20,000.

The CHAIRMAN. How much of that stock did the American Commercial Alcohol Corporation acquire?

Mr. Brown. We acquired all of the preferred stock, and 50 percent of the common stock.

Mr. Pecora. Now, Mr. Brown, in the application which was filed with the New York Stock Exchange on July 19, last, for the listing of these additional 25,000 shares of stock of your company, why wasn't there set forth in detail the assets which were to be purchased through the proposed issue of 25,000 additional shares ?

Mr. BROWN. Ås to that I don't know. I had nothing to do with the application. Mr. PECORA. Who did have to do with the application? Mr. BROWN. I assume it was prepared by Mr. Page.

Mr. Pecora. Did Mr. Page know more about the situation than you did ?

Mr. Brown. No, sir.

Mr. PECORA. You said something before about the acquisition of a plant in Kentucky by the Spirits Corporation.

Mr. Brown. No; by the American Commercial Alcohol Corporation.

Mr. PECORA. Was it by the American Commercial Alcohol Corporation?

Mr. Brown. Yes, sir.

Mr. PECORA. Well, how did the acquisition of that plant figure in this transaction?

Mr. Brown. It did not figure in it at all. Mr. PECORA. I mean with the Spirits Corporation and the Sid Klein Corporation.

Mr. BROWN. Not at all. Mr. PECORA. Why did you make reference to it, then? Mr. Brown. You asked me about the application for the issuance of 25,000 additional shares of stock.

Mr. PECORA. Was it contemplated then that among the assets to be acquired by the American Commercial Alcohol Corporation at the time it made this application to the New York Stock Exchange for this additional listing of 25,000 shares, was this Kentucky plant?

Mr. Brown. It was contemplated; yes, sir.

Mr. PECORA. Did that offer pass beyond the stage of contemplation, or that effort, I mean?

Mr. BROWN. Oh, yes. There were considerable discussions, a complete inspection of the properties, and we were unable to arrive at a definite deal. We thought we had something that was possible, but finally they wanted too much money for the company.

Mr. PECORA. Well, nevertheless, at the time this application was filed with the New York Stock Exchange one of the purposes for which the additional listing of stock was sought was to enable your corporation to acquire this Kentucky plant?

Mr. Brown. Yes, sir.

Mr. PECORA. Through the issuance of part or all of those additional 25,000 shares.

Mr. Brown. Yes, sir.

Mr. PECORA. And that plan completely went by the board afterwards?

Mr. Brown. Yes, sir.
Mr. PECORA. When was it finally abandoned ?
Mr. Brown. Well, I cannot give you the date of that.
Mr. PECORA. Well, about when ?
Mr. Brown. Well, it was some time after that application was
filed.

Mr. PECORA. This application was filed on July 19.
Mr. BROWN. Correct.

Mr. PECORA. Was that plan completely abandoned within a month thereafter?

Mr. Brown. I should say so; yes, sir.

Mr. PECORA. Now, I show you what purports to be a final signed copy of supplemental data or statement filed by or on behalf of the American Commercial Alcohol Corporation, with the committee on stock list of the New York Stock Exchange, bearing date November 23, 1933, and bearing the signature of Cecil Page, as secretary of the American Commercial Alcohol Corporation. Will you look at it and tell me if you recognize it to be the supplemental statement filed by and on behalf of your corporation last November with the stock list committee of the New York Stock Exchange?

Mr. Brown (looking at the paper). Yes, sir. Mr. PECORA. Mr. Chairman, I wish to offer it in evidence. The CHAIRMAN. Let it be admitted. (A paper marked “Supplemental ” application of the American Alcohol Corporation, dated Nov. 23, 1933, to the committee on stock list of the New York Stock Exchange, was marked “Committee Exhibit No. 63, February 21, 1934", and will not be made a part of the record except as read by Mr. Pecora, but will be kept in the files of the committee.)

Mr. PECORA. Now, Mr. Brown, what was the purpose of the filing of this supplemental statement with the stock list committee of the New York Stock Exchange?

Mr. BROWN. I never knew that the thing had been filed. I was away, apparently, at the time it was filed. And it never should have been filed.

Mr. PECORA. So, apparently, at the time it was filed it should never been filed, you say?

Mr. BROWN. That is correct.

Mr. PECORA. Well, Mr. Cecil Page, the secretary of the corporation, is not only the secretary but also a lawyer, isn't he?

Mr. BROWN. That is correct. Mr. PECORA. When did you learn that it had been filed? Mr. BROWN. Just the other day. Mr. PECORA. Only the other day? Mr. Brown. Yes. You see, so that you will understand my statement there: If you had been in the whisky business in November, December, January, and February, there was a great deal of confusion. At the time when that was done I was at the Pekin plant supervising construction for production, because it was before Mr. Grimm went away—and he had a breakdown and had to go away the first part of November—and we had agreed with Klein to clear up the entire transaction by a cash payment, and agreed that this suance of 10,000 shares, because of the substantial earnings of the company at that time and the prospective substantial earnings, it was unnecessary and we did not want to issue any more stock than We absolutely had to; and that was the time the deal was called off. That paper apparently went through as a routine matter in Mr. Page's office, and I knew nothing about it, because, as I understand it, no notice of issuance of the stock has ever been sent to the Exchange.

Mr. PECORA. Now, I want to read a statement from this supplemental statement filed with the committee on stock list of the New York Stock Exchange:

In its application A-10117, dated July 19, 1933, American Commercial Alcohol Corporation made application for the listing on the New York Stock Exchange of 25,000 additional shares of common stock of the par value of $20 per share, on official notice of issuance thereof, and payment in full, with a statement of application of proceeds or property acquired. It was stated in said application that the shares proposed to be issued would be registered

175541-34-PT 14--2

with the Federal Trade Commission, in compliance with the provisions of the Securities Act of 1933.

Since the date of said application, arrangements have been made for the issuance of 10,000 of said 25,000 additional shares to Mr. Knox B. Phagan, in exchange for the entire capital stock, being 10,000 shares of common stock without par value, of the American Distilling Company (a Maryland Corporation, formerly known as the Spirits Corporation). Honorable Angus W. McLean and Sanders, Childs, Bobb, and Westcott, Esquires, of Washington, D.C., after conference with members of the Securities Division of the Federal Trade Commission, have submitted an opinion to the effect that the issue by American Commercial Alcohol Corporation of said 10,000 shares is not required by the provisions of the Securities Act of 1933 to be registered with the Federal Trade Commission.

The American Distilling Company was organized on July 29, 1933, and has acquired certain valuable formulæ, processes, and so forth, for the manufacture of beverage spirits; also a lease on a completely equipped distillery property located at Pekin, Illinois. Also sales contracts with and interests in certain distributing companies organized for the purpose of the distribution of beverage spirits. Since July 29, 1933, the American Distilling Company has been in operation and the balance sheet and profit and loss statement annexed, certified to by Guy I. Colby, Treasurer, exhibits its condition as at October 31, 1933, and states the results of its operations July 29th through October 31, 1933.

I hereby certify that the following consolidated condensed general balance sheet and statement of profit and loss, in my opinion, correctly reflects the financial status of the American Distilling Company as at October 31, 1933, and the result of its operation for the period July 29th through October 31st.

GUY I. COLBY. Then follows the consolidated condensed balance sheet statement, and the profit and loss statement, signed :

AMERICAN COMMERCIAL ALCOHOL CORPORATION,

By CECIL PAGE, Secretary. Then it shows that it was submitted to the governing committee for information December 13, 1933, Ashbel Green, secretary. That is, he is the secretary of the New York Stock Exchange. Now, Mr. Brown, are you familiar with the balance sheet of the American Distilling Co. set forth in this supplemental statement ?

Mr. BROWN (after looking at the paper). I am; yes, sir.

Mr. PECORA. Among the assets shown in this balance sheet is an item of “Notes receivable, $465,000.” That refers to Phagan's promissory note, doesn't it?

Mr. BROWN. Yes, sir.
Mr. PECORA. Has that ever been paid?

Mr. Brown. We were to have had a meeting on the 15th of February. I think the lawyers had completed all the legal mechanics to clear up the details, but the meeting had to be postponed. I think the papers are all ready to close up that deal by the American Commercial Alcohol Corporation taking over the Phagan contract.

Mr. PECORA. It is to take over the Phagan contract, or to take over the stock issued to Phagan in return for that note, by the Spirits Corporation subsequently called the American Distilling Co.

Mr. Brown. I think the American Commercial Alcohol Corporation pays the note.

Mr. ÞECORA. The American Commercial Alcohol Corporation is going to pay Phagan's note?

Mr. Brown. Yes, sir.

Mr. PECORA. Now, what was the plant or distillery property located at Pekin, Ill., that according to the statement in this supple

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