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Mr. PORTER. Yes, sir.
Mr. PECORA. They were not reported to the Stock Exchange?
Mr. PORTER. No, sir.
Mr. PECORA. Under this agreement on the part of your company!
Mr. PORTER. Not so required, sir.
Mr. PECORA. What is that?

Mr. PORTER. Not so required, as I understand it, because they are exempted under (c) there, are they not, within 4 months ?

Mr. PECORA. Do you consider puts and calls firm offers of stock!
Mr. PORTER. Options. Options is a firm offer, isn't it, sir?
Mr. PECORA. No; a firm offer would not be an option.

Mr. PORTER. Firm offers, I would certainly think, sir-I am not a lawyer, but I would certainly think that an option was a firm offer. It could not be any more firm. We agreed to sell it at a certain price on a certain date, didn't we?

Mr. PECORA. According to that definition of the term " option there is no difference between an option and a firm offer.

Mr. PORTER. No; I would not think there was.

Mr. PECORA. Don't you consider that under a firm offer there is a definite commitment?

Mr. PORTER. Yes.
Mr. PECORA. In the case of an option there is not?

Mr. PORTER. There certainly is a definite commitment if we agree to deliver certain shares. That is what we do under an option. The other fellow does not obligate himself, but we do.

Mr. PECORA. That is what distinguishes an option from a firm offer, doesn't it, the fact that the other party, the party to whom the option was given, is not obligated, whereas under a firm offer he is obligated to take the stock?

Mr. PORTER. I do not mean to disagree with you, sir, as a lawyer on a legal point, but I would not so understand it.

Mr. PECORA. As a matter of fact, did the optionees, or persons to whom these puts and calls were given, exercise their options under the puts and calls in all instances? Mr. PORTER. No, sir. Mr. PECORA. Doesn't that indicate that they were not firm offers !

Mr. PORTER. A firm offer from us, sir, is what I understand. In any event, sir, we did not report them, and we understood that we did not have to. The rule is entirely changed now, sir, and we do have to report any such things.

Mr. PECORA. What is that? Mr. PORTER. That is a totally different rule now, and I specifically do understand that we would have to report any such transactions now to the stock exchange. Mr. PECORA. It is a rule and regulation of the stock exchange? Mr. PORTER. Yes, sir. Mr. PECORA. But under this application agreement you agreed to do that

very thing, didn't you? Mr. PORTER. No; the rule is now quite different from that, sir. As I understand, what happens in these listing applications, you sign what they put on at that time. You do not come under their new rules necessarily until you sign again, as a matter of fact. We have since signed and since agreed to a different rule from this.

Mr. PECORA. Mr. Porter, isn't it a fact that when your corporation filed this listing application with the New York Stock Exchange

Mr. PORTER (interposing). We agreed to that

Mr. PECORA. You entered into the covenants and agreements that are set forth in the listing application itself?

Mr. PORTER. Yes, sir.

Mr. PECORA. And those agreements include that which I read to you from page 7 of the listing application?

Mr. PORTER. Yes, sir.

Mr. PECORA. Now, will you tell the committee at what prices, compared with market prices, these puts and calls were given?

Mr. PORTER. These options, without going into each one, were given at approximately the market or slightly in excess of the market and stepped up, I think, in all the seven instances. I am saying that is approximately.

Mr. PECORA. Now, I show you what purports to be a copy of a letter addressed to your corporation by Redmond & Co. under date of February 15, 1932. Will you look at it and tell me if you recognize it as one of the options that you have testified to was given to Redmond & Co.?

Mr. PORTER (after examining document). Yes, sir.
Mr. PECORA. I offer it in evidence.
The CHAIRMAN. Let it be admitted.

(Letter dated Feb. 15, 1932, from Redmond & Co. to National Distillers Products Corporation was thereupon designated “Committee Exhibit No. 72, Feb. 22, 1934 ", and appears in the record in full immediately following, where read by Mr. Pecora.)

Mr. PECORA. The document has been received in evidence as committee exhibit no. 72 and reads as follows; it is on the letterhead of Redmond & Co. [reading]:

FEBRUARY 15, 1932. NATIONAL DISTILLERS PRODUCTS CORPORATION,

And so forth.
Attention Seton Porter, Esq.

GENTLEMEN : This will confirm that you have this day given to Redmond and Co. a put to you at 2142 dollars per share good for thirty days from this date on 2,500 shares of the common stock of the National Distillers Products Corporation which may be exercised in part or in whole by notifying the office of the National Distillers Products Corporation, 52 William Street, 24 hours in advance, with the exception that upon the last day the put may be exercised without notice.

We also confirm that you have today given us a call good for 30 days from this date on 4,000 shares of the common stock of the National Distillers Products Corporation in the following amounts at the following prices:

500 shares at $22 per share.
500 shares at $22.50 per share.
500 shares at $23 per share.
500 shares at $23.50 a share.
500 shares at $24 a share.
500 shares at $24.50 a share.
500 shares at $25 a share.

500 shares at $25.50 per share. It is understood that this call may be exercised in part or in whole upon 24 hours' notice at the office of the National Distillers Products Corporation, -52 William Street, with the exception that upon the last day a call may be exercised without notice.

We are sending you this letter in original and duplicate original, and for the completion of our records request that you sign the original duplicate and return it to us at your convenience. Very truly yours,

(Signed) REDMOND & Co. Accepted :

NATIONAL DISTILLERS PRODUCTS CORPORATION. Now, I show you another letter or copy of a letter addressed to Redmond & Co. by yourself, as president of the National Distillers Products Corporation, dated May 3, 1932. Will you look at it and tell me if you recognize it to be a true and correct copy of a letter sent by you in behalf of your corporation to Redmond & Co. on or about the date which it bears?

Mr. PORTER (after examining document). Yes, sir.
Mr. PECORA. I offer it in evidence.
The CHAIRMAN. Let it be admitted.

(Letter dated May 3, 1932, from Seton Porter, president National Distillers Products Corporation, to Redmond & Co., was thereupon designated “ Committee Exhibit No. 73, Feb. 22, 1934 ", and the same appears in the record in full immediately following where read by Mr. Pecora.)

Mr. PECORA. The document has been received in evidence as committee exhibit no. 73 and reads as follows, on the letterhead of National Distillers Products Corporation (reading :]

MAY 3, 1932. Redmond & Co.

And so forth. Attention Mr. Mason Day.

Gentlemen : We confirm that we have today given you put to us for 1,500 shares of National Distillers Products Corporation common stock at $18 per share and a call on 2500 shares as follows:

500 shares at 19 500 shares at 1912 500 shares at 20 500 shares at 21

500 shares at 22 all good for sixty days from this date.

It is understood that the above put or call may be exercised in part or in whole upon 24 hours' notice to us at our office, with the exception that upon the last day a put or call may be exercised without notice.

If the foregoing properly confirms our understanding, please write us to such effect. Very truly yours,

(Signed) SETON PORTER, President. Now, Mr. Porter, I assumed that you understand how persons operating under the form of options known as “puts and calls” operate under them?

Mr. PORTER. How they do?
Mr. PECORA. Yes.

Mr. PORTER. Well, I think so. I don't know that I am clear about it.

The CHAIRMAN. We cannot hear you, Mr. Porter.
Mr. PORTER. Yes, sir.

Mr. PECORA. In effect, the holder of the option, namely, Redmond & Co., under this last option, marked "" Exhibit No. 73", was given the right to put or sell to your corporation 1,500 shares of your corporation's common stek at $18 a share and was given the right to call upon your corporation to sell to it, Redmond & Co., 2,500 shares at the prices fixed in this letter, all at the option of Redmond & Co.?

Mr. PORTER. Yes.

Mr. Pecora. Under this option Redmond & Co. were given the right to put to your company or to sell to your company 1,500 shares of its own common stock at $18 a share if they wanted to, and to buy from your company 2,500 shares at prices ranging from $19 to $22 a share if they wanted to?

Mr. PORTER. Yes.

Mr. PECORA. So that if the price of the stock in the market fell below $18 a share Redmond & Co. were put in a position of obligat. ing your company to take from them 1,500 shares at $18 a share? Mr. PORTER. That is right.

Mr. PECORA. And under this option also if the market price went up to above $19 to $22 Redmond & Co. were given the right to obtain from your company at those prices, 19 and 22, prices under the market, up to 2,500 shares?

Mr. PORTER. That is right.

Mr. PECORA. No margin was put up by Redmond & Co. under this kind of an option!

Mr. PORTER. No.
Mr. Pecora. None is required on puts and calls of this kind?

Mr. PORTER. Well, we only had altogether in this whole transaction two of what you would call puts, just two altogether in the whole year. That was all the transactions ever.

Mr. PECORA. Did Redmond & Co. under those put and call options call upon your company to take from them

Mr. PORTER. We purchased I believe under this

Mr. Pecora continuing). To take from them the shares that they had the right to put to you at prices above the then market?

Úr. PORTER. That particular transaction, I believe, resulted in their putting to us 1,500 shares at 18, which we did take; yes, sir.

Mr. PECORA. And what was the market at that time?

Mr. PORTER. The market was I think right at the moment probably below that.

Mr. PECORA. It was around 14 and a fraction, wasn't it?
Mr. PORTER. Probably. I don't know exactly, but assume that

Mr. PECORA. How would you expect that your company would profit through the giving of such puts and calls ?

Mr. PORTER. I cannot answer that question any better than I have said before. We sold in the year 1932, 40,000 shares, which included the 15,000 shares purchased in that year. The 15,000 shares that were purchased were purchased at an average price of 17%, and the 40,000 that were sold were sold at 1938.

Now, while I do not attempt to say that this was very cleverly done, we did our best to obtain the very best price we could in the selling of these shares, and I think that a careful study of the daily quotations, monthly quotations, and the transactions, would indicate that was the case.

it was.

Mr. PECORA. But how did your company expect to benefit from the giving of these puts and calls of the kind that have been put in evidence here?

Mr. PORTER. Well, we thought, I presume, rightly or wrongly, that in order to interest someone to try to market these shares for us we would have to give them an opportunity to—something to work with. Mr. PECORA. That is Mr. PORTER. An option or something that would be of some advantage to them, presumably.

Mr. PECORA. That is, these puts and calls were given to these brokers in order to induce the brokers to make a market for the stock so that your company

Mr. PORTER. Could market it.

Mr. PECORA. Could dispose of the shares which it had and which it had bought in the open market previously, at a profit?

Mr. PORTER. Right.

Mr. PECORA. Or under more advantageous terms than it otherwise could have disposed of those shares if a market had not been made by the brokers?

Mr. PORTER. Right; yes, sir.

Mr. PECORA. That was the motive behind the giving of these puts and calls, wasn't it? Mr. PORTER. Yes, sir. Mr. PECORA. To put it in a nutshell ? Mr. PORTER. That is right.

Mr. PECORA. And the inducement to the brokers in accepting these options in the form of these puts and calls was that it enabled them to operate in the market without losing themselves; isn't that so?

Mr. PORTER. I presume so. There were only two puts in the whole transaction. Only one of the puts was ever exercised, sir, in this whole transaction. The one you have just referred to is the only one that was ever exercised.

Mr. PECORA. At any time during the years 1932 and 1933 to your knowledge did any of the officers and directors of the National Distillers Products Corporation become members of or participants in any syndicates that were formed for the purpose of trading in the market in the stock of the company?

Mr. PORTER. Well, I can only speak for myself, sir. I was interested in two small syndicates, information of which I have given you.

Mr. PECORA. Were there any officers or directors of the company other than yourself interested in those two syndicates that you have just referred to?

Mr. PORTER. Yes, sir; I think so.
Mr. PECORA. Who were they?
Mr. PORTER. Mr. Loosby, myself, Mr. R. E. Wathen, Mr. O. H.
Wathen, Mr. D. K. Wiesskopf.

Mr Pecora How about Mr. Schwartzhaupt?
Mr. PORTER. Yes, sir.
Mr. PECORA. He was also one of the directors?

Mr. PORTER. I did not mention him because I was not sure that he was a director at that time.

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