We are seriously considering the production of medicinal and other spirituous liquors in the near future as permitted by existing laws, and the anticipated early repeal of the eighteenth amendment, and we are led to believe we should take steps now to supply what will undoubtedly be a tremendous demand for whisky and for high-grade cologne spirits which are used in rectifying whiskies. Your plant at Pekin, Ill., formerly used entirely for whisky and cologne spirits, is in good condition and ready to resume immediately the manufacture of such liquors, in order to be in position to meet the expected demand, your officers and directors feel that the authorized common stock should be increased to 500,000 shares. While this stock would be available for any proper corporate purpose, it is anticipated that it will be used, is deemed necessary or advisable, by your directors to acquire, by contract or purchase, other properties or stocks, or the control or ownership of companies that would be helpful in enabling your company to prepare itself completely to meet the expected requirements. Accordingly notice of a special stockholders' meeting to be held at Baltimore, Md., July 21, 1933, is given, to increase the authorized common share capital from 375,000 to 500,000 shares, and to make certain changes in the bylaws as recommended by the board of directors, together with proxy to be signed and returned by you, if you are unable to attend in person, are enclosed. The notice of meeting also refers to the acquisition of the stock of other corporations as subsidiaries. A substantial part of the problem of the management of your company lies in finding new uses or outlets for its production of alcohol and its by-products. For the purpose of increasing sales of alcohol your company has obtained more than 65 percent of the stock of Noxon, Inc., which now has processes and products which your board of directors believe of real value. There are also included the rights to new agricultural and horticultural plant sprays which control or destroy a great number of plant insects without being poisonous to human beings. Alcohol enters into the composition of these products, some of them to the extent of 75 percent of their volume. With improvements of processes and products contemplated to be made by the research laboratory of your company, and with the exclusive marketing relations of your company over the country, it is expected that their sales and the demand for them will be greatly increased. Maister Laboratories, Inc., a Maryland corporation, has also been acquired as a wholly owned subsidiary. That corporation is now the exclusive holder of processes for the production of items particularly rich in vitamins. Each of the above companies has made a contract with your company under which they will purchase from this corporation all their needed supplies of materials for a period of years. By agreement of purchase made May 6, 1933, and May 8, 1933, respectively. 10,000 shares of the common stock of your company were issued in exchange for 10,000 shares of the common stock of Maister Laboratories, Inc., the only shares then issued of the 25,000 authorized shares, and 15,000 shares of your company were issued for majority control and ownership of Noxon, Inc., your company receiving in exchange 2,700 shares of the preferred stock of Noxon, Inc., of the issue of 3,000 shares issued, and 3,900 of the 6,000 shares of common stock as authorized. In view of the general banking situation, it was deemed important by your officers and directors to improve your company's financial condition by increasing its common capital. This was carried out by the approval of the stockholders which expired July 5, 1933. Your business is continuing in a satisfactory manner. Somewhat different merchandising plan has been pursued this year as compared to 1932, with the result that antifreeze-alcohol sales have been postponed until the latter part of this year rather than attempt to move this material in the month of June as heretofore. It is hoped you will appear in person at the special meeting, or return your proxy, so that action can be had with your consent. Respectfully yours, RICHARD H. GRIMM, President. RUSSELL R. BROWN. Chairman of the board. Mr. Brown, this constitutes all the specific information given to the stockholders? Mr. BROWN. Yes, sir. Mr. PECORA. Regarding those acts and transactions of the corporation? Mr. BROWN. Yes, sir. Mr. PECORA. There was nothing told to the stockholders in this letter, if you will notice, of that action taken by the board which authorized the creation of an underwriting syndicate to underwrite an issue of forty-and-odd thousand shares of capital common stock of the company that were offered to stockholders and subscribed for by the then-existing stockholders, was there? Mr. BROWN. No, sir. Mr. PECORA. There was nothing told to stockholders about the secret interest that you and other officers and directors of the company had in that underwriting agreement, was there? Mr. BROWN. No, sir. Mr. PECORA. There was nothing told to stockholders with regard to the actual assets or the value of the assets of either Maister Laboratories, Inc., or Noxon, Inc., was there? Mr. BROWN. No, sir. Mr. PECORA. There was nothing told to stockholders in any way, shape, or form that notified or informed them that in the organization of Maister Laboratories, Inc., and Noxon, Inc., the American Commercial Alcohol Corporation dealt with two dummies of your selection, was there? Mr. BROWN. No, sir. Mr. PECORA. And the stockholders were not in any way informed of the fact of the giving of this option to Thomas E. Bragg of 25,000 shares of the capital common stock of the company at $18 a share, were they? Mr. BROWN. No, sir. Mr. PECORA. Or the fact that you and other officers and directors of the company were secret participants with Bragg in the pool that was organized to operate under that option? Mr. BROWN. No, sir. Mr. PECORA. And yet it was expected that those stockholders would give their proxies to the very same officers and directors who were associated with you in that underwriting agreement and in that Bragg syndicate account? Mr. BROWN. Yes, sir. Mr. PECORA. And vote approval of all the acts of those same officers and directors? Mr. BROWN. That is correct; yes, sir. Mr. PECORA. Do you think that is a species of fair dealing with the stockholders of the company, Mr. Brown? Mr. BROWN. Well, I assume, if I had the thing to do over again under the same conditions, I would probably do it. I think there is a great deal to be Mr. PECORA (interposing). You say you would probably do it over again? Mr. BROWN. I mean under the same conditions, where the company needed financial assistance, as it did need it then. I think there was a great deal of merit to the consideration of other actions and other conditions. Mr. PECORA. Well, now, if you had the same thing to do over again, you would do it in precisely the same way that those things were done; is that what you say now? Mr. BROWN. No. But if financial conditions, or the same conditions, existed, whereby this company was, as at that time, in bad financial shape, we might have to go ahead and use unusual and abnormal methods. But under ordinary conditions I should not do that; no, sir. Mr. PECORA. Well, why, when you sought approval subsequently by the stockholders of the company of those acts and transactions, didn't you give the stockholders full knowledge of what those acts and transactions were, so that they might give their approval in an intelligent manner, with full knowledge of the actual facts? Mr. BROWN. I assume that should be done. Mr. PECORA, What did you say? Mr. BROWN. I assume that should be done. Mr. PECORA. You assumed that that was done? Mr. BROWN. I say, I assume that should be done. Mr. BROWN. I don't know. Mr. PECORA. Who prepared that printed letter to stockholders I last read into the record? Mr. BROWN. I think Mr. Grimm and I did. Mr. PECORA. Well, then, there was nothing to have prevented you in the preparation of that letter from disclosing full information to the stockholders. Mr. BROWN. No, sir. Mr. PECORA. Well, did you feel that it was necessary to have your stockholders give their blanket approval to all those acts and transactions undertaken in behalf of the corporation by its officers and directors? Mr. BROWN. I assumed that all those documents having been prepared by counsel, in connection with proxies and all that stuff, that they put it up in the usual form. Mr. PECORA. Are you familiar with the provision of the pending bill in Congress, which has been called the "Fletcher-Rayburn bill," with respect to proxies of stockholders? Mr. BROWN. No, sir. I have been so busy I haven't had a chance to read it. I am going to read it, though. Mr. PECORA. Let me read the particular provision I have in mind in this bill to you. It is section 13 of the bill, under the caption "Proxies ", and reads as follows: PROXIES SEC. 13. (a) It shall be unlawful for any person by the use of the mails or of any means or instrumentality of transportation or communication in interstate commerce or of any facility of any national securities exchange or otherwise to solicit or to permit the use of his name to solicit any proxy or consent or authorization in respect of any security registered on any national securities exchange unless at such time prior to such solicitation as the Commission shall by rule or regulation prescribe the persons named to exercise such proxy, consent, or authorization shall file with the Commission a statement, which shall be included as a part of every such solicitation, setting forth 175541-34-PT 14-4 the purposes of the proxy, consent, or authorization, the persons to exercise it, their relations to and interest in the security, the names and addresses of the persons from whom similar proxies, consents, or authorizations are being solicited, and such further information, and in such form and detail as the Commission may by rules and regulations prescribe in the public interest or for the protection of investors. Have you any comment to make about that provision? Mr. BROWN. No. I should like to read it if you will permit me. I could not follow you. Mr. PECORA. All right. It is in that printed copy of the bill I am now handing to you. Mr. BROWN (after reading the section). No. In general it seems all right to me, as long as you do not have to take all the minute books, general ledgers, and everything to the stockholders. Mr. PECORA. Well, if some such provision as this had been enacted and was in force and effect at the time of the solicitation of these proxies for your special meeting on July 21 last it is quite probable that the stockholders would have obtained full information concerning the acts that were under consideration and that they were being called upon to ratify by the giving of their proxies, I take it. Mr. BROWN. That is correct. Mr. PECORA. Now, Mr. Brown, was any effort ever made to register with the Federal Trade Commission under the provisions of the Securities Act of 1933, the 25,000 shares of capital common stock of your corporation to list which the company made application to the New York Stock Exchange under date of July 19 last? Mr. BROWN. I think the question was under discussion by counsel with the Federal Trade Commission for some time. And I think the opinion of counsel originally was that registration was not necessary, but they were instructed to go ahead and find out just what the requirements of the Commission were. That took a considerable period of time. I think finally they gave an opinion that registration was not necessary, if my memory serves me. Mr. PECORA. Don't you recall that I read into the record this morning in connection with my examination of Mr. Frank Altschul, the minutes of the proceedings of the hearing before the stock-list committee of the New York Stock Exchange, which was attended by you in behalf of your corporation, as well as by Mr. Egginton and another gentleman acting as counsel for the corporation? Mr. BROWN. Mr. Heiss. Mr. PECORA. And don't you recall that at that hearing before the stock-list committee both you and your counsel stated that in accordance with advice given to your corporation by your Washington attorneys, this additional issue of stock would have to be registered with the Federal Trade Commission, and that the corporation was going to have appropriate action taken to that end? Mr. BROWN. I remember something about it, but I think you are wrong on that point of the opinion of the Washington attorneys, although I may be wrong about it. But I think Larkin, Rathbone & Perry took that matter up with the Federal Trade Commission themselves. It seems to be that Mr. Egginton expressed the opinion that registration was not necessary. Mr. PECORA. Yes; but he also stated to the stock-list committee at that hearing on July 24, last, that although it was his opinion, other attorneys, the Washington correspondents of that firm, had been in communication with the Federal Trade Commission, had discussed the matter with the Federal Trade Commission, and had rendered an opinion that registration was necessary, although Mr. Egginton personally did not agree with that opinion. Mr. BROWN. I think that is correct. I assume as a result of his opinion he felt the matter should be taken up further, and apparently it was taken up further by counsel, and it extended over a period of time. Mr. PECORA. At that hearing before the stock list committee the statement was specifically made that although Mr. Eggenton did not agree with the opinion of Washington counsel, nevertheless the opinion of Washington counsel was going to be followed by registration of the additional issue of stock. Mr. BROWN. I think, as I remember it, the discussion centered around the fact that the registration would be filed there if neces sary. Mr. PECORA. Would you say that the reason why no application was made by your corporation to register those additional 25,000 shares under the Securities Act was because of the provisions of that act which required statements under oath concerning all the surrounding facts involved in the issuance of the proposed 25,000 additional shares? Mr. BROWN. No; I think quite the contrary. As I have said to you, the business of the company came along in such good shape that we did not want to have out any more shares of stock than absolutely necessary. We were able to finance these transactions by cash. Mr. PECORA. As recently as last December, according to the evidence introduced this morning, in your hearing, your corporation caused to be filed supplemental statements with the stock-list committee of the New York Stock Exchange with reference to this issue of the additional 25,000 shares. Isn't that so? Mr. BROWN. That is correct, but, as I said to you, that came about during this terrible rush in the business, when we were working nights, Sundays, and holidays. I was spending a great deal of my time out at the plant so as to be sure the merchandise was getting out. That just went out of the office, and should not have gone. Mr. PECORA. Mr. Page is too careful to slip up on a thing like that, is he not? Mr. BROWN. It was my carelessness, perhaps, in not advising him at the time of the decision Mr. Grimm and I had arrived at, that the deal would not go through because we could handle it by cash. Our business started out, and the first really good earnings came along in the month of October, and the indications of the contracts that were signed for future deliveries were a real indication to us that we could handle the whole transaction by cash. Mr. PECORA. Has there been any formal corporate action taken by the board of your corporation terminating those negotiations and abandoning them completely? Mr. BROWN. The meeting of the board was to be held on the 15th of February. I was down there, and so the meeting has been adjourned, and it is going to be held, and that action is to be taken as |