Mr. PORTER. Yes.

Mr. PECORA. Are you sure that the original of this letter was never sent?

Mr. PORTER. I am very positive of it, sir.

Mr. PECORA. Well, you may sit down there at the table again.
Mr. PORTER. All right.

Mr. PECORA. Have you read this copy of the letter in full?
Mr. PORTER. No.

Mr. PECORA. Just take it and read it to yourself.

Mr. PORTER. All right. (After reading the paper.) Yes, sir;

that is the situation.

Mr. PECORA. Now, are you sure, after having read it over, that that letter was never sent?

Mr. PORTER. Yes, sir; I am sure of it, so far as I can be sure of anything, sir. It is also marked "Not used" on here, as you will see by looking at it.

Mr. PECORA. Now, isn't it a fact that the original negotiations for the sale of the 40,000 shares which were eventually sold by private sale, as evidenced by the three letters put in evidence this morning, to Redmond & Co., William E. Levis, and the Owens Illinois Glass Co., were first proposed to be sold to Redmond & Co. in one block? Mr. PORTER. No.

Mr. PECORA. And isn't that letter, a copy of which I have shown you and which you say was never sent, a letter that was sent as an evidence of such negotiations?

Mr. PORTER. No, sir. From the beginning the intent of this whole transaction was that the sale of these shares was to be to the Owens people, of which Mr. Levis was the representative. They were to be the purchasers.

Mr. PECORA. Well, then, why was any such letter ever drafted? Mr. PORTER. Well, the only answer I can give you to that question is that this letter seems to be substantially, or to contain some of the same terms and conditions, as the letters which were finally written, and that at some juncture in the negotiations it was suggested that one letter be written to Redmond & Co. as Mr. Levis' bankers, I presume. This draft must have been prepared, but was never signed and never sent.

Mr. PECORA. Weren't you informed in the course of the negotiations to sell the whole block of 40,000 shares to Mr. Levis and his associates that Mr. Levis' company would not take the entire block of 40,000 shares?

Mr. PORTER. That is correct; yes, sir.

Mr. PECORA. And weren't you apprized of that fact after April 27, 1933, which is the date of the copy of the letter I have just shown you?

Mr. PORTER. I think that is probably correct.

Mr. PECORA. And as a result of your being so notified that the Owens Illinois Glass Co. would not take the entire block of 40,000 shares, weren't the negotiations changed so as to provide for the sale of those 40,000 shares in these allotments: 20,000 shares to Levis, 10,000 shares to Owens Illinois Glass Co., and 10,000 shares to Redmond & Co. ?

Mr. PORTER. That is right.

Mr. PECORA. And wasn't that form of the negotiations adopted on April 28, as evidenced by the three letters that we put into the record this morning?

Mr. PORTER. That is right; yes, sir.

Mr. PECORA. So that up to April 27, the offer that your company had, and which it was considering and negotiating to conclude, was to sell the entire block of 40,000 shares directly to the Owens Illinois Glass Co.

Mr. PORTER. That is right.

Mr. PECORA. Then, when those negotiations fell down on April 27, why weren't those 40,000 shares made available to your stockholders at $25 per share instead of being made the subject of the negotiations that were concluded the following day, to sell those 40,000 shares in the aggregate, in the allotments that I have already indicated, to Mr. Lewis, to his company, and to Redmond & Co.? Mr. PORTER. Well, Mr. Pecora, you now make your question clear to me and I will try to answer it.

Mr. PECORA. Please do.

Mr. PORTER. If we were legally relieved by that change, from selling that block to that group of people, for $25 per share, your question is: Why didn't we then offer the whole lot of 40,000 shares to our stockholders?

Mr. PECORA. Yes; in addition to the 27,591 shares that you did offer to them.

Mr. PORTER. My answer to that question is this: That in the opinion of myself and of our board the mere fact that the shares had advanced temporarily to-well, we will say, had advanced to 31, or were being quoted at that price on that day, was not a sufficiently material change to have made it anywhere nearly possible to have made the large offering to the stockholders alone without bankers' underwriting.

Whether the knowledge of the fact that we had made a commitment to sell to the Owens Illinois group this block of shares at substantially the market price, and that they were going to put a million dollars of their own money into it, and as a result of this transaction about $2,000,000 into our treasury, enabling it to pay off our bank loans, and whether with these people coming on our board to strengthen our picture, had anything to do with the advance in the shares, I don't know, or whether that was the general advance of the market. But the mere fact that the shares had advanced from around 24, 25, and 26 to 30 and 31 did not, in the opinion of our board, change the situation as to the great advisability of making this sale to these people on exactly the same terms, if they would still be willing to do it, as they had originally outlined; and the board knew all about it, and we considered that this was an advantageous trade. Does that satisfactorily answer your question?

Mr. PECORA. I am not looking for a satisfactory answer, but an answer based on the facts. It is not for me to say whether an answer is satisfactory or not, and it makes no difference to me, so long as it is based on the facts.

Mr. PORTER. All right. That is it.

Mr. PECORA. When did your board of directors conclude to offer 27.591 shares to the stockholders?

Mr. PORTER. At that time.

Mr. PECORA. Well, when? Your minute book would show, wouldn't it?

Mr. PORTER. Yes, sir. It was actually adopted on the 27th, was it not [inquiring of an associate]? Yes; it was April 27.

Mr. PECORA. Now, that was when the formal resolution was adopted by the board of directors of your corporation?

Mr. PORTER. Yes, sir.

Mr. PECORA. Providing for this offer to the stockholders?

Mr. PORTER. Yes, sir.

Mr. PECORA. Is that so?

Mr. PORTER. That is right.

Mr. PECORA. Have you a copy of the resolution that was adopted on April 27, 1933, by your board covering this offer to the stockholders?

Mr. PORTER. Yes, sir.

Mr. PECORA. Will you let me see it, please?

Mr. PORTER. This is a copy taken from the minute book, I believe. Mr. PECORA. Now, the resolution you have shown me does not relate to the offer to the stockholders, does it?

Mr. PORTER. I did not look it over after it was handed to me. Mr. PECORA. Look at it and see. That relates to the offer of the 40,000 shares to Mr. Levis or his interests.

Mr. PORTER. All right. We will get the minute book.

Mr. PECORA. For your possible guidance, let me point out to you that in the application which was made to the New York Stock Exchange under date of May 8, 1933, for an additional listing of 79,833 shares, the statement was made that the board of directors of your corporation authorized the offering to its stockholders of 27,591 of these additional shares.

Mr. PORTER. As to the meeting of April 27, it would seem that what I handed to you awhile ago was an extract from the original resolution of the same minutes.

Mr. PECORA. May I look at the minute book, please?

Mr. PORTER. Yes, sir [handing a minute book to Mr. Pecora].

Mr. PECORA. This is what I want to call your attention to. Let me read to you the following from the minutes of the board of directors of your corporation held on April 27, 1933, at which were adopted resolutions authorizing the sale of 40,000 shares at private sale to Mr. Levis and the persons associated with him, and at which meeting there was also adopted a resolution to offer 27,591 shares to stockholders of record. I will read the extract as follows:

The chairman then advised that pursuant to the purpose for which such additional 200,000 shares of common stock had been authorized; that is, to be issued by the board of directors in their discretion, if and when they believed it to be in the best interests of the corporation so to do, in preparation for meeting the anticipated expansion and development of the operations of the corporation as outlined in the annual report to stockholders dated March 21, 1933, recent negotiations had taken place, with which he believed the most of the directors were familiar, with Mr. William E. Levis, president of the Illinois Glass Consolidated Corporation, regarding a proposed sale to the Illinois Glass Consolidated Corporation and to Mr. William E. Levis, and a group of individuals represented by him, of an aggregate of 40,000 shares of the common stock of the corporation at a price of $25 per share.

The chairman also advised that in such negotiations it had been considered that the corporation would also offer for subscription to its stockholders rights to subscribe, at the same price, namely, $25 per share, sufficient shares of new

common stock to give each present common stockholder the right to subscribe for one new share of common stock at the price of $25 per share for each 10 shares of stock now held, which would call for the offering to stockholders of an aggregate of 27,591 additional shares.

He stated that it was not proposed that the 40,000 shares to be issued to the Illinois Glass Consolidated Corporation, Mr. Levis and his group, would be entitled to participate in such rights to subscribe.

Now, after having heard that extract from the minutes read; do you recall that in connection with the very negotiations you had been conducting in behalf of your corporation to sell to Mr. Levis and his corporation and his group the 40,000 shares of your stock at $25 per share, it had also been decided upon to offer 27,591 shares to your stockholders at the same price of $25 per share? Mr. PORTER. Yes, sir.

Mr. PECORA. And both decisions were part and parcel of the negotiations with Mr. Levis and his group, weren't they? Mr. PORTER. That is right.

Mr. PECORA. Well, in view of that fact why didn't you conclude to sell all those 67,591 shares directly to your stockholders, giving them the benefit of subscribing for the shares at $25 per share, when the shares of your company were selling at around $31 in the market?

Mr. PORTER. Because, as I previously stated, it was the judgment of our board of directors that we could not make such an offering or rather that if we made such an offering it would probably not be taken up by the stockholders.

Mr. PECORA. Well, the 27,591 shares were all subscribed for by your stockholders, weren't they?

Mr. PORTER. They were. But if there hadn't been this sale of the block of 40,000 shares made to outside parties, with fresh capital coming into our company, it was very doubtful whether any further shares would have been taken by our existing stockholders; and, of course, stockholders do not subscribe to rights unless there is a prospective profit or advantage in it.

Mr. PECORA. Of course not. But when the stock was selling for around $30 or $31 a share at the very time the stock was offered to stockholders at $25 per share, had you any reason to believe the stockholders would not have availed themselves of their rights and subscribed for all of those shares?

Mr. PORTER. There is no guarantee of such a thing, Mr. Pecora. And I think we had to give them practically 30 days in which to avail themselves of that right, and inasmuch as market fluctuations are apt to be very wide, as we know, had there been any decline in the period between the board meeting and the necessary authorizations and notices that would have had to be mailed, and the time that would elapse before they had to make a decision, if the market had declined in that time, the stockholders probably would not have taken even the 27,591 shares offered.

Mr. PECORA. Well, apparently at the period in those negotiations between Mr. Levis and his group and the company, it was perfectly safe to offer to the stockholders the 27,591 shares at $25 per share. Mr. PORTER. It was safe, yes; but there was no assurance that they would take them had the market gone back, and they probably would not have done so. You must bear in mind that we were trying to

accomplish something that would meet the conditions existing at the time, when we had bank loans of upwards of one and a half million dollars, and that

Mr. PECORA (interposing). In connection with that please bear in mind the statement made to the board of directors at this meeting, which I have read, which was that this additional stock was to be issued in order to enable the company to expand its business, not to pay off any maturing bank loans.

Mr. PORTER. Well, if you will carefully read that statement you will also see that it refers to the annual report made to stockholders, which was very complete, which gave a complete exposition of our situation, and which was mailed late in March. We make a very complete annual report to our stockholders, not only a verbal report of the whole condition, but a financial statement, and that financial statement showed that we had very substantial bank loans. That annual report advised the stockholders, and that was following the election which had taken place in the fall of the previous year, and that the party which was placed in power by a large majority was committed to repeal; and we had to look forward to the possibility in the near future of repeal of the prohibition amendment. We therefore would try to prepare ourselves financially for an expansion of our activities. The first step necessary in expansion would be to relieve ourselves of our bank loans.

Mr. PECORA. Now, that is not what the term "expansion " usually means, is it?

Mr. PORTER. Most certainly, sir.

Mr. PECORA. When you raise capital for expansion purposes you are not raising it to pay off maturing loans.

Mr. PORTER. We certainly would not have been permitted by the bankers to have expanded until we discharged our current obligations. We were borrowing money on open account, that is, on 90 days, or 30 days, or 60 days, and this sale of those 40,000 shares, which was a firm sale, produced a million dollars. Now

Mr. PECORA (interposing). But this firm sale did not become a firm sale until April 28, did it?

Mr. PORTER. That is correct.

Mr. PECORA. And that was the date that the offer was made to the stockholders of the 27,591 shares.

Mr. PORTER. That is right.

Mr. PECORA. Did it occur to you that by issuing and selling on private terms to Mr. Levis and his group the 40,000 shares at the same time you were offering the 27,591 shares to your stockholders, that you might be prejudicing the value of the stock to the stockholders, I mean by the issuance and sale of the other 40,000 shares? Mr. PORTER. That was very thoroughly discussed, yes, sir. Mr. PECORA. And what conclusion did you come to?

Mr. PORTER. This was the conclusion we reached, the one adopted. Mr. PECORA. That it would not prejudice the stockholders, do you mean?

Mr. PORTER. We have on our board, who were familiar with this matter, some of the large holders of the stock, and the thing was very thoroughly discussed.